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Executives

Jim Reid-Anderson - Chairman, President and CEO

John M. Duffey - CFO

Nancy A. Krejsa - SVP, IR and Corporate Communications

Analysts

Afua Ahwoi - Goldman Sachs

Six Flags Entertainment Corporation (SIX) Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference Call June 4, 2013 12:00 PM ET

Afua Ahwoi - Goldman Sachs

I think it's about time to start our keynote, and we are very pleased to have with us today, Jim Reid-Anderson, Chairman, President and CEO of Six Flags, who will be hosting our keynote address today. Six Flags, as you all know, is an owner and operator of 19 parks, 17 located in the United States and one in Mexico and one in Canada. Six Flags emerged from bankruptcy roughly less than two and a half, three years ago, and has since shown impressive fundamental growth, which has been reflected in an equally impressive stock price performance. Throughout this period, Six Flags has delivered a very clear message to have something new in every park, every season, which should resonate with the consumer, and to do so, with a minimal capital expenditure budget, generating strong free cash and returning most of that, if not all, to shareholders.

Now I will stop there, and I will have Jim, who will run through about a 30-minute presentation, exciting one, and then we will come up later for Q&A. Thank you.

Jim Reid-Anderson

Thanks very much Afua. It's great to be here at the Goldman Sachs conference, and I am really looking forward to being able to tell you a little story, and story about the turnaround at Six Flags; and I think the right point to start is by giving you just a little bit of history.

So the first chart that I want to pull up is a fairly dark one, when you look at it. But in essence, the message here, is that if you go back to 2009 and really for the decade before that, the company was really struggling.

There are several factors that led to the company ultimately going into bankruptcy. But there was no direction or limited direction as to what the strategy should be, and we are in a position where, there were very new few offerings for our guests coming to the parks, and ultimately on the next page, you will see that we are in a position where we are sitting on about $2.5 billion of debt, and generating under $200 million of EBITDA.

So if you think about the fact that to service that debt almost ate up all of the EBITDA, and that was before we had even invested in capital, the company was in a very difficult place; because ultimately, just the new investment in capsule increased the debt further, and it was a spiral that was very difficult to get out of.

So then fast forward today, and the chart here headlines why invest in Six Flags. But I think fundamentally, there are several factors that should lead you to look seriously, not just at Six Flags, but also at the regional theme park industry in general. And the factors are outlined here, and I am going to go into them in more detail. But in essence, this is a great industry, this is a tremendous company, a very strong brand, and a maintained [six] lineup of products and substantial growth opportunities still to come.

And there is one secret weapon that I'd add into the mix there, which is unusual versus other companies, and that is that every full time employee at the company, almost 2,000 people are shareholders in the company just like you. So there is very close alignment between employees and shareholders.

So let's drill down in a little bit more detail and break down each of the pieces of not just the industry, but of why Six Flags is such an attractive company to invest in. and first and foremost, I will take you to the page that says attractive industry. And I think this industry has historically been misunderstood. But through the work of Six Flags and others, but also through the work of Steve, Afua, we have done, I think a very good job of raising the profile. And the fact that this has been overlooked, has really led to this perception, that somehow this is a capital intensive commodity industry, which is absolutely not true.

First and foremost, this is an industry that is really well positioned, very stable in a tough economy, and I think for me having come out of healthcare has great similarities in this high recurring revenue, and the potential to generate a lot of cash on an ongoing basis.

In addition, this industry has high barriers to entry, which isn't necessarily the same as the healthcare industry. Here, it is almost impossible, very-very difficult for someone to come in with a like product. I will give you an example, we are the only nationally branded company that operates in the top 10 DMAs. For someone to come in and put a new theme park, in let's say the Chicago area, not impossible, but very difficult to do.

First of all, you have to find $300 million to $500 million. Second, you'd have to get all the government and local authority approvals to make that happen. We think it's very-very tough, and in the last couple of years, where people have tried to do it, they have failed. So the high barriers to entry, high recurring revenue, very stable, and a tough economy. That's the industry, great place to invest.

Second, Six Flags itself is an exceptional company. It is as I said, not only a national brand, but there is recognition internationally, and we have a park in Canada, we have one in Mexico; but we found that historically, there was a lack of understanding, not just externally, but also internally to what the company's vision was; what were we trying to be!

So the chart that's up here now, is simply to outline that a couple of years ago, we outlined a very simple strategy for the company. Only to be the leader in regional theme parks. Now prior to that, we were trying to do many things, we were trying to be a broad media or entertainment play, and we were getting distracted.

By having this focus and having a handful of key imperatives that we were working against, and that we had metrics against, we have been able to turn the company around.

So let's drill down a little further on that. The company itself is very well positioned. We are only in North America. We have 18 parks in total, and we are diversified, and that they are across the country, and across North America. In total, we grew about $1.1 billion in revenue and we have just under 2,000 full time employees, and we flex up and down as necessary with our seasonal employees, and we manage that very-very effectively.

We have a lineup of thrill rides that's incomparable; and I am not just talking about historically great rides. Everybody has heard of Kingda Ka which is the tallest, fastest, thrill ride. But we have recently had many innovations that have been recognized. So you will see the new Texas Giant voted Best New Ride; El Toro, Best Wooden Coaster. Our Bizarro in New England, not that far from here, voted the Best Steel Coaster. So we have a reputation of having thrill rides that are just phenomenal. Every park has some.

But I think the beauty of Six Flags, which many people miss is on the next page, which is concurrently, we have a lineup of shows and attractions that make an outing not just for a teenager, but for a family, an exceptional experience. And this chart shows you what we have. We actually have animals in two of our parks, both marine and land. We have the largest Safari Park outside of Africa. We have water parks that are simply phenomenal. We have show parks that do shows, several shows, four-five shows on any one day. So it's an experience, and it's an outing for families and teams to be able to experience.

If you look at the results of the changes that we made on our strategy, we are seeing great success. So the page that I have up here, guest satisfaction, shows the performance improvement from a guest satisfaction perspective, over the last few years. We used to survey 16,000 people, we now survey 300,000. We know daily, we can tell our park presidents what the feedback is, and surveys taken the prior day, and they can make changes as appropriate to satisfy guest's questions or suggestions.

So, looking forward, I feel very confident about the future of the company, and I feel there are numerous areas where we have growth opportunities, and I am going to outline those step-by-step.

First, a video. So the video, those of you online missed, outlines some of the capital that we introduced in 2012, and what we have coming in 2013; and the reason that I wanted to show it to all of you, is to outline part of that growth initiatives that I talked about before the video showed; and that is that we have introduced news in every park, and this is quite different to the company was run historically.

If you went back over the last decade, there might be one or two parks that had some new capital in any one year. Now we have 18 parks, getting something new every year, and we would have parks go a decade without something. So you can't really attract guests, if you have nothing exciting on the horizon.

So what we've done, and now you will see this online, is really focus around innovation, and how we can make innovation a core part of everything we do; and if you look at the chart here, the news in every park strategy falls out of it, but we have now got parks looking five years out, and planning how they are going to invest money, and planning it on the basis of what our guests, surveys and our own demographic assessments are telling us. So we are able to look at what is going on demographically, both from an income perspective, also from a population perspective, and then design products to be able to match those changes, and that's what we have done.

And you can see from this chart, that we have spent 60% of our capital on innovation in new products, and the total spend is 9% of revenue, or roughly $100 million.

So now for those of you online that missed the exciting video, I am going to describe a little bit on the capital front, the sort of innovation that I am talking about. In 2012, the video showed you that we had the best lineup in a decade, and this chart kind of summarizes byparts of the products that we have. Some of the key items, and you saw it on the chart that there are some amazing things here. Drop of Doom at Magic Mountain which is the thrill capital of the world, has the highest drop of any ride on earth. So we are able to combine thrill with shows, with new products, from an attraction perspective and we can mix it up by park based upon the demographic requirements of the park.

If we move to 2013, I believe we have got the best lineup in the company's history. The first chart up here, is Six Flags Over Texas, which is the first Six Flags park, and we are putting in a Sky Screamer, which is a giant swing ride. Think about the sort of swing that you went on as a child, and take it up to 400 feet going round in a circle. It is an amazing experience, this is twice the height of Statue of Liberty, just phenomenal.

In Los Angeles, at Magic Mountain, we are going to have full throttle, which is the tallest, fastest looping coaster in the world, and I think this park has had an amazing couple of years, and this will continue on the back of some very smart investment. And I want to explain, it's not just about putting a coaster in. When we make a change like this, we redesign whole areas of the park, so there will now be a full-throttle area, and not only do we do the coaster, we do retail, we do restaurants, and we make this an experience to people, as they go to the park.

In New Jersey, Great Adventure has the largest Safari outside of Africa, in the world; and we have this Safari for a number of years, but not that many people ever actually drove through. So what we have done, we have converted this to a ride like any other in the park, you go to a gate. But now, we have got off-road vehicle that guests get on to, and they have guides who take them up close to animals. We actually stop off, have a little camp called Camp Aventura, and there they can feed giraffes, they can pat animals, and they can buy icons that we sell there. We also have a shop, as they exit the ride. So it's just like any other.

It increases throughput in the park, makes for a great family and team experience, and is exactly the sort of thing that our guests want. But we already had the asset, we are simply using it more effectively.

In San Antonio, we are putting Iron Rattler in. Iron Rattler is a wooden coaster that we have taken and through an innovation that we have, we put a steel track on it, and it will be the first wooden coaster in the world, where you can do a barrel roll, in essence, going upside down. So you can imagine the reaction, especially from ACErs who are real hardcore fans of roller coasters, very-very positive to this product.

In San Francisco, we have got Cirque Dreams Splashtastic, which is a combination of acrobats, aerialists, dolphins, all-in-one show and it started, it's already started and getting amazing reaction from guests who are seeing the show.

In Chicago, we are doing a nighttime show called Ignite, which will combine numerous state-of-the-art technology, dancing, pyrotechnics, fireworks, you name it, it's all going to happen, and we are doing that there; and some of you may be thinking, well you have got a mix here, why would you do a show? You do the attractions based upon your local demographic and what guests they are looking for, and in the case of Chicago for example, by having a show at night is very modern, technologically advanced, we will actually be able to keep people in the park longer, and they spend money, the longer they stay in the park.

We don't just do thrill ride, shows, we also have amazing water parks, and every situation we have, for example here, I am showing you in Massachusetts, New England, we have got Bonzai Pipeline, so you have got six racing [shoes], again creating more capacity utilization within a park, and allowing people to have some fun.

So that's the innovation, as it relates to rides, shows, attractions. We also are innovating, in terms of how we go to our guests. We have an amazing sitting, pricing, technology in place, we have used it for a number of years. We also have built CRM capability beginning a couple of years ago, that allows us to go directly to our guests, and all of our season pass holders, we are talking about millions, we are able to go to and target specifically how we want to communicate with them.

And part of the big learning in this process was not having a national campaign or a national approach, which is what we did pre-2010. One campaign Mr. Six, which shows up on ht left hand side of this chart. Our campaign is now local. The heroes are local parks, most guests come within 100, 150 miles of the park. They drive. And so, we need advertising that is local in nature, and that's what we do now. We have this Go Big! campaign, and it targets our local guests with local TV, local radio, cinema, billboards, internet, versus just a national TV campaign, which was not very effective.

We also have initiated very strict pricing disciplines; because, quite honestly in fairness, Six Flags led the process of price reduction and discounting, which was part of the company's downfall. So the strict pricing comes in two forms, it comes in an increased step-by-step in main gate, pricing, season pass pricing, and group sales pricing. But concurrently, we have worked to diminish Friends discounts that exists, and we show you here, one example which is a Coke can, as we have gone through the last few years, how we have fenced and diminished the discounting opportunity that exists on the back of a Coke can.

We still will discount, we will just take it down step-by-step. Culmination of price increases, less discounts, allows you to get price improvement. And I want to point out that I told you earlier, we do 300,000 surveys. Those 300,000 surveys even with the price increases we have taken and will continue to take for the next few years, we have seen value perception improvement every single year, including this year. So people do not think we are gouging them, they are not reacting negatively, our guest satisfaction [tours] are increasing.

Part of our growth, going forward and our growth in the last couple of years, has come because we have had a focus on season pass penetration, and this chart is fairly self-explanatory, left hand side lists all the reasons why season passes are great, and the right hand side shows the penetration in terms of guests that are season pass guests. And I must tell you, that this is likes pricing, not just a secret weapon of the past, it's the weapon for the future; because we have a pricing opportunity, and concurrently, we have an opportunity to further penetrate season pass sales, because every season pass holder that visits, generates higher revenue, higher profitability for the company over a season, and so this conversion is really a very important process for us, and we will continue to do that.

We also focus on in-park revenue growth. Left hand side of the chart shows the growth. It has been consistent in total dollars and in per cap. We have more than 2,000 locations, and we have all sorts of retail, restaurant offerings. We are literally consistently introducing new products and one innovation here that we tested last year in two parks and now we have rolled out across all parks this year, is our all season dining pass, wherefore between $70 and $90 or $100 depending on the park, you can dine and have lunch and dinner anytime you visit, if you sign-up for this. And what we found is people are signing up, this will build momentum over time, and that doesn't necessarily stop them spending on snacks when they are in the park either, they still come with money, and we put these passes on to their season pass. It's all on one card for them, they don't have a hassle factor.

We also have a corporate alliance team that are amazing. They operate at a national and a local level, so that we could optimize both -- and in essence, what we do is we go to big companies and we say look, we have 26 million people that visit our park. We have 1,000 screens, digital, billboards, menuboards. We have the opportunity for you to advertise, and so people pay us money to be in our parks. Coca Cola, Discover, you see the names here, M&M, Mars, and we have phenomenal relationships with these companies, and we utilize our media network to be able to help sell their products in park.

The next page is the financial piece, and the chart that I am going to show you, show tremendous growth, and I want you to know that I feel very confident about the ability to continue on the trends that we see. But when I joined the company three years ago, we were at about 23 million in attendance, and people were saying, you will never turn that around. We are now at an LTM, last 12 months, 26 million attendance, revenue of $1.1 billion, and that has come not only through attendance growth, but through the pricing changes that I described earlier and the season pass penetration.

Our cost management has led to overall costs, not only in total dollars, but also as a percentage of sales increasing. We have gone from 75% of sales to 61%, and we have used various techniques to be able to drive costs down, and we will continue to do so.

Our EBITDA, as you can see on the next chart, has gone from 24%, which really were, though, I think you'd agree, the sick child of the industry and now, our EBITDA margin on a comparable basis, 39.1% is the leading margin in the industry, and once again, I don't see this as a camp, I think we can continue to drive margin improvement at the company over time, through the assets that I described, especially around pricing and season pass penetration.

We had a lot of debt. I showed you the chart earlier, burning through cash, almost $2.5 billion. A lot of interest that we are paying, we have transformed the balance sheet. We recently did a bond offering, locking in at very low rates. So that we have got protection for the future, if rates pop. The company is in a very strong position financially. And I think one of the interesting things is we have got the lowest leverage rate in the industry, 3.2 times, even with the bond offering that we did.

Our cash EPS has seen tremendous growth. We started 2010 here, but if you went to 2009 and before, the company generated no cash. But this is a cash generating machine, and you can see here the trends that we have gone through, and most recently, we are up to about $.50 per share cash EPS. When you go through a bankruptcy, you go through fresh start accounting, and you have to step up your assets. So looking at traditional EPS is not the way to assess a company like ours.

Over a period of time, six, seven years, when those two equalize, D&A equalize with the CapEx, then its fine. Early on, you need to look at cash EPS, and you can see here what we have done. So D&A has been artificially high, and we are generating about $4.50 cash EPS LTM. We have a goal, something called Project 500 which is an aspirational target by 2015, and that that should get us, if we achieve it, to around $6 per share cash EPS. The details are shown on this chart.

The other thing that's a big item, we have about $1 billion NOL, which provides us many years, we think at least five years of very low cash tax payments, and again, puts us in an enviable position for the long term.

We pay a dividend, $0.90 per share per quarter and as you look at the right hand side of this chart, you really begin to understand that close alignment between shareholders and employees that I described earlier. When you assess the fact that the company, when we joined, was worth $700 million or $800 million out of bankruptcy, just in the last year or so, we have given back shareholders through dividends and stock buybacks more than that.

About $900 million and our goal is very simple. We will do everything we can to build the company for the long term to provide an excellent guest experience. To innovate, to invest the right way, but every excess dollar over and above, what we need to run the company, will go back to shareholders, through dividends or stock buybacks. That's what this chart shows we have done, and we will continue to do that.

This chart really outlines some of the figures that I showed you earlier, and talks about the sort of comparables. The $4.50 in dividends, the cash yields, and the net leverage.

I want to just close by showing one chart; Winston Churchill said success is never final, and a lot of what you've heard from me, very positive, very upbeat, is because I believe it. But I also want all of you to know that, at our company, no one takes anything for granted, and so we know that there isn't a day that goes by, that we don't need to set the bar higher, and take it up another notch.

So you heard me talk about Project 500 earlier. You heard me talk about the goals that we have, trying to get to $6 a share. We will work very hard to get there and we will work very hard to get there as quickly as we can. But, we will also look at the point that we do get there, at resetting the bar even higher, from an organic perspective. We never stop trying to make this a better company. Not just for our guests, for our employees, but for our shareholders.

So that's my last chart flow. It's probably a good time for you to come up and we can do the questions, but at the end of the day, we are all about focus, focused on regional theme parks, taking care of our guests, and driving shareholder value. That's really what we want to do. So Steven, Afua, coming up and I think John Duffy our CFO, and Nancy Krejsa, in charge of Investor Relations coming up now.

Question-and-Answer Session

Afua Ahwoi - Goldman Sachs

While we get the mike up, we will see if anyone has any questions.

Jim Reid-Anderson

Yeah sure, I will stand. Steve?

Afua Ahwoi - Goldman Sachs

Why don't we start with you?

Unidentified Analyst

Well first of all, congratulations on the success story, and I am wondering if you could explain to us a little bit about the competitive environment, how orderly the increasing capacity from Six Flags and your competition, and if you can give us an overall picture about this subject? Thank you.

Jim Reid-Anderson

Sure. I am happy to do that. I think one of the things that's really important to understand. You heard me talk about the fact that -- I am very proud of the fact that we have a North American presence, we have 18 parks, and that we are geographically diversified and that we are in the top 10 DMAs. I think one of the things that people don't understand, which makes this industry even more powerful, is that there is no true direct competition. In other words, with the exception of may be one location, which is California, we have no real direct competition.

So our competition isn't Disney. It is really local alternative, such as, sporting events, or movie theaters or even playing the Xbox or the PlayStation. Those are the alternatives competitively. And so our goal is to make sure that the awareness of the industry and the Six Flags growth, which is what we have been trying to do, and to attract that guests that we have lost in the prior decade, because we weren't really focused on giving them the reason to come back to our parks.

So I think the awareness of the industry is building. We are doing a better job, and we will continue to do that. But with the exception of California, may be a little bit in Texas, we really have no direct competition within the industry.

Afua Ahwoi - Goldman Sachs

We have another question from the audience. This one here.

Unidentified Analyst

Question, in your industry, where there is so much interaction with the public and I am sure, an important focus on security, how much of your current EBITDA would you say is perhaps compromised by incremental security costs and elevated insurance premiums to protect the company for certain casualty situations?

Jim Reid-Anderson

That's a really interesting question, and I am going to start by giving you some facts that I think will be interesting to you. You are a 100,000 more likely to be involved in a car accident than to have something happen to you at a theme park. You are actually 100 times more likely to get hit by lightning outside, than you are -- and actually, you are seven times more likely to have an incident with a shark, than to have something happen to you in a theme park.

So I think that -- but I understand your question, the perfection is there, because there have been incidents in the past, and there will be incidents in the future. It's a function that anywhere you go, there could be something that will happen. But I have to tell you that the number one priority of the company by far is safety and security. That is the mantra by which we live; because we know that our brand is built upon that, and so our focus is on making sure that we have the best security, the best safety measures in place.

The guy who heads security at our company, is also the leader of the industry group, of all; destination and theme park companies. So I know we have a great focus in this area, we are very well positioned, and I do not believe we are encumbered in any way by costs associated with this. Its part of our run rate, we stepped up over the years, both on a safety and the security front, there is no incremental cost and we watch this very carefully. And by the way, the number one rating we get on our guest satisfaction surveys by 300,000 people, it's almost a perfect score with safety and security.

Do you want to answer that from an insurance perspective John, because again it's a surprise, right? The insurance aspect, very --?

John M. Duffey

Yeah, I would say that, obviously we are covered from any type of incident from an insurance standpoint. But overall, because of the history, not only with our company, but with the overall industry, the insurance cost is fairly low.

Unidentified Analyst

[Question Inaudible].

Jim Reid-Anderson

It's an excellent question. For those of you online that may not have heard the question, the question was how many times in a season do our season pass holders come, and then what are we doing to encourage incremental attendance? In a very simple sense, we don't give a specific number, but it ranges between three and four times on average. Believe it or not, some season pass holders may come only once or may not come at all, they may buy but not come, and then we have others who come 15 times. So the range is pretty dramatic, but on average a year, between three and four.

Given that we -- you heard me talk about the importance of season pass, to our success over the last few years, and we know it's going to be important going forward. We have teams that this all they focus on, its how do you drive incremental season pass penetration, and we do it in numerous ways. So I can only give you a very high level view, but in essence, innovation is number one. People like something new, so that news in every park [out there], we have now tied in the capital announcements, the new product announcement we tie in to the first day that you can buy your season pass for the following year. So we make it a must-do event to know what the new capital is, and buy your season pass, that's something we only started doing in the last year or so.

We have now got millions of email addresses of season pass holders, and we've got a team that is focused on how to attract them, so we specialize in email, target at those people knowing what they want, what they like, and then we go to them, to remind them about not only their season pass buying it, but if they have already bought it, we then start upselling other products.

So there are various ways that we sell season passes, both live and online, and that is designed to encourage more. So we use pricing as another option, not discounting, but what we do is, we offer value programs. So in other words, we have an Easy Pay that we had last year, that allowed people to buy on a three, six, nine, or 12 month basis. We tested each one of those in different parks to see what the reaction was. We have now got that in every park. This year, we've launched membership programs, which allow people to simply sign up, and then they would just charge monthly. So the average cost drops. We are seeing great reaction to that. Did I miss anything, Nancy?

Nancy A. Krejsa

I would say the other thing within the park, you touched on it a little bit. But we do have Fright Fest, which is a excellent opportunity for guests to come back. We transform our parks into scare zones and fight zones, and we also offer a Holiday In The Park program, at our southern parks, so over the winter holidays, guests will come in and then throughout the season, we are always developing specializations, whether its Mardi Gras or philanthropic activities that help draw guests in the park, and we use the communication tools that Jim talked about, to reach out to our seasoned guests in form of these events. We have concerts, shows, a number of things, that will help make sense for season pass holders to visit time and again.

Jim Reid-Anderson

And again to put into perspective for you, we definitely had great success. The chart I showed, showed the increase over the last few years, 27% of guests being season pass holders. 2012, it was 44%. Our deferred balance at the end of the quarter was very strong, so we have seen continued strong season pass sign up. So we are feeling very good about our -- not only the approach that we have taken, but the outlook that that brings with it.

Unidentified Analyst

You had a slide with the EBITDA margins, showing it’s the highest in the industry, but it's -- you implied there is more room to go. So just wondering how much more room there is?

Jim Reid-Anderson

We don't give guidance on a specific basis saying this is going to be X percent growth. I am sorry, we just don't do that. The only guidance we give is the $500 million that I talked about earlier. But what I can say is that the initiatives that we think will drive margin, as we successfully execute them, will be pricing up, which we have done, not only last year, but for this year in essence, and we will continue to do; reducing discounts, that's very important, and then, season pass holders actually help to increase our overall margin. So, the more we penetrate, we gain margin improvements there as well.

So three initiatives and then obviously, tightly managing costs.

Unidentified Analyst

And how far are you in terms of raising prices and reducing discounting?

Jim Reid-Anderson

Quite honestly, people ask this all the time. They put it into baseball terminology, when I am used to cricket.

Unidentified Analyst

I purposely didn't do that.

Jim Reid-Anderson

But baseball terminology. Really, I would say that, probably in the fourth inning of pricing -- no, obviously the economy can change at any point, and it becomes much more difficult, but we are not seeing that, and I think that we have -- we hope we have a number of years ahead of us, where we can take price up, and manage yields.

John M. Duffey

Just to add on the margin point, when you think about the business, we talked about the pricing power. So for every dollar that we can get in pricing yields is 100% that drops to the bottom line. So when you think about 26 million in attendance, that's $26 million, that basically drops to the bottom line. When you think about things like attendance, we have an infrastructure in place. But we are running well below maximum capacity.

So, as we continue to grow attendance, there aren't big costs or big infrastructure adds that we need to make. So there is a very-very high margin associated with ever incremental visitor as well. In park, very high margins. So we think that with all these things that Jim has talked about, in terms of our overall strategy, they will be able to take that margin up even further.

Jim Reid-Anderson

We also want you to understand, Steve, you want to promise -- we want you to understand that part of what went on historically was there was never any cross park information shared. So people didn't really know what the right benchmark was. So we benchmark now, and we have worked very hard to lower the breakeven point at every park, and we continue to do that to ensure that we know what the leading standard is, and we really work hard to get everybody up across the board. Sorry Steve, I interrupted you?

Unidentified Analyst

That's okay. So two things, first, what's the range around that margin within all of the parks? Are they pretty close to each other, or is there 100 basis points or 500 basis points variance between different parks?

John M. Duffey

I won't give you exact numbers, but what I can tell you is there is a huge range. So there are some parks that have extremely high margins, and there are others that are lower, and so the range is bigger than you might imagine, which to me is a massive opportunity.

Unidentified Analyst

Okay. I thought that was the answer. Is there anything structural? For example, we do cover SeaWorld, and because in San Diego, they lease the property from the city, so that's an expense that shows up, before EBITDA margin, it shows up in their operating expense, and they also have the cost of the animals, which also reduces their margins. Are there structural things within the Six Flag system, that might prevent one part from achieving a higher margin than the highest park?

Jim Reid-Anderson

There are always some structural and scale differences that exists. But what I can tell you is that every single park increased margin last year, and our goal is to continue to have every single park increase margin. Now, I am not going to comment on SeaWorld, I think it's a fantastic company and part of this industry that needs to be pushed up and have a higher profile. But what I will tell you is that we do have animals, as you know, in two of our parks there, and the reality is that with those parks, it's a little more challenging because you have to look after the animals 365 days, it adds complexity. We have at least one park, where we are in essence, we are renting or leasing the property, it becomes a little more challenging. But it's not a challenge that stops you from being able to drive margin improvements. You can still drive margin improvements in every single park, and that's the opportunity that we have.

Afua Ahwoi - Goldman Sachs

I think one of the things I wanted to focus on was, I think, beyond the internal organic generation of cash, I think you were recently on TV talking about land sales, and the potential to may be derive some cash on that. So maybe can you delve a little bit into that, can you give us a number on what the potential could be, or how many acres we are talking about? Or if it's [real], do you have people coming to you, asking about those -- that excess land?

John M. Duffey

We have approximately 1,100 acres of excess land today, that's really in three markets. It's New Jersey, D.C., and St. Louis. As we think about expansion within our parks, there is really no need to -- I talked to you earlier about capacity, and having enough capacity, to continue to grow attendance. So there really is no need to expand the footprint of any of our parks today. So, with having said that, we would look at an opportunity to potentially when the markets improve, to monetize those assets for cash.

Jim Reid-Anderson

We can't give you a number, but what I can say is, they are actually in great locations. So Washington, very close to the Central Washington; Jackson, New Jersey. I mean, they are great locations, good assets, but as you know, the last few years have been rough from a real estate perspective, and we'd rather optimize whatever we do for our shareholders.

Afua Ahwoi - Goldman Sachs

The other question I wanted to ask was on the NOLs running out in the -- in about five years. That's one of the questions we get all the time, is that obviously your cash flow profile may not look as attractive, once those expire. Can you talk about -- to the extent you have publicly commented, any plans you have to continue to optimize your tax level?

John M. Duffey

Sure. Jim touched on this in the presentation where, as part of the restructuring, this company was able to maintain an excess of $1 billion of tax loss carry forwards. We anticipate that those loss carry forwards will shelter our income from U.S. tax for at least, the next five years. We constantly look at tax planning opportunities, whether it'd be to extend those loss carry forwards, or to minimize the amount of tax that we pay and obviously optimize cash generation, when those NOLs expire. So we look at all kinds of tax planning opportunity. I can't give you any specifics at this point in time, but we will continue to look at whether to maximize the usage of those NOLs, structural type changes, I assure you that we are looking at all opportunities.

Unidentified Analyst

Can you talk to us a little bit about how you are managing these multiple pricing strategies that you have going. It's starting to strike to me as almost like a hotel company, where they have to manage their yields and yield management. Can you just talk about that, and what kind of infrastructure you are putting in, so that you can know whether the cutting of the annual pass, let's say on May 15, versus keeping it to May 30 makes sense, and how quickly -- and then as a second item, is there an opportunity at some point, where you might be willing to reduce prices in anticipation -- daily price, in anticipation of maybe slower weekend, so you know, where you have some sense of -- what this Saturday is going to look like, and you send out an email and you say, instead of it being $80 or $60 for a visit, it's going to be $30 or $40 if you come this weekend. Can you start to do those kinds of pricing policies, which other industries can do?

Jim Reid-Anderson

We have the ability to do that right now, I am starting with part two of your question, we can do that right now, we will not do it. So you are really referring to dynamic pricing and bring into effect that. We have had the ability and have used dynamic pricing for the last two years. Fright Fest, we've used it very actively, and we used it primarily to affect the level of our discount, and what we do is, in essence, price above.

So given the history of the company, and the tendency of the company to discount historically, we are very disciplined on price, and as I talk to people who have been in the industry 40 years, and really track what's going on, what I found is, that discounting at the last minute, does very little. You generally do not get much of a reaction to it. So in essence, you are giving money away. So even though we can't do it, we'd be very reluctant to do it, unless there is one specific circumstance, that really makes sense in a local market, so that's part two of your question. We can do it, we generally price up, rather than down.

The first part, one of the beauties of this company, coming in two and a half, three years ago is that I was amazed, not only by the quality of the people, but by the infrastructure that existed, tremendous amount of data. And so the pricing mechanisms were there, and all we have done is enhance them further.

We have a very small team in marketing that leads that process around pricing, and it's done on a North American basis, so that we really understand what we are doing, how we affect different markets in different places.

We also have a couple of people in every single park, who are pricing responsible, and everything is coordinated through headquarters; and so we are able then to ensure that there is an umbrella on pricing, and that every aspect, whether it's group sales, season passes, daily or any other opportunity that we have, is coordinated, and you never get a situation where you have got some gas station offering a better price that you can get online, let's say. We are very careful about that.

We have no need to invest any more in our ticketing platform, and in our PRM platform, we are already there.

John, do you want to add to my answer there, especially part two, to Steve's question?

John M. Duffey

Yeah, around the -- in terms of the systems, Jim indicated, we have great systems in place to allow us to do the dynamic pricing today. But as Jim indicated, our goal is to -- when we can, take price up, and not have kneejerk reactions to attendance or potential softness in attendance to throw out some discounts. I will give you an example where we were disciplined, and I refer back to the third quarter of 2011 where we did see some softness in attendance because of the hurricane that hit the East Coast; and so a lot of people said, are you going to go out there and offer some discounts to try to win these people back. We said, absolutely not, we are going to stay disciplined. We think we can get these people back, and in fact we did. In the fourth quarter, we got all of that attendance back and some, in the fourth quarter without having to do any discounts.

Jim Reid-Anderson

Steve, there is one other element, which is that we are trying to increase our penetration of season pass holders, whereas -- as you know, 44% now. But as that continues to grow, those people are going to come, they are just going to come when they want to come. So obviously offering discounts would make no difference to them, because they are already locked in.

Afua Ahwoi - Goldman Sachs

One of the questions that we have been asking, because we now have SeaWorld and we have Cedar Fair is you all broadly talked about the normalized capital expenditure levels, so you have 9%. I think FUN also has 9% and SeaWorld has talked about the 10% of revenue going towards capital expenditure. Of both of those companies, we are actually in a period now, where that is actually a little bit elevated, because they are having to either put out a bigger traction, or do some reinvestments. So when you think about the 9% that you've laid out, is that truly a normalized level or should we accept that may be every couple of years, you may have to step it up a little bit to invest in something big or something a little different than you have budgeted within, what you just showed us up on the slide?

Jim Reid-Anderson

I love this question. You may remember Afua, both of you were tracking us early on, when we established the 9% and it has become the standard. My view is very simple, I know John and Nancy echo this, but the 9% is the standard for us, it was what we needed to invest annually, to show to investors that this is a very stable business and there was no need to spike up and down. If anything, if we continue to have success, our view is, because you have got a larger revenue base, you might be able to scale that down a little bit. So we are sticking at 9% now. In time, we would look at whether we might take it down. I see no reason to take it up.

John M. Duffey

I would echo that, I think from a system perspective, we are in great shape. I think we are one of the leaders in the industry, as it comes to systems from a CRM standpoint or etcetera. So I don't think there is any big major investments that we need to make on that front; and from a marketable capital standpoint, I think one of the things -- and I think it was self-inflicted, if you look at the history of this company was that -- there was some big swings in spending, some big projects at few parts, $55 million on one roller coaster. When you do that, you start the rest of your parks. So by having now a five year strategic plan in place, and included with that, is a five year capital outlook, which this company had never had before, it allows us to be very disciplined on that 9% and get the new news in every park every year with that. So we don't anticipate that we will see any spikes up.

Nancy A. Krejsa

With that, we are still introducing big rides that you saw in the video. We have three or four world record breaking rides that were introduced --

Afua Ahwoi - Goldman Sachs

How much does a ride like that cost, the ones you showed us?

Jim Reid-Anderson

They vary. So the Drop of Doom ride that I showed earlier, 400-feet, world record. It's actually fairly low cost, because we built it off another existing ride, which had never been done before. We simply had the drop go off our Suit Man ride. Guests love it, because now you have got Lex Luther battling Superman, basically two rides, but in one. So it's absolutely the right approach, everybody has to ride both. But it's a lower cost option, because you don't need to build that structure.

John M. Duffey

So it's all about having that five year look, getting it out early, so you can negotiate better deals with your vendors. But also, as Jim said, just being creative about how you spend your money, whether it'd be the Drop of Doom with the existing infrastructure. We also will take out older rides out of parks, refurbish those, rebrand them, put them into another park. It's a brand new ride. A brand new experience at a fraction of the cost. So Apocalypse which you saw in the video, is one example of that. Other is the Iron Rattler, which we just launched in San Antonio. We took an existing wooden roller coaster and we put an entirely new track system on it, so that we can get deeper drops, more inversions, and again, it's a brand new experience to people who can go out there and market, but at a fraction of the cost of what our new standalone ride would cost.

Unidentified Analyst

Actually, when I was looking at that slide, I was interested in the water tube ride, which I am assuming, doesn't cost --

Nancy A. Krejsa

They don't cost a lot. Yeah.

Unidentified Analyst

How do you measure the return? I understand the low cost or being able to push down the prices of spending money, but how do you measure the incremental value of that particular roller coaster or water tube or whatever it does?

Jim Reid-Anderson

We have very strong financial discipline, Steve. So not only does every park have to present its capital in advance, with a financial projection attendance revenue, etcetera, that goes with it, but we then go back and post audit to make sure that that actually came through. So we measure it specifically. I think what you are saying is, you can't measure it to that one ride, but you can get a good sense, because you know how many people use it, and if it's popular, you can benefit.

Unidentified Analyst

[Question Inaudible].

Jim Reid-Anderson

For those of you online, and also we have to watch the time I think here, because the next -- I think the next group is up. But the question was around parks that are only open seasonally. We have many parks that we shut down in the off season, and we do that and we save a lot of money. That's part of the way that we are able to drive down the breakeven point and really increase our profitability. There are times however we will use those parks for events, to be able to even further reduce costs.

In parks that traditionally have not been open, we have added something called Holiday In The Park which is like a holiday Christmas-themed event, that will allow us to open up the park in the winter, and allow people to have a winter experience. So we are adding those step-by-step to really increase the revenue and the profitability.

Afua Ahwoi - Goldman Sachs

All right. I think that would be our last question. Thank you.

Jim Reid-Anderson

Thank you very much.

John M. Duffey

Thank you.

Jim Reid-Anderson

Take care.

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