General - Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2013

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 and joint ventures that own SFOT, SFOG and HWP Development, LLC, a joint venture in which we own an approximate 49% interest (“HWP”), as a subsidiary in our consolidated financial statements, 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. The equity interests owned by non-affiliated parties in SFOT and SFOG 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 9.

Accounting for the Chapter 11 Filing

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.

Because the former stockholders of SFI owned less than 50% of the voting shares after SFI emerged from bankruptcy, we adopted fresh start accounting 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 recognized as goodwill. See Note 1(b) to the Consolidated Financial Statements in the 2012 Annual Report for a detailed explanation of the impact of emerging from Chapter 11 and applying fresh start accounting on our financial position.

Reorganization Items

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):

	Three Months Ended March 31,
	2013			2012

(Recoveries) costs and expenses related to the reorganization	$	(180	)	$	554

Costs and expenses directly related to the reorganization primarily include fees associated with advisors to the Debtors, certain creditors and the creditors’ committee.

Net cash paid for reorganization items, entirely constituting professional fees, during the three months ended March 31, 2013 and 2012 totaled $0.3 million and $0.5 million, respectively.

Income Taxes

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases including net operating loss and other tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. We recorded a valuation allowance of $173.7 million and $169.9 million as of March 31, 2013 and December 31, 2012, respectively, due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain state net operating loss and other tax carryforwards, before they expire. The valuation allowance was based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets were recoverable. During the fourth quarter of 2012, we determined that the valuation allowance against our federal net operating losses was no longer required because of the significant amount of net income that we generated in 2012. Our 2012 results, coupled with our projected taxable income over the foreseeable future, led us to believe we would be able to utilize all of our federal net operating loss carryforwards before they expire.

In determining the effective tax rate for interim periods, we consider the expected changes in our valuation allowance from current year originating or reversing timing differences between financial accounting and tax purposes and the taxable income or loss expected for the current year. For interim periods, we also account for the tax effect of significant non-recurring items in the period in which they occur as well as changes in the valuation allowance relating to a change in the assessment of the probability of utilization of the deferred income tax assets.

Our liability for income taxes is finalized as auditable tax years pass their respective statutes of limitation in the various jurisdictions in which we are subject to tax. However, authorities of these jurisdictions may audit prior years of the group and its predecessors for which the statute of limitations is closed for the purpose of making an adjustment to our taxable income in a year or net operating loss carryforwards to years for which the statute of limitations has not closed.

We classify interest and penalties attributable to income taxes as part of income tax expense. As of March 31, 2013, we have no accrued interest and penalties liability.

Beginning in 2006, we no longer permanently reinvested foreign earnings, therefore, United States deferred income taxes have been provided on foreign earnings.

Long-Lived Assets

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

Derivative Instruments and Hedging Activities

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 (income) expense, net in our condensed consolidated statements of operations on a current basis. See Note 4.

Earnings (Loss) Per Common Share

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. These computations have been retroactively adjusted to reflect the June 2011 two-for-one stock split as described in Note 2.

For the three months ended March 31, 2013 and 2012, we incurred a net loss and therefore diluted shares outstanding equaled basic shares outstanding. For the three months ended March 31, 2013 and 2012, the computation of diluted shares outstanding excluded the effect of 4,728,000 and 5,324,000 antidilutive stock options, respectively.

Stock Benefit Plans

Stock Benefit Plans

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 equivalent rights to select employees, officers, directors and consultants of Holdings and its affiliates. The Long-Term Incentive Plan originally provided for the issuance of 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. In May 2012, our stockholders approved an amended and restated Long-Term Incentive Plan that, among other things, increased the number of shares available for issuance under the Long-Term Incentive Plan to 14,066,666.

During the three months ended March 31, 2013 and 2012, stock-based compensation expense related to the Long-Term Incentive Plan was $7.0 million and $16.9 million, respectively.

As of March 31, 2013, options to purchase approximately 4,728,000 shares of common stock of Holdings and approximately 346,000 shares of restricted stock or restricted stock units were outstanding under the Long-Term Incentive Plan and approximately 3,039,000 shares were available for future grant.

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. While certain stock options are subject to acceleration in connection with a change in control, options are generally cumulatively exercisable in four equal annual installments commencing one year after the date of grant with a 10-year term. Generally, the unvested portion of stock option awards is forfeited upon termination of employment. Stock option compensation is recognized over the vesting period using the graded vesting terms of the respective grant.

The estimated fair value of the majority of our 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 is not representative or sufficient to be used to develop an expected term assumption. Expected volatility of options granted prior to 2013 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. Expected volatility of options granted in 2013 was based two-thirds on the historical volatility of similar companies’ common stock and one-third on our historical volatility for a period equal to the stock options’ 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 following weighted-average assumptions were utilized in the Black-Scholes model for the stock options granted in the three months ended March 31, 2013 and 2012:

	March 31,
	2013		2012
Risk-free interest rate	1.20		1.23
Expected term (in years)	6.25		6.25
Expected volatility	39.22	%	44.20	%
Expected dividend yield	5.26	%	4.60	%

The following table summarizes stock option activity for the three months ended March 31, 2013:

	Shares		Weighted Avg. Exercise Price ($)	Weighted Avg. Remaining Contractual Term	Aggregate Intrinsic Value ($)
Balance at January 1, 2013	4,718,000		30.07
Granted	131,000		66.68
Exercised	(83,000	)	30.07
Canceled or exchanged	—		—
Forfeited	(38,000	)	35.30
Expired	—		—
Balance at March 31, 2013	4,728,000		31.04	8.10	195,898,000
Vested and expected to vest at March 31, 2013	4,582,000		30.99	8.10	190,100,000
Options exercisable at March 31, 2013	370,000		24.78	7.73	17,673,000

The weighted average grant date fair value of the options granted during the three months ended March 31, 2013 and 2012 was $14.35 and $12.60, respectively.

The total intrinsic value of options exercised for the three months ended March 31, 2013 and 2012 was $3.2 million and $12.5 million, respectively. The total fair value of options that vested during the three months ended March 31, 2013 and 2012 was $0.9 million and $0.7 million, respectively.

As of March 31, 2013, there was $17.3 million of unrecognized compensation expense related to option awards. The weighted average period over which that cost is expected to be recognized is 2.79 years.

Cash received from the exercise of stock options during the three months ended March 31, 2013 and 2012 was $2.5 million and $8.4 million, respectively.

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 year ended December 31, 2010 a performance award was established that, based on the EBITDA performance of the Company in 2010 and 2011, resulted in 1,456,000 shares of restricted stock units being granted to certain key employees in February 2012. Such restricted stock units were unvested when granted and originally scheduled to vest upon the completion of the Company’s 2012 audit if the EBITDA performance target for 2012 was achieved. Since as of December 2012 it was clear that the Company would exceed the performance target for 2012, Holdings’ Board of Directors determined it was in the best interest of the Company to accelerate the vesting of the award by a couple of months to a December 24, 2012 vesting date thereby potentially creating significant tax savings for the individuals that received the award. As of December 31, 2012, all of the compensation expense related to this award has been recognized. In September 2012, our Chief Operating Officer retired and upon his retirement, 41,000 of these shares of restricted stock units were forfeited.

During the year ended December 31, 2011, an additional performance award was established based on our aspirational goal to achieve Modified EBITDA of $500 million by 2015. If the target is achieved in 2015, an aggregate of 1,325,000 shares would be issued to certain key employees, however, this amount could be more or less depending on the level of achievement and the timing thereof. There has been no stock-based compensation expense recorded for this performance award because it is not deemed probable that we will achieve the specified performance targets as of March 31, 2013. Based on the closing market price of the Holdings’ common stock on the last trading day of the quarter ended March 31, 2013, the total unrecognized compensation expense related to this award at target achievement in 2015 is $96.0 million that will be expensed over the service period if it becomes probable of achieving the performance condition. We will continue to evaluate the probability of achieving the performance condition going forward and record the appropriate expense if necessary.

The following table summarizes stock, restricted stock and restricted stock unit activity for the three months ended March 31, 2013:

	Shares		Weighted Average Grant Date Fair Value ($)
Non-vested balance at January 1, 2013	347,000		19.46
Granted	—		—
Vested	—		—
Forfeited	(1,000	)	16.25
Cancelled	—		—
Non-vested balance at March 31, 2013	346,000		19.48

There were no shares of stock, restricted stock or restricted stock units granted during the three months ended March 31, 2013. The total grant date fair value of the stock, restricted stock, and restricted stock units granted during the three months ended March 31, 2012 was $66.7 million. The weighted average grant date fair value per share of stock, restricted stock, and restricted stock units granted during the three months ended March 31, 2012 was $45.82. There were no restricted stock or restricted stock units that vested during the three months ended March 31, 2013 or 2012.

As of March 31, 2013, there was $1.6 million of total unrecognized compensation expense related to stock, restricted stock, and restricted stock units which is expected to be recognized over a weighted-average period of 1.39 years.

Dividend Equivalent Rights

On February 8, 2012, Holdings’ Board of Directors granted dividend equivalent rights (DERs) to holders of unvested stock options. At February 8, 2012, approximately 5.0 million unvested stock options were outstanding. As stockholders are paid cash dividends, the DERs accrue dividends which will be distributed to stock option holders upon the vesting of their stock option award. Holdings will distribute the accumulated accrued dividends pursuant to the DERs in either cash or shares of common stock. Generally, holders of stock options for fewer than 1,000 shares of stock will receive their accumulated accrued dividends in cash. Generally, holders of stock options for 1,000 shares of stock or greater will receive their accumulated accrued dividends in shares of common stock. In addition, Holdings’ Board of Directors granted similar DERs payable in shares of common stock if and when any shares are granted under the stock-based compensation performance award program based on the EBITDA performance of the Company in 2012 - 2015. In August 2012, Holdings’ Board of Directors granted approximately 1.0 million additional options to the majority of the full-time employees of the Company as well as DERs in connection with such options. During the quarter ended March 31, 2013, Holdings’ Board of Directors granted approximately 0.1 million additional options to our Chief Executive Officer and certain full-time employees of the Company as well as DERs in connection with such options.

The DER grants to participants with 1,000 or more unvested stock options and the DER grants related to the performance award were granted contingent upon stockholder approval at the Company’s 2012 Annual Meeting of Stockholders of the Company’s proposal to amend the Long-Term Incentive Plan to increase the number of shares for issuance under the Long-Term Incentive Plan from 9,666,666 to 14,066,666. On May 2, 2012, our stockholders approved the Long-Term Incentive Plan amendment to increase the number of shares available for issuance. We recorded $2.0 million of stock-based compensation for the DER grants during the three-month period ended March 31, 2013. As stockholder approval was pending, there was no DER related stock-based compensation expense recorded for the three-month period ended March 31, 2012.

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 deductions (“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 March 31, 2013, we had 959,000 shares available for purchase pursuant to the ESPP.

For the three-month periods ended March 31, 2013 and 2012, stock-based compensation related to the purchase rights was determined using a Black-Scholes option-pricing formula. The weighted-average assumptions used to estimate the fair value of purchase rights for the three months ended March 31, 2013 and 2012 are as follows:

	Three Months Ended March 31, 2013		Three Months Ended March 31, 2012
Risk-free interest rate	0.12	%	0.06	%
Expected term (in years)	0.5		0.5
Expected volatility	26.66	%	45.37	%
Expected dividend yield	5.64	%	0.58	%

During each of the three months ended March 31, 2013 and 2012, we recognized $0.1 million of stock-based compensation expense relating to the ESPP.

New Accounting Pronouncements

New Accounting Pronouncements

In February 2013, the FASB issued a final rule related to the reporting of amounts reclassified out of accumulated other comprehensive income that requires entities to report, either on their income statement or in a footnote to their financial statements, the effects on earnings from items that are reclassified out of other comprehensive income. The new accounting rules were effective for the Company in the first quarter of 2013. The adoption of the new accounting rules did not have a material effect on the Company’s financial condition, results of operations or cash flows.