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General - Basis of Presentation

6 Months Ended

Jun. 30, 2011

2. General — Basis of Presentation

We own and operate regional theme, water and zoological parks and are the largest regional theme park operator in the world. Of the 19 parks we currently own or operate, 17 parks are located in the United States, one is located in Mexico City, Mexico and one is located in Montreal, Canada.

On May 5, 2011, Holdings’ Board of Directors approved a two-for-one stock split of Holdings’ common stock effective in the form of a stock dividend of one share of common stock for each outstanding share of common stock. The record date for the stock split was June 15, 2011 and the additional shares of common stock were distributed on June 27, 2011. In accordance with the provisions of our stock benefit plans and as determined by Holdings’ Board of Directors, the number of shares available for issuance, the number of shares subject to outstanding equity awards and the exercise prices of outstanding stock option awards were adjusted to equitably reflect the two-for-one stock split. All Successor shares and per share amounts presented in the condensed consolidated financial statements and notes have been retroactively adjusted to reflect the stock split. No retroactive adjustments were required for the Predecessor shares and per share amounts as all Predecessor common stock, preferred stock purchase rights, PIERS and ownership interests were cancelled on the Effective Date as described in Note 1.

In February 2010, in connection with the Chapter 11 Filing, we decided to reject the lease with the Kentucky State Fair Board relating to our Louisville park and we no longer operate the park. The condensed consolidated financial statements as of and for all periods presented, reflect the assets, liabilities and results of operations for our Louisville park as discontinued operations. See Note 3.

“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains additional information on our results of operations and our financial position and should be read in conjunction with the condensed consolidated financial statements and notes. The 2010 Annual Report and the quarterly report on Form 10-Q for the quarter ended March 31, 2011 include 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 adjustments (which are normal and recurring) 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 six-month period ended June 30, 2011 are not indicative of the results expected for the full year. In particular, our park operations contribute a substantial majority of their annual revenue during the period from Memorial Day to Labor Day each year while expenses are incurred year round.

a. Consolidated GAAP Presentation

Our accounting policies reflect industry practices and conform to GAAP.

The condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. We also consolidate the partnerships that own the Partnership Parks, as we have determined that we have the power to direct the activities of those entities that most significantly impact the entities’ economic performance and we have the obligation to absorb losses and receive benefits from the entities that can be potentially significant to these entities. Furthermore, as a result of adopting FASB ASC Topic 810, Consolidation (“FASB ASC 810”) on January 1, 2010, we consolidate HWP Development, LLC (“HWP”) as a subsidiary in our condensed consolidated financial statements, a joint venture in which we own an approximate 41% interest, as we satisfy the qualifications of being a primary beneficiary of this entity. Prior to adopting FASB ASC 810 on January 1, 2010, we accounted for our interests in HWP under the equity method in accordance with the previously established accounting guidance. The equity interests owned by non-affiliated parties in the Partnership Parks are reflected in the accompanying condensed consolidated balance sheets as redeemable noncontrolling interests. The equity interests owned by non-affiliated parties in HWP are reflected in the accompanying condensed consolidated balance sheets as noncontrolling interests. The portion of earnings or loss from each of the entities attributable to non-affiliated parties is reflected as net income (loss) attributable to noncontrolling interests in the accompanying condensed consolidated statements of operations. See Note 8.

b. Accounting for the Chapter 11 Filing

We follow the accounting prescribed by FASB ASC 852, which provides guidance for periods subsequent to a Chapter 11 filing regarding the presentation of liabilities that are and are not subject to compromise by the Bankruptcy Court proceedings, as well as the treatment of interest expense and presentation of costs associated with the proceedings.

In accordance with FASB ASC 852, debt discounts or premiums as well as debt issuance costs should be viewed as valuations of the related debt. When the debt has become an allowed claim and the allowed claim differs from the carrying amount of the debt, the recorded carrying amount should be adjusted to the allowed claim. During the second quarter of 2009, we wrote-off costs that were associated with unsecured debt that was included in liabilities subject to compromise at April 30, 2010. Premiums and discounts as well as debt issuance cost on debt that was not subject to compromise, such as fully secured claims, were not adjusted.

Because the former stockholders of SFI owned less than 50% of the voting shares after SFI emerged from bankruptcy, we adopted fresh start accounting effective May 1, 2010 whereby our assets and liabilities were recorded at their estimated fair value using the principles of purchase accounting contained in FASB ASC Topic 805, Business Combinations. The difference between our estimated fair value and our identifiable assets and liabilities was recorded as goodwill. See Note 1(g) to the Consolidated Financial Statements in the 2010 Annual Report.

c. Reorganization Items

FASB ASC 852 requires separate disclosure of reorganization items such as realized gains and losses from the settlement of liabilities subject to compromise, provisions for losses resulting from the reorganization and restructuring of the business, as well as professional fees directly related to the process of reorganizing the Debtors under the Bankruptcy Code. The Debtors’ reorganization items consist of the following (in thousands):

	Successor			Predecessor
	Six Months Ended June 30, 2011		Period from May 1 through June 30, 2010	Period from January 1 through April 30, 2010

Gain on settlement of liabilities subject to compromise	—		—	(1,087,516	)
Fresh start reporting adjustments	—		—	178,475
Costs and expenses directly related to the reorganization	834		977	89,568
Total reorganization items	$	834	977	(819,473	)

Costs and expenses directly related to the reorganization primarily include fees associated with advisors to the Debtors, certain creditors and the Creditors’ Committee (as such term is defined in the Plan).

Net cash paid for reorganization items, constituting professional fees and finance fees, during the six months ended June 30, 2011 and 2010 totaled $15.8 million and $82.9 million, respectively.

d. Immaterial Correction of an Error

During the process of completing our December 31, 2010 year end income tax provision, a misstatement was identified in our tax spreadsheets, which calculated the reversal of temporary differences related to depreciation of property and equipment, as of April 30, 2010. See Note 3(f) to the Consolidated Financial Statements in the 2010 Annual Report.

The following table presents the effect of the correction on our previously reported consolidated balance sheet and our previously reported condensed consolidated statements of operations (in thousands):

Consolidated Balance Sheet at April 30, 2010

	As Previously Reported	Correction Adjustment	Fresh Start Final Adjustments(1)		As Revised
Deposits and other assets	99,740	—	4,580		104,320
Goodwill	582,800	52,526	(5,078	)	630,248
Total assets	2,757,838	52,526	(498	)	2,809,866
Deferred income taxes	177,748	52,526	(498	)	229,776
Total liabilities	1,500,379	52,526	(498	)	1,552,407
Stockholders’ equity	811,010	—	—		811,010

Condensed Consolidated Statement of Operations for the Period April 1 through April 30, 2010

	As Previously Reported		Correction Adjustment		Fresh Start Final Adjustments(1)		As Revised
Reorganization items, net	(787,906	)	(52,526	)	498		(839,934	)
Income (loss) from continuing operations before income taxes and discontinued operations	779,616		52,526		(498	)	831,644
Income tax expense	59,707		52,526		(498	)	111,735
Net income	732,441		—		—		732,441
Net income attributable to Six Flags Entertainment Corporation	732,449		—		—		732,449

Condensed Consolidated Statement of Operations for the Period January 1 through April 30, 2010

	As Previously Reported		Correction Adjustment		Fresh Start Final Adjustments(1)		As Revised
Reorganization items, net	(767,445	)	(52,526	)	498		(819,473	)
Income (loss) from continuing operations before income taxes and discontinued operations	599,810		52,526		(498	)	651,838
Income tax expense	60,620		52,526		(498	)	112,648
Net income	548,949		—		—		548,949
Net income attributable to Six Flags Entertainment Corporation	548,873		—		—		548,873

(1) Fresh start final adjustments represent final adjustments to estimated fair values that were finalized subsequent to April 30, 2010 when the final information to complete the valuation was available. See Note 1(g) to the Consolidated Financial Statements in the 2010 Annual Report.

e. Income Taxes

Income taxes are accounted for under the asset and liability method. At December 31, 2010, we recorded a valuation allowance of $420.1 million due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating loss and other tax carryforwards, before they expire. The valuation allowance was increased by $41.2 million through June 30, 2011, in respect of the net loss before income taxes generated during the six months ended June 30, 2011. In addition, we decreased the valuation allowance by $2.2 million through June 30, 2011 related to other comprehensive income (loss).

We classify interest and penalties attributable to income taxes as part of income tax expense. As of June 30, 2011, we have a liability of approximately $1.3 million accrued for interest and penalties.

f. Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or group of assets to future net cash flows expected to be generated by the asset or group of assets. If such assets are not considered to be fully recoverable, any impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

With our adoption of fresh start accounting upon emergence from Chapter 11, assets have been revalued based on the fair values of long-lived assets.

g. Derivative Instruments and Hedging Activities

We account for derivatives and hedging activities in accordance with FASB ASC Topic 815, Derivatives and Hedging (“FASB ASC 815”). This accounting guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge for accounting purposes. The accounting for changes in the fair value of a derivative (e.g., gains and losses) depends on the intended use of the derivative and the resulting designation.

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and our strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash-flow hedges to forecasted transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

Changes in the fair value of a derivative that is effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income (loss), until operations are affected by the variability in cash flows of the designated hedged item. Changes in fair value of a derivative that is not designated as a hedge are recorded in other expense (income), net in our condensed consolidated statements of operations.

On the Effective Date, all liabilities under the derivative instruments were settled. As a result of fresh start accounting, the remaining accumulated other comprehensive income balance was eliminated and recorded as part of reorganization items. See Note 4.

h. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing net income (loss) applicable to Holdings’ common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per common share is computed by dividing net income (loss) applicable to Holdings’ common stockholders by the weighted average number of common shares outstanding during the period and the effect of all dilutive common stock equivalents. In periods where there is a net loss, diluted loss per common share is equal to basic loss per common share, since the effect of including any common stock equivalents would be antidilutive. For periods commencing after the Effective Date, computations for basic and diluted earnings (loss) per share are retroactively adjusted to reflect the June 2011 two-for-one stock split.

For the six-month period ended June 30, 2011, stock options were excluded from the computation of diluted loss per common share as the effect of the exercise of such options is antidiultive. For the three-month period ended June 30, 2011, the computation of diluted earnings per share included the effect of 1,749,000 dilutive stock options and excluded the effect of 309,000 antidilutive stock options.

Earnings per common share for the three-month period ended June 30, 2011 was calculated as follows (in thousands, except per share amounts):

Net income attributable to Six Flags Entertainment Corporation common stockholders	$	34,963
Weighted average common shares outstanding - basic	54,994
Effect of dilutive stock options	1,749
Weighted average common shares outstanding - diluted	56,743
Earnings per share - basic	$	0.64
Earnings per share - diluted	$	0.62

For the one month ended April 30, 2010 and four months ended April 30, 2010, the weighted average number of shares of common stock used in our diluted earnings per share did not include the effect of stock options, the impact of the potential conversion of the PIERS or the impact of the potential conversion of SFI’s 4.50% Convertible Senior Notes due 2015 (the “2015 Notes”), as the effects of the exercise of such options and such conversions and resulting decrease in preferred stock dividends or interest payments, as the case may be, are antidilutive. The PIERS, which were included in the liabilities subject to compromise as of March 31, 2010, were issued in January 2001 and were convertible into 13,209,000 shares of common stock (after giving effect to 483,000 PIERS that converted to common stock in the third quarter of 2009). The 2015 Notes were convertible at the option of the holder into 44,094,000 shares of common stock. By operation of the Plan, the Predecessor stock options, PIERS and the 2015 Notes were cancelled as of the Effective Date.

i. Reclassifications

Reclassifications have been made to certain amounts reported in 2010 to conform to the 2011 presentation.

j. Stock Benefit Plans

Successor

Pursuant to the Plan, on the Effective Date, the Six Flags Entertainment Corporation Long-Term Incentive Plan became effective (the “Long-Term Incentive Plan”). Pursuant to the Long-Term Incentive Plan, Holdings may grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, deferred stock units, performance and cash-settled awards and dividend equivalents (collectively, “Awards”) to select employees, officers, directors and consultants of Holdings and its affiliates. The Long-Term Incentive Plan provides that no more than 9,666,666 shares of common stock of Holdings, as adjusted to reflect Holdings’ two-for-one stock split in June 2011, may be issued pursuant to Awards under the Long-Term Incentive Plan. At least one-third of the total shares available for issuance under the Long-Term Incentive Plan are available for grants of restricted stock or restricted stock units.

During the six months ended June 30, 2011, stock-based compensation expense related to the Long-Term Incentive Plan was $27.6 million.

As of June 30, 2011, options to purchase approximately 5,292,000 shares of common stock of Holdings and approximately 727,000 shares of restricted stock or restricted stock units were outstanding under the Long-Term Incentive Plan and approximately 1,962,000 shares were available for future grant.

Successor - Stock Options

Options granted under the Long-Term Incentive Plan are designated as either incentive stock options or non-qualified stock options. Options are generally granted with an exercise price equal to the fair market value of the common stock of Holdings on the date of grant. Options currently outstanding are generally cumulatively exercisable in four equal annual installments commencing one year after the date of grant. Options are generally granted with a 10-year term. Stock option compensation is recognized over the vesting period using the graded vesting terms of the respective grant.

The estimated fair value of options granted was calculated using the Black-Scholes option pricing valuation model. This model takes into account several factors and assumptions. The risk-free interest rate is based on the yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term assumption at the time of grant. The simplified method was used to calculate the expected term (estimated period of time outstanding) because our historical data from our pre-confirmation equity grants are not representative or sufficient to be used to develop an expected term assumption. Expected volatility was based on the historical volatility of similar companies’ common stock for a period equal to the stock option’s expected term, calculated on a daily basis. The expected dividend yield is based on expected dividends for the expected term of the stock options. The fair value of stock options on the date of grant is expensed on a straight line basis over the requisite service period of the graded vesting term as if the award was, in substance, multiple awards.

The weighted-average assumptions used to estimate the fair value of stock options granted in the six months ended June 30, 2011 are as follows:

	June 30, 2011
Risk-free interest rate	2.41
Expected term (in years)	6.25
Expected volatility	43.49	%
Expected dividend yield	0.47	%

Stock option activity for the six months ended June 30, 2011 was as follows:

	Shares		Weighted Avg. Exercise Price ($)	Weighted Avg. Remaining Contractual Term	Aggregate Intrinsic Value ($)
Balance at January 1, 2011	5,041,000		18.79
Granted	349,000		32.01
Exercised	(9,000	)	17.50
Canceled or exchanged	—		—
Forfeited	(89,000	)	17.57
Expired	—		—
Balance at June 30, 2011	5,292,000		19.60	9.20	94,461,000
Vested and expected to vest at June 30, 2011	5,230,000		19.55	9.20	93,626,000
Options exercisable at June 30, 2011	9,000		17.50	9.10	170,000

The weighted average grant date fair value of the options granted during the six months ended June 30, 2011 was $13.94. The total intrinsic value of options exercised for the period was $0.1 million. The total fair value of options that vested during the six months ended June 30, 2011 was $0.1 million.

As of June 30, 2011, there was $26.9 million of unrecognized compensation expense related to option awards. The weighted average period over which that cost is expected to be recognized is 3.25 years.

Successor — Stock, Restricted Stock and Restricted Stock Units

Stock, restricted stock and restricted stock units granted under the Long-Term Incentive Plan may be subject to transfer and other restrictions as determined by the compensation committee of Holdings’ Board of Directors. Generally, the unvested portion of restricted stock and restricted stock unit awards is forfeited upon termination of employment. The fair value of stock, restricted stock and restricted stock unit awards on the date of grant is expensed on a straight line basis over the requisite service period of the graded vesting term as if the award was, in substance, multiple awards.

During the six months ended June 30, 2011, approximately 5,000 shares of stock were granted to our Chief Executive Officer as part of his 2010 bonus award. In addition to the stock issued during the six months ended June 30, 2011, performance awards had previously been made that could result in an additional 1,410,000 shares being granted to certain key employees based on our EBITDA performance in 2011 and 2012. In accordance with FASB ASC Topic 718, Stock Compensation, we have accrued as a liability $18.0 million of stock-based compensation expense with respect to the performance awards as of June 30, 2011. The total unrecognized compensation expense related to these awards based on the closing market price of the common stock of Holdings on June 30, 2011 was $34.9 million, which will be expensed over the service period of the awards unless achievement of the performance condition becomes improbable. We will evaluate the probability of achieving these performance conditions on an on-going basis and record the appropriate expense if necessary.

Stock, restricted stock and restricted stock unit activity for the six months ended June 30, 2011 was as follows:

	Shares		Weighted Average Grant Date Fair Value ($)
Non-vested balance at January 1, 2011	747,000		18.37
Granted	23,000		35.13
Vested	(40,000	)	23.09
Forfeited	(3,000	)	16.25
Cancelled	—		—
Non-vested balance at June 30, 2011	727,000		18.64

The total grant date fair value of the stock awards granted during the six months ended June 30, 2011 was $0.8 million. The total fair value of stock awards that vested during the six months ended June 30, 2011 was $0.9 million. As of June 30, 2011, there was $7.8 million of unrecognized compensation costs related to our restricted awards. The weighted average period over which that cost is expected to be recognized is 2.8 years.

Successor - Employee Stock Purchase Plan

On September 15, 2010 and subject to stockholder approval, Holdings’ Board of Directors adopted the Six Flags Entertainment Corporation Employee Stock Purchase Plan (the “ESPP”) under Section 423 of the Internal Revenue Code. On May 4, 2011, our stockholders approved the ESPP and the ESPP became effective. The ESPP allows eligible employees to purchase Holdings’ common stock at 90% of the lower of the market value of the common stock at the beginning or end of each successive six-month offering period. Amounts accumulated through participants’ payroll deduction (“purchase rights”) are used to purchase shares of common stock at the end of each purchase period. Pursuant to the ESPP, no more than 1,000,000 shares of common stock of Holdings may be issued, as adjusted to reflect the two-for-one stock split in June 2011. Holdings’ common stock may be issued by either authorized and unissued shares, treasury shares or shares purchased on the open market. At June 30, 2011, we had 990,600 shares available for purchase pursuant to the ESPP.

For the ESPP six-month offering period ended June 30, 2011, stock-based compensation related to the purchase rights was calculated as the difference between the cost to purchase Holdings’ common stock at 90% of the market value of the common stock at the beginning of the six-month offering period and the cost to purchase Holdings’ common stock at the market value of the common stock at the end of the six-month offering period. During the six-month period ended June 30, 2011, we recognized $0.1 million of stock-based compensation expense relating to the ESPP.

As of June 30, 2011, no purchase rights were outstanding under the ESPP. The total intrinsic value of purchase rights exercised during the six-month period ended June 30, 2011 was $0.1 million.

Predecessor

Pursuant to the Plan, all stock-based compensation arrangements and awards were cancelled as of the Effective Date including, without limitation, the following: (i) SFI’s 2001 Stock Option and Incentive Plan, (ii) the SFI Stock Option Plan for Directors, (iii) SFI’s 2004 Stock Option and Incentive Plan, (iv) SFI’s 2006 Stock Option and Incentive Plan, (v) SFI’s 2006 Employee Stock Purchase Plan, (vi) SFI’s 2007 Stock Option and Incentive Plan, (vii) the SFI 2008 Stock Option and Incentive Plan and (viii) all outstanding awards and grants thereunder (collectively, the “Preconfirmation Stock Incentive Plans”).

During the six months ended June 30, 2010, stock-based compensation expense related to the Preconfirmation Stock Incentive Plans was $2.0 million of which $1.3 million was recorded in reorganization items as the grants were canceled as a result of the Plan.

Under the Preconfirmation Stock Incentive Plans, our officers and non-employee directors were awarded stock options, restricted stock and other stock-based awards. No awards were granted in the first four months of 2010.

Predecessor - Stock Options

Options granted under the Preconfirmation Stock Incentive Plans were designated as either incentive stock options or non-qualified stock options. Options were generally granted with an exercise price equal to the market value of SFI’s common stock on the date of grant. These option awards generally vested 20% per year, commencing with the date of grant, and had a contractual term of either 7, 8 or 10 years. In addition, Mark Shapiro, our former President and Chief Executive Officer, was granted 475,000 options during the first quarter of 2006 that became exercisable only if certain market prices of SFI’s common stock were maintained for consecutive 90-day periods. Stock option compensation is recognized over the vesting period using the graded vesting terms of the respective grant.

The estimated fair value of options granted was calculated using the Black-Scholes option pricing valuation model. This model takes into account several factors and assumptions. The risk-free interest rate is based on the yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term assumption at the time of grant. The expected term (estimated period of time outstanding) is estimated using the contractual term of the option and the historical effects of employees’ expected exercise and post-vesting employment termination behavior. Expected volatility was calculated based on historical volatility for a period equal to the stock option’s expected life, calculated on a daily basis. The expected dividend yield is based on expected dividends for the expected term of the stock options. The fair value of stock options on the date of grant is expensed on a straight line basis over the requisite service period of the graded vesting term as if the award was, in substance, multiple awards.

Stock option activity for the four months ended April 30, 2010 was as follows:

	Shares		Weighted Avg. Exercise Price ($)	Weighted Avg. Remaining Contractual Term	Aggregate Intrinsic Value
Balance at January 1, 2010	6,490,000		6.23
Granted	—		—
Exercised	—		—
Canceled or exchanged	(6,480,000	)	6.24
Forfeited	(10,000	)	2.17
Expired	—		—
Balance at April 30, 2010	—		—	—	—
Vested and expected to vest at April 30, 2010	—		—	—	—
Options exercisable at April 30, 2010	—		—	—	—

The total fair value of options that vested during the four months ended April 30, 2010 was $3.0 million.

On the Effective Date, all stock-based compensation arrangements and awards of SFI were cancelled. Immediately upon cancellation, we recorded $668,000 in unrecognized compensation costs associated with the cancelled options as a reorganization item.

Predecessor - Restricted Stock

Restricted stock granted under the Preconfirmation Stock Incentive Plans were subject to transfer and other restrictions as determined by the compensation committee of SFI’s board of directors. Generally, the unvested portion of restricted stock awards was forfeited upon termination of employment. The fair value of restricted stock awards on the date of grant is expensed on a straight line basis over the requisite service period of the graded vesting term as if the award was, in substance, multiple awards.

Restricted stock activity for the four months ended April 30, 2010 was as follows:

	Shares		Weighted Average Grant Date Fair Value ($)
Non-vested balance at January 1, 2010	1,746,997		4.88
Granted	—		—
Vested	(504,996	)	5.90
Forfeited	(1,755	)	1.84
Cancelled	(1,240,246	)	4.46
Non-vested balance at April 30, 2010	—		—

The total fair value of restricted stock awards that vested during the four months ended April 30, 2010 was $3.0 million.

On the Effective Date, all stock-based compensation arrangements and awards of SFI were cancelled. Immediately upon cancellation, we recorded $618,000 of unrecognized compensation costs associated with the cancelled restricted stock as a reorganization item.