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i. Stock Benefit Plans
Pursuant to the Plan, on the Effective Date, the Six Flags Entertainment Corporation Long-Term Incentive Plan became effective (the “Long-Term Incentive Plan”). Pursuant to the Long-Term Incentive Plan, Holdings may grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, deferred stock units, performance and cash-settled awards and dividend equivalent rights (collectively, “Awards”) to select employees, officers, directors and consultants of Holdings and its affiliates. The Long-Term Incentive Plan provides that no more than 9,666,666 shares of common stock of Holdings, as adjusted to reflect Holdings’ two-for-one stock split in June 2011, may be issued pursuant to Awards under the Long-Term Incentive Plan. At least one-third of the total shares available for issuance under the Long-Term Incentive Plan are available for grants of restricted stock or restricted stock units.
During the three months ended March 31, 2012 and 2011, stock-based compensation expense related to the Long-Term Incentive Plan was $16.9 million and $14.3 million, respectively.
As of March 31, 2012, options to purchase approximately 5,324,000 shares of common stock of Holdings and approximately 2,004,000 shares of restricted stock or restricted stock units were outstanding under the Long-Term Incentive Plan and approximately 109,000 shares were available for future grant
Stock Options
Options granted under the Long-Term Incentive Plan are designated as either incentive stock options or non-qualified stock options. Options are generally granted with an exercise price equal to the fair market value of the common stock of Holdings on the date of grant. While certain stock options are subject to acceleration in connection with a change in control, options are generally cumulatively exercisable in four equal annual installments commencing one year after the date of grant with a 10-year term. Generally, the unvested portion of stock option awards is forfeited upon termination of employment. Stock option compensation is recognized over the vesting period using the graded vesting terms of the respective grant.
The estimated fair value of options granted was calculated using the Black-Scholes option pricing valuation model. This model takes into account several factors and assumptions. The risk-free interest rate is based on the yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term assumption at the time of grant. The simplified method was used to calculate the expected term (estimated period of time outstanding) because our historical data from our pre-confirmation equity grants is not representative or sufficient to be used to develop an expected term assumption. Expected volatility was based on the historical volatility of similar companies’ common stock for a period equal to the stock option’s expected term, calculated on a daily basis. The expected dividend yield is based on expected dividends for the expected term of the stock options. The fair value of stock options on the date of grant is expensed on a straight line basis over the requisite service period of the graded vesting term as if the award was, in substance, multiple awards.
The following weighted-average assumptions were utilized in the Black-Scholes model for the stock options granted in the three months ended March 31, 2012 and 2011:
|
|
|
March 31, |
|
|
|
|
2012 |
|
2011 |
|
|
Risk-free interest rate |
|
1.23 |
|
2.30 |
|
|
Expected term (in years) |
|
6.25 |
|
6.25 |
|
|
Expected volatility |
|
44.20 |
% |
43.54 |
% |
|
Expected dividend yield |
|
4.60 |
% |
0.39 |
% |
The following table summarizes stock option activity for the three months ended March 31, 2012:
|
|
|
Shares |
|
Weighted
Avg.
Exercise
Price ($) |
|
Weighted
Avg.
Remaining
Contractual
Term |
|
Aggregate
Intrinsic Value
($) |
|
|
Balance at January 1, 2012 |
|
5,732,000 |
|
21.99 |
|
|
|
|
|
|
Granted |
|
66,000 |
|
46.64 |
|
|
|
|
|
|
Exercised |
|
(449,000 |
) |
18.65 |
|
|
|
|
|
|
Canceled or exchanged |
|
— |
|
— |
|
|
|
|
|
|
Forfeited |
|
(25,000 |
) |
32.03 |
|
|
|
|
|
|
Expired |
|
— |
|
— |
|
|
|
|
|
|
Balance at March 31, 2012 |
|
5,324,000 |
|
22.53 |
|
8.63 |
|
129,085,000 |
|
|
Vested and expected to vest at March 31, 2012 |
|
5,209,000 |
|
22.45 |
|
8.63 |
|
126,703,000 |
|
|
Options exercisable at March 31, 2012 |
|
367,000 |
|
20.83 |
|
8.48 |
|
9,523,000 |
|
The weighted average grant date fair value of the options granted during the three months ended March 31, 2012 and 2011 was $12.60 and $13.37, respectively.
The total intrinsic value of options exercised for the three months ended March 31, 2012 and 2011 was $12.5 million and $0.1 million, respectively. The total fair value of options that vested during the three months ended March 31, 2012 was $0.7 million. During the three months ended March 31, 2011, no stock options vested.
As of March 31, 2012, there was $24.2 million of unrecognized compensation expense related to option awards. The weighted average period over which that cost is expected to be recognized is 2.86 years.
Cash received from the exercise of stock options during the three months ended March 31, 2012 and 2011 was $8.4 million and $0.1 million, respectively.
Stock, Restricted Stock and Restricted Stock Units
Stock, restricted stock and restricted stock units granted under the Long-Term Incentive Plan may be subject to transfer and other restrictions as determined by the compensation committee of Holdings’ Board of Directors. Generally, the unvested portion of restricted stock awards and restricted stock unit awards is forfeited upon termination of employment. The fair value of stock, restricted stock awards and restricted stock unit awards on the date of grant is expensed on a straight line basis over the requisite service period of the graded vesting term as if the award was, in substance, multiple awards.
During the year ended December 31, 2010 a performance award was established that, based on the EBITDA performance of the Company in 2010 and 2011, resulted in an additional 1,456,000 shares of restricted stock units being granted to certain key employees in February 2012. These restricted stock units will vest upon the completion of the Company’s 2012 audit if the Company achieves its EBITDA performance target in 2012. If the EBITDA performance target is not achieved by the Company, 50% of such restricted stock units will be immediately forfeited. Currently, we believe achievement of the 2012 EBITDA performance target is probable. We will continue to evaluate the probability of achieving the performance condition. If achievement of the 2012 EBITDA performance condition becomes improbable, we will adjust the appropriate expense to reflect the immediate 50% forfeiture condition.
During the year ended December 31, 2011, a performance award was established based on the EBITDA performance of the Company in 2013 - 2015. The aggregate payout under the performance award to key employees if the target is achieved in 2015 would be 1,400,000 shares but could be more or less depending on the achievement and the timing thereof. There has been no stock-based compensation expense recorded for this performance award because it is not deemed probable that we will achieve the specified performance targets as of March 31, 2012. Based on the closing market price of the Holdings’ common stock on March 30, 2012, the total unrecognized compensation expense related to this award at target achievment in 2015 is $65.5 million that will be expensed over the service period if it becomes probable of achieving the performance condition. We will continue to evaluate the probability of achieving the performance condition going forward and record the appropriate expense if necessary.
The following table summarizes stock, restricted stock award and restricted stock unit activity for the three months ended March 31, 2012:
|
|
|
Shares |
|
Weighted Average
Grant Date Fair Value ($) |
|
|
Non-vested balance at January 1, 2012 |
|
548,000 |
|
18.74 |
|
|
Granted |
|
1,456,000 |
|
45.82 |
|
|
Vested |
|
— |
|
— |
|
|
Forfeited |
|
— |
|
— |
|
|
Cancelled |
|
— |
|
— |
|
|
Non-vested balance at March 31, 2012 |
|
2,004,000 |
|
38.41 |
|
The weighted average grant date fair value per share of stock, restricted stock award, and restricted stock units granted during the three months ended March 31, 2012 and 2011 was $45.82 and $30.94, respectively.
The total grant date fair value of the stock, restricted stock awards, and restricted stock units granted during the three months ended March 31, 2012 and 2011 was $66.7 million and $0.1 million, respectively. The total fair value of restricted stock and restricted stock units that vested during the three months ended March 31, 2011 was $0.1 million. There were no restricted stock awards or restricted stock units that vested during the three months ended March 31, 2012.
As of March 31, 2012, there was $28.4 million of total unrecognized compensation expense related to stock, restricted stock awards, and restricted stock units which is expected to be recognized over a weighted-average period of 1.1 years.
Dividend Equivalent Rights
On February 8, 2012, Holdings’ Board of Directors granted dividend equivalent rights (DERs) to holders of unvested stock options. At February 8, 2012, approximately 5.0 million unvested stock options were outstanding. As stockholders are paid cash dividends, the DERs will accrue dividends which will be distributed to stock option holders upon the vesting of their stock option award. Holdings will distribute the DERs’ accumulated accrued dividends in either cash or shares of common stock. Holders of stock options for fewer than 1,000 shares of stock will receive their accumulated accrued dividends in cash. Holders of stock options for 1,000 shares of stock or greater will receive their accumulated accrued dividends in shares of common stock. In addition, Holdings’ Board of Directors granted similar DERs payable in shares of common stock if and when any shares are granted under the stock-based compensation performance award program based on the EBITDA performance of the Company in 2013 - 2015.
The DER grants to participants with 1,000 or more unvested stock options and the DER grants related to the performance award are contingent upon stockholder approval at the Company’s 2012 Annual Meeting of Stockholders to increase the number of shares for issuance under the Long-Term Incentive Plan from 9,666,666 to 14,066,666. If the Company’s stockholders do not approve the Long-Term Incentive Plan amendment to increase the number of shares available for issuance, no shares of common stock will be issued or outstanding with respect to the DER grants. As stockholder approval is pending, there has been no DER related stock-based compensation expense recorded for the three-month period ended March 31, 2012.
Employee Stock Purchase Plan
On September 15, 2010, Holdings’ Board of Directors adopted the Six Flags Entertainment Corporation Employee Stock Purchase Plan (the “ESPP”) under Section 423 of the Internal Revenue Code. On May 4, 2011, our stockholders approved the ESPP and the ESPP became effective. The ESPP allows eligible employees to purchase Holdings’ common stock at 90% of the lower of the market value of the common stock at the beginning or end of each successive six-month offering period. Amounts accumulated through participants’ payroll deductions (“purchase rights”) are used to purchase shares of common stock at the end of each purchase period. Pursuant to the ESPP, no more than 1,000,000 shares of common stock of Holdings may be issued, as adjusted to reflect the two-for-one stock split in June 2011. Holdings’ common stock may be issued by either authorized and unissued shares, treasury shares or shares purchased on the open market. At March 31, 2012, we had 981,000 shares available for purchase pursuant to the ESPP.
For the three-month period ended March 31, 2012, stock-based compensation related to the purchase rights was determined using a Black-Scholes option-pricing formula. The weighted-average assumptions used to estimate the fair value of purchase rights for the three months ended March 31, 2012 are as follows:
|
|
|
Three Months
Ended
March 31, 2012 |
|
|
Risk-free interest rate |
|
0.06 |
% |
|
Expected term (in years) |
|
0.5 |
|
|
Expected volatility |
|
45.37 |
% |
|
Expected dividend yield |
|
0.58 |
% |
During the three months ended March 31, 2012, we recognized $0.1 million of stock-based compensation expense relating to the ESPP. |
