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General - Basis of Presentation

6 Months Ended

Jul. 03, 2022

1. General — Basis of Presentation

We own and operate regional theme parks and waterparks. We are the largest regional theme park operator in the world, and we are the largest operator of waterparks in North America based on the number of parks we operate. Of the 27 parks we owned or operated as of July 3, 2022, 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 January 1, 2023. This Quarterly Report covers the period January 3, 2022 – July 3, 2022 (“the six months ended July 3, 2022”) and the period ended April 4, 2022 – July 3, 2022 (“the three months ended July 3, 2022”). The comparison period in the prior year covers the dates January 1, 2021 – July 4, 2021 (“the six months ended July 4, 2021”) and the period ended April 5, 2021 – July 4, 2021 (“the three months ended April 4, 2021”). The additional three days in the six months ended July 4, 2021 accounted for 89 thousand additional guests.

The 2021 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 six months ended July 3, 2022, are not indicative of the results expected for the full year. Our operations are highly seasonal, with approximately 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.

COVID-19 Pandemic

The COVID-19 pandemic continues to present material uncertainty and risk with respect to our performance and financial results. Significant government and private sector actions have been taken since 2020 and likely will continue to be taken intended to control the spread and mitigate the economic effects of the pandemic. Since early 2021, the availability and administration of vaccines against COVID-19 has increased, and there has been an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, and wage rates. The duration and severity of the impact of the COVID-19 pandemic are currently unknown. The pandemic has impacted the Company and could materially impact our financial results in the future.

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") as subsidiaries 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 $108.4 million, $107.4 million and $129.4 million as of July 3, 2022, January 2, 2022, and July 4, 2021, 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 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. 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 July 3, 2022, January 2, 2022, and July 4, 2021, we had no recorded amounts for accrued interest or penalties.

c. Goodwill and Intangibles

Goodwill and intangible assets with indefinite lives are tested for impairment annually, or more frequently if events or circumstances indicate that the assets might be impaired. We identify our reporting unit and determine the carrying value of the reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to the reporting unit. We then determine the fair value of the reporting unit and compare it to the carrying amount of the reporting unit. All of our parks are operated in a similar manner and have comparable characteristics in that they produce and distribute similar services and products using similar processes, have similar types of customers, are subject to similar regulations and exhibit similar economic characteristics. As such, we are a single reporting unit.

As of July 3, 2022, the fair value of the 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. At July 3, 2022, 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. Recoverability of assets to be held and used is measured by comparing the carrying amount of the asset or group of assets to the 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 asset or group of assets exceeds its respective fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. At July 3, 2022, we did not identify any triggering events.

e. Earnings (loss) Per Common Share

Earnings (loss) per common share for the three and six months ended July 3, 2022, and July 4, 2021, was calculated as follows:


	Three Months Ended				Six Months Ended
(Amounts in thousands, except per share data)	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Net income (loss) attributable to Six Flags Entertainment Corporation	$	45,392	$	70,520	$	(20,270)	$	(25,319)

Weighted-average common shares outstanding - basic:		84,992		85,673		85,594		85,437
Effect of dilutive stock options and restricted stock units		250		1,078		—		—
Weighted-average common shares outstanding - diluted:		85,242		86,751		85,594		85,437

Earnings (loss) per share - basic:	$	0.53	$	0.82	$	(0.24)	$	(0.30)
Earnings (loss) per share - diluted:	$	0.53	$	0.81	$	(0.24)	$	(0.30)

The computation of diluted earnings (loss) per share excluded the effect of 2,462,000 and 3,509,000 antidilutive stock options and restricted stock units for the three months ended July 3, 2022, and July 4, 2021, respectively, and excluded the effect of 2,415,000 and 5,247,000 antidilutive stock options and restricted stock units for the six months ended July 3, 2022, and July 4, 2021, respectively.

f. Stock Benefit Plans

Pursuant to the Six Flags Entertainment Corporation Long-Term Incentive Plan (the "Long-Term Incentive Plan"), Holdings 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 of Holdings and its affiliates.

Periodically, we will grant performance stock units to key employees. These awards vest on attainment of specific objectives most often related to Adjusted EBITDA or recognized revenue over a defined period. During the three and six months ended July 3, 2022, it was determined that our March 8, 2021 grant was probable of achievement at the threshold level and stock compensation expense was recognized totaling $0.1 million and $1.0 million, respectively.

During the three and six months ended July 3, 2022, and July 4, 2021, stock-based compensation expense consisted of the following:


	Three Months Ended				Six Months Ended
(Amounts in thousands)	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Long-Term Incentive Plan	$	3,229	$	2,785	$	7,379	$	9,347
Employee Stock Purchase Plan		(6)		216		69		291
Total Stock-Based Compensation	$	3,223	$	3,001	$	7,448	$	9,638

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, such as season passes, annual passes, summer passes and memberships. We are not exposed to a significant concentration of credit risk; however, based on the age of the 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 July 3, 2022, January 2, 2022, and July 4, 2021, we have recorded an allowance for doubtful accounts of $6.7 million, $13.8 million, and $29.8 million, respectively, which is primarily comprised of estimated payment defaults under our membership and annual pass programs. We expect this amount to increase over the next twelve months as the newly created annual pass program grows. To the extent that payments under our membership and annual pass programs have not been recognized in revenue, the allowance for doubtful accounts recorded against our membership and annual pass programs is offset with a corresponding reduction in deferred revenue.

h. Recent Accounting Pronouncements Not Yet Adopted

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. Interest on the Second Amended and Restated Credit Facility accrues at an annual rate based on LIBOR. We do not expect Update 2020-04 to have a material effect on our condensed consolidated financial statements.