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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

x      Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2010

OR

o         Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from              to             

Commission file number: 1-13703

SIX FLAGS ENTERTAINMENT CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

1540 Broadway, 15th Fl., New York, NY 10036

(Address of Principal Executive Offices, Including Zip Code)

(212) 652-9403

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o        No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed under Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a  court.  Yes x  No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  At May 10, 2010, Six Flags Entertainment Corporation had 27,388,889 outstanding shares of common stock, par value $0.025 per share.

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SIX FLAGS ENTERTAINMENT CORPORATION

FORM 10-Q

INDEX

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document and the documents incorporated herein by reference contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.  Examples of forward-looking statements include, but are not limited to, our ability to successfully consummate a restructuring plan.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.  Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.  Our actual results may differ materially from those contemplated by the forward-looking statements.  We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance.  These risks and uncertainties include, but are not limited to, statements we make regarding: (i) the potential adverse impact of the Chapter 11 Filing (as defined herein) on our global operations, management and employees (See “Chapter 11 Reorganization” herein), (ii) customer response to the Chapter 11 Filing, (iii) the adequacy of cash flows from operations, available cash and available amounts under our credit facilities to meet our future liquidity needs, or (iv) our operations and results of operations.  Additional important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and include the following:

·                                          factors impacting attendance, such as local conditions, contagious diseases, events, disturbances and terrorist activities;

·                                          accidents occurring at our parks;

·                                          adverse weather conditions;

·                                          competition with other theme parks and other entertainment alternatives;

·                                          changes in consumer spending patterns;

·                                          pending, threatened or future legal proceedings; and

·                                          other factors that are described in “Risk Factors.”

A more complete discussion of these factors and other risks applicable to our business is contained in Exhibit 99.1 to this Quarterly Report on Form 10-Q (this “Quarterly Report”), Item 2A of our Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 Annual Report”), our Current Reports on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on March 19, 2010 and April 2, 2010.

Any forward-looking statement made by us in this document, or on our behalf by our directors, officers or employees related to the information contained herein, speaks only as of the date of this Quarterly Report.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

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Available Information

Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, if applicable, are available free of charge through our website at www.sixflags.com.  References to our website in this Quarterly Report are provided as a convenience and do not constitute an incorporation by reference of the information contained on, or accessible through, the website.  Therefore, such information should not be considered part of this Quarterly Report.  These reports, and any amendments to these reports, are made available on our website as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC.  Copies are also available, without charge, by sending a written request to Six Flags Entertainment Corporation, 1540 Broadway, New York, NY 10036, Attn:  Secretary.

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PART I — FINANCIAL INFORMATION

Item 1.   Financial Statements

SIX FLAGS ENTERTAINMENT CORPORATION

(Debtor-In-Possession from June 13, 2009 through April 30, 2010)

CONDENSED CONSOLIDATED BALANCE SHEETS

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Item 1.   Financial Statements (Continued)

SIX FLAGS ENTERTAINMENT CORPORATION

(Debtor-In-Possession from June 13, 2009 through April 30, 2010)

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

See accompanying notes to condensed consolidated financial statements.

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Item 1.   Financial Statements (Continued)

SIX FLAGS ENTERTAINMENT CORPORATION

(Debtor-In-Possession from June 13, 2009 through April 30, 2010)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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Item 1.   Financial Statements (Continued)

SIX FLAGS ENTERTAINMENT CORPORATION

(Debtor-In-Possession from June 13, 2009 through April 30, 2010)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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Item 1.   Financial Statements (Continued)

SIX FLAGS ENTERTAINMENT CORPORATION

(Debtor-In-Possession from June 13, 2009 through April 30, 2010)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(UNAUDITED)

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Item 1.           Financial Statements (Continued)

SIX FLAGS ENTERTAINMENT CORPORATION

(Debtor-In-Possession from June 13, 2009 through April 30, 2010)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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SIX FLAGS ENTERTAINMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.                                      Chapter 11 Reorganization

On June 13, 2009 (the “Petition Date”), Six Flags, Inc. (“SFI”), Six Flags Operations Inc. (“SFO”) and Six Flags Theme Parks Inc. (“SFTP”) and certain of SFTP’s domestic subsidiaries (the “SFTP Subsidiaries” and, collectively with SFI, SFO and SFTP, the “Debtors”) filed voluntary petitions for relief (the “Chapter 11 Filing”) under Chapter 11 in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (Case No. 09-12019).  SFI’s subsidiaries that own interests in Six Flags Over Texas (“SFOT”) and Six Flags Over Georgia (including Six Flags White Water Atlanta) (“SFOG” and together with SFOT, the “Partnership Parks”) and the parks in Canada and Mexico were not debtors in the Chapter 11 Filing.

On April 1, 2010, the Debtors filed with the Bankruptcy Court their Modified Fourth Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Plan”).  On April 30, 2010, the Bankruptcy Court entered an Order Confirming Debtors’ Modified Fourth Amended Joint Plan of Reorganization Under Chapter 11 (“Chapter 11”) of the Bankruptcy Code (the “Confirmation Order”), dated April 29, 2010, which approved and confirmed the Plan.  The Confirmation Order and the Plan have been filed as Exhibits 99.1 and 2.1, respectively, to the Current Report on Form 8-K filed with the SEC on May 4, 2010.

Pursuant to the Plan, on the Effective Date, but after the Plan became effective and prior to the distribution of securities under the Plan, SFI filed with the Secretary of State of the State of Delaware a Restated Certificate of Incorporation (the “Certificate of Incorporation”) which, among other things, changed SFI’s corporate name to “Six Flags Entertainment Corporation.”  As used herein, “SFI” means Six Flags, Inc. as a Debtor or prior to its name change to Six Flags Entertainment Corporation, references to “Holdings” or “SFEC” mean Six Flags Entertainment Corporation following the filing of the Certificate of Incorporation with the Secretary of State of the State of Delaware, and the terms “we,” “our” or “Company” refer collectively to SFI or SFEC, as the case may be, and its consolidated subsidiaries.

On April 30, 2010 (the “Effective Date”), the Debtors emerged from Chapter 11 by consummating their restructuring through a series of transactions contemplated by the Plan and the Plan became effective pursuant to its terms.  On May 3, 2010, the Debtors filed a notice of the occurrence of the Effective Date with the Bankruptcy Court.

(a)         Plan of Reorganization

General

The Plan includes (i) the Exit Facilities (as defined below) of $1.140 billion; (ii) the assignment to SFI of SFO’s 12-1/4% Notes due 2016 (the “2016 Notes”) held by certain holders of Prepetition Notes (the “SFO Equity Conversion”) in an aggregate amount of $69.5 million in exchange for a number of shares of common stock of SFEC, representing 8.625% of the equity of SFEC on the Effective Date (the “Common Stock”), in full satisfaction of their claims arising under such assigned 2016 Notes; (iii) a $505.5 million rights offering (the “Offering”), which represents 62.733% of the Common Stock, to the holders of certain unsecured claims (“Allowed Unsecured Claims”) specified in the Plan, that are “Accredited Investors,” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (“Eligible Holders”); except that if the net proceeds from the Offering are less than $505.5 million, the parties who have agreed to backstop the Offering (the “Backstop Purchasers”), pursuant to the terms and conditions set forth in the commitment agreement executed by the Debtors and the Backstop Purchasers (the

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“Equity Commitment Agreement”), will subscribe for any amount of Common Stock offered but not purchased pursuant to the Offering; (iv) an offering (the “Direct Equity Purchase”) to the Backstop Purchasers for an aggregate purchase price of $75.0 million (the “Direct Purchase Amount”) of a number of shares of Common Stock, representing 12.410% of the Common Stock; and (v) an offering (the “Additional Equity Purchase”) to certain Backstop Purchasers for an aggregate purchase price of $50.0 million (the “Additional Purchase Amount”), on the same pricing terms as the Offering, a number of shares of Common Stock, representing 6.205% of the Common Stock.  In addition, the Plan also contemplates the New TW Loan (as defined below) and the Delayed Draw Equity Purchase (as defined below).

Pursuant to the Confirmation Order, the Plan also contemplates that SFEC shall send to each SFI Noteholder (as such term is defined in the Plan) who did not return an accredited investor questionnaire in accordance with the Offering Procedures (as such term is defined in the Plan) on or before April 21, 2010 (excluding any SFI Noteholder who was deemed to return such questionnaire on or before April 21, 2010 pursuant to Section 2.11 of the Offering Procedures) (each, an “Unconfirmed Holder”) (i) a questionnaire seeking certification that such Unconfirmed Holder is not an Accredited Investor (the “Non-Accredited Investor Questionnaire”) and (ii) a notice setting forth the rights of the Unaccredited SFI Noteholders.  Each Unconfirmed Holder who returns a completed Non-Accredited Investor Questionnaire, subject to certain conditions, shall be considered an “Unaccredited SFI Noteholder” and shall have the right to receive such Unaccredited SFI Noteholder’s Unaccredited Pro Rata Share (as defined below) of the Offering Net Value (as defined below); except that if the aggregate amount of the Offering Net Value to be distributed to the Unaccredited SFI Noteholders would exceed $2.94 million (the “Offering Net Value Cash Cap”), then the aggregate amount to be distributed to the Unaccredited SFI Noteholders shall be limited to the Offering Net Value Cash Cap, which shall be distributed to the Unaccredited SFI Noteholders based on each holder’s Unaccredited Pro Rata Share.  As used herein, the “Offering Net Value” means $29.4 million and the “Unaccredited Pro Rata Share” is a fraction, the numerator of which shall be the face value of the SFI Notes held by an Unaccredited SFI Noteholder and the denominator of which shall be $868.3 million.

Summary of Classification and Treatment of Claims and Preconfirmation Equity Interests

Pursuant to the Plan, the Preconfirmation SFTP Equity Interests (as such term is defined in the Plan) are unimpaired by the Plan, and each holder of a Preconfirmation SFTP Equity Interest is conclusively presumed to accept the Plan and is not entitled to vote to accept or reject the Plan.  On the Effective Date, Preconfirmation SFTP Equity Interests shall be reinstated and rendered unimpaired in accordance with the Bankruptcy Code.

Under the Plan, recoveries to the holders of SFTP Prepetition Credit Agreement Claims (as such term is defined in the Plan) and holders of SFO Unsecured Claims (as such term is defined in the Plan) are 100%.  Recoveries to the holders of SFI Unsecured Claims (as such term is defined in the Plan) (excluding any value attributable to the Offering) based upon the implied transaction value of $1.865 billion is 8.2% (based upon a 9.5% allocation of the Common Stock under the Plan).  Holders of SFI Preconfirmation Equity Interests (as defined below) will receive no distributions or other consideration under the Plan.

The classification and treatment of all Claims (as such term is defined in the Plan) against the Debtors is more fully described in Article III of the Plan.

Assets and Liabilities

Information as to the assets and liabilities of SFI as of the most recent practicable date is contained in the consolidated financial statements filed with the 2009 Annual Report and should be referred to in conjunction with this Quarterly Report.

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(b)         New Indebtedness

On the Effective Date, SFEC, SFO and SFTP entered into a First Lien Credit Agreement (the “First Lien Credit Agreement”) with several lenders including JPMorgan Chase Bank N.A., as administrative agent, and related loan and security documentation (the “Exit First Lien Facility”).  The Exit First Lien Facility consists of an $890,000,000 senior secured credit facility comprised of a $120,000,000 revolving loan facility (none of which was outstanding as of May 17, 2010 (excluding letters of credit in the amount of $1,739,000)) (the “Exit Revolving Loan”), which may be increased to up to $150,000,000 in certain circumstances, and a $770,000,000 term loan facility (all of which was outstanding as of May 17, 2010) (the “Exit Facility First Lien Term Loan” and, together with the Exit Revolving Loan, the “Exit Facility First Lien Loans”).  Interest on the Exit First Lien Facility accrues at an annual rate equal to the London Interbank Offered Rate (“LIBOR”) + 4.25% in the case of the Exit Revolving Loan and LIBOR + 4.00% in the case of the Exit Facility First Lien Term Loan, with a 2.00% LIBOR floor and a 1.50% commitment fee on the average daily unused portion of the Exit Revolving Loan.  The principal amount of the Exit Revolving Loan is due and payable on June 30, 2015.  The First Lien Credit Agreement requires quarterly repayments of principal on the Exit Facility First Lien Term Loan beginning in March 2013 in an amount equal to 0.25% of the initial aggregate principal amount of the Exit Facility First Lien Term Loan and all remaining outstanding principal is due and payable on June 30, 2016.

On the Effective Date, SFEC, SFO and SFTP entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement” and, together with the First Lien Credit Agreement, the “Exit Facility Credit Agreements”) with several lenders including Goldman Sachs Lending Partners LLC, as administrative agent, and related loan and security documentation (the “Exit Second Lien Facility” and together with the Exit First Lien Facility, the “Exit Facilities”).  The Exit Second Lien Facility consists of a $250,000,000 senior secured term loan facility (all of which was outstanding as of May 17, 2010) (the “Exit Facility Second Lien Loan” and, together with the Exit Facility First Lien Loans, the “Exit Facility Loans”).  Interest on the Exit Facility Second Lien Loan accrues at an annual rate equal to LIBOR + 7.25% with a 2.00% LIBOR floor.  The Second Lien Credit Agreement does not require any amortization of principal and the entire outstanding principal amount of the Exit Facility Second Lien Loan is due and payable on December 31, 2016.

Pursuant to the First Lien Guarantee and Collateral Agreement and the Second Lien Guarantee and Collateral Agreement, amounts outstanding on the Exit First Lien Facility and the Exit Second Lien Facility, respectively, are guaranteed by SFEC, SFO and each of the current and future direct and indirect domestic subsidiaries of SFTP; provided that to the extent SFTP acquires any non-wholly owned direct or indirect subsidiary after the Effective Date, such subsidiary will not be required to be a guarantor and/or pledgor of the Exit Facilities (together with SFTP, collectively, the “Exit Financing Loan Parties”).  The First Lien Facility is secured by first priority liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties and the Exit Second Lien Facility is secured by second priority liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties.  The Exit Facility Credit Agreements contain certain representations, warranties and affirmative covenants, including minimum interest coverage and maximum senior leverage maintenance covenants and, with respect to the First Lien Credit Agreement, a maximum first lien leverage maintenance covenant.  In addition, the Exit Facility Credit Agreements contain restrictive covenants that, subject to certain exceptions, limit or restrict, among other things, the ability of the Exit Financing Loan Parties to incur indebtedness, create liens, engage in mergers, consolidations and other fundamental changes, make investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures and repurchase capital stock.  The Exit Facility Credit Agreements contain certain events of default, including payment, breaches of covenants and representations, cross defaults to other material indebtedness, judgment, and changes of control and bankruptcy events of default.

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On the Effective Date, SFOG Acquisition A, Inc., SFOG Acquisition B, L.L.C., SFOT Acquisition I, Inc. and SFOT Acquisition II, Inc. (collectively, the “Acquisition Parties”) entered into the Multiple Draw Term Credit Agreement (the “New TW Loan Agreement”) with TW-SF, LLC (the “New TW Lender”).  The New TW Loan Agreement provided the Acquisition Parties with a $150,000,000 multi-draw term loan facility (the “New TW Loan”).  Interest on the New TW Loan accrues at a rate equal to (i) the greater of (a) LIBOR and (b) 2.50% (or to the extent that any LIBOR or similar rate floor under the Exit Facility First Lien Loans (or under any senior term credit facility that amends, restates, amends and restates, refinances, modifies or extends the Exit First Lien Term Loan) is higher than 2.50%, such higher floor) plus (ii) the then “Applicable Margin” under the Exit First Lien Term Loan (or, if higher) under any successor term facility plus (iii) 1.00%.  In the event that any of the loan parties issue corporate bonds or other public debt, and the then applicable credit default swap spread is higher than the “Applicable Margin” referenced in the foregoing sentence, such “Applicable Margin” will be increased based on the applicable default swap spread then in effect, subject to a fixed cap.  Funding during the availability period under the New TW Loan will occur only on May 14th (or the immediately preceding business day) of each fiscal year (each a “Funding Date”) in which amounts required to satisfy the “put” obligations exceeds (a) for the fiscal year ending December 31, 2010, $10,000,000, (b) for the fiscal year ending December 31, 2011, $12,500,000 and (c) for each subsequent fiscal year, $15,000,000.  The principal amount of the New TW Loan borrowed on each Funding Date will be due and payable five years from such Funding Date.  The New TW Loan Agreement requires prepayments with any cash of the Acquisition Parties (other than up to $50,000 per year) including the proceeds received by the Acquisition Parties from the limited partnership interests in the Partnership Parks and is prepayable at any time at the option of the Acquisition Parties.  The New TW Loan is unconditionally guaranteed on a joint and several and senior unsecured basis by SFEC, SFO, SFTP and each of the current direct and indirect domestic subsidiaries of SFEC who are or in the future become guarantors under the Exit Facilities (collectively, the “New TW Guarantors”) under the terms of the Guarantee Agreement (the “New TW Guarantee Agreement”) entered into by the New TW Guarantors in favor of the New TW Lender on the Effective Date.  The New TW Loan Agreement and New TW Guarantee Agreement contain representations, warranties, covenants and events of default on substantially similar terms as those contained in the First Lien Credit Agreement.  No borrowing will occur on May 14, 2010 under the New TW Loan with respect to the 2010 “put” obligations.

(c)          New Common Stock

Pursuant to the Plan, on the Effective Date, SFEC issued an aggregate of 27,388,889 shares of Common Stock at 0.025 par value.  SFEC has reserved approximately 5,000,000 shares of Common Stock for issuance pursuant to the Long-Term Incentive Plan in accordance with the Plan.  SFEC has also reserved 500,000 shares of Common Stock in the event the board of directors determines to pay up to 50% of the annual director fees payable to non-employee members of the board of directors in shares of Common Stock.

Under the Plan, 2,601,944 shares of Common Stock, which represents 9.5% of the Common Stock,  were issued to the holders of unsecured claims against SFI pursuant to Section 1145 (a)(1) of the Bankruptcy Code, which exempts the offer and sale of securities under a plan of reorganization from registration under Section 5 of the Securities Act in certain circumstances.  On the Effective Date and pursuant to the Plan, the Company relied upon the exemption from registration pursuant to Section 4(2) of the Securities Act, and Rule 506 promulgated thereunder, to effect the following sales and issuance of Common Stock:

·                  The SFO Equity Conversion resulted in certain holders of the 2016 Notes in the aggregate amount of $69.5 million exchanging such 2016 Notes for 2,362,309 shares of Common Stock, which represents 8.625% of the Common Stock;

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·                  Eligible Holders that subscribed for Common Stock in the Offering purchased 17,181,975 shares of Common Stock, which represents 62.733% of the Common Stock;

·                  The Direct Equity Purchase by the Backstop Purchasers for the Direct Purchase Amount resulted in the sale and issuance of 3,399,006 shares of Common Stock, which represents 12.410% of the Common Stock;

·                  The Additional Equity Purchase by certain Backstop Purchasers for the Additional Purchase Amount resulted in the sale and issuance of 1,699,503 shares of Common Stock, which represents 6.205% of the Common Stock; and

·                  144,152 shares of Common Stock, which represents 0.526% of the Common Stock, were issued to certain delayed draw equity purchasers as consideration for their commitment to purchase an additional $25.0 million of Common Stock (the “Delayed Draw Shares”) on or before June 1, 2011, following approval by a majority of the members of SFEC’s board of directors (the “Delayed Draw Equity Purchase”).

(d)   Preconfirmation Equity Interests

Upon the Effective Date, by operation of the Plan, all of SFI’s common stock, preferred stock purchase rights, preferred income equity redeemable shares (“PIERS”) and any other ownership interest in SFI, whether or not transferable, and all options, warrants or rights, contractual or otherwise (including, but not limited to, stockholders agreements, registration rights agreements, rights agreements, repurchase agreements and arrangements, or other similar instruments or documents), (collectively, the “SFI Preconfirmation Equity Interests”) were cancelled as of the Effective Date.  Included in the SFI Preconfirmation Equity Interests were (i) SFI’s 2001 Stock Option and Incentive Plan, which was filed as Exhibit 4(dd) to SFI’s Annual Report on Form 10-K for the year ended December 31, 2002; (ii) the SFI Stock Option Plan for Directors, which was filed as Exhibit 4(ee) to SFI’s Annual Report on Form 10-K for the year ended December 31, 2002; (iii) SFI’s 2004 Stock Option and Incentive Plan, which was filed as Exhibit 10.1 to SFI’s Registration Statement on Form S-8 (Reg. No. 333-131831), filed on February 14, 2006; (iv) the SFI’s 2006 Stock Option and Incentive Plan, which was filed as Exhibit 10.1 to SFI’s Current Report on Form 8-K, filed on May 30, 2006; (v) SFI’s 2006 Employee Stock Purchase Plan, which was filed as Exhibit 10.2 to SFI’s Current Report on Form 8-K, filed on May 30, 2006; (vi) the SFI 2007 Stock Option and Incentive Plan, which was filed as Exhibit 10.1 to SFI’s Current Report on Form 8-K filed on May 24, 2007; (vii) the SFI 2008 Stock Option and Incentive Plan, which was filed as Exhibit 10.1 to SFI’s Current Report on Form 8-K, filed on May 28, 2008; and (viii) all outstanding awards and grants thereunder.  Former stockholders of SFI and holders of other SFI Preconfirmation Equity Interests will receive no distributions or other consideration under the Plan.

(e)          Prepetition Debt Securities

On the Effective Date, by operation of the Plan, all outstanding obligations under the following notes issued by SFI and SFO (collectively, the “Prepetition Notes”) were cancelled and the indentures governing such obligations were cancelled, except to the extent to allow the Debtors, Reorganized Debtors (as such term is defined in the Plan) or the relevant Prepetition Notes indenture trustee, as applicable, to make distributions pursuant to the Plan on account of claims related to such Prepetition Notes:

·                  SFI’s 8-7/8% Senior Notes due 2010 (the “2010 Notes”), which were issued pursuant to the Indenture, dated as of February 11, 2002, between the Company and The Bank of New York Mellon (“BONY”), as trustee;

·                  SFI’s 9-3/4% Senior Notes due 2013 (the “2013 Notes”), which were issued pursuant to the Indenture, dated as of April 16, 2003, between the Company and BONY, as trustee;

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·                  SFI’s 9-5/8% Senior Notes due 2014 (the “2014 Notes”), which were issued pursuant to the Indenture, dated as of December 5, 2003, between the Company and BONY, as trustee;

·                  SFI’s 4.50% Convertible Senior Notes due 2015 (the “2015 Notes”), which were issued pursuant to the Indenture, dated as of June 30, 1999, between the Company and BONY, as trustee, and the Second Supplemental Indenture, dated as of November 19, 2004, between the Company and BONY, as trustee; and

·                  The 2016 Notes, which were issued pursuant to the Indenture, dated as of June 16, 2008, among SFO, as issuer, the Company, as parent guarantor, and HSBC Bank USA, National Association, as trustee.

(f)            Prepetition Credit Agreement

On the Effective Date, pursuant to the Plan and the Confirmation Order, the Second Amended and Restated Credit Agreement, dated as of May 25, 2007 (as amended, modified or otherwise supplemented from time to time, the “Prepetition Credit Agreement”), among SFI, SFO, SFTP (as the primary borrower), certain of SFTP’s foreign subsidiaries party thereto, the lenders thereto, the agent banks party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”), was cancelled (except that the Prepetition Credit Agreement continues in effect solely for the purposes of allowing creditors under the Prepetition Credit Agreement to receive distributions under the Plan and allowing the Administrative Agent to exercise certain rights).

(g)   Fresh Start Accounting

As required by accounting principles generally accepted in the United States (“GAAP”), effective as of May 1, 2010, we adopted fresh start accounting following the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852, Reorganizations (“FASB ASC 852”).  The actual impact at emergence on April 30, 2010 will be reported in our Form 10-Q for the second quarter of 2010.  The consolidated financial statements for the periods ended March 31, 2010 and prior do not include the effect of any changes in our capital structure or changes in the fair value of assets and liabilities as a result of fresh start accounting.  As a result of the fresh start accounting adjustments governed by FASB ASC 852, we anticipate a substantial adjustment to our goodwill.

(h)   Impact on Net Operating Loss Carryforwards (“NOLs”)

For U.S. federal income tax purposes, Holdings is the common parent of an affiliated group of corporations (the “Six Flags Group”) of which join in the filing of a consolidated federal income tax return.  We estimate that as of March 31, 2010, the Six Flags Group has consolidated NOLs of approximately $2.1 billion.

Pursuant to the Plan, our aggregate outstanding indebtedness was substantially reduced.  In general, the discharge of a debt obligation for cash and property (including common stock) having a value less than the amount owed gives rise to taxable cancellation of debt (“COD”) income.  However, an exception is made for COD income arising in a bankruptcy proceeding.  Under this exception, the taxpayer does not include the COD income in its taxable income, but must instead reduce the following tax attributes, in the following order, by the amount of its COD income: (i) NOLs (beginning with NOLs for the year of the COD income, then the oldest and then next-to-oldest NOLs, and so on), (ii) general business tax credits (in the order generally taken into account in computing tax liability), (iii) alternative minimum tax credits, (iv) net capital losses (beginning with capital losses for the year of the COD income, then the oldest and then next to oldest capital losses, and so on), (v) tax basis of assets (but not below the liabilities remaining after debt cancellation); (vi) passive activity losses, and (vii) foreign tax credits (in the order generally taken into account in computing tax liability).  Alternatively, a debtor may elect to first reduce the basis of its depreciable and amortizable property.  The debtor’s tax attributes are not reduced until after determination of the debtor’s tax liability for the year of the COD income.  COD

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income in excess of available tax attributes is forgiven, but may result in excess loss account recapture income.  However, our COD income does not exceed our available tax attributes.

The issuance of common stock to creditors pursuant to the Plan causes an “ownership change” under section 382 of the Tax Code.  If a corporation undergoes an “ownership change,” the amount of its pre-change losses and certain other tax attributes that may be utilized to offset future taxable income is subject to an annual “Section 382 limitation” (unless the Bankruptcy Exception, discussed below, applies).  NOLs that are not utilized in a given year because of the Section 382 limitation remain available for use in future years until their normal expiration date, subject to the Section 382 limitation in such future years.  The Section 382 limitation generally is equal to the value of the corporation’s equity immediately before the ownership change multiplied by the applicable “long-term tax-exempt bond rate,” which is published monthly by the Internal Revenue Service.  However, under one of two special rules for companies in bankruptcy proceedings, the value of the corporation’s equity for purposes of computing the Section 382 limitation is increased to reflect cancellation of debt that occurred in the bankruptcy reorganization.  Under this rule, the value of the our equity for purposes of computing our Section 382 limitation is the lesser of the value of our common stock immediately after the ownership change or the value of our assets immediately before the ownership change.  In lieu of the Section 382 limitation, a second bankruptcy exception would reduce our NOLs by interest deducted during a specified period on debt converted into stock in the bankruptcy.  We expect to make an election for this second bankruptcy exception not to apply.

The Section 382 limitation is increased by built-in income and gains recognized (or treated as recognized) during the five years following an ownership change (up to the total amount of built-in income and gain that existed at the time of the ownership change).  Built-in income for this purpose includes the amount by which tax depreciation and amortization expenses during this five-year period are less than they would have been if our assets had a tax basis on the date of the ownership change equal to their fair market value on such date.  Because most of our assets are theme park assets, which are depreciated on an accelerated basis over a seven-year recovery period, it is expected that our NOL limitation for the five years following the ownership change will be substantially increased by built-in income.  To the extent the Section 382 limitation exceeds taxable income in a given year, the excess is carried forward and increases the Section 382 limitation in succeeding taxable years.

Alternative minimum tax (“AMT”) is owed on a corporation’s AMT income, at a 20% tax rate, to the extent AMT exceeds the corporation’s regular U.S. federal income tax in a given year.  In computing taxable income for AMT purposes, certain deductions and beneficial allowances are modified or eliminated.  One modification is a limitation on the use of NOLs for AMT purposes.  Specifically, no more than 90% of AMT income can be offset with NOLs (as recomputed for AMT purposes).  Therefore, AMT will be owed in years we have positive AMT income, even if all of our regular taxable income for the year is offset with NOLs.  As a result, our AMT income (before AMT NOLs) in those years will be taxed at a 2% effective U.S. federal income tax rate (i.e., 10% of AMT income that cannot be offset with NOLs, multiplied by 20% AMT rate).  The amount of AMT we pay will be allowed as a nonrefundable credit against regular federal income tax in future taxable year to the extent regular tax exceeds AMT in such years.

2.                                      General — Basis of Presentation

We own and operate regional theme, water and zoological parks.  Of the 19 parks we own or operate, 17 are located in the United States. Of the other two, one is located in Mexico City, Mexico and the other is located in Montreal, Canada.  During the second quarter of 2008, we decided that we would not re-open our New Orleans park, which sustained very extensive damage during Hurricane Katrina in late August 2005 and has not re-opened since.  During the third quarter of 2009, the Company and the City of New Orleans mutually agreed to terminate the Company’s lease with the City of New Orleans and to settle the related litigation, pursuant to which the Company agreed, among other things, to pay $3

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million and to transfer title to the Company’s property and equipment at the site to the City of New Orleans, including land owned by the Company adjacent to the leased site.  We have recorded appropriate provisions for impairment and liabilities related to discontinuing the New Orleans park operations.  The condensed consolidated financial statements as of and for all periods presented reflect the assets, liabilities and results of the facilities sold and held for sale as discontinued operations.  See Notes 3 and 7.

In February 2010, in connection with the Chapter 11 Filing, the Company 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 operations for our Louisville park as discontinued operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations, which follows these notes, contain additional information on our results of operations and our financial position. That discussion should be read in conjunction with the condensed consolidated financial statements and these notes.  Our 2009 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 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 three-month periods ended March 31, 2010 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.

The accompanying condensed consolidated financial statements do not purport to reflect or provide for the consequences of our Chapter 11 Filing.  In particular, the financial statements do not purport to show (1) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities, (2) as to liabilities arising prior to the Petition Date, the amounts that may be allowed for claims or contingencies, or the status and priority thereof, (3) as to stockholders’ equity accounts, the effect of any changes that may be made in our capitalization, or (4) as to operations, the effect of any changes that may be made to our business.

We evaluated subsequent events through the date the financial statements were issued.  No reportable subsequent events were identified as a result of our evaluation.

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 and joint ventures that own SFOT and SFOG, 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 consolidated HWP Development, LLC, a joint venture in which we own an approximate 41% interest (“HWP”), as a subsidiary in our consolidated financial statements beginning with the first quarter of 2010.  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 March 31, 2010 condensed consolidated balance sheet 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 further discussion in Note 2 (k) and Note 8.

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While operating as debtors-in-possession, the Debtors were able to sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as permitted in the ordinary course of business.  These dispositions and settlements may be in amounts other than those reflected in the condensed consolidated financial statements.

b.              Accounting for the Chapter 11 Filing

We follow the accounting prescribed by FASB ASC 852.  This accounting literature 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 amount should be adjusted to the allowed claim.  During the second quarter of 2009, we wrote off costs that are associated with unsecured debt that is included in liabilities subject to compromise at March 31, 2010.  Premiums and discounts as well as debt issuance cost on debt that is not subject to compromise, such as fully secured claims, have not been adjusted.

Because SFI’s stockholders own less than 50% of the voting shares after Holdings emerged from bankruptcy, we will apply “Fresh-Start Reporting,” in which our assets and liabilities will be recorded at their estimated fair value using the principles of purchase accounting contained in FASB ASC Topic 805, Business Combinations.  The difference, if any, between our estimated fair value and our identifiable assets and liabilities will be recognized as goodwill (see Note 1(g)).

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:

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, entirely constituting professional fees, as of March 31, 2010 totaled $8,034,000.

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.  We recorded a $36.9 million impairment of the Louisville park assets, including $0.6 million of inventory and prepaid expenses, as part of reorganization items in the statement of operations for the year ended December 31, 2009.  The fair value of the park assets that will remain, except for the land we own, was valued at zero based on the rejection of the lease.  The land was valued at the appraised value based on comparable sales information, which is a level 2 fair value measurement.  The condensed consolidated financial statements as of and for all periods presented reflect the assets, liabilities and results of

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operations for our Louisville park as discontinued operations.  See further discussion in Note 3 to the consolidated financial statements.

Liabilities Subject to Compromise

Liabilities subject to compromise refers to unsecured obligations that will be accounted for under a plan of reorganization.  Generally, actions to enforce or otherwise effect payment of liabilities arising before the date of filing of the plan of reorganization are stayed.  FASB ASC 852 requires liabilities that are subject to compromise to be reported at the claim amounts expected to be allowed, even if they may be settled for lesser amounts.  These liabilities represent the estimated amount of claims expected to be allowed on known or potential claims to be resolved through the bankruptcy process, and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of collateral securing the claims, proofs of claim, or other events.  Liabilities subject to compromise also include certain items that may be assumed under the plan of reorganization, and as such, may be subsequently reclassified to liabilities not subject to compromise.  The Company has not included the Prepetition Credit Agreement obligations, and swap obligations secured ratably therewith, as liabilities subject to compromise as these secured liabilities are expected to be fully recovered by the Lenders.  The Bankruptcy Court granted final approval of the Debtors’ “first day” motions covering, among other things, human resource obligations, supplier relations, insurance, customer relations, business operations, certain tax matters, cash management, post-petition utilities, case management and retention of professionals.  Obligations associated with these matters are not classified as liabilities subject to compromise.

The Debtors were permitted to reject prepetition executory contracts and unexpired leases with respect to the Debtors’ operations, with the approval of the Bankruptcy Court.  Damages resulting from rejection of executory contracts and unexpired leases are generally treated as general unsecured claims and will be classified as liabilities subject to compromise.  Holders of such prepetition claims were required to file proofs of claims by a bar date set by the Bankruptcy Court.  A bar date is the date by which claims against the Debtors must be filed if the claimants wish to receive any distribution in the Chapter 11 Filing.  The Debtors notified all known claimants subject to the bar date of their need to file a proof of claim with the Bankruptcy Court.  Differences between liability amounts estimated by the Debtors and claims filed by creditors will be investigated and, if necessary, the Bankruptcy Court will make a final determination of the allowable claim.

Liabilities subject to compromise consist of the following:

Liabilities subject to compromise, at March 31, 2010, include trade accounts payable of approximately $19.8 million related to purchases prior to the Petition Date, which generally have not been paid.  As a result, the Company’s cash flows from operations were favorably affected by the stay of payments related to these liabilities.

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In accordance with the guidance provided in FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC 852, during the third quarter of 2009 we reclassified the $275.4 million redemption value of PIERS plus accrued and unpaid dividends of approximately $31.2 million from mezzanine equity to liabilities subject to compromise, as the PIERS became an unconditional obligation as of August 15, 2009.  Upon the Effective Date, by operation of the Plan, the PIERS were cancelled as of the Effective Date.

d.              PARC Note

We recorded the $37.0 million note that we received pursuant to the sale of seven parks in April 2007 (the “PARC Note”) at an estimated fair value of $11.4 million, reflecting the risk of collectability due to the PARC Note’s subordination to other obligations.  We will not recognize interest income from the PARC Note until the entire carrying amount has been recovered, in accordance with the guidance of FASB ASC Topic 310, Receivables.  As of March 31, 2010, we have collected payments in the amount of $10.4 million leaving the PARC Note receivable balance at $1.0 million.  See Note 7.

e.               Income Taxes

Income taxes are accounted for under the asset and liability method.  At December 31, 2009, we had recorded a valuation allowance of $620,229,000 due to uncertainties related to our ability to utilize some of our deferred tax assets before they expire.  The valuation allowance was increased by $76,412,000 through March 31, 2010, in respect of the net loss before income taxes generated during the first three months of 2010.  In addition, we decreased the valuation allowance by $1,720,000 through March 31, 2010 related to other comprehensive income (loss).

We classify interest and penalties attributable to income taxes as part of income tax expense.  As of March 31, 2010, we have a liability of approximately $2.1 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, assets will be revalued based on the fair values of long-lived assets (see Note 1(g)).

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.

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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 in our condensed consolidated statements of operations on a current basis.

During the fourth quarter of 2008, we discontinued hedge accounting treatment for the interest rate swaps, as they no longer met the probability test as detailed in FASB ASC 815.  See Note 4.

h.              Loss Per Common Share

Basic loss per share is computed by dividing net loss applicable to common stock by the weighted average number of common shares outstanding for the period.

The weighted average number of shares of common stock used in the calculation of diluted loss per share for the three-month periods ended March 31, 2010 and 2009 does not include the effect of potential common stock issuable upon the exercise of employee stock options, the impact in either period of the potential conversion of the PIERS or the impact of the potential conversion of the 2015 Notes, as the effects of the exercise such options and such conversions and resulting decrease in preferred stock dividends or interest payments, as the case may be, is antidilutive.  The PIERS, which are included in the liabilities subject to compromise as of March 31, 2010 and December 31, 2009, were issued in January 2001 and were convertible into 13,209,000 (after giving effect to 483,000 PIERS that converted to common stock in the third quarter of 2009) and 13,789,000 shares of common stock as of March 31, 2009.  The 2015 Notes were convertible at the option of the holder into 44,094,000 shares of common stock.  No adjustments were made to the weighted average number of shares of common stock for the three months ended March 31, 2010.

PIERS dividends and amortization of related issue costs of $5,493,000 were included in determining net income (loss) attributable to SFI’s common stockholders for the three months ended March 31, 2009.

i.                 Reclassifications

Reclassifications have been made to certain amounts reported in 2009 to conform to the 2010 presentation.

j.                 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, SFEC 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 SFEC and its affiliates (collectively, “Eligible Persons”).  The Long-Term Incentive Plan provides that no more than 4,833,333 shares of Common Stock may be issued pursuant to Awards under the Long-Term Incentive Plan as of the Effective Date, and if and to the extent the Delayed Draw Equity Purchase is consummated, up to 149,956 additional shares of Common Stock shall be available for issuance under the Long-Term Incentive Plan.  At least one-third of the total shares available for issuance under the Long-Term Incentive Plan shall be available for grants of restricted stock or restricted stock units.

Pursuant to the Plan, all stock-based compensation arrangements and awards were cancelled 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

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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 three months ended March 31, 2010 and 2009, stock-based compensation expense related to the Preconfirmation Stock Incentive Plans was $598,000 and $839,000, respectively.

Under the Preconfirmation Stock Incentive Plans, our officers and non-employee directors were awarded stock options, restricted stock and other stock-based awards.  As of March 31, 2010, options to purchase 6,480,000 shares of SFI’s common stock and approximately 970,000 shares of restricted stock were outstanding under the Preconfirmation Stock Incentive Plans and approximately 3,887,000 shares were available for future grant.  As of March 31, 2009, options to purchase 6,660,000 shares of SFI’s common stock and approximately 1,776,000 shares of restricted stock were outstanding under the Preconfirmation Stock Incentive Plans and approximately 3,676,000 shares were available for future grant.

Stock Options

Options granted under the Preconfirmation Stock Incentive Plans could have been 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 at the date of grant.  These option awards generally vested 20% per annum, commencing with the date of grant, and had a contractual term of either 7, 8 or 10 years.  In addition, our 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 life 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.

The weighted-average assumptions used for options granted in the three months ended March 31, 2010 and 2009 are as follows:

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A summary of the status of our option awards as of March 31, 2010 and changes during the three months then ended is presented below:

There were no options granted in the first three months ended March 31, 2010.  The weighted average grant date fair value of our option awards granted during the three months ended 2009 was $0.20.  The total intrinsic value of options exercised for both periods was $0.  The total fair value of options that vested during the three months ended March 31, 2010 and 2009 was $3.0 million and $3.1 million, respectively.

As of March 31, 2010, there was $0.4 million of unrecognized compensation expense related to our option awards.  The weighted average period over which that cost is expected to be recognized, without regard to the potential impact of the Chapter 11 Filing and proceedings, is 1.27 years.

Restricted Stock

Restricted shares of SFI’s common stock could have been awarded under the Preconfirmation Stock Incentive Plans and were subject to restrictions on transferability and other restrictions, if any, as the compensation committee (the “Compensation Committee”) of SFI’s board of directors could have imposed.  The Compensation Committee could have also determined when and under what circumstances the restrictions may lapse and whether the participant received the rights of a stockholder, including, without limitation, the right to vote and receive dividends.  Unless the Compensation Committee determined otherwise, restricted stock that was still subject to restrictions 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.

No restricted shares were issued in the three months ended March 31, 2010.  We issued 50,000 shares of restricted stock during the three months ended March 31, 2009 to our Chief Financial Officer pursuant to the terms of his employment agreement.

We issued 2,505,518 shares of restricted stock during the year ended December 31, 2008 as settlement for 2007 accrued bonuses to certain key employees and to fund a portion of our 401(k) plan match for 2007.  Of the 2,505,518 shares issued (i) 1,029,109 vested on March 11, 2008, (ii) 1,050,985 shares vested on April 7, 2008, (iii) 113,333 shares, related to the 401(k) plan match vested on September 10, 2008, (iv) 19,013 shares were forfeited upon the termination of several employees throughout 2008,

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(v) 21,082 shares were forfeited upon the termination of several employees in 2009, (vi) 1,755 shares were forfeited upon the termination of several employees in 2010, and (vii) 270,241 shares would have vested in 2011 if certain performance based financial goals of the Company were met.

A summary of the status of our restricted stock awards as of March 31, 2010 and changes during the three months then ended is presented below:

There was no restricted stock granted in the first three months of 2010.  The weighted average grant date fair value per share of restricted stock awards granted during the three months ended March 31, 2009 was $0.33.

The total grant date fair value of the restricted stock awards granted during the three months ended March 31, 2009 was $0.02 million.  The total fair value of restricted stock awards that vested during the three months ended March 31, 2010 and 2009 was $3.0 million and $0.03 million, respectively.  As of March 31, 2010, the unrecognized compensation costs related to restricted stock awards was $0.7 million.  The weighted average period over which that cost is expected to be recognized, without regard to the potential impact of the Chapter 11 Filing and proceedings, is 0.76 years.

k.              New Accounting Pronouncements

In January 2010, the FASB issued ASC Update No. 2010-06, Fair Value Measurements and Disclosures (“ASC Update No. 2010-06”).  The updated guidance calls for new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurement and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements.  The FASB also clarified existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques.  The new disclosures and clarification of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuance, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.  We adopted this guidance for the interim period ending March 31, 2010 and updated our disclosures to comply with the current accounting guidance described in ASC Update No. 2010-06.  See Note 5.

In August of 2009, the FASB issued ASC Update No. 2009-05, Measuring Liabilities at Fair Value (“ASC Update No. 2009-05”).  ASC Update No. 2009-05 provides amendments to ASC Topic 820, Fair Value Measurements and Disclosures (“FASB ASC 820”) for the fair value measurement of liabilities.  The updated guidance states that when the quoted price in an active market for the identical liability is not available, a reporting entity can measure fair value of the liability using quoted prices of the identical or similar liability when traded as an asset.   Such valuation method will result in Level 1 fair value measurement.  The updated guidance also provides for other valuation techniques that are consistent with the principles of FASB ASC Topic 820.  A further clarification is provided for the fair value estimate of the liability, stating that such estimate does not have to be adjusted for the existing restrictions that prevent the transfer of the liability.  ASC Update No. 2009-05 is effective for the first reporting period, including interim periods, beginning after issuance.  We adopted ASC Update No. 2009-

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05 for the interim period ending March 31, 2010.  The adoption did not impact our existing approach used in determining fair-value measurement of the liabilities.

In August 2009, the FASB issued ASC Update No. 2009-04, Accounting for Redeemable Equity Instruments (“ASC Update No. 2009-04”).  This guidance updates FASB ASC Topic 480, “Distinguishing Liabilities from Equity” of the current Codification per EITF Topic D-98, “Classification and Measurement of Redeemable Securities.”  ASC Update No. 2009-04 does not change the existing accounting guidance for classification and disclosures related to preferred securities that are redeemable for cash or other assets.  Rather, it expands on the application of the current guidance to other redeemable equity instruments, providing specific examples for applying the guidance to freestanding financial instruments, equity instruments subject to registration payment arrangements, share-based payment awards, convertible debt instruments that contain a separately classified equity component, certain redemptions upon liquidation events, and certain redemptions covered by insurance proceeds.  We adopted ASC Update No. 2009-04 for the interim period ending March 31, 2010.  The adoption of ASC Update No. 2009-04 did not affect our condensed consolidated financial statement presentation and disclosures.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), codified into FASB ASC 810.  FASB ASC 810 changes the consolidation guidance applicable to a variable interest entity.  It also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a variable interest entity, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis.  The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and who has the obligation to absorb losses or the right to receive benefits of the variable interest entity that could potentially be significant to the variable interest entity.  This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.  Previously, the applicable guidance required reconsideration of whether an enterprise was the primary beneficiary of a variable interest entity only when specific events had occurred.  Qualifying special-purpose entities, which were previously exempt from the application of this standard, will be subject to the provisions of this standard when it becomes effective.  FASB ASC 810 also requires enhanced disclosures about an enterprise’s involvement with a variable interest entity.  FASB ASC 810 is effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009.  We adopted the new guidance at January 1, 2010.  As a result of adopting FASB ASC 810, we consolidated HWP as of January 1, 2010, as we satisfy the qualifications of being a primary beneficiary of this entity: (i) we have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, and (ii) we have the obligation to absorb losses and receive benefits, which are deemed to be potentially significant to the entity.  As a result of consolidating HWP, our total assets, total liabilities and noncontrolling interest on January 1, 2010 increased by approximately $38.8 million, $33.8 million and $5.0 million, respectively.  As of March 31, 2010 the equity interests owned by non-affiliated parties in HWP are reflected in the accompanying consolidated balance sheets as noncontrolling interest.  The portion of earnings attributable to the non-affiliated parties is reflected as net income attributable to noncontrolling interest in the accompanying consolidated statement of operations as of March 31, 2010.  The adoption of FASB ASC 810 did not change accounting treatment of the partnerships that own SFOT and SFOG, which we continued to consolidate.  See Note 8.

3.                                Disposition of Parks

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.

During the second quarter of 2008, we decided that we would not re-open our New Orleans park, which sustained very extensive damage during Hurricane Katrina in late August 2005.  See Notes 2 and 7.

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Our condensed consolidated financial statements have been reclassified for all relevant periods presented to reflect the operations, assets and liabilities of our Louisville and New Orleans parks and the parks sold in or prior to 2007 as discontinued operations.  The discontinued operations, excluding contingent liabilities discussed in Note 7, have been presented on March 31, 2010 and December 31, 2009 consolidated balance sheets as follows:

The net gain (loss) from discontinued operations was classified on the condensed consolidated statements of operations for the three-month periods ended March 31, 2010 and 2009 as “discontinued operations.” Summarized results of discontinued operations are as follows:

Our long-term debt is not directly associated with discontinued operations, and we have not allocated a portion of our interest expense to the discontinued operations.

4.                                      Derivative Financial Instruments

In February 2008, we entered into two interest rate swap agreements that effectively converted $600,000,000 of the term loan component of the Prepetition Credit Agreement (see Note 6), into a fixed rate obligation.  The terms of the agreements, each of which had a notional amount of $300,000,000, began in February 2008 and expire in February 2011.  Our term loan borrowings bear interest based upon LIBOR plus a fixed margin.  Under our interest rate swap arrangements, our interest rates ranged from 5.325% to 5.358% (with an average of 5.342%).  On June 16, 2009, we were informed by the counterparties to the interest rate swap agreements that as a result of the Chapter 11 Filing the interest rate swap agreements were being terminated.

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

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designated as a hedge are recorded in other expense in our consolidated statements of operations on a current basis.

The following is a summary of the changes recorded in accumulated other comprehensive income (loss) during the first three months of 2010:

As of March 31, 2010, approximately $774,000 of net deferred gains on derivative instruments accumulated in other comprehensive income (loss) are expected to be reclassified to operations during the next twelve months.

During the fourth quarter of 2008, it was determined that our interest rate swaps no longer met the probability test under FASB ASC 815.  At that time, hedge accounting treatment was discontinued for the two interest rate swaps.  As a result, during the first three months of 2010, we recorded a $496,000 gain in other (income) expense.

The principal market in which we execute interest rate swap contracts is the retail/over-the-counter market (as opposed to the broker or interbank market).  Market participants can be described as large money center banks.  For recognizing the most appropriate value, the highest and best use of our derivatives are measured using an in-exchange valuation premise that considers the assumptions that market participants would use in pricing the derivatives.

Up until the notification by the counterparties on June 16, 2009 that the interest rate swaps were being terminated, we elected to use the income approach to value the derivatives, using observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) assuming that participants are motivated, but not compelled to transact.  Level 2 inputs for the swap valuations were limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that were observable for the asset or liability (specifically LIBOR cash and swap rates) at commonly quoted intervals, and credit risk.  Mid-market LIBOR pricing was used as a practical expedient for fair value measurements.  Key inputs, including the LIBOR cash rates for very short term, futures rates for up to three years and LIBOR swap rates beyond the derivative maturity, were bootstrapped to provide spot rates at resets specified by each swap as well as to discount those future cash flows to present value at measurement date.  Inputs were collected from Bloomberg on the last market day of the period.  The same rates used to bootstrap the yield curve were used to discount the future cash flows.  We were required to discount derivative liabilities to reflect the potential credit risk to lenders.  We elected to discount the cash flows of the derivative liabilities using a credit default swap basis available from Bloomberg and applied it to all cash flows.  Discounting for our credit default swap rates resulted in a substantial reduction of the liability recorded at December 31, 2008.

The counterparties to the interest rate swap agreements provided four independent quotations for replacement transactions that were used to determine the derivative liability at termination.  These quoted prices were for specific transactions and are considered Level 1 fair value measurements.

The fair value of our obligation under the interest rate swaps was approximately $19,992,000 at March 31, 2010 and December 31, 2009 and is recorded in other accrued liabilities and other long-term liabilities, respectively, in the accompanying condensed consolidated balance sheets and is considered a Level 1 fair value measurement.

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By using derivative instruments to hedge exposures to changes in interest rates, we are exposed to credit risk and market risk.  Credit risk is the failure of the counterparty to perform under the terms of the derivative contract.  To mitigate this risk, the hedging instruments were placed with counterparties that we believe are minimal credit risks.

Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, commodity prices, or currency exchange rates.  The market risk associated with interest rate swap agreements is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

We do not hold or issue derivative instruments for trading purposes.  Changes in the fair value of derivatives that are designated as hedges are reported on the condensed consolidated balance sheet in “Accumulated other comprehensive loss” when in qualifying effective relationships, and directly in other expense when they are not.  These amounts are reclassified to interest expense when the forecasted transaction takes place.

The critical terms, such as the index, settlement dates, and notional amounts, of the derivative instruments were substantially the same as the provisions of our hedged borrowings under the Credit Agreement.  As a result, no material ineffectiveness of the cash-flow hedges was recorded in the consolidated statements of operations prior to the loss of hedge accounting treatment in the fourth quarter of 2008.

5.                                      Fair Value of Financial Instruments

The following table and accompanying information present the estimated fair values of our financial instruments at March 31, 2010 and December 31, 2009 and classification of such instruments in accordance with FASB ASC 820.  The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.

The carrying amounts shown in the table are included in the condensed consolidated balance sheets under the indicated captions.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

·                  The carrying values of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments.

·                  Restricted-use investment securities: The carrying value of restricted-use investment securities consist of interest bearing bank accounts and approximates fair value because of their short term maturity and are considered a Level 2 fair value measurement.

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·      Long-term debt: The fair value of our long-term debt is based upon quoted market prices and is considered a Level 1 fair value measurement.

·      PIERS: The fair value of our mandatorily redeemable preferred stock is based upon quoted market prices and is considered a Level 1 fair value measurement.  In accordance with the guidance provided in FASB ASC 480 and FASB ASC 852, we classified the $275.4 million redemption value of PIERS plus accrued and unpaid dividends of approximately $31.2 million as liabilities subject to compromise, as the PIERS became an unconditional obligation as of August 15, 2009.  Pursuant to the Plan, PIERS are considered an unsecured equity interest subject to compromise and the holders of such instruments received no recovery.

·      Interest rate swaps: The fair value of our interest rate swaps at March 31, 2010 and December 31, 2009 is based on quoted prices from multiple brokers for replacement transactions which are considered Level 1 fair value measurements (See Note 4).

6.             Long-Term Indebtedness

On May 15, 2009, the Acquisition Parties entered into a promissory note with TW-SF LLC, a subsidiary of Time Warner, pursuant to which TW-SF LLC loaned approximately $52.5 million to the Acquisition Parties ($30.7 million of which was outstanding at March 31, 2010 (excluding interest)) (the “Promissory Note”), which are obligated to fund the “put” obligations related to the Partnership Parks.  Interest on the loan accrued at a rate of 14% per annum and the principal amount of the loan was to mature on March 15, 2011.  The loan required semi-annual prepayments with the proceeds received by the Acquisition Parties from the limited partnership units held by them in the Partnership Parks and was prepayable at any time at the option of the Acquisition Parties.  Up to an aggregate of $10 million of the loan was guaranteed by SFI, SFO and SFTP (collectively, the “Guarantors”) under the terms of a guarantee agreement entered into by the Guarantors in favor of TW-SF LLC, dated May 15, 2009.  On the Effective Date, the Acquisition Parties repaid in full all amounts outstanding under the Promissory Note, which as of the Effective Date was $32,561,779 (including interest).

On November 5, 2007, HWP entered into a $33,000,000 refinance loan with Deutsche Bank Mortgage Capital, L.L.C. (“Refinance Loan”) retiring (i) the $31,000,000 construction-term loan with Marshall Investments Corporation incurred December 17, 2004 and (ii) the term loan and revolving line of credit with BankFirst incurred April 20, 2006.  Borrowings under the Refinance Loan bear interest at 6.72%.  Monthly payments of principal and interest of $213,000 are payable through November 1, 2017.  On December 1, 2017, all unpaid principal and interest shall be due and payable.  HWP is subject to various covenants under the Refinance Loan that place certain restrictions limiting or prohibiting engaging in certain types of transactions.  Pursuant to the Refinance Loan, HWP deposited into escrow $282,000 and $344,000 at March 31, 2010 and December 31, 2009, respectively, and will make additional monthly deposits to cover annual amounts owed for insurance, taxes and furniture, fixture and equipment purchases.

In connection with the issuance of the Refinance Loan, we provided a limited guarantee of the loan, which becomes operative under certain limited circumstances, including the voluntary bankruptcy of HWP or its managing member.  The limited guarantee will be released five years following full payment and discharge of the loan.  As additional security for the Refinance Loan, we also provided a $1,000,000 letter of credit to secure the Refinance Loan.  In addition, one of our joint venture partners provided a guarantee of the Refinance Loan in the event of certain specific events of default attributable to acts or failure to act by members of HWP.

On May 25, 2007, we entered into the Prepetition Credit Agreement, which provided for the following: (i) an $850,000,000 term loan maturing on April 30, 2015 ($835,125,000 of which was outstanding at March 31, 2010 and March 31, 2009); (ii) a revolving facility totaling $275,000,000  ($270,269,000 and $242,658,000 of which was outstanding at March 31, 2010 and March 31, 2009,

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respectively (as well as letters of credit in the amount of $2,163,000 and $31,402,000 on those dates)), and (iii) an uncommitted optional term loan tranche of up to $300,000,000.  The interest rate on borrowings under the Prepetition Credit Agreement could have been fixed for periods ranging from one to twelve months, subject to certain conditions.  At our option, the interest rate was based upon specified levels in excess of the applicable base rate, or LIBOR.  At March 31, 2010, the weighted average interest rate for borrowings under the term loan and the revolving facility was 4.48% and 4.94%, respectively.  At March 31, 2009, the weighted average interest rate for borrowing under the term loan and the revolving facility was 4.86% and 3.79%, respectively.  Commencing on September 30, 2007, SFTP, the primary borrower under the Prepetition Credit Agreement and an indirect wholly owned subsidiary of Holdings, was required to make quarterly principal repayments on the term loan in the amount of $2,125,000 with all remaining principal due on April 30, 2015.  The utilization of the revolving facility was available until March 31, 2013.  The Prepetition Credit Agreement contained customary representations and warranties and affirmative and negative covenants, including, but not limited to, a financial covenant related to the maintenance of a minimum senior secured leverage ratio in the event of utilization of the revolving facility and certain other events, as well as limitations on the ability to dispose of assets, incur additional indebtedness or liens, make restricted payments, make investments and engage in mergers or consolidations.  On the Effective Date, pursuant to the Plan and the Confirmation Order, the Prepetition Credit Agreement was cancelled and the lenders thereunder were paid in full.

Since the Chapter 11 Filing, we record post-petition interest on prepetition obligations only to the extent we believe the interest will be paid during the Chapter 11 Filing or that it is probable that the interest will be an allowed claim.  Included in interest expense for the quarter ended March 31, 2010, is $31,362,000 related to interest on the 2016 Notes, for the period of June 13, 2009 through December 31, 2009 that was recorded based on a change in the estimated probable allowed claim under the Chapter 11 Filing.  In addition, had we recorded interest on the 2010 Notes, the 2013 Notes, the 2014 Notes and the 2015 Notes based on our prepetition contractual obligations, interest expense would have increased by $17,105,000 during the three months ended March 31, 2010.

See Note 7 to the Consolidated Financial Statements in the 2009 Annual Report for additional information regarding our indebtedness.  See Note 1 for a description of our new indebtedness incurred in connection with the Plan and impact on all prepetition debt.

7.             Commitments and Contingencies

Our New Orleans park sustained extensive damage in Hurricane Katrina in late August 2005 and has not re-opened since.  We have determined that our carrying value of the assets destroyed was approximately $34.0 million, for which we recorded a receivable in 2005.  This amount does not include the property and equipment owned by the lessor, which is also covered by our insurance policies.  The park is covered by up to approximately $180 million in property insurance, subject to an insurer-calculated deductible in the case of named storms of approximately $5.5 million.  The property insurance includes business interruption coverage.

The flood insurance provisions of the policies contain a $27.5 million sublimit.  In December 2006, we commenced a declaratory action in Louisiana federal district court seeking judicial determination that the flood insurance sublimit was not applicable by virtue of the separate “Named Storm” peril.  In February 2008, the court ruled in summary judgment that the flood insurance sublimit was applicable to the policies, including the Named Storm provision.  In April 2009, the U.S. Court of Appeals for the Fifth Circuit upheld the district court ruling, with the exception of one policy, the Commonwealth Insurance Company policy, which was remanded to the district court for further consideration of our claim.  In January 2010, we entered into a settlement agreement with Commonwealth Insurance Company, which was approved by the Bankruptcy Court in February 2010.

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We have filed property insurance claims, including business interruption, with our insurers.  We have an insurance receivable of $0.4 million at March 31, 2010, which reflects part of our claim for business interruption and the destroyed assets.  The receivable is net of $38.3 million in payments received from our insurance carriers.

In April 2009, the Industrial Development Board of the City of New Orleans and the City of New Orleans (collectively, the “New Orleans Parties”) sought to accept an offer the Company made years earlier to buy out its lease with the New Orleans Parties for a $10 million cash payment and an exchange of contiguous real estate the Company owned.  When we declined to extend the same offer, the Mayor of New Orleans announced to the press that the New Orleans Parties would sue.  We were current on our lease payments to the New Orleans Parties, however, and in our view, not in default.  The New Orleans Parties filed suit in Louisiana state court on May 11, 2009, alleging that we breached the lease with the New Orleans Parties by removing rides and assets from the park property; by failing to secure the property; and by accepting interim insurance payments for Hurricane Katrina damage claims instead of designating the New Orleans Parties as loss payee.  On May 12, 2009, the New Orleans Parties obtained an ex parte state court temporary restraining order that enjoined us from: (a) removing any rides or attractions without the New Orleans Parties’ approval, (b) not properly securing the premises, and (c) “converting and/or secreting insurance proceeds received . . . as a result of Hurricane Katrina.”  We removed the action to the United States District Court for the Eastern District of Louisiana (the “Court”), and the parties stipulated to stay the federal action for sixty days, while leaving the temporary restraining order in place, with us reserving the right to contest our propriety at a later time.  In an order dated June 1, 2009, the Court imposed the agreed-upon stay but shortened the period to thirty days, until June 29, 2009.  The Court issued an order on June 22, 2009, directing the clerk to mark the action as closed due to the stay resulting from the Chapter 11 Filing, but retaining jurisdiction for restoration to the calendar should circumstances change.

Subsequently, however, the parties reached an agreement to settle the matter pursuant to which the New Orleans Parties and we entered into a general release of all claims against one another.  Additionally, the New Orleans Parties entered into a stipulation dismissing, with prejudice, the action pending in the United States District Court for the Eastern District of Louisiana, and dissolving the temporary restraining order obtained by the New Orleans Parties on May 12, 2009.  The New Orleans Parties also agreed not to file any proof of claim or otherwise assert any entitlement to relief in the Chapter 11 Filing.  Other material terms and conditions of the settlement are as follows:

·      Within 35 days of the Bankruptcy Court’s final approval of the final settlement agreement, which approval occurred on October 8, 2009, we were required to make, and did make, a cash payment to the New Orleans Parties in the amount of $3 million;

·      We vacated and delivered to the New Orleans Parties the leased premises and 86 acres of land, including any improvements thereto in their current condition, “as is”;

·      The New Orleans Parties will be entitled to receive 25% of any net insurance proceeds we recover on our insurance claims for property damage caused by Hurricane Katrina to the extent our net recovery exceeds $65 million. We retain absolute discretion in prosecution, and any potential settlement of, claims with insurers, subject to any required Bankruptcy Court approval; and

·      All other agreements between the New Orleans Parties and us related in any way to the leased premises and any other such related agreements, were deemed terminated upon the Bankruptcy Court’s final approval of the settlement agreement.

The settlement occurred on November 12, 2009.

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On April 1, 1998, we acquired all of the capital stock of the former Six Flags Entertainment Corporation (“Former SFEC”) for $976,000,000, paid in cash.  In addition to our obligations under outstanding indebtedness and other securities issued or assumed in the Former SFEC acquisition, we also guaranteed in connection therewith certain contractual obligations relating to the Partnership Parks.  Specifically, we guaranteed the obligations of the general partners of those partnerships to (i) make minimum annual distributions of approximately $62,317,000 (as of 2010 and subject to annual cost of living adjustments thereafter) to the limited partners in the Partnership Parks of which our share based on our ownership of units as of March 31, 2010 will be approximately $26,290,000, (ii) make minimum capital expenditures at each of the Partnership Parks during rolling five-year periods, based generally on 6% of the Partnership Parks’ revenues.  Cash flow from operations at the Partnership Parks is used to satisfy these requirements first, before any funds are required from us.  We also guaranteed the obligation of our subsidiaries to purchase a maximum amount of 5% per year (accumulating to the extent not purchased in any given year) of the total limited partnership units outstanding as of the date of the agreements (the “Partnership Agreements”) that govern the partnerships (to the extent tendered by the unit holders).  The agreed price for these purchases is based on a valuation for each respective Partnership Park equal to the greater of (i) a value derived by multiplying such park’s weighted average four year EBITDA (as defined in the Partnership Agreements) by a specified multiple (8.0 in the case of SFOG and 8.5 in the case of SFOT) or (ii) $250.0 million in the case of SFOG and $374.8 million in the case of SFOT.  As of March 31, 2010, we owned approximately 28.9% and 52.0% of the Georgia limited partner interests and Texas limited partner interests, respectively.  The remaining redeemable interests of approximately 71.1% and 48.0% of the Georgia limited partner and Texas limited partner, respectively, represent an ultimate redemption value for the limited partnership units of approximately $355.9 million.  Our obligations with respect to SFOG and SFOT will continue until 2027 and 2028, respectively.

As we purchase units relating to either Partnership Park, we are entitled to the minimum distribution and other distributions attributable to such units, unless we are then in default under the applicable agreements with our partners at such Partnership Park.  The annual unit purchase obligation (without taking into account accumulation from prior years) aggregated approximately $31.0 million for both parks based on current purchase prices.  To address the 2009 purchase of limited partnership units, a subsidiary of Time Warner provided a loan to our subsidiaries that were required to purchase the put units, which was repaid in connection with the Plan. To address future purchase obligations of limited partnership units, we entered into the New TW Loan, under which we will not borrow in 2010.  Pursuant to the 2010 annual offer, we will purchase 1.77 units from the Texas partnership and 0.83 units from the Georgia partnership for approximately $4.8 million in May 2010.  The maximum unit purchase obligations for 2010 at both parks aggregated approximately $307.8 million, representing approximately 61.4% of the outstanding units of SFOG and 41.6% of the outstanding units of SFOT.  See Notes 1 and 6.

In connection with our acquisition of the Former SFEC, we entered into the Subordinated Indemnity Agreement with certain of the Company’s entities, Time Warner and an affiliate of Time Warner, pursuant to which, among other things, we transferred to Time Warner (which has guaranteed all of our obligations under the Partnership Park arrangements) record title to the corporations which own the entities that have purchased and will purchase limited partnership units of the Partnership Parks, and we received an assignment from Time Warner of all cash flow received on such limited partnership units, and we otherwise control such entities.  In addition, we issued preferred stock of the managing partner of the partnerships to Time Warner.  In the event of a default by us under the Subordinated Indemnity Agreement or of our obligations to our partners in the Partnership Parks, these arrangements would permit Time Warner to take full control of both the entities that own limited partnership units and the managing partner.  If we satisfy all such obligations, Time Warner is required to transfer to us the entire equity interests of these entities.  We intend to incur approximately $18.4 million of capital expenditures at these parks for the 2010 season, an amount in excess of the minimum required expenditure. Cash flows from operations at the Partnership Parks will be used to satisfy the annual distribution and capital expenditure

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requirements, before any funds are required from us.  The two partnerships generated approximately $24.3 million of cash in 2009 from operating activities after deduction of capital expenditures and excluding the impact of short-term intercompany advances from or payments to SFI.  At March 31, 2010, we had total loans receivable outstanding of $233.0 million from the partnerships that own the Partnership Parks, primarily to fund the acquisition of Six Flags White Water Atlanta, and to make capital improvements and distributions to the limited partners.

We maintain insurance of the type and in amounts that we believe is commercially reasonable and that is available to businesses in our industry.  We maintain multi-layered general liability policies that provide for excess liability coverage of up to $100,000,000 per occurrence.  For incidents arising after November 15, 2003, our self-insured retention is $2,500,000 per occurrence ($2,000,000 per occurrence for the twelve months ended November 15, 2003 and $1,000,000 per occurrence for the twelve months ended November 15, 2002) for our domestic parks and a nominal amount per occurrence for our international parks.  Defense costs are in addition to these retentions.  In addition, for incidents arising after November 1, 2004 but prior to December 31, 2008, we have a one-time additional $500,000 self-insured retention, in the aggregate, applicable to all claims in the policy year.  For incidents arising on or after December 31, 2008, our self-insured retention is $2,000,000, followed by a $500,000 deductible per occurrence applicable to all claims in the policy year for our domestic parks and our parks in Canada and a nominal amount per occurrence for our park in Mexico.  Our deductible after November 15, 2003 is $750,000 for workers’ compensation claims ($500,000 deductible for the period from November 15, 2001 to November 15, 2003).  Our general liability policies cover the cost of punitive damages only in certain jurisdictions.  Based upon reported claims and an estimate for incurred, but not reported claims, we accrue a liability for our self-insured retention contingencies.  We also maintain fire and extended coverage, business interruption, terrorism and other forms of insurance typical to businesses in this industry.  The fire and extended coverage policies insure our real and personal properties (other than land) against physical damage resulting from a variety of hazards. Our current insurance policies expire on December 31, 2010.  We cannot predict the level of the premiums that we may be required to pay for subsequent insurance coverage, the level of any self-insurance retention applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks.

We are party to various legal actions arising in the normal course of business, including the cases discussed below.  Matters that are probable of unfavorable outcome to us and which can be reasonably estimated are accrued.   Such accruals are based on information known about the matters, our estimate of the outcomes of such matters and our experience in contesting, litigating and settling similar matters.  None of the actions are believed by management to involve amounts that would be material to our consolidated financial position, results of operations, or liquidity after consideration of recorded accruals.

In 2005, certain plaintiffs filed a complaint on behalf of a purported class of current and former employees against us in the Superior Court of California, Los Angeles County alleging unpaid wages and related penalties and violations of law governing employee meal and rest breaks related to our current and formerly owned parks in California between November 2001 and December 18, 2007.  While we denied any violation of law or other wrongdoing, we settled the case in 2007 and deposited into escrow $9,225,000 to be applied to the initial settlement fund, which was recorded in other expense.  In April 2009, we paid approximately $255,000 (which was recorded in other expense as of December 31, 2008) into the settlement fund based on our meeting certain performance criteria in 2008.  We do not expect to pay any further amounts under this obligation based on our 2009 operating results.  This litigation has been stayed since the Petition Date and, as of the Effective Date, any further action against the Company with respect to this litigation is enjoined pursuant to the Plan.

On February 1, 2007, Images Everywhere, Inc. and John Shawn Productions, Inc. filed a case against SFTP and Event Imaging Solutions, Inc. in the Superior Court of the State of California County of Los Angeles, Central District.  The plaintiffs provided photographic services to certain of our parks under

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license agreements and/or under a consulting arrangement.  In October 2006, the Company terminated its business relationship with the plaintiffs and thereafter entered into a settlement agreement with John Shawn Productions, Inc. regarding certain of the license agreements.  As a result of this termination, the plaintiffs brought suit claiming an unspecified amount in “excess of” $20 million in damages, which they later revised to two alternative theories in the respective amounts of approximately $15 million or $11 million.  The plaintiffs claimed that their services were wrongfully terminated and asserted causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing. The plaintiffs brought separate claims against defendant Event Imaging Solutions, Inc. for intentional interference with contractual relations.  In a summary judgment ruling on December 19, 2007, the Court dismissed additional claims against the Company for breach of fiduciary duty, constructive fraud and punitive damages.  The case was tried before a jury during the two-week period from March 17 to March 28, 2008, and the jury rendered a verdict in the Company’s favor, dismissing the claim.  The plaintiffs filed a motion for a new trial, which was dismissed by the Court on May 12, 2008.  On May 28, 2008, the plaintiffs filed a notice of appeal with the Court of Appeal of the State of California, Second Appellate District.  This litigation has been stayed since the Petition Date and, as of the Effective Date, any further action against the Company with respect to this litigation is enjoined pursuant to the Plan.

On March 1, 2007, Safety Braking Corporation, Magnetar Technologies Corp. and G&T Conveyor Co. filed a Complaint for Patent Infringement (the “Patent Complaint”) in the United States District Court for the District of Delaware naming SFI, SFTP, and certain of our other subsidiaries as defendants, along with other industry theme park owners and operators.  The Patent Complaint alleges that the Company is liable for direct or indirect infringement of United States Patent No. 5,277,125 because of its ownership and/or operation of various theme parks and amusement rides.  The Patent Complaint does not include specific allegations concerning the location or manner of alleged infringement.  The Patent Complaint seeks damages and injunctive relief.  On or about July 1, 2008, the Court entered a Stipulation and Order of Dismissal of Safety Braking Corporation.  Thus, as of that date, only Magnetar Technologies Corp. and G&T Conveyor Co. remain as plaintiffs. The Company has contacted the manufacturers of the amusement rides that it believes may be impacted by this case, requiring such manufacturers to honor their indemnification obligations with respect to this case.  The Company tendered the defense of this matter to certain of the ride manufacturers.  This litigation has been stayed with respect to the Debtors since the Petition Date and, as of the Effective Date, any further action against the Debtors with respect to this litigation is enjoined pursuant to the Plan.

On January 6, 2009, a civil action against the Company was commenced in the State Court of Cobb County, Georgia.  The plaintiff sought damages for personal injuries, including an alleged brain injury, as a result of an altercation with a group of individuals on property next to SFOG on July 3, 2007.  Certain of the individuals were employees of the park and were off-duty at the time the altercation occurred.  The plaintiff, who had exited the park, claims that the Company was negligent in its security of the premises.  Four of the individuals who allegedly participated in the altercation are also named as defendants in the litigation.

On October 31, 2008, a civil action against the Company was commenced in the District Court of Bexar County, Texas.  The plaintiff is seeking damages against the Company for personal injuries as a result of an accident while attempting to board a ride at Six Flags Fiesta Texas.  The ride manufacturer is a co-defendant in the litigation.   This litigation was stayed during the Chapter 11 proceedings and, as of the Effective Date, the stay has been lifted.

We had guaranteed the payment of a $32,200,000 construction term loan incurred by HWP for the purpose of financing the construction and development of a hotel and indoor water park project located adjacent to The Great Escape park near Lake George, New York, which opened in February 2006.  This joint venture is not a debtor in the Chapter 11 Filing.  On November 5, 2007, we refinanced the loan with a $33,000,000 term loan ($32,243,000 and $32,593,000 of which was outstanding at March 31, 2010

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and March 31, 2009, respectively), the proceeds of which were used to repay the existing loan.  In connection with the refinancing, we replaced our unconditional guarantee with a limited guarantee of the loan, which becomes operative under certain limited circumstances, including the voluntary bankruptcy of HWP or its managing member (in which we own a 41% interest).  Our limited guarantee will be released five years following full payment and discharge of the loan, which matures on December 1, 2017.   The ability of HWP to repay the loan will be dependent upon HWP’s ability to generate sufficient cash flow, which cannot be assured.  As additional security for the loan, we have provided a $1.0 million letter of credit.  In the event we are required to fund amounts under the guarantee or the letter of credit, our joint venture partners must reimburse us for their respective pro rata share or have their joint venture ownership diluted or forfeited.  As a result of the Chapter 11 Filing, the lender under the term loan is permitted to accelerate payment thereof.  In that event, we could lose our interest in the hotel and indoor water park.

For the three months ended March 31, 2010 and 2009, we have received or accrued $216,000 and $200,000, respectively, in management fee revenues from HWP.  As of March 31, 2010 and December 31, 2009, HWP owed us approximately $28,000 and $56,000, respectively, related to short-term intercompany transactions between the entities.  During the first three months of 2009, we contributed approximately $197,000 to HWP for our portion of a capital call and as of the date of this filing there have been no capital calls required in 2010.  See Note 8.

In connection with the sale of seven parks in April 2007, we agreed to provide a limited guarantee to a creditor of the buyer related to the future results of operations of the sold parks of up to $10 million, decreasing by a minimum of one million dollars annually.  The limited guarantee has been recorded in other long-term liabilities at its estimated fair value of $1.4 million.  In connection with the sale of our park near Seattle, Washington to PARC 7F-Operations Corporation, our guarantee of the lease of the land underlying the park remains in effect, except that (i) the landlord has agreed to proceed first against the parent company of the new lessee, CNL Income Properties, Inc., before asserting any rights in respect of our guarantee and (ii) in the event we are required to honor our guarantee, our remedies include our reacquisition of the park.  The lease expires in 2030 with renewal options for an additional 46 years.

At March 31, 2010, we have accrued liabilities for tax and other indemnification contingencies of $11.0 million related to certain parks sold in previous years that could be recognized as a recovery of losses from discontinued operations in the future if such liabilities are not required to be paid.

8.             Noncontrolling Interests, Partnerships and Joint Ventures

Redeemable noncontrolling interests represent the third parties’ share of the assets of the three parks that are less than wholly-owned, SFOT and SFOG.  Noncontrolling interests represent the third parties’ share of the assets of HWP.

The following table presents a rollforward of redeemable noncontrolling interests in SFOT and SFOG:

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See Notes 6 and 7 for a description of the partnership arrangements applicable to SFOT and SFOG, the accounts of which are included in our condensed financial statements.

As a result of adopting FASB ASC 810, we consolidated HWP in our consolidated financial statements beginning with the first quarter of 2010.  The following table presents a rollforward of noncontrolling interests in HWP:

Prior to adopting FASB ASC 810, we accounted for our interests in HWP under the equity method in accordance with the previously established accounting guidance.  As of December 31, 2009, we included our investment of $1,800,000 in deposits and other assets in the accompanying condensed consolidated balance sheets.  See Note 2(k).

On June 18, 2007, we acquired a 40% interest in a venture that owns 100% of dick clark productions, inc. (“DCP”).  The other investor in the venture, Red Zone Capital Partners II, L.P. (“Red Zone”), is managed by two of our former directors, Daniel M. Snyder and Dwight C. Schar.  During the fourth quarter of 2007, an additional third party investor purchased approximately 2.0% of the interest in DCP from us and Red Zone.  As a result, our ownership interest is approximately 39.2% at March 31, 2010.  We have accounted for our investment under the equity method and have included our investment of $43,523,000 and $43,453,000 as of March 31, 2010 and December 31, 2009, respectively, in deposits and other assets in the accompanying condensed consolidated balance sheets.

9.             Business Segments

We manage our operations on an individual park location basis.  Discrete financial information is maintained for each park and provided to our corporate management for review and as a basis for decision making.  The primary performance measures used to allocate resources are park earnings before interest, tax expense, depreciation and amortization (Park EBITDA) and Park Free Cash Flow (Park EBITDA less park capital expenditures).  All of our parks provide similar products and services through a similar process to the same class of customer through a consistent method.  We also believe that the parks share common economic characteristics.  As such, we have only one reportable segment — theme parks.  The following tables present segment financial information and a reconciliation of the primary segment performance measure to loss from continuing operations before income taxes.  Park level expenses exclude all non-cash operating expenses, principally depreciation and amortization and all non-operating expenses.

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All of our parks are located in the United States except one park located in Mexico City, Mexico and one located in Montreal, Canada.  The following information reflects our long-lived assets, revenues and income (loss) from continuing operations by domestic and foreign categories as of and for the first three months of 2010 and 2009:

Long-lived assets include property and equipment and intangible assets.

10.           Pension Benefits

We froze our pension plan effective March 31, 2006, pursuant to which most participants no longer earned future pension benefits.  Effective February 16, 2009, the remaining participants in the pension plan no longer earned future benefits.

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Components of Net Periodic Cost (Benefit)