General - Basis of Presentation

9 Months Ended

Oct. 01, 2023

General — Basis of Presentation

We own and operate regional theme parks and water parks. We are the largest regional theme park operator in the world, and we are the largest operator of water parks in North America based on the number of parks we operate. Of the 27 parks we own or operate, 24 parks are located in the United States, two are located in Mexico, and one is located in Montreal, Canada.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the SEC.

Our current fiscal year will end on December 31, 2023. This Quarterly Report covers the period January 2, 2023 – October 1, 2023 (“the nine months ended October 1, 2023”) and the period July 3, 2023 – October 1, 2023 (“the three months ended October 1, 2023”). The comparison period in the prior year covers the dates January 3, 2022 – October 2, 2022 (“the nine months ended October 2, 2022”) and the period July 4, 2022 – October 2, 2022 (“the three months ended October 2, 2022”).

The 2022 Annual Report includes additional information about us, our operations and our financial position, and should be referred to in conjunction with this Quarterly Report. The information furnished in this Quarterly Report reflects all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the results for the periods presented.

Results of operations for the three and nine months ended October 1, 2023, are not indicative of the results expected for the full year. Our operations are highly seasonal, with approximately 70% - 75% of park attendance and revenues in a typical year occurring in the second and third calendar quarters of each year, with the most significant period falling between Memorial Day and Labor Day.

Certain previously reported amounts have been reclassified to conform to the current year presentation. During 2023, we reclassified the net pension-related expense (benefit) to other (income) expense, net, in our consolidated statements of operations. We have separated “(Gain) loss on disposal of assets” from “Other” on the condensed consolidated statement of cash flows.

Revision of Previously Issued Financial Statements

During the third quarter of 2023, we identified an accounting error for our stock-based compensation expense related to the recognition of expense for dividend equivalent rights ("DERs"). The error primarily relates to the inadvertent reversal of stock-based compensation expense for vested DERs for periods beginning in the first quarter of 2020 through the fourth quarter of 2022.

We have assessed the error and concluded that it was not material to any prior periods. However, the aggregate amount of the error would have been material to our condensed consolidated financial statements in the current period. Therefore, we have revised our previously issued financial information. Prior periods not presented herein will be revised, as applicable, in future filings. Refer to Note 10 - Revision to Previously Reported Financial Information for additional information.

a. Consolidated U.S. GAAP Presentation

Our accounting policies reflect industry practices and conform to U.S. GAAP.

The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. We also consolidate the partnerships that own Six Flags Over Texas ("SFOT") and Six Flags Over Georgia (including Six Flags White Water Atlanta) ("SFOG", and together with SFOT, the "Partnership Parks") in our unaudited condensed consolidated financial statements, as we have determined that we have the power to direct the activities of the Partnership Parks that most significantly impact their economic performance and we have the obligation to absorb losses and receive benefits from the Partnership Parks that can be potentially significant to these entities. The equity interests owned by non-affiliated parties in the Partnership Parks are reflected in the accompanying unaudited condensed consolidated balance sheets as redeemable noncontrolling interests.

b. Income Taxes

We recorded a valuation allowance of $99.4 million, $96.0 million and $109.0 million as of October 1, 2023, January 1, 2023, and October 2, 2022, respectively, due to uncertainties related to our ability to use some of our deferred tax assets, primarily consisting of certain state net operating loss and other tax carryforwards, before they expire. The valuation allowance is based on our estimates of

taxable income by jurisdiction in which we operate and the period over which our deferred tax assets are recoverable. Our projected taxable income over the foreseeable future indicates we will be able to use all of our federal net operating loss carryforwards before they expire.

We classify interest and penalties attributable to income taxes as part of income tax expense. As of October 1, 2023, January 1, 2023, and October 2, 2022, we had no recorded amounts for accrued interest or penalties.

c. Goodwill and Intangibles

As of October 1, 2023, the fair value of our single reporting unit exceeded our carrying amount. We have one reporting unit at the same level for which Holdings common stock is traded and we believe our market capitalization is the best indicator of our reporting unit’s fair value. As of October 1, 2023, we did not identify any triggering events that would require a full quantitative analysis to be performed.

d. Long-Lived Assets

We review long-lived assets, including finite-lived intangible assets subject to amortization, for impairment upon the occurrence of events or changes in circumstances that would indicate that the carrying value of the asset or group of assets may not be recoverable, “triggering event(s)”. Recoverability of assets to be held and used is measured by comparing the carrying amount of the asset or group of assets to the projected future net cash flows expected to be generated by the asset or group of assets. If such assets are not determined to be fully recoverable, any impairment to be recognized is measured by the amount by which the carrying amount of the asset or group of assets exceeds its respective estimated fair value. Assets held-for-sale are reported at the lower of the carrying amount or fair value less costs to sell. As of October 1, 2023, we did not identify any triggering events that would require a quantitative analysis.

e. Earnings Per Common Share

Earnings per common share for the three and nine months ended October 1, 2023 and October 2, 2022, was calculated as follows:


	Three Months Ended				Nine Months Ended
(Amounts in thousands, except per share data)	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Net income attributable to Six Flags Entertainment Corporation	$	110,700	$	113,507	$	61,395	$	91,279

Weighted-average common shares outstanding - basic:	83,510		83,094		83,365		84,760
Effect of dilutive stock options and restricted stock units	270		13		371		159
Weighted-average common shares outstanding - diluted:	83,780		83,107		83,736		84,919

Earnings per share - basic:	$	1.33	$	1.37	$	0.74	$	1.08
Earnings per share - diluted:	$	1.32	$	1.37	$	0.73	$	1.07

The computation of diluted earnings per share excluded the effect of 1,406,000 and 2,509,000 antidilutive stock options and restricted stock units for the three months ended October 1, 2023, and October 2, 2022, respectively, and excluded the effect of 1,474,000 and 2,979,000 antidilutive stock options and restricted stock units for the nine months ended October 1, 2023, and October 2, 2022, respectively.

f. Stock Benefit Plans

Pursuant to the Six Flags Entertainment Corporation Long-Term Incentive Plan (the "Long-Term Incentive Plan"), we may grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, deferred stock units, performance stock units, performance and cash-settled awards and dividend equivalent rights ("DERs") to select employees, officers, directors and consultants.

Periodically, we grant performance stock units to key employees. These awards vest based on attainment of specific performance targets most often related to Adjusted EBITDA or revenue over a defined period. As of October 1, 2023, we have not determined that it is probable that we will achieve any of the performance targets associated with our outstanding performance units, and we have therefore not recognized any expense for these awards.

During the three and nine months ended October 1, 2023 and October 2, 2022, stock-based compensation expense consisted of the following:


	Three Months Ended				Nine Months Ended
(Amounts in thousands)	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Long-term incentive plan	$	3,495	$	4,004	$	8,902	$	13,341
Employee stock purchase plan	30		(6)		116		63
Total stock-based compensation	$	3,525	$	3,998	$	9,018	$	13,404

g. Accounts Receivable, Net

Accounts receivable are reported at net realizable value and consist primarily of amounts due from guests for the sale of group outings and multi-use admission products that allow for payment plans, such as season passes, annual passes, memberships and our Six Flags Plus pass. We are not exposed to a significant concentration of credit risk; however, based on the age of receivables, our historical experience and other factors and assumptions we believe to be customary and reasonable, we record an allowance for doubtful accounts. As of October 1, 2023, January 1, 2023, and October 2, 2022, we have recorded an allowance for doubtful accounts of $10.1 million, $4.1 million, and $7.6 million, respectively, which is primarily comprised of estimated payment defaults under our Six Flags Plus pass and other multi-use admission products that allow for payment plans. To the extent that payments for products for which an allowance for doubtful accounts is established have not been recognized in revenue, the allowance recorded is offset with a corresponding reduction in deferred revenue.

h. Recently Adopted Accounting Pronouncements

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Update 2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in Update 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected optional expedients for and that are retained through the end of the hedging relationship. The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively through December 31, 2022. As of October 1, 2023, we no longer have any debt instruments that contain LIBOR as a reference rate. Our adoption of Update 2020-04 did not have any effect on our condensed consolidated financial statements.