ITEM 3. LEGAL PROCEEDINGS
AGREEMENT SUSPENDING POTASH DUMPING INVESTIGATION
In March 1987, the U.S. International Trade Commission made a preliminary determination that there was a reasonable indication that the U.S. potash producers had been injured by imports of Canadian potash, assuming that Canadian potash had been "dumped" into the U.S. market at less than "fair value". On August 26, 1987, the U.S. Department of Commerce ("Commerce") determined on a preliminary basis that Canadian potash was, or was likely to be, sold in the United States at less than "fair value".
On January 8, 1988, Commerce signed a suspension agreement with all of the potash producers in Canada, suspending the dumping investigation by Commerce. The agreement stipulates that each producer's minimum price for potash sold in the United States is to be based upon a formula determined by Commerce for each producer that is designed to limit any dumping by that producer in the future. Compliance with the agreement is monitored by Commerce. The agreement can be terminated without termination of the suspended investigation if Commerce determines that sales are made below the price determined under the formula, producers having 15% or more of the total Canadian volume or value exported into the United States withdraw from the agreement, or the conditions of the agreement are otherwise not being met, in which case the suspended investigation could be resumed by Commerce.
CIVIL ANTITRUST COMPLAINTS
In June, 1993, the Company and PCS Sales were served with a complaint relating to a suit filed in the United States District Court for Minnesota against most North American potash producers, including the Company. The complaint alleged a conspiracy among the defendants to fix the price of potash purchased by the plaintiffs as well as potash purchased by the members of a class of certain purchasers proposed by the plaintiffs. The complaint sought treble damages in an unspecified amount and other relief. Similar complaints
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were filed in the United States District Courts for the Northern District of Illinois and the Western District of Virginia. On motion of the defendants, all of the complaints were transferred and consolidated for pre-trial purposes in the United States District Court for Minnesota. Amended complaints were filed in March and April 1994. On January 12, 1995, the Minnesota Federal Court granted the plaintiffs' motion for class certification. Merits discovery was completed in September 1995. Expert discovery was completed in November 1995. The Company and PCS Sales filed a motion for summary judgment on December 22, 1995. On January 2, 1997, Judge Richard H. Kyle issued an order granting the motions for summary judgment and dismissing the lawsuit. The plaintiffs appealed that order to the United States Court of Appeals for the Eighth Circuit, on January 31, 1997.
Additional complaints were filed in the California and Illinois State Courts on behalf of purported classes of indirect purchasers of potash in those states. The Company moved to dismiss the California State Court lawsuit for lack of personal jurisdiction and the court ruled that it does not have personal jurisdiction over PCS but that it does have personal jurisdiction over PCS Sales. The case remains at an early stage; no merits discovery has taken place. The Illinois State Court dismissed the Illinois State Court complaint for failure to state a cause of action. The Illinois plaintiff appealed that dismissal and that dismissal was affirmed by the Appellate Court of Illinois on November 27, 1996. On January 15, 1997 the appellate court denied the plaintiff's request for rehearing. The plaintiff has the right to petition the Supreme Court of Illinois to review the Appellate Court's decision.
FTC INVESTIGATION
PCS Phosphate received a letter dated October 2, 1995 from the Federal Trade Commission requesting certain information concerning its phosphate operations in connection with a non-public investigation being conducted by its Bureau of Competition. The investigation is described in the letter as being made in order to determine whether manufacturers of concentrated phosphates may have engaged in or are engaging in practices prohibited under the Federal Trade Commission Act. The Company cooperated in the investigation and responded to the government's requests for information. On November 21, 1996, an official of the Bureau of Competition advised the Company that the investigation had been closed.
BFI, INC. LITIGATION
On May 20, 1995 a complaint was filed by OxyChem against Bienville Forest Investments, Inc. ("BFI, Inc.") seeking conveyance of 365 acres of land from BFI, Inc., pursuant to an option to purchase reclaimed lands. BFI, Inc. counterclaimed against OxyChem seeking damages arising from alleged trespass, nuisance, interference with business relationships and fraud. BFI, Inc. also requested that the court require OxyChem to convey certain properties to BFI, Inc. that had been previously deeded by BFI, Inc. to OxyChem. White Springs moved to intervene as a party and the court granted the motion. BFI, Inc. has argued that the option is unenforceable on grounds including: (i) the option allegedly constitutes an unreasonable restraint on alienation or a violation of the rule against perpetuities; and (ii) enforcement allegedly is barred by the statute of limitations, by the doctrine of laches, or by estoppel. White Springs has similar options with respect to approximately 25,000 additional acres of land in which BFI, Inc., and/or its affiliates, has an interest. On August 22, 1996, White Springs, BFI, Inc. and Glawson Investments Corp., a BFI, Inc. affiliate ("Glawson"), signed a Settlement Agreement and a Letter of Intent for Operating Agreement. The agreements settle the dispute among the parties thereto as to current and future land ownership and use. The agreements also release White Springs from claims occurring after October 30, 1995, but do not release claims that occurred while OxyChem owned White Springs. Under the agreements, White Springs did not agree to release any of its rights to mine on any property; however, White Springs released future rights to purchase property in the Suwannee River mining area while acquiring the right to purchase immediately property in the Swift Creek mining area, and White Springs agreed to exchange with BFI, Inc. and Glawson certain properties, to make their respective holdings more nearly contiguous. White Springs was formally dismissed from the BFI, Inc. litigation on December 16, 1996.
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PCS NITROGEN LEGAL MATTERS
See Recent Acquisition of Arcadian Corporation -- PCS Nitrogen Litigation.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not Applicable.
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PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information under "Common Share Prices and Volumes" in the registrant's 1996 Annual Report is incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The information under "Selected Ten-Year Data" in the registrant's 1996 Annual Report is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information under "Manager's Discussion and Analysis of Financial Condition and Results of Operations" in the registrant's 1996 Annual Report is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and notes thereto in the registrant's 1996 Annual Report are incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under "Election of Directors" in the Proxy Circular for the Annual Meeting of Shareholders in 1997 is incorporated herein by reference. Information concerning executive officers is set forth under "Executive Officers of the Company" in Part I.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The information under "Executive Compensation" in the Proxy Circular for the Annual Meeting of Shareholders in 1997 is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under "Ownership of Shares by Directors and Executive Officers" and "Election of Directors" in the Proxy Circular for the Annual Meeting of Shareholders in 1997 is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under "Election of Directors" and "Executive Compensation" in the Proxy Circular for the Annual Meeting of Shareholders in 1997 is incorporated herein by reference.
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PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Lists of Documents Filed as Part of this Report
1. Financial Statements in Annual Report
2. Schedules
All Schedules are omitted because the required information is inapplicable or it is presented in the Consolidated Financial Statements or the notes thereto.
3. Exhibits
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IV-3
(b) No reports on Form 8-K were filed by the registrant during the last quarter of 1996.
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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.
POTASH CORPORATION OF SASKATCHEWAN, INC.
By: /s/ CHARLES E. CHILDERS ------------------------------------- Charles E. Childers Chief Executive Officer March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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EXHIBIT INDEX
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Item 1. Business
DESCRIPTION OF BUSINESS
General
Coachman Incorporated (the "Corporation") was incorporated on February 5, 1985, under the Laws of the State of Delaware. The Corporation sold shares to the public on August 13, 1987. The Corpora- tion has seven subsidiaries: Olympic Mills Corporation; Lutania Mills, Inc.; Back Bay Outfitters, Inc.; Caribbean Outfitters, Inc.; Resorts of the Americas Inc.; Innkeepers, Inc. and Coachman Inns of America, Inc. Back Bay Outfitters, Inc.; Caribbean Outfitters, Inc. and Resorts of the America, Inc. are now inactive as their operations were discontinued in 1995 and early 1996.
Acquisition of Olympic Mills Corporation and Lutania Mills, Inc.
On December 21, 1995 the Corporation purchased all of the stock of Olympic Mills Corporation ("OMC") and Lutania Mills, Inc. ("LMI") (together "Olympic Mills"). The business of Olympic Mills has become the primary business of the Corporation. On October 3, 1996; the sellers of Olympic Mills and the Corporation agreed to modify the terms of the acquisition agreement. Under these new terms, the acquisition of Olympic Mills has been deemed to have been consummated for financial reporting terms.
OMC, a Delaware Corporation, is a 46 year old vertical textile and apparel manufacturer located in Puerto Rico and LMI is a Puerto Rican Corporation which is an affiliate of Olympic Mills Corporation. Olympic Mills is Puerto Rico's leading producer of knitted underwear, tee-shirts and polo shirts. Trade names owned by OMC are Grana underwear, America Project (Registered) underwear and sportswear and Olympic Mills. In addition, Olympic Mills produces underwear for the U.S. Department of Defense. Currently, Olympic Mills produces 3,000 dozen tee-shirts and 2,000 dozen briefs, polo shirts and other products daily. OMC operates a cutting, sewing and distribution facility in Guaynabo, Puerto Rico and a subsidiary of OMC, Yabucoa Industries, Inc. ("YII") operates a cutting and sewing operation in Yabucoa, Puerto Rico. LMI operates a vertical textile mill in Humacao, Puerto Rico. These facilities, along with outside suppliers, are sufficient to supply the current sales and future expansion.
LMI, a Puerto Rico corporation was a development stage company during 1995 which was completing the construction and beginning operation of a vertical textile mill in Humacao, Puerto Rico. Early in 1996 the mill began production with full operations scheduled for 1997.
Olympic Mills
Olympic Mills, wholly owned subsidiaries of the Corporation, are a vertically integrated textile and apparel manufacturer in Puerto Rico. OMC is Puerto Rico's leading manufacturer of underwear, tee-shirts and polo shirts. OMC is classified as a "936 Company" under the U.S. Internal Revenue Code which generally provides that qualified income earned in Puerto Rico is partially not subject to U.S. taxation, subject to certain limitations. OMC is ranked 82nd in Caribbean Business' "Top 200 Puerto Rican Companies." OMC and LMI operate as subsidiaries of the Corporation and YII operates as a subsidiary of OMC.
Products. Olympic Mills has four basic product lines. All cotton knitted men's underwear, cotton and cotton blend knitted tee-shirts, cotton and cotton blend polo shirts and non-knitted sewn products such as pajamas and shorts. Trade names used by Olympic Mills include Grana (Registered) underwear, America Project underwear and sportswear and Olympic Mills. Olympic Mills knits, bleaches and dies most of the knitted fabric used by it and purchases non-knitted fabric from outside sources.
In 1996, the product mix of Olympic Mills business was underwear 59%, tee-shirts 24%, polo shirts 13%, panties 1% and other products 3%. Currently, Olympic Mills produces 3,000 dozen tee-shirts and 2,000 dozen briefs, polo shirts and other products daily. Olympic Mills operates a vertical mill in Guaynabo, Puerto Rico, a vertical mill in Humacao, Puerto Rico and a cutting and sewing operation in Yabucoa, Puerto Rico.
Customers. With the exception of underwear sold to the U.S. Department of Defense and a private label "big and tall" program, the majority of Olympic Mill's products were sold in Puerto Rico. Grana (Registered) underwear is sold to the general public through leading department stores, retailers and discounters such as WalMart (Registered) and K-Mart (Registered). America Project (Registered) tee-shirts are sold to screen printers who distribute printed shirts to retailers. America Project (Registered) polo shirts are used primarily as school uniform shirts and are sold through retailers and also directly to schools in Puerto Rico.
All of the sales to third parties by Olympic Mills are through OMC. Significant customers in 1996 were the U.S. Department of Defense and E. Mendoza & Co. These customers accounted for 39% and 12.9% of OMC's net sales in fiscal 1996, respectively. No other single customer accounted for more than 5% of OMC's net sales in fiscal 1996. The loss of the sales to any of the key customers would have a material adverse effect on OMC's results of operations. OMC has no long-term purchase contracts or commitments with any customer other than the U.S. Depart- ment of Defense.
During 1996, OMC produced underwear for all branches of the military with quality and service meeting or exceeding military standards. The Department of Defense contract provides that OMC must sell goods meeting certain specifications at contracted prices if ordered by the Department of Defense. In addition, the contract has no minimum purchase requirements and can be terminated by the Department of Defense at any time.
In the past OMC operated a sales office in the United States. The office was closed in 1987 due to a change in the ownership of OMC and the owner's desire to concentrate on business in Puerto Rico. Re-entering the U.S. market directly or through strategic alliances present a significant opportunity for growth. The primary business being the production of "Private Label" underwear, sports wear and tee-shirts.
Marketing. At the present time, OMC is marketing its consumer products in Puerto Rico through two channels of distribution. One is through an in-house sales staff of six which handles direct sales, and the other is through its distributors. In the United States, OMC markets its products through commission representatives or directly to larger custom- ers.
In the past, OMC has used limited advertising in promoting brand awareness. The existing core business is supplying quality underwear and tee-shirts to the Puerto Rican market. By expanding the product line, increasing marketing and advertising and expanding the customer base, management believes that future growth in this core business is attainable.
Future Expansion. In the future, OMC expects to open a sales and marketing operation in the United States. Such operation would handle sales and distribution of all of OMC's products in the United States. In addition to "Private Label" manufacturing, OMC believes that both the Grana (Registered) underwear and America Project tee-shirts lines could be very competitive in the U.S. market. The Grana brand is familiar to a large number of Puerto Ricans living in the United States, and OMC intends to market its products to other hispanics. OMC will also pursue licensing opportunities in Puerto Rico and the U.S.
Competition. There are several competitors for OMC consumer products. The two largest are Fruit of the Loom (Registered) and Hanes (Registered). In Puerto Rico, OMC is very competitive due to brand recognition, loyalty, delivery time and service. However; as OMC expands outside Puerto Rico, it will be at a disadvantage due to the size and financial strength of its competitors.
Raw Materials. The principal raw materials used by Olympic Mills are 100% cotton yarn and a blend of pre-spun 50% cotton and 50% synthetic yarn. Many factors including crop conditions, agricultural policies, market conditions and demand can significantly affect the cost and availability of these yarns, but to date, Olympic Mills has experienced no difficulty obtaining adequate supplies. Olympic Mills currently purchases yarn from five suppliers; however, these are commodity purchases and are available from a wide range of suppliers. It currently maintains a 60 day inventory of raw materials. All woven and some knitted cloth is purchased from outside suppliers.
Inventory and Backlog. OMC maintains an inventory of both raw materials and finished goods. At December 31, 1996, raw material and work in process inventory totaled $5,178,026 and finished goods inventory totaled $7,068,032. OMC's backlog consists of confirmed purchase orders. At December 31, 1996, OMC had approximately $4,500,000 of unfilled customer orders for goods. OMC has not experienced any difficulty in filling orders on a timely basis or material returns of its products. OMC maintains a 60 day supply of raw materials and also maintains an inventory of finished goods to level out the effects of seasonality of sales.
Seasonality. The products sold to the U.S. Department of Defense are not seasonal. Commercial sales are seasonal in nature with Christmas, back to school and Fathers Day being the peak seasons. Olympic Mills is pursuing sales in the United States which will offset this seasonality (ie. Fleece to be manufactured during winter months).
Patents, Copyrights and Trademarks. OMC is the holder of a number of copyrights and registered trademarks. Those actively used now are Grana and America Project . OMC has used the trade names "Olympic Mills Corporation" and "Olympic Mills" for 46 years in Puerto Rico and has used it in the United States while operating a sales office in the United States; however, it has not been registered.
Employees. The Corporation employs 1,068 full and part-time employees. The Corporation does not have a collective bargaining agreement covering any of its employees, nor has it ever experienced any material labor disruption, and is not aware of any efforts or plans to organize its employees. The Corporation contributes part of the cost of medical and life insurance coverage for eligible employees. The Corpora- tion considers relations with its employees to be excellent. The Corpora- tion does not have a retirement or pension program.
Discontinued Operations
During 1995, the Corporation elected to close all of its retail operations. These included all of the remaining Caribbean Outfitters (Registered) stores and Back Bay Outfitters (Registered) store. These operations had not been profitable and had contributed significant losses to the Corporation. Caribbean Outfitters, Inc. and Back Bay Outfitters, Inc. (together "Outfitters"), the corporations which owned these stores, have considerable debt and virtually no assets. In October, 1996, Caribbean Outfitters, NV, was put under control of the Court of Aruba and it is no longer controlled by the Corporation nor is it liable for outstanding obligations estimated at $900,000. The Corporation continues to own the right and title to the name and registered trademark of Caribbean Outfitters (Registered). During 1996, the Corporation sold the right and title to the registered trademark Back Bay Outfitters (Registered).
Item 2.

Item 2. Facilities
The Corporation currently leases approximately 5,900 square feet of office space at 301 N.W. 63rd Street, Suite 500, Oklahoma City, Oklaho- ma, as its corporate headquarters. The current rate is $11.00 per square feet on a lease which expires March 31, 2000.
The Corporation's subsidiary, Coachman Inns of America, Inc., is co-general partner of a partnership which owns one Coachman Inn property at Military Drive and Interstate 37 in San Antonio, Texas and has an interest in a hotel property in Anaheim, California, located on Katella Avenue at Harbour Drive adjacent to Disneyland.
OMC leases from a related party a 170,000 square foot manufacturing facility, which contains the executive offices, in Guaynabo, Puerto Rico which lease expires December 31, 1997 and is renewable annually. OMC believes that the current terms are greater than the market rate and that any renewal would be on terms that are no more favorable than could be negotiated with an independent third party. OMC is negotiating to relocate to another facility on more favorable terms. LMI, also leases and occupies a 147,000 square foot manufacturing facility in Humacao, Puerto Rico which lease expires May 31, 2002 and YII occupies a 28,000 square foot cut and sew facility in Yabucoa, Puerto Rico which lease expires July 1, 2000 (both facilities are leased from an agency of the Government of Puerto Rico).
Item 3.

Item 3. Legal Proceedings
At December 31, 1996; there were no material legal proceedings pending against the Corporation; Olympic Mills Corporation; Lutania Mills, Inc.; Innkeepers, Inc.; or Coachman Inns of America, Inc. The subsidiaries of Caribbean Outfitters, Inc. and Back Bay Outfitters, Inc. have a number of claims relating to the discontinued retail operations. The Corporation feels that it is not liable for any of these claims and will vigorously defend itself against any claims to the contrary.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted, during the fourth quarter of the fiscal year covered by this report, to a vote of security holders through the solicitation of proxies or otherwise.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stock- holder Matters
PRICE RANGE OF COMMON STOCK
The Corporation's Common Stock is listed for trading on the OTC Bulletin Board under the trading symbol "CINC". The following table reflects the range of high and low bid prices, as reported by the National Quotation Bureau, for each quarterly period during 1996. The prices represent inter-dealer prices, without mark-up, mark-down or commission and may not represent actual transactions. Trading in the Corporation's common stock is very thin and may not be an indication of the value of the Common Stock.
Quarterly Period Ended High Low High Low Bid Bid Ask Ask
March 31, 1996 $.25 .1875 .4375 .25 June 30, 1996 $.21875 .21875 .40625 .3125 September 30, 1996 $.4375 .3125 .5625 .4375 December 31, 1996 $.375 .25 .46875 .375
On March 31, 1997, the bid and asked price for the Common Stock, as reported on the OTC Bulletin Board, was $.25 and $.3125 per share, respectively. As of December 31, 1996, the Corporation had approximately 680 holders of record of its common stock.
Item 6.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
During the past four years, the Corporation has made significant changes in its business, which have, and will, affect its financial condition and results of operations. On December 21, 1995, the Corporation purchased all of the common stock of OMC and LMI (together "Olympic Mills"). The operation and development of Olympic Mills will become the major focus of the Corporation for the foreseeable future. During 1991, the Corporation was primarily in the hotel management business. During 1992 and 1993, most of the properties managed by the Corporation were sold and, at the end of 1993, the Corporation purchased Caribbean Outfitters, Inc., which operated specialty retail stores. During 1994 the Corporation purchased Back Bay Outfitters, Inc. a retail store specializing in adventure travel gear, clothing and equipment. The Corporation also purchased the West Indies Resort Company and the West Indies Club Limited, thus entering the time share vacation sales business. During 1995, the Corporation closed the operations of Outfitters and discontinued the retail operations thereof. The Corpora- tion also elected not to exercise the option to purchase the Hotel on the Cay held by West Indies Club Limited. These changes in operations from past to present to future make the analysis of the Corporation's Consolidated Financial Statements difficult. The purpose of this discus- sion will be to clarify these significant changes and supply forward looking information about the Corporation's planned activity (although there can be no assurance that these activities will meet expectations).
Liquidity
On December 21, 1995; the Corporation acquired all of the outstanding stock of OMC and LMI. The transaction was determined to be an acquisition in progress for accounting purposes, in 1995, and was accounted for under the equity method of accounting. On October 3, 1996; the Sellers of Olympic Mills and the Corporation renegotiated the terms of the acquisition. As a result of this re-renegotiation, the acqui- sition was considered to have been consummated as of October, 1996 for financial reporting purposes. The year end balance sheets of the Corporation, OMC and LMI are consolidated as a result.
The Corporation originally closed the acquisition of all of the issued and outstanding stock of OMC and its affiliate LMI pursuant to a Stock Purchase Agreement dated December 21, 1995 (the "Agreement") for $2,002,000 in cash, $4,448,826 in notes due the Sellers and 6,000,000 shares of the Common Stock of the Corporation. The 6,000,000 shares had a guaranteed public trading price of $2.50 per share after 2 years from issuance, with additional shares being issued if the price was lower. The Sellers were Corporacion Inmobiliaria Textil ("Cintex"), a Puerto Rico corporation; Fideicomiso Hispamer ("Hispamer"), a Puerto Rico trust; OM Acquisition Corp. ("OM"), a Delaware corporation; Olympic Holding Corp. ("Holding"), a Puerto Rico corporation and Estampados Deportivos ("ED"), a Puerto Rico corporation (collectively "the Sellers"). Under the Agreement, the Corporation purchased all of the common stock of OMC from ED and provided the necessary capital in the form of cash, notes and stock for OMC to repay all sums due to the Sellers by OMC totalling $3,570,400 and to redeem all of the preferred stock and accumulated dividends of OMC owned by and owed to the Sellers. All of the Common Stock of LMI was purchased from Holdings for a cash payment of $1,000. The sources of the funds used to close the acquisition were loans of $2,000,000 and $852,000 from Congress Credit Corporation to OMC, deferred payment notes from the Corporation and OMC to the Sellers, $1,500,000 from the sale of 3,747,650 shares of common stock of the Corporation in a private placement, $250,000 from the sale of 2,500 shares of preferred stock of the Corporation in a private placement and $250,974 in funds of the Corporation.
On October 3, 1996; the Corporation and the Sellers agreed that the balances of the $4,448,826 and $1,785,200 notes and accrued interest of $436,977 were settled with the issuance of 6,521 shares of Class AA Redeemable Preferred Stock to the Sellers by the Corporation. This stock has a redemption price of $1,000 per share, which increases 1% each month that the stock is outstanding, and a dividend rate of $100 per year.
Additionally, the Corporation and the Sellers agreed to settle the common stock price guarantee through the payment of an additional $1,250,000 cash and the commitment to issue an additional 5,000,000 shares of common stock and warrants to purchase an additional 5,000,000 shares of common stock at $.50 per share which were valued at .12 cents each.
In order to complete the acquisition, the Corporation arranged loans from Congress Credit Corporation ("Congress") to OMC and LMI totaling up to $15,000,000 in the form of a $13,000,000 revolving credit line and $2,000,000 three year term loan. The availability of the revolving credit line is based on 50% of qualified inventory and 80% of qualified receivables of OMC. At December 31, 1996, the availability, based on collateral, of the revolving credit line was $9,547,804 and the balance drawn was $7,921,018; leaving an excess availability of $1,626,786. The balance of the term loan at December 31, 1996 was $1,333,340.
In addition to the above, OMC issued notes to the Sellers of $1,000,000 and $465,000 due December 21, 2000 at a rate of 7%. During 1996, OMC issued an additional note to the Sellers of $320,000 on similar terms.
During 1995, the Corporation elected to close all of its retail operations. The subsidiaries which own the operations accounted for $865,436 of the accounts payable, accrued liabilities, notes payable and long term debt of the Corporation. Management feels that these are not liabilities of the Corporation as the parent company, but only of the respective subsidiary, although this has not been decided by court action. During 1996, Caribbean Outfitters, N.V. was put under court control in Aruba. It is no longer consolidated in the corporations financial statements or controlled by the Corporation.
At December 31, 1996 and 1995; the Corporation had current assets of $18,270,210 and $349,901 respectively. The increase was due primarily to the consolidation of Olympic Mills. Of these current assets, $4,676,459 were net accounts receivable. During 1996, the average collection period for accounts receivable was 47.64 days. Also included was inventory of $12,246,108 comprised of raw materials, work in process and finished goods. During 1996, inventory turnover was 2.31 times, below the Corporation's goal of 4. At year end, Olym- pic Mills was owed payments for government incentives of $1,092,995.
At December 31, 1996 and 1995; current liabilities were $13,646,184 and $6,324,151 respectively. Accounts payable trade at December 31, 1996 accounted for $3,489,614, which included a bank book overdraft of $833,923 (Olympic Mills operates with a zero balance account, whereby funds are drawn on the revolving credit line as checks are presented for payment). Also included in 1996 were accrued liabilities of $1,038,524 and current maturities of long-term debt of $8,964,942.
At December 31, 1996; the Corporation had a Current Ration of 1.33 times and a Quick Ratio of .44 times. Working capital was $4,624,026; which management believes is sufficient to meet all of the Corporation's current obligations.
Capital Resources
December 31, 1996 compared to December 31, 1995; Total assets increased by $21,373,728 from $9,587,921 to $30,961,649; Total liabilities increased by $12,331,613 from $6,357,126 to $18,688,739 and Stockholders' equity increased by $9,042,115 from $3,230,795 to $12,272,910. All of these increases were caused primarily by the consolidation of the financial statements of the Corporation, OMC and LMI.
At December 31, 1996; the book value per share of common stock was $.54. Debt to stockholders equity was 152.28%. Total asset turnover was 1.16 times.
During 1996, the Corporation repaid or refinanced notes due to the Seller of Olympic Mills and at the same time settled the price guarantee of the 6,000,000 shares of Common Stock owned by the Sellers. This was accomplished through the agreement to issue an additional 5,000,000 shares of Common Stock, Warrants to purchase 5,000,000 shares of Common Stock for $.50 per share, the issuance by the Corporation of 6,521 shares of Series AA Preferred Stock and the payment of $1,250,000 in cash. The cash payment was funded by the sale of Common Stock of the Corporation and Series A Preferred Stock of OMC. This transaction had the effect of temporarily decreasing debt and increasing the paid in capital of the Corporation.
At December 31, 1996; the Corporation had Property and Equip- ment of $6,606,225 (net of $1,209,086 accumulated, depreciation and amortization) which secured a loan of $1,333,340. The Corporation also had Intangibles of $3,249,786, which included $1,680,000 right to use waste water plant and $1,400,780 value of tradenames. Additionally, the Corporation holds notes receivable of $534,550.
The remaining retail subsidiaries have current liabilities of $865,436. These subsidiaries have no operations and limited assets. During the past year, they have been successful in settling some of their liabilities.
On October 17, 1996; Caribbean Outfitters, N.V. was placed under the jurisdiction of a trustee by the Court of Justice in First In- stance of Aruba. Due to this lack of control, its financial statements are not consolidated with those of the Corporation. On advice of council, the Corporation understands that it has no legal responsibility for the liabilities of Caribbean Outfitters, N.V.
Results of Operations
The acquisition of OMC and LMI by the Corporation was considered to have been consummated, for financial reporting purposes, as of October, 1996. The results of operations of OMC and LMI for the year ended December 31, 1996 have been consolidated with those of the Corporation as though such acquisition had occurred at the beginning of the year. Due to this consolidation, the results of operations for 1996 bear little resemblance to those for 1995 and 1994.
For the year ended December 31, 1996, total revenues were $35,908,536 of which $35,826,875 were net trade sales. Cost of goods sold were $28,345,459; producing a gross margin of 20.88%. Operating income was $2,388,166 or 6.66% of total revenues and net income from continuing operations was $1,303,330 or 3.63% of total revenues. Net income was $1,195,615, a net profit margin of 3.33%. Earnings before depreciation, amortization, interest and taxes (EBDAIT) were $3,980,507. For the year, the Corporation produced a return on assets of 3.86% and a return on stockholders equity of 9.74%.
In order to better understand the trends in the primary business of the Corporation the following information is being provided. Total net sales of Olympic Mills were $35,826,875; $31,184,281 and $25,839,901 for 1996, 1995 and 1994 respectively. Cost of goods sold for the same periods were $28,930,919; $26,224,992 and $23,209,536 respectively producing gross profit margins of 20.88%, 15.90% and 19.78% for the same periods. The changes in cost of goods sold and gross margins can be attributed to the change in product mix, lower raw material costs and a more efficient operation.
THE FOLLOWING PROJECTIONS WERE PREPARED BY MANAGEMENT OF THE CORPORATION AND HAVE NOT BEEN REVIEWED BY INDEPENDENT SOURCES TO THE EXTENT POSSIBLE THE PROJECTIONS ARE BASED ON AN EXAMINATION AND ANALYSIS OF HISTORICAL RESULTS AND POTENTIAL NEW BUSINESS. THERE CAN BE NO ASSURANCE THAT THE RESULTS CAN BE OR WILL BE ACHIEVED.
These Projected Results of Operations are based on the following assumptions:
1. Sales efforts in the U.S. Market are successful. 2. Capacity is increased by the completion of the facility at LMI. 3. Prices remain constant. 4. Minimum wage increases are included. 5. No increases in efficiencies. 6. Existing financial ratios are maintained. 7. Start up costs to open new markets are budgeted. 8. Sales are based on current product mix.
Year 1997 1998 1999 Total Income $ 46,100,000 $ 60,439,000 $ 80,195,000 Cost of Sales 35,234,000 46,673,000 62,327,000 Expenses 7,824,000 9,311,000 12,300,000 Pre tax income 3,042,000 4,455,000 5,568,000 Taxes 113,000 155,000 209,000 Net Income 2,929,000 4,300,000 5,579,000
LMI was a development stage company in 1996. During early 1996, LMI began limited operations. By the end of the second quarter of 1997, it should be in full operation. LMI produces goods on contract to OMC. LMI incurred a net loss of $1,498,116 for 1996. The additional capacity provided by LMI should increase the revenues of OMC.
During 1995, the Corporation elected to close all of its retail operations and discontinue them. Retail sales were approximately $517,000 and $1,843,000 in 1995 and 1994 respectively. The loss from retail operations was $601,027 and $713,887 in 1995 and 1994 respectively. During 1996, the loss from discontinued operations was $107,715. During 1997, the Corporation will continue to settle the liabilities of these subsidiaries. If the liabilities cannot be settled, management will seek to liquidate the retail subsidiaries.
Impact of Inflation
Olympic Mills operations are affected primarily by changes in the cost of cotton. During 1994, the costs of cotton increased more rapidly than the company could increase prices due to contractual agreements. During 1995 and 1996, major contracts were negotiated with escalation clauses for increases in cotton prices. The increase in the minimum wage caused an adverse affect on the cost of the products of Olympic Mills. During 1996, the prices of cotton remained relatively stable and decreased in some months.
During 1996 and 1997, the U.S. minimum wage will increase $.90. In addition to these increases, OMC is increasing all wages a like amount over four years. During 1996, the first increase in the minimum wage of $.50 occurred, however; the labor content in manufactured products has not increased significantly. This is due to increased efficiencies and lower employee turnover.
The Corporation's hotel operations have not been adversely affected by inflation. Revenues have kept up with the increase in costs.
Item 8.

Item 8. Financial Statements and Supplementary Data
Financial Statements as of December 31, 1996 and 1995 and for the three year period ended December 31, 1996 are contained at pages through included in this Report on Form 10-K.
Item 9.

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant.
Management
The names, ages and current positions with the Corporation of the directors and executive officers of the Corporation are set forth below:
Name Age Positions Dennis D. Bradford 51 Chairman of the Board, President and Chief Executive Officer Catherine A. Myers 36 Secretary Robert E. Swain 51 Director Jay T. Edwards 64 Director Alejandro G. Asmar 47 Director
The following is a brief description of the business experience during the past five years of each of the above-named persons:
Dennis D. Bradford, age 51, has been the Chairman, President, Chief Executive Officer and Director (except from December 1993 until January 1995 when he did not serve as President) of the Corporation since its inception on February 5, 1985. Mr. Bradford serves as President and Chief Executive Officer of Olympic Mills Corporation. From 1973 to 1985, he was a partner in various partnerships which constructed, owned and operated real estate properties including Coachman Inns until the sale of his interests in those partnerships to the Corporation. From 1983 until 1984, he served as Vice President of Corporate Development for PetroSouthern, Inc., a publicly held oil and gas exploration company. PetroSouthern became Craft World International, Inc. ("Craft World") in 1986 and changed its basic business to a distributor of craft and leisure products. In 1986, Mr. Bradford was elected to the Board of Directors of Craft World. Mr. Bradford has been Vice Chairman of the National Advisory Council to the U.S. Small Business Administration and a delegate to the 1986 White House Conference on Small Business. He is a graduate of the University of Tulsa with a BSBA degree in Economics.
Catherine A. Myers, age 36, has been an employee of the Company since 1988, serving as an administrative assistant. She was elected Secretary of the Company in 1995 and has served in that capacity since that date. Ms. Myers is a graduate of Oklahoma State University.
Robert E. Swain, age 51, has been a Director of the Company since December 14, 1993 and was President from December, 1993 until December 31, 1994. Mr. Swain is engaged in the investment and real estate business. Mr. Swain served as president of American Landmark Homes, Inc. from 1994 until 1996. Mr. Swain founded Caribbean Outfitters, Inc. and has been its President, Chief Executive Officer and Director since its inception in 1989. Prior to founding Caribbean Outfitters, Inc. Mr. Swain was the Chairman, President and Chief Executive Officer of Craft World. Mr. Swain also has developed and marketed a time share resort and shopping mall in Aruba from 1983 through 1990 and managed sales at a resort in the Dominican Republic during 1990 and 1991. Mr. Swain is a graduate of Bowdoin College.
Jay T. Edwards, age 64, has been a Director of the Company since it inception on February 5, 1985. He is a management consultant and General Administrator of the Oklahoma Corporation Commission. He was the President, Chief Operating Officer and Director of CMI Corporation, a publicly held American Stock Exchange company from 1985 until 1991. From 1982 to 1985, General Edwards was the Executive Director of the University of Oklahoma Energy Center. From 1954 to 1982, General Edwards served in the United States Air Force, retiring in 1982 after having achieved the rank of Major General. General Edwards is a Director of the State Fair of Oklahoma and Chairman of the Natural Resource Education Foundation. General Edwards is a graduate of the United States Military Academy, West Point, New York. He received a Master of Science Degree in Aeronautical Engineering from Texas A & M University, and a Master of Science Degree in Management from George Washington University.
Alejandro G. Asmar, Phd., age 47, Director. Dr. Asmar is President of the merchant banking firm AGA Associates, Inc. (formerly AGA & Associates) and serves as managing Director of OMC. From 1984 to 1988, Dr. Asmar was with Drexel Burnham Lambert, Inc.'s Puerto Rico Branch and was its First Vice President and Chief Operating Officer from 1987 to 1988. From 1983 to 1984, he served as Vice President, Finance and Administration Puerto Rican American Insurance Co. and from 1977 to 1982 was Senior Vice President, Finance of First Federal Savings & Loan Association of Puerto Rico. Dr. Asmar served as an Independent Consultant, Assistant Professor, Director, Department of Administration and Director, Business Research Center with the University of Puerto Rico from 1972 to 1977. Dr. Asmar is a graduate of the University of Puerto Rico and the University of Pennsylvania, The Wharton School, where he received a Ph.D. in Business and Applied Economics and a MA in Finance.
Series AA Redeemable Preferred Stock.
The holders of the Series AA Redeemable Preferred Stock of the Corporation, Fideicomiso Hispamer, are entitled to elect two direc- tors to the Board of Directors of the Corporation. At this time they have not done so.
Item 11.

Item 11. Executive Compensation
The following sets forth the annual and long-term compensation paid to the Chief Executive Officer of the Corporation during the last three fiscal years.
Summary Compensation Table
Long-Term Compensation Securities Name and Annual Compensation Underlying All Other Principal Position Year Salary $ Bonus $ Option Compensation $ Dennis D. Bradford 1996 120,000.00 -0- -0- -0- Chairman of the Board 1995 120,000.00 -0- -0- -0- Chief Executive Officer 1994 81,666.70 -0- -0- -0- 1993 90,000.00 -0- -0- -0- 1992 90,000.00 -0- -0- -0-
All officers and directors serve at the pleasure of the Board of Directors, except that Dennis D. Bradford entered into a three year Management Agreement, dated December 3, 1996, with the Corporation. Mr. Bradford's current salary with the Company under the terms of his employment agreement is $156,000 per year with an annual evaluation by the Compensation Committee.
Dr. Asmar is a principal in AGA Associates, Inc. which is employed as a consultant to OMC. During 1996, AGA was paid $96,000 in consulting fees by OMC. During 1997, AGA Associates, Inc., will be paid a consulting fee of $ 140,400 for advice and council to OMC.
The following table indicates the total number and value of exercisable and unexercisable non-qualified stock options held by the executive officer named in the Summary Compensation Table above as of December 31, 1996. No options to purchase stock were exercised by him in the fiscal year ended December 31, 1996.
Number of Securities Value of Unexercised Underlying Unexercised In-The Money Options Options at FY-End(1995) at FY-End(1996) Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
Dennis D. Bradford 13,100 $6,550 __________________
(1) Based on an asked price of $.50 per share of the Corporation's Common Stock as quoted by the OTC Electronic Bulletin Board on December 31, 1996.
The employment contract also provides for additional bonus compensation based on the annual net income of the Corporation as determined by the Board of Directors. The compensation committee of the Board of Directors is empowered to increase base salaries for 1998 and beyond based upon performance of the executives.
Incentive Stock Option Plan
The Corporation has an incentive stock option plan (the "Plan"). Under the terms of the Plan, shares of Common Stock are reserved for issuance to key employees and directors of the Corporation. The Plan provides for administration by the Corporation's Board of Directors or by a committee consisting of not less than two persons. Any option granted under the Plan must be for a term not to exceed ten years. The purchase price for shares subject to options, and the manner in which the options may be exercised, are determined by the Board of Directors on a case by case basis. However, the purchase price to be paid for the shares underlying the options may not be less than the fair market value of the Common Stock on the date of the grant.
Except for the Plan described above, the Corporation does not have any pension plan, profit sharing plan, incentive bonus plan or similar plans for the benefit of its officers, directors or employees. However, the Corporation reserves the right to establish any such plans in the future in its sole discretion.
Items 12. Security Ownership of Certain Beneficial Owners and Management
The following table and notes thereto sets forth, as of the date of this Memorandum, certain information regarding ownership of Common Stock by (i) each person known to the Corporation to beneficially own more than 5% of its Common Stock, (ii) each director and nominee for director of the Corporation and (iii) all present officers and directors of the Corporation as a group.
Under the rules and regulations of the Commission, a person is deemed to own beneficially all securities of which that person owns or shares voting or investment power as well as all securities which may be acquired through the exercise of currently available conversion, warrant or option rights. Unless otherwise indicated, each such person possesses sole voting and investment power with respect to the shares owned by him.
Name & Address of Beneficial Amount and Nature of % of Beneficial Ownership Owner After Offering Beneficial Ownership
Francisco Carvajal 6,000,000(a)(c) 29.6% Box 1669 Guaynabo, PR 00970
Dennis D. Bradford 1,122,638 (b) 7.5% 301 NW 63rd, Suite 500 Oklahoma City, OK 73116
Robert E. & Linda D. Swain 1,721,170 8.5% 1055 Bay Esplanade Tampa, FL 34630
Jay T. Edwards 6,150 (d) * 301 NW 63rd, Suite 500 Oklahoma City, OK 73116
Catherine Myers 20 * 301 NW 63rd, Suite 500 Oklahoma City, OK 73116
All officers and directors as a group (4 persons) 2,849,978 (e) 16%
*Less than 1% of the common stock outstanding at December 31, 1996.
(a) Francisco Carvajal is beneficial owner of 500,000 shares held by Corporacion Inmobiliaria Textil; and 5,500,000 shares held by Fundacion Carvajal as Trustee of Fideicomiso Hispamer.
(b) Includes 13,100 shares of Common Stock that may be acquired upon exercise of employee stock options previously granted under the Corporation's 1987 Stock Option Plan.
(c) Does not include 5,000,000 shares to be issued during 1997.
(d) Includes 4,700 shares of Common Stock that may be acquired upon exercise of employee stock options previously granted under the Corporation's 1987 Stock Option Plan.
(e) Includes 17,800 shares of Common Stock that may be acquired by such persons upon exercise of employee stock options previously granted under the Corporation's 1987 Stock Option Plan and on December 14, 1993.
(f) Dr. Alejandro G. Asmar will be issued 1,800,000 shares during 1997, to settle amounts due to AGA Associates, Inc.
Compensation of Directors
Non-employee directors of the Corporation are entitled to a fee of $2,000 per year plus $500 for attendance at each meeting of the Board of Directors. Non-employee directors receive a fee of $250 for each committee meeting attended.
Item 13.

Item 13. Certain Relationships and Related Transactions
During 1991 and 1993, the Corporation loaned $109,958 to Dennis D. Bradford and received as collateral 1,109,513 shares of the Corporation's Common Stock owned by Mr. Bradford.
Dr. Alejandro G. Asmar, a director of the Corporation, is the president and principal in AGA Associates, Inc. which acted as a financial advisor to the Corporation in the acquisition of Olympic Mills. AGA will receive a fee of $440,000 in stock for providing financial advisory services with respect to the Acquisition. AGA also received a fee of $112,500 from OMC for arranging a loan with respect to the Acquisition. AGA also receives an on going fee of $12,500 per month and reimbursement for some expenses for providing advisory services to OMC.
Director Liability
Because of increasing concern about director liability and the growing unavailability of insurance, the Corporation may find it necessary to provide incentives to induce outside individuals to join its Board. For the same reasons, the Corporation has adopted the provisions of the Delaware Corporation Law permitting the Corporation to limit the liability of the Corporation's directors to the Corporation and its stockholders for monetary damages for breach of fiduciary duty as a director. Such limitation on a director's liability is subject to the following statutory exceptions: (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders; (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases, or (iv) for any transaction from which the director derived an improper personal benefit.
The Corporation has also adopted the provisions of the Delaware Corporation Law permitting indemnification of directors, officers, employees or agents of the Corporation against expenses, including attorneys' fees, incurred in connection with the defense of any action, suit or proceeding in which such a person is a party by reason of his being or having been a director, officer, employee or agent of the Corporation, or of any corporation, partnership, joint venture, trust or other enterprise in which he served as such at the request of the Corporation, provided that he acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, and provided further (if the threatened, pending or completed action or suit is by or in the right of the Corporation) that he shall not have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corpora- tion (unless the court determines that indemnity would nevertheless be proper under the circumstances).
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following are filed as part of this report:
1. Consolidated Financial Statements:
Reference is made to the Index to Consolidated Financial Statements appearing on page of this report.
2. Financial Statement Schedules
All Financial Statement Schedules are omitted as they are inapplicable or the required information is immaterial.
3. Exhibits:
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-Laws (1)
4.1 Form of Common Stock Certificate (1)
10.1 Stock Purchase and Redemption Agreement - Olympic Mills Corporation (2)
10.2 Form of Management Contract (1)
10.3 Coachman Incorporated 1987 Stock Option Plan, with Stock Option Agreement (1)
10.4 Coachman Incorporated Employee Stock Ownership Plan with Trust Indenture (1)
16.1 Letter regarding Changes in Certifying Accountants (3)
21.1 Subsidiaries of the Registrant
The Corporation has wholly owned subsidiaries, Innkeepers, Inc.; Coachman Inns of America, Inc.; Caribbean Outfitters, Inc.; COVI, Inc.; Caribbean Outfitters, N.V.; Caribbean Outfitters, N.V. Aruba; Back Bay Outfitters, Inc.; Olympic Mills Corporation and Lutania Mills, Inc.
27.1 Financial Data Schedule
(b)(1) Previously filed as Exhibit to Registration Statement #33-15082. (2) Previously filed as Exhibit to Form 8-K/A dated December 21, 1995. (3) Previously filed as Exhibit to Form 8-K/A dated March 25, 1996.
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, in Oklahoma City, Oklahoma, on July 31, 1997.
COACHMAN INCORPORATED
By:\s\Dennis D. Bradford Dennis D. Bradford, Chairman of the Board, Chief Executive Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant.
Signature Title Date
/s/Dennis D. Bradford Chairman, Chief Executive July 31, 1997 Dennis D. Bradford Officer, Chief Financial Officer and Director
/s/Alejandro G Asmar Director July 31, 1997 Alejandro G. Asmar
/s/Jay T. Edwards Director July 31, 1997 Jay T. Edwards
/s/Robert E. Swain Director July 31, 1997 Robert E. Swain


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Net revenues for the year ended December 31, 1996 were $250.5 million, a 15% increase over the year ended December 31, 1995. This followed a 10% increase in 1995, when revenues rose to $218.2 million form $198.4 in 1994. Net revenues for 1996 reflect an increase of 10% in combined attendance (from 6.3 million to 6.9 million) and a 5% increase in combined guest per capita spending at our four parks. The 1996 results include Worlds of Fun/Oceans of Fun for the entire year, while last year the park's results were included only for the period following its acquisition on July 28, 1995.
In 1996, World of Fun's full year contribution accounted for most of the partnership's combined attendance increase, and Valleyfair achieved a record year, offsetting small decreases at the other parks. Nearly perfect weather throughout the operating season, together with the successful debut of it's new world-class coaster, Wild Thing, contributed to Valleyfair's record performance. In 1995, combined attendance increased 7% to 6.3 million, principally due to Worlds of Fun's contribution for the period following its acquisition. In 1994, Cedar Point achieved a record year through favorable weather and the very successful debut of the Raptor inverted roller coaster, and combined attendance increased 7% to 5.9 million from 5.5 million. Combined guest per capita spending increased 1% in 1995 and 4% in 1994.
Costs and expenses before depreciation and amortization in 1996 increased to $150.3 million from $128.4 million in 1995 and $115.4 in 1994, but increased only slightly as a percentage of revenues, due to World of Fun's lower profit margins. Included in costs and expenses are approximately $4.3 million of incentive fees earned by the managing general partner in 1996. This compares to $3.9 million and $3.4 million of incentive fees earned in 1995 and 1994, respectively.
Operating income in 1996 increased 11% to $81.1 million, following a 7% increase in 1995 and an 18% increase in 1994. The 1996 increase in operating income was the result of greater profits generated from our original three parks, together with Worlds of Fun's first full year profit contribution. In 1995, operating income increased as a result of increased per capita spending at our original three parks and a $2.1 million contribution from Worlds of Fun for the period after its acquisition. A record year at Cedar Point, along with Valleyfair rebounding strongly from 1993, generated the strong increase in operating income for 1994.
Net income for 1996 increased 12% to $74.2 million from $66.1 million in 1995 and $62.8 million in 1994. Net income for 1994 included nonrecurring gains of $2.1 million related to insurance claim settlements, partially offset by a $0.7 million charge to interest expense for refinancing of long-term debt.
For 1997, the Partnership plans to invest $32 million in capital improvements, including a world-class roller coaster at Dorney Park and a 6.5-acre expansion of Cedar Point's Soak City water park. We are optimistic that these major attractions, 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 and the economy, 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.
FINANCIAL CONDITION The Partnership ended 1996 in sound financial condition in terms of both liquidity and cash flow. The negative working capital ratio of 3.3 at December 31, 1996 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 1996, cash generated from operations totaled $94.2 million. The Partnership used $30.2 million for capital expenditures, $54.5 million for distributions to partners and $8.4 million for the reduction of debt. Distributions in 1997, at the current annual rate of $2.50 per unit, would total approximately $58 million, 6% higher than the distributions paid in 1996.
The Partnership has available through April 1999 a $95 million revolving credit facility, of which $33.1 million was borrowed and in use as of December 31, 1996, and an annual $15 million standby facility. The maximum level of borrowings during 1996 on revolving credit facilities was $98.7 million. Credit facilities and cash flow are expected to be adequate to meet seasonal working capital needs, planned capital expenditures and distribution requirements.
Under the Revenue Act of 1987, the Partnership's tax status is scheduled to expire on December 31, 1997. In connection with the change in tax status, the Partnership expects to record a deferred tax asset and corresponding credit to income tax expense at the time of conversion currently estimated to be in excess of $50 million (see Note 2 to the Consolidated Financial Statements).
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, 1996 and 1995, and the related consolidated statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio, January 23, 1997.
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. ("CPI"). In 1987, 16 million limited partnership units were sold to the public and 5,162,000 units were held by the original limited partners of the Partnership. In 1992, the Partnership issued an additional 1,078,208 limited partnership units in connection with the acquisition of Dorney Park & Wildwater Kingdom. These 22,240,208 units are listed on the New York Stock Exchange.
On July 28, 1995, the Partnership issued 720,000 limited partnership units in connection with the acquisition of Worlds of Fun/Oceans of Fun, as discussed in Note 7. These units have not been registered with the Securities and Exchange Commission, and are subject to certain trading restrictions through July 1998. Net income per limited partner unit has been computed based on the weighted average units and equivalents outstanding.
The Partnership's two General Partners are (a) Cedar Fair Management Company, an Ohio corporation owned by the Partnership's executive management (the "Managing General Partner") and (b) CF Partners (the "Special General Partner"), a Delaware general partnership whose equal partners are two former Directors and a Trust, whose co- trustee is Director Mary Ann Jorgenson. Mrs. Jorgenson is a partner in the law firm which serves as the Partnership's general counsel.
The Managing and Special General Partners each own a 0.5% general partner interest in the Partnership's income and losses, except in defined circumstances. The Managing General Partner has full control over all activities of the Partnership.
For the services it provides, the Managing 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 Managing General Partner earned $4,926,000, $4,430,000 and $3,874,000 of such fees in 1996, 1995 and 1994, respectively. The Special General Partner receives a fixed annual amount of $800,000 for its services, which includes its share of cash distributions.
The General Partners may, with the approval of a specified percentage of the limited partners, make additional capital contributions to the Partnership, but are only obligated to do so if the liabilities of the Partnership cannot otherwise be paid or there exists a negative balance in their capital account at the time of their withdrawal from the Partnership. The Managing 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, its wholly-owned corporate subsidiaries, and a 99%-owned partnership. All significant intercompany transactions and balances are eliminated in consolidation.
Estimates- The preparation of financialmstatements in conformity with generally accepted accounting p inciples 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 financialmstatements, and the reported amounts of revenues and expenses during each period. Actual results could differ from those estimates.
Inventories - All inventories are valued at the lower of first-in, first-out cost or market. The Partnership's inventories p imarily represent purchased products, such as merchandise and food, for sale to its customers.
Depreciation - 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 from CPI in 1983, for the Dorney Park & Wildwater Kingdom assets acquired in 1992, for the Worlds of Fun/Oceans of Fun assets acquired in 1995 and for the JHW Limited Partnership assets acquired at the end of 1996. The unit method is used for all individual assets subsequently 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 i provements 23 Years Buildings 29 Years Rides 17 Years Equipment 10 Years
Goodwill is amortized over a 40-year period.
Segment Reporting - The Partnership is in the single business of operating a usement parks with accompanying resort facilities.
Income Taxes - The accompanying statements of operations do not include a provision for current federal or state income taxes, as the income of the Partnership is not taxed directly; rather, the Partnership's tax attributes are included in the individual tax returns of its partners. Neither the Partnership's financialmreporting income, nor the distributions to unitholders, can be used as a substitute for the detailed tax calculations which the Partnership ust perform annually for its partners. The tax returns of the Partnership are subject to examination by state and federal tax authorities. If such examinations result in changes to taxable income, the tax liability of the partners could be changed accordingly.
The Omnibus Budget Reconciliation Act of 1993 (the "Act") was signed into law in August 1993. Among other provisions, the Act allows taxpayers who acquire an interest in an intangible asset to deduct its amortization over a 15-year period beginning the month in which the intangible asset is acquired. This provision extends to the acquisition of partnership interests, to the extent that taxpayers obtain an increased basis for the intangible assets of the Partnership. The effect of the Act on taxpayers acquiring Cedar Fair, L.P. units at market prices is to provide amortization deductions which offset a substantialmportion of the taxable income otherwise allocable by the Partnership to these units. The amortization deductions will be recaptured and taxed as ordinary income upon sale of the Partnership units. These rules generally were effective for purchases of Partnership units after August 10, 1993, but transitional relief in the Act permitted partners to elect to apply the new rules to all units acquired after July 25, 1991.
The Revenue Act of 1987 provides that a "publicly traded partnership," such as Cedar Fair, L.P., will be treated as a corporation for federal income tax purposes beginning January 1, 1998, including the payment of corporate income taxes. The partners' remaining unamortized basis in the Partnership's tangible and intangible assets may be transferred to a taxable successor entity. This aggregate tax basis would then be amortizable for tax purposes by the new entity to substantially reduce its future taxable income.
The amount of the tax basis available to a successor entity will depend on the price and volume of trading in the Partnership's units through the date of its conversion to taxable status, the form of the conversion and the resulting entity structure. The Partnership expects to record a deferred tax asset and a corresponding credit to income tax expense at the time of conversion for the step- up in the tax basis of the Partnership assets. Based on the price and volume of trading of the Partnership's units through December 31, 1996, the deferred tax asset as of that date is estimated to be in excess of $50 million. However, the ultimate determination of the deferred tax asset will be based on the actual te porary differences existing at the date of the conversion, which is planned to occur in the fourth quarter of 1997.
The 1987 legislation also provides that net income from the Partnership is not treated as "passive income" for federal income tax purposes. 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.
(3) Long-Term Debt:
At December 31, 1996 and 1995, long-term debt consisted of the following:
[CAPTION] 1996 1995 (In thousands) [S] [C] [C] Revolving credit loans $ 33,100 $ 30,000 Term debt 54,500 50,000 $ 87,600 $ 80,000
Revolving Credit Loans - The Partnership is party to a revolving credit agreement with three banks under which it has available a $95 million credit facility through April 30, 1999. Borrowings under this credit facility were $33.1 million as of December 31, 1996. The maximum outstanding balance during 1996 on revolving credit facilities, including a $15 million standby credit line, was $98.7 million.
Borrowings under this agreement bear interest at the banks' prime lending rate, with favorable LIBOR and other rate options. 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 August 1994, the Partnership refinanced its $50 million in senior notes, reducing the interest rate to 8.43%. In connection with this refinancing, the Partnership incurred a $0.7 million prepayment penalty which is included in 1994 interest expense. The Partnership is required to make annualmrepayments of $10 million in August 2002 through August 2006 and may make prepayments with defined premiums. The fair value of the aggregate future repayments on these senior notes at December 31, 1996, as required by S atement of Financial Accounting S andards No. 107, would be approximately $56.0 million, applying a discount rate of 6.7%.
The Partnership's consolidated balance sheet at December 31, 1996, also reflects a $4.5 million term note, as a result of the acquisition of JHW Limited Partnership (see Note 7). The term note, bearing interest at the bank's prime lending rate, with LIBOR and other rate options, is payable by JHW Limited Partnership in full on or before December 31, 2004.
Covenants - Under the terms of the credit agreements, the Partnership, among other restrictions, is required to maintain a specified level of net angible assets, as defined, and comply with certain cash flow, interest coverage, and debt to net worth limits.
(4) Special L.P. Interests:
In accordance with the Partnership Agreement, the original limited partners were allocated $5.3 million of 1987 and 1988 axable 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 L.P. 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 e ploy es. Contributions are discretionary and were $1,361,000 in 1996, $1,140,000 in 1995 and $1,120,000 in 1994.
The Partnership also has an E ploy es' Savings and Investment Plan under which nonunion e ploy es can contribute specified percentages of their salary, matched up to a limit by the Partnership. Contributions by the Partnership to this plan approximated $430,000 in 1996, $352,000 in 1995 and $359,000 in 1994.
In addition, approximately 125 e ploy es are covered by union-sponsored, multi-e ploy r pension plans for which approximately $338,000, $298,000 and $294,000 were contributed for the years ended December 31, 1996, 1995 and 1994, respectively. The Partnership believes that, as of December 31, 1996, it would have no withdrawal liability as defined by the Multi-e ploy r Pension Plan Amendments Act of 1980.
In 1992, the Partnership amended its policy for payment of fees earned by the Managing 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 $2,196,000 in 1996, $1,783,000 in 1995 and $1,236,000 in 1994, including the value of 52,116, 36,831 and 27,991 limited partnership units issuable in future years, which are included in the calculation of 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) Acquisition:
At the close of business on December 31, 1996, the Partnership acquired substantially all of the equity of JHW Limited Partnership, which owns a 237-room Radisson hotel and a large free-standing, full-service restaurant near Cedar Point in Sandusky, Ohio. The purchase price of approximately $16 million, including $4.5 million of long- term debt, has been allocated to the assets of JHW based on their relative fair values at the acquisition date. The results of JHW's operations will be included in the Partnership's consolidated financial statements beginning in 1997.
At the close of business on July 28, 1995, the Partnership acquired substantially all of the assets of Worlds of Fun and Oceans of Fun, located in Kansas City, Missouri, in a transaction valued at $40.0 million. Worlds of Fun is a traditional, family-oriented amusement park and Oceans of Fun is one of the largest water parks in the Midwest.
The purchase price consisted of the assumption of approximately $17 million of liabilities and the issuance of 720,000 unregistered limited partnership units (recorded at the July 28 NYSE closing price of $30.875, or $22.2 million in the aggregate). The Partnership subsequently repaid $13.9 million of long-term debt assumed with revolving credit borrowings at lowererates.
Worlds of Fun and Oceans of Fun's assets, liabilities and results of operations since July 28, 1995 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 fair values at the date of acquisition.
The table below summarizes the unaudited consolidated pro forma results of operations assuming the acquisition 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.
[CAPTION] Years Ended December 31, 1995 1994 (In thousands except amounts per unit) [S] [C] [C] Net revenues $ 236,432 $229,986 Net income $ 66,083 $ 67,151 Net income per limited partner unit $ 2.84 $ 2.89
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.
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 19 individuals, is the Managing General Partner of the Partnership and has full responsibility for the management of the Partnership. CF Partners, a Delaware general partnership, is the Special General Partner of the Partnership. Collectively, the Managing General Partner and the Special General Partner are called the General Partners. For additional information, including the fees paid to the General Partners for services rendered during 1996, attention is directed to Note 1 to the consolidated financial statements on page 11 in the Registrant's 1996 Annual Report to Unitholders, which note is incorporated herein by this reference.
Directors:
Name Age Position with Managing General Partner
Richard L. Kinzel 56 President, Chief Executive Officer, Director since 1986 Lee A. Derrough* 52 Director since 1995 Mary Ann Jorgenson* 56 Director since 1988 Donald H. Messinger* 53 Director since 1993 James L. Miears 61 Executive Vice President and General Manager-Cedar Point, Director since 1993 Thomas A. Tracy* 65 Director since 1993
* Member of Audit and Compensation Committees
The Board of Directors of the Managing 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 Managing General Partner is elected for a one-year term.
Executive Officers:
Name Age Position with Managing General Partner
Richard L. Kinzel 56 President and Chief Executive Officer since 1986 John R. Albino 50 Vice President-General Manager-Dorney Park since 1995 Richard J. 57 Corporate Vice President-General Collingwood Services since 1992 Jacob T. Falfas 45 Vice President-Park Operations-Cedar Point since 1993 Mark W. Freyberg 43 Vice President-Park Operations- Valleyfair since 1996 Joseph E. Greene 54 Vice President-Maintenance-Dorney Park since 1996 H. John 47 Vice President-Marketing-Cedar Point Hildebrandt since 1993 Bruce A. Jackson 45 Corporate Vice President-Finance and Chief Financial Officer since 1992 Lee C. Jewett 62 Corporate Vice President-Planning & Design since 1990 Daniel R. Keller 47 Vice President-General Manager-Worlds of Fun since 1995 James L. Miears 61 Executive Vice President-General Manager- Cedar Point since 1993 Charles M. Paul 43 Corporate Controller since 1996 Thomas W. Salamone 52 Treasurer since 1982 Alan L. Schwartz 47 Vice President-Finance-Valleyfair since 1978 Linnea 51 Vice President-Marketing-Valleyfair Stromberg-Wise since 1995 Joseph L. von 64 Corporate Vice President-Accommodations der Weis since 1996 Walter R. Wittmer 56 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 Chief Executive Officer 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 ong as it owns more than 690,000 units of Cedar Fair, L.P. Mr. Derrough is also a past president of the International Association of Amusement Parks and Attractions.
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. Mrs. Jorgenson is also co-trustee of a Trust which is a general partner in CF Partners, the Partnership's Special General Partner. 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 at 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, and prior to that was Director- Food Operations for more than five years.
Richard J. Collingwood has served as Corporate Vice President-General Services since 1992 and has primary responsibility for human resources, purchasing and security. Prior to 1992, he served as Vice President- General Services of Cedar Point for more than five years.
Jacob T. Falfas has served as Vice President-Park Operations of Cedar Point since 1993. Prior to 1993, he served as Director-Park Operations of Cedar Point for more than five years.
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. Prior to 1993, he served as Director-Marketing of Cedar Point for more than five years.
Bruce A. Jackson has served as Corporate Vice President- Finance and Chief Financial Officer since 1992. From 1988 to 1992, he served as Vice President-Finance and Chief Financial Officer. 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, and prior to that was Vice President-Operations of Cedar Point 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.
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.
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 1996.
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 named executive officers, are entitled to severance payments and continuation of existing insurance benefits if their employment is terminated within 24 months a ter 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 newly issued 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 a ter the date of grant.
In the event of death, total disability, retirement at age 62 or over, removal of the Managing General Partner, or a "change-in-control" of the Partnership (as defined), all accrued units or 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 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, based on a target annual retirement benefit (including amounts projected to be available from the Partnership's profit sharing retirement plan) of 57.5% of average base salary projected for the three years prior to retirement at age 65. 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 Managing 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 unded 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
Length ofCIAL 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 14, 1997.
B. Security Ownership of Management.
The following table sets orth 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 14, 1997.
(1) Includes 191,510 units held by a corporation of which Messrs. Kinzel, Miears and Keller, together with certain current and former executive officers of the Partnership, 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 165,700, 170,862 and 173,443, 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) Includes 381,988 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.
(3) Includes 150 units held by Mr. Wittmer's son, as to which Mr. Wittmer disclaims beneficial ownership.
ITEM 13.

ITEM 13. LenRELATIONSHIPS AND RELATED TRANSACTIONS.
Attention is directed to Notes 1 and 4 to the consolidated financial statements on pages 11 and 13 in the Registrant's 1996 Annual Report to Unitholders, which are incorporated herein by this reference.
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 orth below, attention is directed to pages 7-14 in the Registrant's 1996 Annual Report to Unitholders, which are incorporated herein by this reference.
(i) Consolidated Balance Sheets - December 31, 1996 and 1995. (ii) Consolidated Statements of Operations - Years ended December 31, 1996, 1995 and 1994. (iii) Consolidated Statements of Partners' Equity - Years ended December 31, 1996, 1995 and 1994. (iv) Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994. (v) Notes to Consolidated Financial Statements - December 31, 1996, 1995 and 1994. (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 or are submitted in a separate section of this report immediately following the Signatures page.
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 or 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 or the year ended December 31, 1992. 4* Form of Deposit Agreement. 10.1* Registration Agreement between Cedar Fair, L.P. and certain limited partners thereof. 10.3* Letter amending Registration Agreement between Cedar Fair, L.P. and certain limited partners thereof. 10.4 Private Shelf Agreement with 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 or the quarter ended October 2, 1994. 10.5 Contribution Agreement by and among Dorney Park Coaster Company, Wildwater Kingdom, Inc. and the Registrant, dated July 21, 1992. Incorporated herein by reference to Registrant's Form 8-K filed August 4, 1992. 10.9 Credit Agreement dated as of October 6, 1994 between Cedar Fair, L.P. and Society National Bank, NBD Bank, N.A. and National City Bank. Incorporated herein by reference to Exhibit 10 to Registrant's Form 10-Q or the quarter ended October 2, 1994. 10.15 Bonus and Incentive Compensation Policy or 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 or the year ended December 31, 1992. 10.16 Contribution Agreement by and among Hunt Midwest Entertainment, Inc. and the Registrant, dated July 28, 1995. Incorporated herein by reference to Registrant's Form 8-K filed August 11, 1995. 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 or the year ended December 31, 1995. 13 1996 Annual Report to Unitholders. 21* Subsidiaries of Cedar Fair, L.P. 27 Financial Data Schedule
* 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 19, 1997
/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.