General - Basis of Presentation | 9 Months Ended |
Sep. 30, 2013 |
General - Basis of Presentation | |
General - Basis of Presentation | 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 18 parks we currently own or operate, 16 parks are located in the United States, one is located in Mexico City, Mexico and one is located in Montreal, Canada. |
The accompanying condensed consolidated financial statements have been prepared in conformity with 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 Securities Exchange Commission. |
On May 5, 2011 and May 8, 2013, Holdings’ Board of Directors approved two-for-one stock splits 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 dates for the 2011 Stock Split and 2013 Stock Split were June 15, 2011 and June 12, 2013, respectively. The additional shares of common stock in connection with the 2011 Stock Split and the 2013 Stock Split were distributed on June 27, 2011 and June 26, 2013, respectively. 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 effect of the 2011 Stock Split and the 2013 Stock Split. All share and per share amounts presented in the condensed consolidated financial statements and Notes have been retroactively adjusted to reflect the 2011 Stock Split and the 2013 Stock Split. |
"Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations" contains a discussion of our results of operations and our financial position and should be read in conjunction with the condensed consolidated financial statements and notes. The 2012 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 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 nine months ended September 30, 2013 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. |
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a. | Consolidated U.S. GAAP Presentation | | | | | | | | | | | | | | |
Our accounting policies reflect industry practices and conform to U.S. GAAP. |
The condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. We also consolidate the partnerships that own SFOT and SFOG as subsidiaries 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. On September 30, 2013, we acquired the minority equity interests held by non-affiliated parties in HWP Development, LLC ("HWP"), with the exception of a nominal amount that we have the option to call pursuant to the purchase agreement. Prior to the acquisition, we owned an approximate 49% interest in this joint venture and consolidated HWP as a subsidiary as we had the power to direct the activities that most significantly impacted HWP's economic performance and we had the obligation to absorb losses and receive benefits from HWP that could have been significant to HWP. The equity interests in HWP owned by non-affiliated parties prior to the acquisition as well as the nominal minority equity interests retained by a non-affiliated party subsequent to the acquisition 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 for further discussion. |
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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. |
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 805. 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. |
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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 consisted of the following during the nine months ended September 30, 2013 and September 30, 2012: |
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| Nine Months Ended | | | | | | | | |
(Amounts in thousands) | September 30, 2013 | | September 30, 2012 | | | | | | | | |
(Recoveries) costs and expenses related to the reorganization | $ | (180 | ) | | $ | 1,708 | | | | | | | | | |
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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 nine months ended September 30, 2013 and September 30, 2012 totaled $0.3 million and $1.6 million, respectively. |
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d. | 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 $173.2 million and $169.9 million as of September 30, 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. Based on our 2012 results, coupled with our projected taxable income over the foreseeable future, we believe we will 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 limitations 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 September 30, 2013 and December 31, 2012, we had 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. |
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e. | 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, long-lived assets were revalued based on their respective fair values. |
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f. | Derivative Instruments and Hedging Activities | | | | | | | | | | | | | | |
We account for derivatives and hedging activities in accordance with FASB ASC Topic 815, Derivatives and Hedging. 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, at which point they are reclassified to interest expense. Changes in the fair value of a derivative that is not designated as a hedge are recorded in other expense, net in our condensed consolidated statements of operations on a current basis. See Note 4 for further discussion. |
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g. | Earnings Per Common Share | | | | | | | | | | | | | | |
Basic earnings per common share is computed by dividing net income applicable to Holdings’ common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net income applicable to Holdings’ common stockholders by the weighted average number of common shares outstanding during the period adjusted for the effect of all dilutive common stock equivalents. In periods in which a net loss is incurred, diluted loss per common share is equal to basic loss per common share, as the effect of including any common stock equivalents would be antidilutive. These computations have been retroactively adjusted to reflect the 2013 Stock Split. |
For the three and nine months ended September 30, 2013, the computation of diluted earnings per share included the effect of 3,367,000 and 3,250,000 dilutive stock options and restricted shares, respectively, and excluded the effect of 1,193,000 and 1,205,000 antidilutive stock options, respectively. For the three and nine months ended September 30, 2012, the computation of diluted earnings per share included the effect of 6,612,000 and 5,868,000 dilutive stock options, respectively, and excluded the effect of 1,844,000 and 2,282,000 antidilutive stock options, respectively. Basic and diluted earnings per common share for the three and nine months ended September 30, 2013 and September 30, 2012 was calculated as follows: |
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| Three Months Ended | | Nine Months Ended |
(Amounts in thousands, except per share amounts) | September 30, 2013 | | September 30, 2012 | | September 30, 2013 | | September 30, 2012 |
Net income attributable to Six Flags Entertainment Corporation common stockholders | $ | 120,403 | | | $ | 253,025 | | | $ | 105,237 | | | $ | 210,181 | |
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Weighted average common shares outstanding — basic | 95,105 | | | 106,974 | | | 97,569 | | | 107,916 | |
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Effect of dilutive stock options | 3,367 | | | 6,612 | | | 3,250 | | | 5,868 | |
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Weighted average common shares outstanding — diluted | 98,472 | | | 113,586 | | | 100,819 | | | 113,784 | |
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Earnings per share — basic | $ | 1.27 | | | $ | 2.37 | | | $ | 1.08 | | | $ | 1.95 | |
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Earnings per share — diluted | $ | 1.22 | | | $ | 2.23 | | | $ | 1.04 | | | $ | 1.85 | |
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h. | 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 19,333,332 shares of common stock of Holdings, as adjusted to reflect the 2011 Stock Split and the 2013 Stock Split. 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 28,133,332, as adjusted to reflect the 2013 Stock Split. |
During the three months ended September 30, 2013 and September 30, 2012, stock-based compensation expense related to the Long-Term Incentive Plan was $7.0 million and $12.7 million, respectively. During the nine months ended September 30, 2013 and September 30, 2012, stock-based compensation expense related to the Long-Term Incentive Plan was $21.3 million and $44.6 million, respectively. |
As of September 30, 2013, options to purchase approximately 8,282,000 shares of common stock of Holdings and approximately 371,000 shares of restricted stock or restricted stock units were outstanding under the Long-Term Incentive Plan and approximately 5,058,000 shares were available for future grant, as adjusted to reflect the 2013 Stock Split. |
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 United States 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 to value the stock options granted during the nine months ended September 30, 2013 and September 30, 2012: |
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| Nine Months Ended | | | | | | | | | | |
| September 30, 2013 | | September 30, 2012 | | | | | | | | | | |
Risk-free interest rate | 1.87 | % | | 1.08 | % | | | | | | | | | | |
Expected term (in years) | 6.25 | | | 6.25 | | | | | | | | | | | |
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Expected volatility | 39.03 | % | | 44.15 | % | | | | | | | | | | |
Expected dividend yield | 5.12 | % | | 3.61 | % | | | | | | | | | | |
The following table summarizes stock option activity for the nine months ended September 30, 2013, as adjusted to reflect the 2013 Stock Split: |
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| Shares | | Weighted | | Weighted | | Aggregate | | | |
Avg. | Avg. | Intrinsic Value | | | |
Exercise | Remaining | ($) | | | |
Price ($) | Contractual | | | | |
| Term | | | | |
Balance at January 1, 2013 | 9,436,000 | | | $ | 15.04 | | | | | | | | | |
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Granted | 1,241,000 | | | $ | 34.3 | | | | | | | | | |
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Exercised | (2,145,000 | ) | | $ | 11.67 | | | | | | | | | |
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Canceled or exchanged | — | | | $ | — | | | | | | | | | |
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Forfeited | (249,000 | ) | | $ | 17.59 | | | | | | | | | |
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Expired | (1,000 | ) | | $ | 15.86 | | | | | | | | | |
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Balance at September 30, 2013 | 8,282,000 | | | $ | 18.72 | | | 7.96 | | $ | 125,608,000 | | | | |
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Vested and expected to vest at September 30, 2013 | 7,981,000 | | | $ | 18.68 | | | 7.96 | | $ | 121,348,000 | | | | |
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Options exercisable at September 30, 2013 | 1,943,000 | | | $ | 14.86 | | | 7.51 | | $ | 36,780,000 | | | | |
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The weighted average grant date fair value of the options granted during the nine months ended September 30, 2013 and September 30, 2012 was $7.78 and $8.07, respectively. |
The total intrinsic value of options exercised during the nine months ended September 30, 2013 and September 30, 2012 was $49.2 million and $50.9 million, respectively. The total fair value of options that vested during the nine months ended September 30, 2013 and September 30, 2012 was $17.5 million and $15.2 million, respectively. |
As of September 30, 2013, there was $19.9 million of unrecognized compensation expense related to option awards. The weighted average period over which that cost is expected to be recognized is 2.75 years. |
Cash received from the exercise of stock options during the nine months ended September 30, 2013 and September 30, 2012 was $25.0 million and $29.9 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 2,912,000 shares of restricted stock units being granted to certain key employees in February 2012 (the "2012 Performance Award"), as adjusted to reflect the 2013 Stock Split. 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 it was clear as of December 2012 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 had been recognized. In September 2012, our former Chief Operating Officer retired and upon his retirement, 82,000 of these shares of restricted stock units were forfeited, as adjusted for the 2013 Stock Split. |
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 (the "2015 Performance Award"). If the target is achieved in 2015, an aggregate of 2,650,000 shares would be issued to certain key employees, as adjusted for the 2013 Stock Split; 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, as of September 30, 2013, it is not deemed probable that we will achieve the specified performance condition. Based on the closing market price of the Holdings’ common stock on the last trading day of the quarter ended September 30, 2013, the total unrecognized compensation expense related to this award at target achievement in 2015 is $89.5 million, which would be expensed over the service period if achievement of the performance condition becomes probable. We will continue to evaluate the probability of achieving the performance condition going forward and record the appropriate expense if necessary. |
The following table summarizes stock, restricted stock and restricted stock unit activity for the nine months ended September 30, 2013, as adjusted to reflect the 2013 Stock Split: |
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| Shares | | Weighted Average | | | | | | | | | |
Grant Date | | | | | | | | | |
Fair Value ($) | | | | | | | | | |
Non-vested balance at January 1, 2013 | 694,000 | | | $ | 9.73 | | | | | | | | | | |
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Granted | 19,000 | | | $ | 38.26 | | | | | | | | | | |
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Vested | (332,000 | ) | | $ | 10.16 | | | | | | | | | | |
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Forfeited | (10,000 | ) | | $ | 8.12 | | | | | | | | | | |
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Cancelled | — | | | $ | — | | | | | | | | | | |
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Non-vested balance at September 30, 2013 | 371,000 | | | $ | 10.84 | | | | | | | | | | |
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The total grant date fair value of the stock, restricted stock, and restricted stock units granted during the nine months ended September 30, 2013 and September 30, 2012 was $0.7 million and $67.3 million, respectively. The weighted average grant date fair value per share of stock, restricted stock, and restricted stock units granted during the nine months ended September 30, 2013 and September 30, 2012 was $38.26 and $22.92, respectively. The total fair value of restricted stock awards and restricted stock units that vested during the nine months ended September 30, 2013 and September 30, 2012 was $3.4 million and $3.5 million, respectively. |
Excluding the unrecognized compensation expense related to the 2015 Performance Award discussed above, for which no stock-based compensation expense has been recorded as it is not deemed probable that we will achieve the specified performance condition, there was $1.1 million of total unrecognized compensation expense related to stock, restricted stock, and restricted stock units as of September 30, 2013 that is expected to be recognized over a weighted-average period of 0.81 years. |
Deferred Share Units |
Non-employee directors can elect to receive the value of their annual cash retainer as a deferred share unit award ("DSU") under the Long-Term Incentive Plan whereby the non-employee director is granted DSUs in an amount equal to such director’s annual cash retainer divided by the closing price of Holdings’ common stock on the date of the annual stockholders meeting. Each DSU represents the Company’s obligation to issue one share of common stock and the shares are delivered approximately thirty days following the cessation of the non-employee director’s service as a director of the Company. |
DSUs vest consistent with the manner in which non-employee directors’ cash retainers are paid. The fair value of the DSUs 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 nine months ended September 30, 2013 and September 30, 2012, approximately 3,000 and 5,000 DSUs were granted, at a weighted-average grant date fair value of $38.26 and $24.20 per unit, respectively. The total grant date fair value of DSUs granted during the the nine months ended September 30, 2013 and September 30, 2012 was $0.1 million. |
As of September 30, 2013, all compensation expense related to the outstanding DSUs had been recognized, with the exception of a nominal amount that will be recognized during the three months ending December 31, 2013. |
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 10.0 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. Conversely, 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 2.0 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 nine months ended September 30, 2013, Holdings’ Board of Directors granted approximately 1.2 million additional options to the majority of the 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 of the Company’s proposal to amend the Long-Term Incentive Plan at the Company’s 2012 Annual Meeting of Stockholders to increase the number of shares for issuance under the Long-Term Incentive Plan from 19,333,332 to 28,133,332. On May 2, 2012, our stockholders approved the Long-Term Incentive Plan amendment to increase the number of shares available for issuance. We recorded $1.9 million and $2.3 million of stock-based compensation for the DER grants during the three months ended September 30, 2013 and September 30, 2012, respectively. We recorded $6.0 million and $4.0 million of stock-based compensation for the DER grants during the nine months ended September 30, 2013 and September 30, 2012, respectively. |
All of the foregoing share amounts have been adjusted to reflect the 2013 Stock Split. |
Employee Stock Purchase Plan |
The Six Flags Entertainment Corporation Employee Stock Purchase Plan (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 2,000,000 shares of common stock of Holdings may be issued. Holdings’ common stock may be issued by either authorized and unissued shares, treasury shares or shares purchased on the open market. As of September 30, 2013, we had 1,898,000 shares available for purchase pursuant to the ESPP. All of the foregoing share amounts have been adjusted to reflect the 2011 Stock Split and the 2013 Stock Split. |
In accordance with FASB ASC Topic 718, Stock Based Compensation, 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 September 30, 2013 and September 30, 2012 are as follows: |
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| Three Months Ended | | | | | | | | | | |
| September 30, 2013 | | September 30, 2012 | | | | | | | | | | |
Risk-free interest rate | 0.09 | % | | 0.15 | % | | | | | | | | | | |
Expected term (in years) | 0.5 | | | 0.5 | | | | | | | | | | | |
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Expected volatility | 22.53 | % | | 29.17 | % | | | | | | | | | | |
Expected dividend yield | 4.77 | % | | 4.31 | % | | | | | | | | | | |
During the nine months ended September 30, 2013 and September 30, 2012, we recognized $0.2 million and $0.3 million, respectively, of stock-based compensation expense relating to the ESPP. |
As of September 30, 2013, 17,000 purchase rights were outstanding under the ESPP. |
During the three and nine months ended September 30, 2013 and September 30, 2012, stock-based compensation expense consisted of the following: |
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| Three Months Ended | | Nine Months Ended |
| September 30, 2013 | | September 30, 2012 | | September 30, 2013 | | September 30, 2012 |
Long-Term Incentive Plan | $ | 7,030 | | | $ | 12,708 | | | $ | 21,302 | | | $ | 44,625 | |
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Employee Stock Purchase Plan | 47 | | | 43 | | | 194 | | | 259 | |
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Total Stock-Based Compensation | $ | 7,077 | | | $ | 12,751 | | | $ | 21,496 | | | $ | 44,884 | |
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i. | Revenue Recognition | | | | | | | | | | | | | | |
We recognize revenue upon admission into our parks, provision of our services, or when products are delivered to our guests. Revenues are presented net of sales taxes collected from our guests and remitted to government taxing authorities in the accompanying consolidated statements of operations. During 2013, we launched a membership program (the "Membership Program"). In contrast to our season pass and other multi-use offerings that expire at the end of each operating season, the Membership Program does not expire. It automatically renews on a month-to-month basis after the initial twelve-month membership term (the "Initial Term"), and can be canceled any time after the Initial Term. Guests enrolled in the Membership Program can visit our parks an unlimited number of times anytime they are open as long as the guest remains enrolled in the Membership Program. For season pass, membership and other multi-use admissions, we estimate a redemption rate based on historical experience and other factors and assumptions the Company believes to be customary and reasonable and recognize a pro-rata portion of the revenue as the guest attends our parks. The estimated redemption rate is reviewed regularly and on an ongoing basis and is revised as necessary throughout the year. Amounts received for multi-use admissions in excess of redemptions are recognized in deferred revenue. As of September 30, 2013, deferred revenue was primarily comprised of (i) the remaining unredeemed season pass revenue and pre-sold single-day admissions revenue for the current operating season, (ii) advance sales of season pass and other admissions for the 2014 operating season, (iii) the unredeemed portion of the Initial Term of the Membership Program that will be recognized in the fourth quarter of 2013 and in 2014, and (iv) sponsorship revenue that will be recognized in the fourth quarter of 2013. |
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j. | New Accounting Pronouncements | | | | | | | | | | | | | | |
In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments in ASU 2013-01 clarify that the disclosure requirements of ASU 2011-11 are limited to derivatives, including bifurcated embedded derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions that are either offset in the statement of financial position or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective retrospectively for annual periods beginning on or after January 1, 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. |
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in ASU 2013-02 require that entities 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. |
In February 2013, the FASB issued ASU 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date. The amendments in ASU 2013-04 provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements from which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. ASU 2013-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not anticipate a material impact to the Company's financial position, results of operations or cash flows as a result of this change. |
In March 2013, the FASB issued ASU 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in ASU 2013-05 address the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a foreign subsidiary or group of assets. ASU 2013-05 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The company does not anticipate a material impact to the Company's financial position, results of operations or cash flows as a result of this change. |
In July 2013, the FASB issued ASU 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in ASU 2013-10 permit the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes under U.S. GAAP. ASU 2013-10 is effective prospectively for qualifying new or redesigned hedging relationships entered into on or after July 17, 2013. The Company does not anticipate a material impact to the Company's financial position, results of operations or cash flows as a result of this change. |
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in ASU 2013-11 provide guidance on the financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company will reflect the impact of these amendments beginning with the Company's Quarterly Report on Form 10-Q for the period ending March 31, 2014. The Company does not anticipate that the adoption of this pronouncement will result in a material impact to the Company's financial position, results of operations or cash flows. |