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Cedar Fair, L.P. (NYSE:FUN)

Q2 2011 Earnings Call

August 3, 2011 2:00 PM ET

Executives

Stacy Frole – Director, IR

Richard Kinzel – Chairman and CEO

Matthew Ouimet – President

Brian Witherow – VP and Controller,

David Hoffman – VP, Finance and Corporate Tax

Analysts

Scott Hamann – KeyCorp Investment Banking

James Hardiman – Longbow Research LLC

Timothy Conder – Wells Fargo Advisors LLC

Michael Walsh – Wells Fargo Advisors LLC

Colin Murphy – Longacre Fund Management

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Cedar Fair Second Quarter Earnings Conference Call. During today’s presentation, all parties will be placed in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today Wednesday, August 3rd of 2011.

And I would now like to turn the conference over to Stacy Frole, Director of Investor Relations.

Please go ahead ma’am.

Stacy Frole

Thank you, Michaela. Good afternoon and welcome to our second quarter earnings conference call. I’m Stacy Frole, Cedar Fair’s Director of Investor Relations. Earlier today, we issued our 2011 second quarter earnings release. A copy of that release can be obtained on our corporate website at www.cedarfair.com or by contacting our Investor Relations offices at 419-627-2233.

On the call this morning are Dick Kinzel our Chief Executive Officer and Matt Ouimet our President, Brian Witherow our Vice President and Corporate Controller and Dave Hoffman our Vice President of Finance and Corporate Tax are also with us and will be available during the question-and-answer portion of today’s call.

Before we begin, I need to caution you that comments made during this call will include forward-looking statements within the meaning of the Federal securities laws. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. You may refer to your filings by the company with the SEC for a more detailed discussion of these risks.

In addition in accordance with Regulation G, non-GAAP financial measures used on the conference call today are required to be reconciled to most directly comparable GAAP measures. During today’s call, we will make reference to adjusted EBITDA as defined in our earnings release. The required reconciliation of adjusted EBITDA is in the earnings release and it’s also available to investors on our website via the conference call access page.

In compliance with SEC Regulation FD, this webcast is being made available to the media and the general public, as well as analysts and investors. Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed.

Now I’ll like to turn the call over to, Dick Kinzel.

Richard Kinzel

Good afternoon and thank you for joining us on the call today. We appreciate your interest in Cedar Fair and we look forward to further enhancing our communications with you and expanding our Investor Relations outreach through 2011 and beyond.

As we are moving forward with our leadership succession plan, today’s call will be slightly different than in the past. As usual, I will update you on our results for the second quarter as well as a more part review of attendance and revenue trends through this past weekend. Matt Ouimet, our new President who joined Cedar Fair a little over a month ago will discuss his experiences over the past month and future outlook for the company.

And finally, Brian Witherow our Vice President and Corporate Controller will discuss the second quarter and six months’ financial statements in more detail. At that point, we will open up the call for your questions and comments. As you can see from today’s earnings release, results for the second quarter of 2011 are quite strong and it remained strong into the peak vacation month of July.

Based on our performance through this past weekend, we are on target for another solid year and quite possibly a record performance following last year’s record results. For the quarter, revenues were up 3% due primarily to increases in both attendance and average in-park guest per capita spending.

The strongest region this quarter was our western region where our parks in California reported an increase of more than 10% in revenues, a result of both higher attendance and average in-park guest per capita spending. Revenues in our northern and southern regions remained comparable with the second quarter of last year.

Looking at our more recent results for the month of July, we have experienced increases in all areas of our business including a 314,000 visit or 5% increase in attendance, a 2% increase in average in-park guest per capita spending and a 3% in increase out-of-park revenues.

The strength at all aspects of our business has resulted in a total revenue increase of 4% or $24 million through the end of July. I’m particularly pleased that July was strong as it was given the heatwave many of our parks experienced. These favorable trends are a direct result of our innovative marketing campaigns including a renewed focus on seasons pass sales in the western region along with a strong capital investment program.

In June, we introduced WindSeeker, a 301-foot tall thrill ride and our three largest seasonal amusement parks, Cedar Point at Sandusky, Ohio, Kings Island near Cincinnati, and Canada’s Wonderland near Toronto. Knott’s Berry Farm, our only year-around property is scheduled to introduce the same thrill ride to its customers any day now.

This premier ride with the state-of-the-art lighting package contribute us to the skyline of all of these properties and assures to be a signature thrill ride for many years to come.

This year we have also continued to roll out – the roll out of our Planet Snoopy children areas. These areas are providing to be very popular with our smaller and highly influential guests at Dorney Park, Worlds of Fun, and Valleyfair, our park located in Charles Schulz Home, State of Minnesota.

In 2011, we placed an additional focus on revenue generating attractions such as Dinosaurs Alive! the world’s largest collection of animatronic dinosaurs at Kings Island and the introduction of several restaurants at Cedar Point. These attractions added and additional activities have also contributed to the increase in in-part guest per capita spending. Our innovative marketing campaigns have been designed to get attendance off to a quick start, which we clearly have seen – been successful in doing.

Our promotions are focused on creating urgency improving attendance in certain categories such as seasons pass and group sales events and driving traffic to the park during specific periods and in markets where we believe it will be the most effective.

Our buy-in-advance campaign which has been introduced over the last several years continues to do well. For example, our campaigns in the western region placed a renewed focus on our seasons pass customers at California’s Great America and continued our momentum from last year at Knott’s Berry Farm. This region also reported strength in group business attendance through this past weekend a result of a more renewed and targeted sales program.

The combination of our leading edge properties and innovative marketing efforts, our ability to generate significant cash flow and an improved capital structure will support our plans to grow the value of our company over the long-term. As we have announced, we are acquiring two valuable parcels of land adjacent to Dorney Park at Carowinds in the third quarter. Both purchases will allow future developments and expansion targeted at market opportunities.

Going forward, the fundamentals that have made us the most successful regional amusement park company in the world remain the cornerstones for our continued success. Delivering a high quality guest experience is not a new theme or idea for us.

We have always been proud of our reputation in this area and the proven loyalty of our guests supports this. It is the basics of our service, safety, courtesy and cleanliness along with innovative new rides, shows and the total sum of what the park offers that turn more than 80% of our guests into repeat visitors.

With almost 45% of our planned seasonal attendance still to come, we remain confident that the positive momentum we have experienced through the month of July will continue into the next peak vacation month of August and the important fall season, which we have been successfully cultivating for several years.

At this time, based on preliminary July results, we continue to expect we will achieve our 2011 guidance of net revenues of between $975 million to $1 billion and full year adjusted EBITDA between $350 million and $370 million.

As mentioned in today’s earnings release, the Board of Directors declared a $0.12 quarterly distribution payable September the 15th. With our strong results through July and our outlook for the remainder of the year, we are on track to pay the $1.00 in distributions to unit holders in 2011, as our focus on increasing the distribution remains a high corporate priority.

With the $0.12 distribution in September, will have paid $0.30 in distribution so far this year leaving an additional $0.70 in distributions targeted to be paid in the fourth quarter of this year.

While the past several months have been busy for us from an operational standpoint, we have also made excellent progress in solidifying our management team and Board leadership for the future. First, I am pleased to welcome Gina France to Cedar Fair. Gina was recently elected to our Board of Directors at our annual meeting of unit holders and will serve as the chairperson of our audit committee. She is our fourth new independent director since 2008 and brings more than 30 years of strategic planning, investment banking and corporate finance experience to the position. We are excited to have the opportunity to work with Gina, who I believe will bring a fresh independent perspective to our organization and provide valuable guidance and consult for Cedar Fair in the years to come.

Next, I have the pleasure of formally introducing you to our new president, Matt Ouimet, who joined Cedar Fair about a month and a half ago and will become the Chief Executive Officer by my retirement in January. Matt brings 20 years of experience in the amusement park and hospitality industry and I know we are impressed with his insights and vision for the future.

He has already performed property reviews at all, but three of our parks at this point and it is obvious that his experience and instincts align well with our culture and our future needs. I look forward to continuing to work with Matt over the coming months to ensure a seamless leadership transition.

Matt, I know you’d like to say a few words. So, I’ll turn the call over to you.

Matthew Ouimet

Thank you, Dick. As I’d mentioned to many people over the past 45 days, I’m particularly pleased to be able to say that what I saw from outside the company has been rightly validated. Cedar Fair’s reputation for delivering a high value quality guest experience is well deserved.

The disciplined approach to operation management is on par or better than anything I’ve seen throughout my career. As, Dick mentioned, I’ve already visited 8 of our 11 amusement parks in each case I was impressed with the scale and quality of the assets that are owned and operated by Cedar Fair.

As you would expect, each of the parks is unique in terms of the many variable – in terms of many variables and I’d appreciated local management’s insight into the opportunities and challenges of each market. I have been accompanied on these visits by our two Executive Vice Presidents Richard Zimmerman and Phil Bender.

Both long-term veterans in the amusement park industry. Their experiences from both inside and outside of Cedar Fair have already proven extremely valuable to me as we start to look at our plans for the future.

I’ve also spent considerable time with Brian Witherow our Vice President and Corporate Controller and Dave Hoffman our Vice President Finance and Corporate Tax. Both are on the call with us today. They have helped me get a better understanding of the company’s substantial cash flow and have begun to consider the alternatives for allocating these funds to maximize value to our unit holders.

As you’d expect, these options include reinvesting in our business to increase cash flow, progressive repayment of debt to increase our financial flexibility and enhance distributions to our unit holders.

In regards to the distributions, as, Dick referenced earlier, we intend to pay $1.00 in distributions in 2011 and expect to double this to $2.00 or more in 2013. I share the Board’s commitment to this strategy though we remain confident in the strength of our properties and the ability to generate a significant amount of cash flow going forward.

While it is too early for me to begin providing specifics on our long-term strategy, I can share with you some of my initial areas of focus.

First, there are certain fundamentals to the success of our business and those will not change. As I mentioned previously, disciplined execution that ensures a great guest experience is the foundation, not only for us, but for our industry. Safety, service, friendliness and courtesy are and will continue to be our cornerstone.

The effectiveness of next year’s marketing messages and promotion as well as our ability to increase per caps are all correlated to the experience we provided when families visited our parks or when someone tweeted their friends after they rode Top Thrill Dragster. Second, understanding our consumer and those I call the why nots.

When we have more than 22 million visitors, you can often make the mistake of talking about them as if they are a monolith. The reality is a more disciplined segmentation of our current guests into contemporary actionable buckets will allow us to optimize their experience and (inaudible) and will further support increases in per caps as we separate those where price is the primary driver from others who are motivated differently.

It’s also important for us to understand why someone who on the surface appears to be very much our target market is not responding. In this regard, I want to assure you that Cedar Fair will continue its emphasis on the family and the thrill seeker markets.

While we entertain millions of young adults who come with friends, we are fortunate to have a strong base of families with children of all ages as well as in many cases three generations walking the midway together. In my experience the family audience represents greater profitability per customer and supports an in-park experience that all can enjoy.

In summary on this point, by paying close attention to what motivates each of our visitors to return I am convinced we can achieve profitable top line growth while still retaining the strong price value relationship we have today.

Third, optimizing our total guest acquisition cost. The combination of marketing, sales, discounts and marketable capital spending is what drives our top line and ultimately our free cash flow. You should not read optimizing as reducing what we spend today but rather driving greater profitability with the same dollars.

With the appropriate combination of creativity, analytical discipline and innovation, we can continue to make our parks, authentic, aspirational and acceptable. Finally our team has begun to identify potential growth initiatives that will benefit our existing parks. As we own 100% of our operations and many have undeveloped adjacent land parcels, it is building us to drive both direct value and admission synergy exists.

As we announced earlier this week we recently acquired 61 additional acres adjacent to Carowinds, our property in Charlotte, North Carolina which will offer expansion as well as additional high visible signage opportunities to promote the park.

I recognize that it is important for me to get to know all of you in the financial community. Stacy is in the process of setting up meetings with many of you in the next few weeks, and I look forward to those meetings and hearing your thoughts first hand. I will also mention that we have hired Spencer Stewart to conduct a national search for a new Chief Financial Officer and expect to fill that position by year-end.

In the meantime, I am confident our strong finance team led by Dave and Brian. I would like to end my prepared remarks by letting this audience know that I appreciate having another few months with Dick’s daily counsel. It simply could not have gotten up to speed so quickly without both his unselfish sharing of his knowledge and his encouragement.

I will now turn the call over to Brian Witherow to cover the financial portion of today’s call. Brian?

Brian Witherow

Thanks, Matt. First, I want to emphasize that virtually all of the revenues from our seasonal amusement parks, water parks and other resort facilities are realized during 130 to 140-day operating period beginning in the second quarter with the majority of revenues concentrated in the third quarter during the peak vacation month of July and August. Only Knott’s Berry Farm and Castaway Bay are open year-around, and both of those properties also operated their highest level of attendance during the third quarter.

Thus, I’ll caution you that it’s always risky to jump to any conclusions about full-year results based on second quarter numbers alone. As of last Sunday, approximately 45% of our operating season is still yet to come. Overall, our results for the second quarter were in line with our expectations. Net revenues for the quarter ended June 26th were $284.5 million representing a 3% increase over last year’s $275.6 million.

This reflects a 93,000 visit increase in attendance which was led by our western region. It also reflects a 4% increase in out-of-park revenues including our resort hotels and a 1% increase in average in-park guest per capita spending across all of our regions.

As, Dick mentioned earlier the improved attendance was largely due to an increase in season pass visits. The improvement in guest per capita spend is a direct result of the innovative marketing programs Dick mentioned combined with investments focused on increasing the spending of guests while they visit our parks.

Operating cost and expenses for the quarter were $189.3 million, representing a decrease of 2% from last year. This is the net result of a $761,000 increase in cost of goods sold, a $4 million increase in operating expenses and a $7.9 million decrease in selling, general and administrative cost.

The increase in operating expenses is primarily attributable to timing differences of certain maintenance cost and purchases of operating supplies in the second quarter when compared with this time last year as well as higher seasonal wage costs. The timing variances in maintenance cost and operating supplies are expected to be largely offset in the third quarter of the year.

The decrease in SG&A cost in the period principally reflect the impact of cost from the terminated merger and our debt refinancing efforts during the second quarter of last year. These prior year costs were somewhat offset by legal and professional costs incurred in the current quarter including cost for SEC compliance matters related to special meeting requests during the second quarter of 2011.

Those of you who regularly follow our results know we believe adjusted EBITDA or earnings before interest, taxes, depreciation, amortization other non-cash items and adjustments as defined by our credit agreement provides meaningful insight into our operating results since we use it for budgeting purposes, cash flow analysis, and to measure park level performance. Because it’s important to us, we make a point of sharing with investors.

For the second quarter, adjusted EBITDA increased 4% to $95.9 million. The increase in adjusted EBITDA is primarily attributable to the strong revenue and attendance trends experienced by our parks in the second quarter. After depreciation, amortization and other non-cash costs, operating income for the quarter was $52.4 million, an increase of more than 35% when compared with operating income of $37.8 million for the second quarter of 2010. Interest expense for the quarter increased $9.4 million between years to $42.2 million. This increase is primarily due to higher interest rates as a result of our July 2010 debt refinancing and the February 2011 amendment to our credit agreement.

During the second quarter, we reported a tax provision of $3.8 million to account for publicly traded partnership taxes and the tax attributes of our corporate subsidiaries. This compares with a tax provision of $7.2 million last year.

The year-over-year variation in the tax provision reported in the second quarter is primarily due to a lower estimated annual effective tax rate, which was impacted by lower expected foreign taxes for 2011. We expect our full-year actual cash taxes to be in the range of $8 million to $10 million for 2011.

After interest expense provision for taxes and a minimal non-cash benefit to income for the net effect of swaps, net income for the second quarter totaled $4.7 million or $0.08 per diluted limited partner unit compared with a net loss of $4.2 million or $0.8 per unit in 2010.

Now, onto more current results, positive revenue and attendance trends have continued through July. On a year-to-date basis, total revenues are up approximately $24 million or 4% year-over-year through the end of July. Consistent with our second quarter results, improved attendance and average guests per capita spending contributed to the increased revenues.

During this past weekend, our parks have entertained approximately 13.8 million guests representing a 3% or 378,000 visit increase over the first seven months of 2010. Out-of-park revenues over the same period increased approximately $2 million or 3% while average in-park guests per capita spending was up 1%.

With respect to both liquidity and capital resources, we ended the quarter in sound condition. Our receivables and inventory levels are – inventories are at normal seasonal levels and we have credit facilities in place to fund current liabilities, capital expenditures and operating expenses as needed. Partner’s equity totaled $52.2 million and our total cash on hand was $35.7 million at the end of the quarter.

Our current debt structure at the end of the quarter consists of approximately $1.2 billion of variable rate debt before giving consideration to fixed rate swaps we have in place, $400 million of fixed rate debt in the form of our bonds and 85 million in borrowings under our revolving credit facilities. I will note that the revolver was fully repaid as of July 25th.

For the full-year, we expect to pay approximately $150 million in cash interest costs in 2011. We expect these costs to decrease to between $100 million to $115 million in 2012 and beyond with the expiration of several interest rate swaps over the next seven months.

Now, I’ll turn the call back over to, Dick.

Richard Kinzel

Thanks, Brian for that report and thank you Matt for your kind words, all the energy and added perspective; you’ve already infused into the organization. I can now begin to tell you the number of calls they have received over the past few weeks from colleagues from across the country to tell me how impressed they are with you and how excited they are about working with you going forward.

And now, we will open up the call for any questions or comments you may have.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Scott Hamann from KeyBanc Capital Markets. Please go ahead.

Scott Hamann – KeyCorp Investment Banking

Hi, good morning, everyone and Matt I just want to extend my welcome aboard and look forward to working with you.

Matthew Ouimet

Thank you, Scott.

Scott Hamann – KeyCorp Investment Banking

Just on the land purchase announcement, obviously second one you’ve done seems like there are some opportunities emerging. Can you kind of just talk about maybe the structure of your thoughts around this strategy? Are there other opportunities? Is this going to be more of a hotel? Is it going to be rides? Is it going to be potentially a partnership agreement with someone else and kind of how you’re thinking about deploying some of that capital going forward?

Matthew Ouimet

Fair question, Scott. I will tell you with the difference again to the 45 days of insight at this point. All of the above are considerations for us, but the answer to this is going to be making sure that whatever we do on the adjacent land benefit the existing infrastructure we have in place in those parks. And I used the term earlier today, I call the vision synergy and that’s the idea that whatever we do with this land again lets us leverage the investment we already have in the parks.

Scott Hamann – KeyCorp Investment Banking

Okay, fair enough. And then just, Dick on, could you elaborate on the term you used on new pricing initiatives in the outlook paragraph of the release and kind of does that mean that you’re talking a little bit of price here in the back of the year and also just help out with the investments that you have been making to enhance in-park spending?

Richard Kinzel

Sure, as far as the pricing initiatives, we have raised prices at appropriate times especially at the four big parks when the WindSeeker opened while we took that opportunity to raise prices. The initiatives we made inside the park for per capita spending, we added the things to Cedar Point plus we added several carts within the parks and basically just modified menus throughout the whole system, but we do that on a yearly basis.

Out-of-park revenues, we did open a Dairy Queen which I can add it’s been very, very successful for us. The opening weekend, it set a record for the Dairy Queen system for sales so that’s doing very well for us, so all-in-all in-park per capita spending is doing fine. I can tell you that because of this feat that has had some effect on per capita spending, but it still has increased. People just spend less money in the water parks and that’s where we’re driving them to is the water parks so that is having somewhat of an effect on per capita spending, but I’m pleased to say that it is increased over last year.

Scott Hamann – KeyCorp Investment Banking

Okay. And the just finally on operating days for the July period year-over-year, were those pretty similar?

Richard Kinzel

Yes, I believe they are – I think for the total year I think we’re down 4 days from last year relief July because of the word falls. So I believe the same number of operating days comparable.

Scott Hamann – KeyCorp Investment Banking

Okay. Great thank you.

Richard Kinzel

Thank you Scott.

Operator

Our next question comes from the line of James Hardiman from Longbow Research. Please go ahead.

James Hardiman – Longbow Research LLC

Good afternoon and thanks for taking my call, congratulations on what sounds like a pretty good start to the year. My question is on sort of the guidance and obviously you don’t want to get ahead of yourself, but it sounds like year-to-date sales were up 4%, August seems like you guys are pretty confident that that’s going to be a good month. You’ve got a WindSeeker coming online at Knott’s Berry Farm and yet your guidance seems to suggest really throughout the guidance, it looks like it’s down a little bit to up just 2% at the high end that’s the top line guidance in particular which would basically imply pretty bad finish to the year.

Is that just you guys being conservative? It sort of sounds like your outlook in terms of – or you’re feeling towards the rest of the year and some of the numbers in the guidance don’t necessarily foot, can you speak to that a little bit?

Matthew Ouimet

Yes, it’s a combination of both things which you talked about, James. We have always been very conservative in our projections, but just as a reminder, when we went into September and October last year we had a tremendous, we had tremendous weather, we saw all kinds of attendance records and all kinds of revenue records and it’s going to be very, very difficult to duplicate that in 2011, so we gave ourselves a little bit of a window there and certainly we’re optimistic that we could set a record as I stated in prepared remarks, but we still have to be cautious that – that we could have bad weather in September and October because October has turned out – is a very powerful month for us.

James Hardiman – Longbow Research LLC

Okay. And so tough comparisons from a weather perspective, but there is no big calendar shifts that we should be worried about in the back half of half of the year?

Matthew Ouimet

No, none whatsoever. Especially the two things that you pointed out as a conservative approach and it’s also – it’s just hedging a little bit on the weather.

James Hardiman – Longbow Research LLC

Gotcha. And then on the interest expense, you guys did the amendment to the credit agreement in the first quarter, which I through was going to bring interest expenses down and yet they went up, it looks like in the second quarter sequentially, can you help us figure out how that sort of went in that direction?

David Hoffman

James, this is Dave Hoffman. And so as it relates to interest expense, as we said, we expect interest expense to be $150 million and then declining over time. The interest expense includes the effect of some hedges which of course we have about $1 billion worth the hedges that expire later in the year and those have been replaced with $800 million worth of hedges that fix rates going forward and so the $800 million basically gives us the interest expense for the period.

James Hardiman – Longbow Research LLC

And so I just want to make sure I understand that properly. mean, ultimately the same hedges are going to be in place for the third quarter as we’re in the second, so are the interest numbers going to be pretty comparable for the third quarter as well nothing is really changing here prior to the October expiration of your swaps, is that how I should think about that?

David Hoffman

I think that’s right.

James Hardiman – Longbow Research LLC

Okay. And then just a couple of other quick modeling questions, you talked about timing differences in terms of maintenance costs, looks like operating expense is up about $4 million should we – it sounds like you are leading us to suggest that maybe there is $4 million reversal of that in the third quarter. Is that how I should think about that or is the magnitude still a little bit uncertain?

Matthew Ouimet

I would be very comfortable to say I think we could make that up. We had some early season maintenance problems, we had to accelerate some expenses, but we feel we could make that up as we go later into the season.

James Hardiman – Longbow Research LLC

Okay, great. And then just last question, I know it’s always tough from a tax perspective to forecast. It seems like you’re making a distinction between the cash taxes and the tax rates for the perks which is of the income statement. Are there any reasons why those would be meaningfully different and then just any help on the split of taxes between the third quarter and the fourth quarter?

David Hoffman

Yes, this is Dave Hoffman again thanks for that question. There really is a difference between the reported tax provision number which takes into account not only the current taxes, but deferred taxes as well and the cash tax number.

The cash tax number is $8 million to $10 million a year largely from PTP taxes and those tend to be sort of weighted towards the back half of the year with all of our performance. So there definitely is a difference between the reported provision and the cash taxes, but the real focus – we focus on the cash taxes, which is $8 million to $10 million a year and we would expect that to be consistent for the next couple of years.

Operator

Our next question comes from the line of Tim Conder from Wells Fargo Securities. Please go ahead.

Timothy Conder – Wells Fargo Advisors LLC

Thank you, and Matt let me also join and welcome you aboard, look forward to meeting you here shortly.

Matthew Ouimet

Thanks, Tim.

Timothy Conder – Wells Fargo Advisors LLC

A couple of questions gentlemen. Number one, regional park competitors talked quite a bit about how they’re doing more, let’s call it pricing for the season looking at maybe taking only promotions say on soda cans or other types of promotions in the shoulder periods and then trying to get the forward price throughout the heart of the July-August period. Your comments on – or your approach and how you’re able to implement anything like that this year and what you’re seeing in the marketplace would be my first questions, and then I’ll come back and ask the second question.

Richard Kinzel

Thanks, Tim, this is Dick. We set our pricing structure – our business model for the season at the beginning of the year, and we do have price increases during the season, but certainly we also play the market, in fact, if we feel that the market won’t warrant an increase, we don’t do it.

With the Internet the way it is and with our website the way it is, it’s very, very easy to get a discount into the hands of our seasons pass holders or into potential visitors very, very easily and we certainly take advantage of that. We’re not really heavy under cans that sort of faded out a couple of years ago, but we certainly watch the markets every week, we look at our attendance on a daily basis where it’s coming from and then both Matt and I get a summary every week of the categories where we’re strong and where we’re weak and decisions are made going forward if we have to put promotions into to draw that segment of the audience.

Timothy Conder – Wells Fargo Advisors LLC

I guess the root of the question there Dick is do you see that being implemented by the industry and then therefore helping not only yourselves but the overall industry at this point?

Richard Kinzel

Tim, we’ve always offered discounts in the shoulder seasons versus the peak seasons, is that what you’re getting to? Could you just repeat your question one more time?

Timothy Conder – Wells Fargo Advisors LLC

Again I guess, one of your major competitors are saying that they are doing more dynamic pricing similar to what you’re outlining, even less discounting than it has been done historically in the peak period. So I guess if that’s being true from their perspective, I would think that especially in markets where you overlap that could also be giving you some benefit and again just wanted your perspective on that?

Richard Kinzel

That’s true. We’ve always discounted before school gets out and before the family business comes of the shoulder season, we’ve always discounted then and then during the peak season, we’ve stuck more to our rack rate. So that’s just a policy we’ve always followed, Tim. It’s really nothing new for us.

Matthew Ouimet

Hey, Tim, this is Matt. I think what you’re referring to is the leverage that I am used to seeing in other applications and those do exist here. I think they have been around, it’s here – been for a while.

They don’t talk about them as much. But back to my prepared comments, a little bit of what I was referring to, if you will, when I talked about segmenting in our audience a little more in a more disciplined way is exactly around understanding which of those levers to pull at which time and the data we get now routinely I would say at least weekly, if not daily is going to allow us to do that as precisely as I’d say I’ve had in my past.

Timothy Conder – Wells Fargo Advisors LLC

Okay, gentlemen. The other question I would have then is with the backdrop of the improving fundamental that you have on the business side and the corresponding cash flow, I think the way the credit agreements and so forth reach read there is a technical ability for you, if you so desire to accelerate the distribution via borrowing part of it. How do you feel about that and would you look to do that or is that in anyway factored into your outlook to get to $2.00 or better in the distribution by ‘13?

David Hoffman

This is Dave Hoffman again. That’s a fair question and we’ve begun to talk about the difference between capacity under the credit agreement and ability from cash flows. So given the strong results we’ve had, we’ve already said a couple times in the call that we’re very comfortable that we’ll meet our target of a $1.00 per unit during 2011 growing to $2.00 and more by 2013 and we’ve mentioned on prior calls and other information that we would look for a range between $1.35 and $1.65 in 2012.

You are right that we can manage those to some extent with additional borrowings, but those are basically the targets that we have right now. Obviously, as I am sure you are aware that the capacity for 2012 distributions is based upon our results effectively at the end of 2011, we expect to end the year under 4.5 times consolidated leverage and under 3.5 times senior leverage. And so that allows us to have payments in 2012 and forward above the $20 million unrestricted basket and that gets us right within that range, I mentioned.

Timothy Conder – Wells Fargo Advisors LLC

Okay. But at the end of the day, I guess, are you guys open to or considering using a little bit of borrowings for that distribution or just like what’s – let’s continue to de-lever here and truly pay the distribution out of the cash flow?

David Hoffman

Well I guess what I would say is – the good news is that except in the past few years, the business is growing beyond the restricted payment limitations in the credit agreement. And so over the next year or so, assuming that we have continued strong performance, we’ll be able to focus on growing unit holder value through investing in the business as well as a growing distribution without the significant limitations from our credit agreement.

So, with that being said, just to sort of reiterate the $1.35 and $1.65 and $2.13. At the end of the day, I don’t know that we would borrow significantly to pay distributions.

Timothy Conder – Wells Fargo Advisors LLC

Okay, fair. Thank you very much.

Operator

Our next question comes from the line of Michael Walsh from Wells Fargo. Please go ahead.

Michael Walsh – Wells Fargo Advisors LLC

Hi, just one quick follow-up on Tim’s questioning, I think the Canadian swaps fire in February of 2012. I think in the past you guys had mentioned you’d probably pay out $48 million. Where does that sit today, where do you guys think the estimate is going to be?

Brian Witherow

Yes, well given the strengthening dollar those numbers have fluctuated a fair bit. Right now, we think that the net termination payment amount is in the range of about $55 million.

Michael Walsh – Wells Fargo Advisors LLC

Okay, great. Thanks guys.

Operator

Thank you. The next question comes from the line of (inaudible) from Deutsche Bank. Please go ahead.

Unidentified Analyst

Hi, guys congratulations on a great quarter and welcome to Matt.

Matthew Ouimet

Thank you.

Unidentified Analyst

And quick question for you guys. Matt do you – I know you’ve been seeing all these parks in the past couple of months and are you seeing any areas of opportunity in terms of revenue such as introducing a fast pass systems or I should say reintroducing kind of a fast best system here which could grow revenues?

Matthew Ouimet

Yes, so what I will say to you is a little bit back to my prepared comment. I think we have got to provide consumers the option based upon what motivates them most whether it be premium feature out of ticket or a discount. And so as I have been going around the individual parks, what I’m trying to understand better is kind of that optionality we have as it relates to features on our ticketing, so I don’t want to go into specifics on this call, but there are some opportunities out there.

Unidentified Analyst

Wonderful. And are you guys looking for more JV opportunities such as the one in Kings Island, how should we be looking at that?

Matthew Ouimet

The dinosaurs for us had been a very favorable opportunity. I think it provides a very attractive offering particularly for our younger audience and their grandparents which is what I see a lot of it in the parks. And it’s a successful joint venture because as you mentioned for relatively low capital, we did a very good return on our investment. Should we come across more ideas that are as compelling as that one, we will certainly pay attention to them.

Unidentified Analyst

Wonderful. Given the excess land you hold across your portfolio, all right, thank you guys.

Operator

(Operator Instructions) Your next question comes from the line of Colin Murphy from Longacre Fund Management. Please go ahead.

Colin Murphy – Longacre Fund Management

Thanks guys, and congratulations on a great quarter. Just had a couple questions here, the first is do your part level manager actually have discretion over capital allocation?

Richard Kinzel

Actually we have a planning committee that involves the regional Vice Presidents of finance like all companies have. We meet every Thursday and what we do is we certainly get input from the General Managers as to what they need in their parks and our products are pretty well run autonomously, the General Managers are responsible once the capital is selected for them.

The General Manager is responsible for it that it comes in on time and on budget, however, the actual selection while we do take the input and take their ideas of the actual decisions come from corporate as to what exactly is going to go into that park. And as – if you’ve heard us talk in the past, we always try to allocate somewhere between $80 million and $90 million between the 11 properties and that enables us to put big attractions into two of our big parks every year.

Colin Murphy – Longacre Fund Management

And are the park managers themselves compensated on the results of that capital allocation?

Richard Kinzel

Yes, absolutely. One of the criteria that’s laid out for them besides setting an EBITDA number, per capita number is basically bringing the capital in on time and on budget.

Colin Murphy – Longacre Fund Management

Okay, great. And my last question is speaking of sort of customer segmentation in your $22 million customers, do you have even a rough breakdown it’d be very helpful in terms of guests, if you could break it down into children, teens or adults or however you do it sort of internal, but just the customer segmentation breakdown will be very helpful?

Richard Kinzel

No, we don’t – we just don’t have that. Sorry, Colin.

Colin Murphy – Longacre Fund Management

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of (inaudible). Please go ahead.

Unidentified Analyst

Hi, guys. Congrats on a great quarter. Just curious what you guys paid for the land if you’re disclosing that?

Richard Kinzel

Sure it was $62 million or $61 million.

Matthew Ouimet

No, 6.1.

Richard Kinzel

Oh, I’m sorry, for the 61 acres.

Brian Witherow

For the 61 acres it was roughly $2.6 million.

Unidentified Analyst

Great. Thank you.

Operator

(Operator Instructions). And we have a follow-up question from the line of James Hardiman from Longbow Research. Please go ahead.

James Hardiman – Longbow Research LLC

Thanks for taking my follow-up and I’m glad to hear you didn’t pay $61 million for the land there. Just real quick, thoughts on why the West Coast is doing so much better than the East Coast? Clearly you guys have made some investments in terms of new rides on the East Coast or at least the mid west, but it sounds like the West Coast is outperforming pretty meaningfully. Any insights as to why that’s the case and what that means for the back half of the year, if anything?

Richard Kinzel

Sure. I think two reasons, James, number one, we put a major emphasis on seasons passes at Knott’s Berry Farm. We started that last year and that has continued for us very successfully this year. We introduced that program at Great America and Santa Clara and that has taken off course just the way we thought.

And on the other side of it, we don’t like to use weather as an excuse, but we have had some very hot weather and actually some rain in the northern parts of the company. And so hopefully, we think we have more upside coming into August to be very honest with you. We think that the seasons passes have certainly helped us in the west, but we think we’ve been handicapped a little bit with the weather. We think we can make that up in August.

James Hardiman – Longbow Research LLC

Great, and just one last small question here, the compliance cost you guys talk about is associated with the special meeting requests during the second quarter, those are essentially behind us, we shouldn’t be modeling anymore of that going forward?

Matthew Ouimet

Yes, James. Those are behind us in the last six months. I hope that those will become de minimis if any going forward.

James Hardiman – Longbow Research LLC

Excellent, great. Thanks guys.

Operator

Thank you. And at this time I’m showing no further questions in the queue, I’d like to turn the conference back over to management for closing comments.

Richard Kinzel

Thanks, Michaela, and thanks everyone for your questions and your interest in Cedar Fair. You can be assured that the Board and management team will continue to make every effort to maximize the near and long-term value potential at Cedar Fair as a public company. We know that we are headed in the right direction 2011 and beyond and we have a sound business strategy in place to generate profitable growth.

We look forward to reporting our progress to you in the future and we always welcome your feedback and insights. And finally, I hope you and your families to have the opportunity to visit one of our – more of our parks this summer, so you can see firsthand the experience and the value we’ve been talking about.

Stacy, I’ll turn it over to you.

Stacy Frole

Thank you everyone for joining us on the call today. Should you have any follow-up questions, please feel free to contact me at (419) 627-2227. We look forward to speaking with you again in about three months to discuss our third quarter results.

Operator

Ladies and gentlemen, this does conclude our conference for today. We thank you for your participation. And you may now disconnect.

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