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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)    

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

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, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  13-3995059
(I.R.S. Employer
Identification No.)

1540 Broadway, 15th Fl., New York, NY 10036
(Address of principal executive offices)

Registrant's telephone number, including area code: (212) 652-9403

         Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Name of each exchange on which registered
Common Stock, par value $0.025 per share, with rights to purchase Series A Junior Preferred Stock   New York Stock Exchange

Preferred Income Equity Redeemable Shares, representing 1/100 of a share of 71/4% Convertible Preferred Stock

 

New York Stock Exchange

         Securities registered pursuant to Sec. 12(g) of the Act: NONE



         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o    No ý

         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 ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         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.:

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a smaller reporting company)
  Smaller reporting company o

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

         As of June 30, 2008, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $13,671,341. For purposes of this information, the outstanding shares of common stock owned by directors and executive officers of the registrant were deemed to be shares of common stock held by affiliates.

         Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest most practicable date: The number of shares of common stock, par value $0.025 per share, of the registrant outstanding as of March 1, 2009 was 97,775,488 shares.

DOCUMENTS INCORPORATED BY REFERENCE

         The information required in Part III by Item 10, as to directors, and by Items 11, 12, 13 and 14 is incorporated by reference to the registrant's proxy statement for the 2009 annual meeting of stockholders, which will be filed by the registrant within 120 days after the close of its 2008 fiscal year.



TABLE OF CONTENTS

 
   
  Page No.  

 

Part I

       

Item 1

 

Business

    2  

Item 1A

 

Risk Factors

    17  

Item 1B

 

Unresolved Staff Issues

    29  

Item 2

 

Properties

    29  

Item 3

 

Legal Proceedings

    30  

Item 4

 

Submission of Matters to a Vote of Security Holders

    31  

 

Part II

       

Item 5

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    32  

Item 6

 

Selected Financial Data

    34  

Item 7

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    35  

Item 7A

 

Quantitative and Qualitative Disclosures about Market Risk

    52  

Item 8

 

Financial Statements and Supplementary Data

    52  

Item 9

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    52  

Item 9A

 

Controls and Procedures

    53  

Item 9B

 

Other Information

    53  

 

Part III

       

Item 10

 

Directors, Executive Officers and Corporate Governance

    54  

Item 11

 

Executive Compensation

    54  

Item 12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

    54  

Item 13

 

Certain Relationships and Related Transactions and Director Independence

    54  

Item 14

 

Principal Accounting Fees and Services

    54  

 

Part IV

       

Item 15

 

Exhibits and Financial Statement Schedules

    55  

Signatures

    56  

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This document contains "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, statements we make regarding (i) the adequacy of cash flows from operations, available cash and available amounts under our credit facility to meet our future liquidity needs and (ii) our expectations related to refinancing all or a portion of our existing debt on or prior to maturity.

        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. 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:

    the failure to successfully consummate a restructuring described herein;

    factors impacting attendance, such as local conditions, 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

    the other factors that are described in "Risk Factors."

        Any forward-looking statement made by us in this document speaks only as of the date of this document. 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.

*            *            *            *             *

    As used in this Annual Report on Form 10-K, unless the context requires otherwise, the terms "we," "our" or "Six Flags" refer collectively to Six Flags, Inc. and its consolidated subsidiaries and "Holdings" refers only to Six Flags, Inc., without regard to its subsidiaries.

    Looney Tunes characters, names and all related indicia are trademarks of Warner Bros.© 2009, a division of Time Warner Entertainment Company, L.P. Batman and Superman and all related characters, names and indicia are copyrights and trademarks of DC Comics© 2009. Cartoon Network and logo are trademarks of Cartoon Network© 2009. Six Flags and all related indicia are registered trademarks of Six Flags Theme Parks Inc.© 2009, a subsidiary of Six Flags. Fiesta Texas and all related indicia are trademarks of Fiesta Texas, Inc.© 2009, a subsidiary of Six Flags.

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PART I

ITEM 1.    BUSINESS

Introduction

        We are the largest regional theme park operator in the world. After giving effect to the sale of seven parks in April 2007 (the "Sale Parks") and other park acquisitions and dispositions discussed in Note 2 to Notes to Consolidated Financial Statements, we own or operate 20 parks, including 18 operating domestic parks, one park in Mexico and one park in 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 reopened since. We have recorded appropriate provisions for impairment and liabilities related to the abandonment of the New Orleans park operations. See Notes 2 and 13 to Notes to Consolidated Financial Statements. The 20 parks we operated in 2008 (which excludes our New Orleans park and the Sale Parks) had attendance of approximately 25.3 million during the 2008 season.

        In 1998, we acquired the former Six Flags, which had operated regional theme parks under the Six Flags name for nearly forty years and established an internationally recognized brand name. We have worldwide ownership of the "Six Flags" brand name. To capitalize on this name recognition, 18 of our parks (excluding Six Flags New Orleans and the Sale Parks) are branded as "Six Flags" parks.

        We hold exclusive long-term licenses for theme park usage throughout the United States (except the Las Vegas metropolitan area), Canada, Mexico and other countries of certain Warner Bros. and DC Comics characters. These characters include Bugs Bunny, Daffy Duck, Tweety Bird, Yosemite Sam, Batman, Superman and others. In addition, we have certain rights to use the Hanna-Barbera and Cartoon Network characters, including Yogi Bear, Scooby-Doo, The Flintstones and others. We use these characters to market our parks and to provide an enhanced family entertainment experience. Our licenses include the right to sell merchandise featuring the characters at the parks, and to use the characters in our advertising, as walk-around characters and in theming for rides, attractions and retail outlets. We believe using these characters promotes increased attendance, supports higher ticket prices, increases lengths-of-stay and enhances in-park spending.

        Our parks are located in geographically diverse markets across North America. Our theme parks offer a complete family-oriented entertainment experience. Our theme parks generally offer a broad selection of state-of-the-art and traditional thrill rides, water attractions, themed areas, concerts and shows, restaurants, game venues and retail outlets. In the aggregate, during 2008 our theme parks (excluding Six Flags New Orleans and the Sale Parks) offered more than 800 rides, including over 120 roller coasters, making us the leading provider of "thrill rides" in the industry.

        We believe that our parks benefit from limited direct competition, since the combination of a limited supply of real estate appropriate for theme park development, high initial capital investment, long development lead-time and zoning restrictions provides each of our parks with a significant degree of protection from competitive new theme park openings. Based on our knowledge of the development of other theme parks in the United States, we estimate that it would cost at least $300 million and would take a minimum of two years to construct a new regional theme park comparable to one of our major Six Flags-branded theme parks.

    Liquidity and Going Concern

        The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern. This assumes a continuing of operations and the realization of assets and liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments that might result if we were forced to discontinue operations. We have had a history of net losses. Our net losses are principally attributable to insufficient revenue to cover our relatively high

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percentage of fixed costs, including the interest costs on our debt and our depreciation expense. We also have an accumulated stockholders' deficit of $443.8 million at December 31, 2008. Additionally, our Preferred Income Equity Redeemable Shares ("PIERS") are required to be redeemed in August 2009, at which time we are required to redeem all of the PIERS for cash at 100% of the liquidation preference ($287.5 million), plus accrued and unpaid dividends ($31.3 million assuming dividends are accrued and not paid through the mandatory redemption date). Given the current negative conditions in the economy generally and the credit markets in particular, there is substantial uncertainty that we will be able to effect a refinancing of our debt on or prior to maturity or the PIERS prior to their mandatory redemption date on August 15, 2009.

        If we are unable to refinance or restructure the PIERS at or prior to the mandatory redemption date, such failure would constitute a default under our amended and restated credit facility (the "Credit Facility"), which would permit the lenders to accelerate the obligations thereunder. If the lenders were to accelerate the amounts due under the Credit Facility, a cross-default would also be triggered under our public debt indentures, which would likely result in most or all of our long-term debt becoming due and payable. In that event, we would be unable to fund these obligations. Such a circumstance could have a material adverse effect on our operations and the interests of our creditors and stockholders. Accordingly, we have stated in our financial statements included herein that there is substantial doubt about our ability to continue as a going concern unless a successful restructuring occurs.

        We are exploring a number of alternatives for the refinancing of our indebtedness and the PIERS, including a restructuring either in or out-of-court. We believe the consummation of a successful restructuring is critical to our continued viability. Any restructuring will likely be subject to a number of conditions, many of which will be outside of our control, including the agreement of the PIERS holders, our creditors and other parties, and may limit our ability to utilize our net operating loss carry forwards if there is an ownership change, which is likely. We can make no assurances that any restructuring that we pursue will be successful, or what the terms thereof would be or what, if anything, our existing debt and equity holders would receive in any restructuring, which will depend on our enterprise value, although we believe that any restructuring would be highly dilutive to our existing equity holders and certain debt holders. In addition, we can make no assurances with respect to what the value of our debt and equity will be following the consummation of any restructuring.

        We may be compelled to seek an in-court solution in the form of a pre-packaged or pre-arranged filing under Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq., as amended ("Chapter 11") if we are unable to successfully negotiate a timely out-of-court restructuring agreement with the PIERS holders, common stockholders and our creditors. Such a court filing would likely occur prior to the maturity of the PIERS or well in advance of such date, if we were to conclude at such time that an out-of-court solution is not feasible or advantageous. See "Risk Factors."

    Management and Operational Changes

        Following a successful stockholder consent solicitation by Red Zone LLC, an entity managed by Daniel M. Snyder, in December 2005, Mr. Snyder became Chairman of our Board of Directors and two persons nominated by Red Zone LLC became directors, including Mark Shapiro, who was elected President and Chief Executive Officer at that time. In 2006, our Board of Directors approved substantial changes to senior management, including several park presidents (formerly referred to as general managers) and new management began to effectuate a series of long-term operating initiatives.

        During 2006, the first season following the change, new management concentrated on (i) improving the guest experience by improving the overall appearance and cleanliness of the parks, (ii) increasing per capita revenue, including by partnering with well known brand names such as Papa John's and Cold Stone Creamery and (iii) building a corporate alliance team.

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        During 2007, we (i) implemented a capital plan designed to broaden the family offerings in our parks, such as Wiggles Worlds featuring the rides and attractions of the popular children's entertainers "The Wiggles," Thomas the Tank Engine attractions, Cirque Coobrila, Tony Hawk Spinning Coasters and Operation Spy Girl, (ii) implemented staffing initiatives to improve recruiting, training, retention and efficiency, all designed to further improve the guest experience, (iii) continued to grow per capita revenue by partnering with well known brand names such as Johnny Rockets and (iv) invested in information technology infrastructure designed to not only improve systems, such as ticketing, point of sale and our website, but also to improve our ability to offer more diverse entertainment and revenue streams with Six Flags television and radio within the parks.

        During 2008, we (i) launched a new attraction program with seven coasters for seven parks, (ii) continued to roll-out Wiggles Worlds and Thomas the Tank Engine attractions at certain of our parks, (iii) developed a more efficient and targeted marketing plan, with more online focus and concentrated spending in the early portion of the season, (iv) reduced operating expenses through a more efficient use of our full time and seasonal labor, as well as the removal or closure of certain inefficient rides and attractions and (v) continued to grow guest spending and sponsorship and international opportunities.

        Our plan for 2009 includes (i) the launch of a new attraction program featuring a new coaster themed after the Batman movie "The Dark Night"™ at Six Flags Mexico and a new wooden roller coaster themed after the Terminator Salvation™ movie at Six Flags Magic Mountain, (ii) the addition of a Wiggles World at Six Flags Fiesta Texas, (iii) substantially upgrading and relaunching the Superman Ride of Steel coaster at Six Flags New England and the floorless Medusa coaster at Six Flags Great Adventure, (iv) adding our exciting "Glow in the Park" closing parade at two additional parks, (v) continuing our efficient and targeted marketing strategies, focusing on our breadth of product and value proposition, (vi) maintaining focus on containing our operating expenses while at the same time increasing our operating days and operating hours, (vii) improving and expanding upon our branded product offerings and guest-service focused staffing initiatives in order to continue to drive guest spending growth, and (viii) continuing our efforts to grow sponsorship and international revenue opportunities.

    Recent Developments

    Noncompliance with the New York Stock Exchange Continued Listing Criteria

        On October 6, 2008, we were notified by the New York Stock Exchange (the "NYSE") that we were not in compliance with the NYSE's continued listing criteria because the thirty-day average closing price of our common stock was less than $1.00, and on October 27, 2008, we were notified by the NYSE that we were not in compliance with the NYSE's continued listing criteria because the thirty-day average market capitalization of our common stock had been less than $75 million and, at the same time, our stockholders' equity had been less than $75 million.

        Subject to limited exceptions, we have a six-month compliance period from the date of notification of our noncompliance to bring our share price and average share price back above $1.00. On February 26, 2009, the NYSE suspended the $1.00 average closing price requirement until June 30, 2009. If we have not regained compliance with the average closing price requirement by June 30, 2009, the six-month compliance period will recommence and we will have the remaining balance of such period within which time we must regain compliance in order to remain listed.

        On December 9, 2008, we submitted a plan to the NYSE to address our compliance with the NYSE's minimum market capitalization and stockholders' equity listing criteria, which included a restructuring plan with respect to our outstanding notes and the PIERS. On January 22, 2009, the NYSE accepted our plan; however, the NYSE may delist our common stock in the future if we do not satisfy the NYSE's minimum listing criteria, including maintaining a minimum market capitalization of

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$15,000,000 over a thirty consecutive trading day period through June 30, 2009 and, thereafter, a minimum market capitalization of $25,000,000 over a thirty consecutive trading day period. Failure to be listed on the NYSE does not constitute a default under any of our debt instruments. We believe that a successful restructuring will enable us to fully comply with the NYSE's minimum listing requirements. See "Risk Factors."

    Early Adoption of EITF Topic D-98

        We elected to early adopt Emerging Issues Task Force ("EITF") Topic D-98, "Classification and Measurement of Redeemable Securities," as amended at the March 12, 2008 meeting of the EITF during the fourth quarter of 2007. As a result of this change, we reflected the full redemption price of the puttable limited partnership units for Six Flags Over Georgia and Six Flags Over Texas as "mezzanine equity," which is located between liabilities and equity on our balance sheet, with a reduction of minority interest liability and capital in excess of par value. In the future, as a result of the adoption of SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51" on January 1, 2009, if limited partnership units are put to us, we will account for the acquisition by reducing redeemable minority interests with an offsetting decrease to cash. The adoption of Topic D-98 did not affect our statement of operations or statement of cash flows. Comparative financial statements of prior years have been adjusted to apply this new method retrospectively. See Note 1(w) to Notes to Consolidated Financial Statements.

    Acquisition of Minority Interests

        On July 31, 2007, we acquired the minority interests in Six Flags Discovery Kingdom that were held by our partner, the City of Vallejo, California, for a cash purchase price of approximately $52.8 million. See Note 2 to Notes to Consolidated Financial Statements.

        On June 18, 2007, we acquired a 40% interest in a venture that owns dick clark productions, inc. ("DCP") for a net investment of approximately $39.7 million. In 2008, we leveraged the DCP library, which includes the Golden Globes, the American Music Awards, the Academy of Country Music Awards, So You Think You Can Dance, American Bandstand and Dick Clark's New Year's Rockin' Eve, to provide additional product offerings in our parks. In addition, we believe that our investment in DCP provides us additional sponsorship and promotional opportunities. Red Zone Capital Partners II, L.P. ("Red Zone"), a private equity fund managed by Daniel M. Snyder and Dwight C. Schar, both members of our Board of Directors, is the majority owner of the parent of DCP. 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%.

    International Licensing

        In March 2008, we entered into an agreement with Tatweer Dubai LLC, a member of Dubai Holding ("Tatweer"), to create a Six Flags-branded theme park in Dubai, United Arab Emirates. Pursuant to the agreement, we are providing design and development services for the creation of the park, which will be operated and managed by Tatweer or its affiliate. We also granted Tatweer the exclusive right to use our brand in certain countries for certain time periods including the United Arab Emirates. As consideration for our services and the exclusivity rights granted in the agreement, we will receive license and other fees over the design and development period plus an ongoing royalty fee once the park opens.

        In December 2008, we entered into an agreement with Oryx Holdings, a Qatari based diversified group ("Oryx"), to provide concept development and planning services to Oryx for the creation of a Six Flags-branded location within Qatar Entertainment City, the mixed-use development in Doha, Qatar.

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Under the agreement, once this initial phase is finalized, we will collaborate with Oryx on the detailed design, development, construction and management of the branded location.

    Stockholder Rights Plan

        In December 2008, our Board of Directors adopted a stockholder rights plan and declared a dividend distribution of one preferred stock purchase right (a "Right") for each outstanding share of our common stock. The distribution was paid on December 17, 2008 to stockholders of record as of the close of business on December 17, 2008. Each Right, if and when it becomes exercisable, entitles the holder to buy 1/1000 of a share of our preferred stock, designated as Series A Junior Preferred Stock, at a price of $1.25 per 1/1000 of a share subject to adjustment (the "Exercise Price"). If any person or group becomes the beneficial owner of 15% or more of our common stock at any time after the date of the plan (with certain limited exceptions), then each Right not owned by such person or group will entitle its holder to purchase, at the Exercise Price, shares of our common stock or, in certain circumstances, common stock of the acquiring person, having a market value of twice the Exercise Price. The description and terms of the Rights are set forth in a rights agreement between us and The Bank of New York Mellon, as rights agent.

    Debt Refinancing

        On June 16, 2008, we completed a private debt exchange in which we issued $400.0 million of 121/4% Senior Notes due 2016 ("New Notes") of Six Flags Operations Inc., a direct wholly owned subsidiary of Holdings, in exchange for (i) $149.2 million of our 87/8% Senior Notes due 2010 ("2010s"), (ii) $231.6 million of our 93/4% Senior Notes due 2013 ("2013s") and (iii) $149.9 million of our 95/8% Senior Notes due 2014 ("2014s"). The benefits of this transaction included reducing debt principal by approximately $130.6 million, extending our debt maturities (including a majority of our nearest term debt maturity in 2010) and decreasing our annual cash interest expense. The transaction resulted in a net gain on extinguishment of debt of $107.7 million related to the 2013s and 2014s (net of $3.3 million of transaction costs related to the 2010s that were charged to expense immediately as the exchange of the 2010s was not deemed to be a substantial modification under the guidance of EITF Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments"). We also recorded a $14.1 million premium on the New Notes representing the difference between the carrying amount of the 2010s and the carrying amount of the New Notes on the exchange as this portion of the exchange was not deemed a substantial modification. This premium will be amortized as an offset to interest expense over the life of the New Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Capital Commitments and Resources."

        In May 2007, we entered into the Credit Facility, which provides for (i) an $850 million term loan maturing in April 2015, (ii) revolving credit facilities totaling $275 million, expiring in March 2013, and (iii) an uncommitted optional term loan tranche of up to $300 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Capital Commitments and Resources."

        The Credit Facility contains 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 facilities 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.

    Park Sales

        In April 2007, we completed the sale to PARC 7F-Operations Corporation of the stock of our subsidiaries that owned three of our water parks and four of our theme parks for an aggregate

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purchase price of $312 million, consisting of $275 million in cash and a note receivable for $37 million (the "PARC Note"). Pursuant to the purchase agreement, we agreed to provide a limited guarantee to a creditor of the buyer related to the future results of operations of the Sale Parks of up to $10 million (the "PARC Guarantee"), decreasing by a minimum of one million dollars annually. The parks sold were Darien Lake near Buffalo, NY; Waterworld USA in Concord, CA; Elitch Gardens in Denver, CO; Splashtown in Houston, TX; the Frontier City theme park and the White Water Bay water park in Oklahoma City, OK; and Wild Waves and Enchanted Village near Seattle, WA.

        We recorded a non-cash impairment charge against assets held for sale in connection with this transaction in our consolidated financial statements for the year ended December 31, 2006 in the amount of $84.5 million. The net proceeds from the sale were used to repay indebtedness, fund capital expenditures and acquire the minority interests in Six Flags Discovery Kingdom and DCP, as described above.

    Six Flags New Orleans

        Our New Orleans park sustained extensive damage in Hurricane Katrina in late August 2005 and has not reopened 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 a 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. While the separate Named Storm provision of our insurance policies explicitly covers flood damage and does not contain a separate sublimit, in February 2008, the court ruled in summary judgment that the flood insurance sublimit was applicable to the policies, including the Named Storm provision. We have appealed this ruling. In the event the sublimit is ultimately applied to our claim, the claims adjustment process will require determination of the actual amount of our loss and the portion caused by wind which is not subject to any sublimit.

        We have filed property insurance claims, including business interruption, with our insurers. We have an insurance receivable of $4.0 million at December 31, 2008, which reflects part of our claim for business interruption and the destroyed assets. The receivable is net of $34.7 million in payments received from our insurance carriers. Since December 31, 2008, we received $1.6 million in additional payments from our insurance carriers. We are entitled to replacement cost value of losses provided we spend the proceeds of the insurance receipts on new rides and attractions within a two year period at any of our domestic parks. Our receivable, net of 2009 cash receipts, totals $2.4 million, which we, at a minimum, expect to recover from resolution of the wind damage claim, including the difference between replacement cost and the actual cash value of wind losses and business interruption claims. We do not intend to operate a theme park on the site that was damaged by Hurricane Katrina. Pursuant to our lease of the property from the City of New Orleans, we are obligated to re-invest in the site to the extent of insurance proceeds received for property damages. However, in such event, we would have the use of such re-investment assets as well as all other leased property for the term of the lease. We are in discussions with the City of New Orleans with regard to cancellation of the lease.

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Description of Parks

        The following chart summarizes key business information about our parks.

Name of Park and Location
  Description   Designated Market Area
and Rank*
  Population Within
Radius from Park
Location
  External Park Competition/Location/Approximate Distance
Six Flags America
Largo, MD
  523 acres—combination theme and water park and approximately 300 acres of developable land   Washington, D.C. (9) and Baltimore (24)   7.0 million – 50 miles
11.7 million – 100 miles
  Kings Dominion/Doswell, VA (near Richmond)/120 miles
Hershey Park/Hershey, PA/125 miles
Busch Gardens/Williamsburg, VA/175 miles

Six Flags Discovery Kingdom
Vallejo, CA

 

138 acres—theme park plus marine and land animal exhibits

 

San Francisco/Oakland (6) and Sacramento (20)

 

5.5 million – 50 miles
10.2 million – 100 miles

 

Aquarium of the Bay at Pier 39/San Francisco, CA/30 miles
Academy of Science Center/San Francisco, CA/30 miles
California Great America/Santa Clara, CA/60 miles
Gilroy Gardens/Gilroy, CA/100 miles
Outer Bay at Monterey Bay Aquarium/ Monterey, CA/130 miles

Six Flags Fiesta Texas
San Antonio, TX

 

224 acres—combination theme and water park

 

San Antonio (37)

 

2.1 million – 50 miles
3.7 million – 100 miles

 

Sea World of Texas/San Antonio, TX
Schlitterbahn/New Braunfels, TX/33 miles

Six Flags Great Adventure/
Six Flags Hurricane Harbor/
Six Flags Wild Safari

Jackson, NJ

 



2,200 acres—separately gated theme park, water park and drive-through safari and approximately 700 acres of developable land

 



New York City (1) and Philadelphia (4)

 



13.7 million – 50 miles
27.2 million – 100 miles

 



Hershey Park/Hershey, PA/150 miles
Dorney Park/Allentown, PA/75 miles

Six Flags Great America
Gurnee, IL

 

304 acres—combination theme and water park and approximately 20 acres of developable land

 

Chicago (3) and
Milwaukee (35)

 

8.5 million – 50 miles
13.1 million – 100 miles

 

Kings Island/Cincinnati, OH/350 miles
Cedar Point/Sandusky, OH/340 miles
Wisconsin Dells Area (several water parks)/170 miles

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Name of Park and Location
  Description   Designated Market Area
and Rank*
  Population Within
Radius from Park
Location
  External Park Competition/Location/Approximate Distance
Six Flags Kentucky Kingdom
Louisville, KY
  58 acres—combination theme and water park   Louisville (50) and Lexington (63)   1.4 million – 50 miles
4.6 million – 100 miles
  Kings Island/Cincinnati, OH/130 miles
Holiday World/Santa Claus, IN/75 miles

Six Flags Magic Mountain/
Six Flags Hurricane Harbor

Valencia, CA

 


262 acres—separately gated theme park and water park

 


Los Angeles (2)

 


10.6 million – 50 miles
17.8 million – 100 miles

 


Disneyland Resort/Anaheim, CA/60 miles
Universal Studios Hollywood/Universal City, CA/20 miles
Knott's Berry Farm/Buena Park, CA/50 miles
Sea World of California/San Diego, CA/150 miles
Legoland/ Carlsbad, CA/130 miles
Soak City USA/Buena Park, CA/50 miles
Raging Waters/San Dimas, CA/50 miles

Six Flags Mexico
Mexico City, Mexico

 

110 acres—theme park

 

N/A

 

30.0 million – 50 miles
42.0 million – 100 miles

 

Mexico City Zoo
Chapultapec/Mexico City, Mexico

Six Flags New England
Agawam, MA

 

284 acres—combination theme and water park

 

Springfield (111)
Providence (52)
Hartford/New Haven (30)
Boston (7)

 

3.1 million – 50 miles
15.2 million – 100 miles

 

Lake Compounce/Bristol, CT/50 miles

Six Flags Over Georgia
Austell, GA/
Six Flags Whitewater
Marietta, GA

 

359 acres—separately gated theme park and water park on 290 acres and 69 acres, respectively

 

Atlanta (8)

 

4.2 million – 50 miles
7.0 million – 100 miles

 

Georgia Aquarium/Atlanta, GA/20 miles
Carowinds/Charlotte, NC/250 miles
Alabama Adventure/Birmingham, AL/160 miles
Dollywood and Splash Country/Pigeon Forge, TN/200 miles
Wild Adventures/Valdosta, GA/240 miles
Sun Valley Beach/Powder Springs, GA/15 miles
Atlanta Beach/Jonesboro, GA/40 miles
Lake Lanier Islands Resort/Lake Lanier Islands, GA/45 miles

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Name of Park and Location
  Description   Designated Market Area
and Rank*
  Population Within
Radius from Park
Location
  External Park Competition/Location/Approximate Distance
Six Flags Over Texas/
Six Flags Hurricane Harbor

Arlington, TX
 
264 acres—separately gated theme park and water park on 217 and 47 acres, respectively
 
Dallas/Fort Worth (5)
 
6.5 million – 50 miles
7.1 million – 100 miles
 
Sea World of Texas/San Antonio, TX/285 miles
NRH2O Waterpark/Richland Hills, TX/13 miles
The Great Wolf Lodge/Grapevine, TX/17 miles
Hawaiian Falls Waterpark/Mansfield, TX/16 miles

Six Flags St. Louis
Eureka, MO

 

497 acres—combination theme and water park and approximately 240 acres of developable land

 

St. Louis (21)

 

2.6 million – 50 miles
3.8 million – 100 miles

 

Kings Island/Cincinnati, OH/350 miles
Worlds of Fun/Kansas City, MO/250 miles
Cedar Point/Sandusky, OH/515 miles
Silver Dollar City/Branson, MO/250 miles

La Ronde
Montreal, Canada

 

Theme park on 146 acres

 

N/A

 

4.3 million – 50 miles
5.8 million – 100 miles

 

Quebec City Waterpark/Quebec City, Canada/130 miles
Canada's Wonderland/370 miles

The Great Escape and
Splashwater Kingdom/
Six Flags Great Escape Lodge & Indoor Waterpark

Lake George, NY

 




351 acres—combination theme and water park, plus 200 room hotel and 38,000 square foot indoor waterpark

 




Albany (57)

 




1.1 million – 50 miles
3.1 million – 100 miles

 




Darien Lake/Darien Center, NY/311 miles

*
Based on a 2008 survey of television households within designated market areas published by A.C. Nielsen Media Research.

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Partnership Park Arrangements

        In connection with our 1998 acquisition of the former Six Flags, we guaranteed certain obligations relating to Six Flags Over Georgia and Six Flags Over Texas (the "Partnership Parks"). These obligations continue until 2027, in the case of the Georgia park, and 2028, in the case of the Texas park. Among such obligations are (i) minimum annual distributions (including rent) of approximately $60.7 million in 2009 (subject to cost of living adjustments in subsequent years) to partners in these two Partnerships Parks (of which we will be entitled to receive in 2009 approximately $20.0 million based on our present ownership of approximately 26% of the Georgia Limited Partner and approximately 38% of the Texas Limited Partner at December 31, 2008), (ii) minimum capital expenditures at each park during rolling five-year periods based generally on 6% of park revenues, and (iii) an annual offer to purchase a maximum number of 5% per year (accumulating to the extent not purchased in any given year) of limited partnership units at the Specified Prices described below.

        After payment of the minimum distribution, we are entitled to a management fee equal to 3% of prior year gross revenues and, thereafter, any additional cash will be distributed 95% to us, in the case of the Georgia park, and 92.5% to us, in the case of the Texas park.

        The purchase price for the annual offer to purchase a maximum number of 5% per year of limited partnership units in the Partnership Parks is based on the greater of (i) a total equity value of $250.0 million (in the case of Georgia) and $374.8 million (in the case of Texas) or (ii) a value derived by multiplying the weighted-average four year EBITDA of the park by 8.0 (in the case of the Georgia park) and 8.5 (in the case of the Texas park) (the "Specified Prices"). As of December 31, 2008, we owned approximately 26% and 38% of the Georgia Limited Partner units and Texas Limited Partner units, respectively. The remaining redeemable units of approximately 74% and 62% of the Georgia Limited Partner and Texas Limited Partner, respectively, represent an ultimate redemption value for the limited partnership units of approximately $414.4 million at December 31, 2008. In 2027 and 2028, we will have the option to purchase all remaining units in the Georgia Limited Partner and the Texas Limited Partner, respectively, at a price based on the Specified Prices set forth above, increased by a cost of living adjustment. Since only an immaterial number of units have been tendered in the annual offerings to purchase since 1998, the maximum number of units that we could be required to purchase for both parks in 2009 would result in an aggregate payment by us of approximately $335.2 million, representing 59% and 50% of the units of the Georgia Limited Partner and the Texas Limited Partner, respectively.

        In connection with our acquisition of the former Six Flags, we entered into a Subordinated Indemnity Agreement (the "Subordinated Indemnity Agreement") with certain Six Flags entities, Time Warner Inc. ("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. Pursuant to the Subordinated Indemnity Agreement, we have deposited into escrow $15.2 million as a source of funds in the event Timer Warner Inc. is required to honor its guarantee. 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Partnership Park Obligations" and Note 13 to Notes to Consolidated Financial Statements.

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Marketing and Promotion

        We attract visitors through multi-media marketing and promotional programs for each of our parks. The national programs are designed to market and enhance the Six Flags brand name. Regional and local programs are tailored to address the different characteristics of their respective markets and to maximize the impact of specific park attractions and product introductions. All marketing and promotional programs are updated or completely changed each year to address new developments. Marketing programs are supervised by our Executive Vice President, Entertainment and Marketing, with the assistance of our senior management and advertising agencies.

        We also develop alliance, sponsorship and co-marketing relationships with well-known national, regional and local consumer goods companies and retailers to supplement our advertising efforts and to provide attendance incentives in the form of discounts and/or premiums. We also arrange for popular local radio and television programs to be filmed or broadcast live from our parks.

        Group sales represented approximately 29% of aggregate attendance in the 2008 season at our parks. Each park has a group sales director and a sales staff dedicated to selling multiple group sales and pre-sold ticket programs through a variety of methods, including online promotions, direct mail, telemarketing and personal sales calls.

        Season pass sales establish an attendance base in advance of the season, thus reducing exposure to inclement weather. Additionally, season pass holders often bring paying guests and generate "word-of-mouth" advertising for the parks. During the 2008 season, season pass attendance constituted approximately 28% of the total attendance at our parks.

        We offer discounts on season pass and multi-visit tickets, tickets for specific dates and tickets to affiliated groups such as businesses, schools and religious, fraternal and similar organizations.

        We also implement promotional programs as a means of targeting specific market segments and geographic locations not generally reached through group or retail sales efforts. The promotional programs utilize coupons, sweepstakes, reward incentives and rebates to attract additional visitors. These programs are implemented through online promotions, direct mail, telemarketing, direct response media, sponsorship marketing and targeted multi-media programs. The special promotional offers are usually for a limited time and offer a reduced admission price or provide some additional incentive to purchase a ticket.

Licenses

        We have the exclusive right on a long-term basis to theme park usage of the Warner Bros. and DC Comics animated characters throughout the United States (except for the Las Vegas metropolitan area), Canada, Mexico and other countries. In particular, our license agreements entitle us to use, subject to customary approval rights of Warner Bros. and, in limited circumstances, approval rights of certain third parties, all animated, cartoon and comic book characters that Warner Bros. and DC Comics have the right to license, including Batman, Superman, Bugs Bunny, Daffy Duck, Tweety Bird and Yosemite Sam, and include the right to sell merchandise using the characters. In addition, certain Hanna-Barbera characters including Yogi Bear, Scooby-Doo and The Flintstones are available for our use at certain of our theme parks. In addition to basic license fees ($3.0 million for Warner Bros. and $0.3 million for Hannah-Barbera and other licenses in 2008), we are required to pay a royalty fee on merchandise manufactured by or for us and sold that uses the licensed characters. The royalty fee is generally equal to 12% of the final landed cost to Six Flags of the merchandise. Warner Bros. and Hanna-Barbera have the right to terminate their license agreements under certain circumstances, including if any persons involved in the movie or television industries obtain control of us or, in the case of Warner Bros., upon a default under the Subordinated Indemnity Agreement.

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        In connection with our investment in DCP, we obtained a license to use stills and clips from the DCP library, which includes the Golden Globes, the American Music Awards, the Academy of Country Music Awards, So You Think You Can Dance, American Bandstand and Dick Clark's New Year's Rockin' Eve, in our parks as well as for the promotion and advertising of our parks. In certain cases, our right to use these properties is subject to the consent of third parties with interests in such properties. The term of the license is for the longer of seven years or the date that we cease to hold 50% of our original investment in DCP.

Park Operations

        We currently operate in geographically diverse markets in North America. Each park is managed by a park president who reports to a regional vice president or senior vice president in our Park Strategy and Management Group. The park president is responsible for all operations and management of the individual park. Local advertising, ticket sales, community relations and hiring and training of personnel are the responsibility of individual park management in coordination with corporate support teams.

        Each park president also directs a full-time, on-site management team. Each management team includes senior personnel responsible for operations and maintenance, in-park food, beverage, merchandising and games, marketing and promotion, sponsorships, human resources and finance. Finance directors at our parks report to the Senior Vice President, Finance and Chief Accounting Officer, and with their support staff provide financial services to their respective parks and park management teams. Park management compensation structures are designed to provide financial incentives for individual park managers to execute our strategy and to maximize revenues and free cash flow.

        Our parks are generally open daily from Memorial Day through Labor Day. In addition, most of our parks are open during weekends prior to and following their daily seasons, often in conjunction with themed events (such as Fright Fest® and Holiday in the Park®). Due to their location, certain parks have longer operating seasons. Typically, the parks charge a basic daily admission price, which allows unlimited use of all rides and attractions, although in certain cases special rides and attractions require the payment of an additional fee.

        See Note 14 to Notes to Consolidated Financial Statements for information concerning revenues and long-lived assets by domestic and international categories.

Capital Improvements

        We regularly make capital investments for new rides and attractions at our parks. We purchase both new and used rides and attractions. In addition, we rotate rides among parks to provide fresh attractions. We believe that the selective introduction of new rides and attractions, including family entertainment attractions, is an important factor in promoting each of the parks in order to achieve market penetration and encourage longer visits, which lead to increased attendance and in-park spending. For example, our new capital additions for 2009 include, among others, (i) the launch of a new attraction program featuring a new coaster themed after the Batman movie "The Dark Knight"™ at Six Flags Mexico and a new wooden roller coaster themed after the Terminator Salvation™ movie at Six Flags Magic Mountain, (ii) the addition of a Wiggles World at Six Flags Fiesta Texas, (iii) substantially upgrading and relaunching the Superman Ride of Steel coaster at Six Flags New England and the floorless Medusa coaster at Six Flags Great Adventure and (iv) adding our exciting "Glow in the Park" closing parade at two additional parks.

        In addition, we generally make capital investments in the food, retail, games and other in-park areas to increase per capita guest spending. We also make annual enhancements in the theming and landscaping of our parks in order to provide a more complete family oriented entertainment

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experience. In 2007, we began a multi-year initiative to improve our information technology infrastructure, which will enhance our operational efficiencies. Capital expenditures are planned on an annual basis with most expenditures made during the off-season. Expenditures for materials and services associated with maintaining assets, such as painting and inspecting existing rides, are expensed as incurred and are not included in capital expenditures.

Maintenance and Inspection

        Our rides are inspected daily by maintenance personnel during the operating season. These inspections include safety checks, as well as regular maintenance and are made through both visual inspection of the ride and test operation. Our senior management and the individual park personnel evaluate the risk aspects of each park's operation. Potential risks to employees and staff as well as to the public are evaluated. Contingency plans for potential emergency situations have been developed for each facility. During the off-season, maintenance personnel examine the rides and repair, refurbish and rebuild them where necessary. This process includes x-raying and magnafluxing (a further examination for minute cracks and defects) steel portions of certain rides at high-stress points. We have approximately 819 full-time employees who devote substantially all of their time to maintaining the parks and their rides and attractions.

        In addition to our maintenance and inspection procedures, third party consultants are retained by us or our insurance carriers to perform an annual inspection of each park and all attractions and related maintenance procedures. The results of these inspections are reported in written evaluation and inspection reports, as well as written suggestions on various aspects of park operations. In certain states, state inspectors also conduct annual ride inspections before the beginning of each season. Other portions of each park are subject to inspections by local fire marshals and health and building department officials. Furthermore, we use Ellis & Associates as water safety consultants at our parks in order to train life guards and audit safety procedures.

Insurance

        We maintain insurance of the type and in amounts that we believe are commercially reasonable and that are available to businesses in our industry. We maintain multi-layered general liability policies that provide for excess liability coverage of up to $100.0 million per occurrence. For incidents arising after November 15, 2003 at our U.S. parks, our self-insured retention is $2.5 million per occurrence. For incidents at those parks during the twelve months prior to that date, the retention is $2.0 million per occurrence. For incidents during the twelve months ended November 15, 2002, the retention is $1.0 million per occurrence. Retention levels for our international parks are nominal. Our self-insured retention after November 15, 2003 is $0.75 million for workers compensation claims ($0.5 million for the two prior years). Our general liability policies cover the cost of punitive damages only in certain jurisdictions in which a claim occurs. We also maintain fire and extended coverage, workers' compensation, 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.

Competition

        Our parks compete directly with other theme parks, water and amusement parks and indirectly with all other types of recreational facilities and forms of entertainment within their market areas, including movies, sports attractions and vacation travel. Accordingly, our business is and will continue to be subject to factors affecting the recreation and leisure time industries generally, such as general economic conditions and changes in discretionary consumer spending habits. See "Risk Factors". Within each park's regional market area, the principal factors affecting direct theme park competition

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include location, price, the uniqueness and perceived quality of the rides and attractions in a particular park, the atmosphere and cleanliness of a park and the quality of its food and entertainment.

Seasonality

        Our operations are highly seasonal, with approximately 80% of park attendance and revenues occurring in the second and third calendar quarters of each year, with the most significant period falling between Memorial Day and Labor Day.

Environmental and Other Regulations

        Our operations are subject to federal, state and local environmental laws and regulations including laws and regulations governing water and sewer discharges, air emissions, soil and groundwater contamination, the maintenance of underground and above-ground storage tanks and the disposal of waste and hazardous materials. In addition, our operations are subject to other local, state and federal governmental regulations including, without limitation, labor, health, safety, zoning and land use and minimum wage regulations applicable to theme park operations, and local and state regulations applicable to restaurant operations at each park. Finally, certain of our facilities are subject to laws and regulations relating to the care of animals. We believe that we are in substantial compliance with applicable environmental and other laws and regulations and, although no assurance can be given, we do not foresee the need for any significant expenditures in this area in the near future.

        Portions of the undeveloped areas at certain of our parks are classified as wetlands. Accordingly, we may need to obtain governmental permits and other approvals prior to conducting development activities that affect these areas, and future development may be prohibited in some or all of these areas. Additionally, the presence of wetlands in portions of our undeveloped land could adversely affect our ability to dispose of such land and/or the price we receive in any such disposition.

Employees

        At March 1, 2009, we employed approximately 2,040 full-time employees, and we employed approximately 28,500 seasonal employees during the 2008 operating season. In this regard, we compete with other local employers for qualified students and other candidates on a season-by-season basis. As part of the seasonal employment program, we employ a significant number of teenagers, which subjects us to child labor laws.

        Approximately 16.2% of our full-time and approximately 13.0% of our seasonal employees are subject to labor agreements with local chapters of national unions. These labor agreements expire in January 2012 (Six Flags Over Texas, Six Flags St. Louis and one union at Six Flags Great Adventure), December 2011 (Six Flags Magic Mountain and the other union at Six Flags Great Adventure) and December 2010 (Six Flags Over Georgia). The labor agreements for La Ronde expire in various years ranging from December 2010 through December 2012. Other than a strike at La Ronde involving five employees which was settled in January 2004, and recognitional picketing at Six Flags New England in February 2005 by 11 employees, we have not experienced any strikes or work stoppages by our employees. We consider our employee relations to be good.

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, are available free of charge through our website at www.sixflags.com. References to our website in this Annual Report on Form 10-K 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 Annual Report on Form 10-K. These reports, and any amendments to these reports, are made available

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on our website as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the Securities and Exchange Commission. Copies are also available, without charge, by sending a written request to Six Flags, Inc., 1540 Broadway, New York, NY 10036, Attn: Secretary.

        Our website, www.sixflags.com, also includes items related to corporate governance matters including the charters of our Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee, our Corporate Governance Principles, our Code of Business Conduct and our Code of Ethics for Senior Financial Management. Copies of these materials are also available, without charge, by sending a written request to Six Flags, Inc., 1540 Broadway, New York, NY 10036, Attn: Secretary.

        On June 13, 2008, our President and Chief Executive Officer certified to the New York Stock Exchange that he was not aware of any violation by us of the New York Stock Exchange's corporate governance listing standards. The certifications of our Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1, 31.2, 32.1 and 32.2 to this Annual Report on Form 10-K.

Executive Officers

Name
  Age as of
March 1,
2009
  Position
Mark Shapiro     (39 ) President, Chief Executive Officer and a director since December 2005; from September 2002 through October 2005, he served as the Executive Vice President, Programming and Production of ESPN, Inc. ("ESPN"); he served as Senior Vice President and General Manager, Programming at ESPN from July 2001 to September 2002; prior to July 2001, he was Vice President and General Manager of ESPN Classic and ESPN Original Entertainment. Mr. Shapiro is also a board member and compensation committee member for Live Nation, Inc. (NYSE: LYV)

Jeffrey R. Speed

 

 

(46

)

Executive Vice President, Chief Financial Officer since April 2006; prior to that, he served as Senior Vice President and Chief Financial Officer of Euro Disney S.A.S. since 2003; from 1999 to 2003, he served as Vice President Corporate Finance and Assistant Treasurer for The Walt Disney Company. Mr. Speed is also a board member and audit committee member for World Wrestling Entertainment, Inc. (NYSE: WWE)

Michael Antinoro

 

 

(44

)

Executive Vice President, Entertainment and Marketing since December 2005; prior to that, he served as Executive Producer of ESPN Original Entertainment from January 2003 to November 2005; prior to that position he served as Senior Coordinating Producer of ESPN Original Entertainment from February 2001 to December 2002; prior to that, he was Senior Vice President of HoopsTV.com.

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Name
  Age as of
March 1,
2009
  Position
Kyle Bradshaw     (45 ) Senior Vice President, Finance and Chief Accounting Officer since September 2006; prior to that, he had served as Vice President and Chief Accounting Officer of Euro Disney S.A.S. since 2003; prior to that, he served as Vice President Corporate Controllership for The Walt Disney Company since 2000.

James M. Coughlin

 

 

(57

)

General Counsel since May 1998; partner, Baer Marks & Upham LLP, from 1991 to 1998.

Walter S. Hawrylak

 

 

(61

)

Senior Vice President of Administration since June 2002; Secretary since June 2001; Vice President of Administration since June 2000; prior to that he served as our Director of Administration since September 1999; served as Executive Vice President and Chief Financial Officer of Entercitement from May 1997 to September 1999.

Mark Quenzel

 

 

(52

)

Executive Vice President, Park Strategy and Management since December 2005; prior to that, he served as Senior Vice President, Programming and Production at ESPN from 1999 to 2005; prior to that he served in various capacities at ESPN since 1991.

Andrew M. Schleimer

 

 

(31

)

Executive Vice President, Strategic Development & In-Park Services since February 2008; Executive Vice President, In-Park Services since January 2006; prior to that, he served in various capacities at UBS Securities LLC from June 2000 through January 2006, most recently as a Director in the mergers and acquisitions group.

        Each of the above executive officers has been elected to serve in the position indicated until the next annual meeting of directors which will follow the annual meeting of our stockholders to be held in June 2009. We have entered into employment agreements with each of the above executive officers.

ITEM 1A.    RISK FACTORS

        Set forth below are the principal risks that we believe are material to our business and should be considered by our security holders. We operate in a continually changing business environment and, therefore, new risks emerge from time to time. This section contains forward-looking statements. For an explanation of the qualifications and limitations on forward-looking statements, see "Cautionary Note Regarding Forward-Looking Statements."

         WE HAVE A HISTORY OF NET LOSSES, AN ACCUMULATED STOCKHOLDERS' DEFICIT AND PENDING OBLIGATIONS FOR WHICH WE DO NOT CURRENTLY HAVE SUFFICIENT LIQUIDITY. ACCORDINGLY, WE HAVE STATED IN OUR FINANCIAL STATEMENTS INCLUDED HEREIN THAT THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN UNLESS A SUCCESSFUL RESTRUCTURING OCCURS.

        We have had a history of net losses. Our net losses are principally attributable to insufficient revenue to cover our relatively high percentage of fixed costs, including the interest costs on our debt

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and our depreciation expense. We also have an accumulated stockholders' deficit of $443.8 million at December 31, 2008. Additionally, our Preferred Income Equity Redeemable Shares ("PIERS") are required to be redeemed in August 2009, at which time we will be required to redeem all of the PIERS for cash at 100% of the liquidation preference ($287.5 million), plus accrued and unpaid dividends ($31.3 million assuming dividends are accrued and not paid through the mandatory redemption date). Given the current negative conditions in the economy generally and the credit markets in particular, there is substantial uncertainty that we will be able to effect a refinancing of our debt on or prior to maturity or the PIERS prior to their mandatory redemption date on August 15, 2009.

        Our auditors, KPMG LLP, have also included an explanatory paragraph in their opinion on our consolidated financial statements that there is substantial doubt about our ability to continue as a going concern. See page F-4.

        If we are unable to refinance or restructure the PIERS at or prior to the mandatory redemption date, such failure would constitute a default under our Credit Facility, which would permit the lenders to accelerate the obligations thereunder. If the lenders were to accelerate the amounts due under the Credit Facility, a cross-default would also be triggered under our public debt indentures, which would likely result in most or all of our long-term debt becoming due and payable. In that event, we would be unable to fund these obligations. Such a circumstance could have a material adverse effect on our operations and the interests of our creditors and stockholders. Accordingly, we have stated in our financial statements included herein that there is substantial doubt about our ability to continue as a going concern unless a successful restructuring occurs.

        We are exploring a number of alternatives for the refinancing of our indebtedness and the PIERS, including a restructuring either in or out-of-court. We believe the consummation of a successful restructuring is critical to our continued viability. Any restructuring will likely be subject to a number of conditions, many of which will be outside of our control, including the agreement of our PIERS holders, creditors and other parties, and may limit our ability to utilize our net operating loss carry forwards if there is an ownership change, which is likely. We can make no assurances that any restructuring that we pursue will be successful, or what the terms thereof would be or what, if anything, our existing debt and equity holders would receive in any restructuring, which will depend on our enterprise value, although we believe that any restructuring would be highly dilutive to our existing equity holders and certain debt holders. In addition, we can make no assurances with respect to what the value of our debt and equity will be following the consummation of any restructuring.

        We may be compelled to seek an in-court solution in the form of a pre-packaged or pre-arranged filing under Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq., as amended ("Chapter 11") if we are unable to successfully negotiate a timely out-of-court restructuring agreement with our PIERS holders, common stockholders and creditors. Such a court filing would likely occur prior to the maturity of the PIERS or well in advance of such date, if we were to conclude at such time that an out-of-court solution is not feasible or advantageous.

         A LONG AND PROTRACTED CHAPTER 11 PROCEEDING COULD DISRUPT OUR BUSINESS AND DIVERT THE ATTENTION OF OUR MANAGEMENT FROM OPERATION OF OUR BUSINESS AND IMPLEMENTATION OF OUR BUSINESS PLAN.

        While we expect to focus our efforts on a timely and efficient restructuring, either in the form of a timely out-of-court settlement with key creditors and certain other investors or a "pre-packaged" or "pre-arranged" Chapter 11 filing, in which we seek a quick resolution by having secured the agreement of key creditors in advance, a long and protracted Chapter 11 proceeding could still occur and could disrupt our business and divert the attention of our management from operation of our business and implementation of our business plan.

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        A pre-packaged or pre-arranged plan is usually designed to avoid material adverse impacts on business operations. Under a pre-packaged or pre-arranged plan, we would expect to meet substantially all, if not all, of our obligations to our licensors, vendors, suppliers, guests, sponsors and employees, and treat these parties essentially as though we had not filed. As with any judicial proceeding, there are risks of delay with the confirmation of the plan and there are risks of objections from certain stakeholders, including any lenders that vote to reject the plan, that could further delay the process and potentially cause a pre-packaged or pre-arranged plan to be rejected by the court. Any material delay in the confirmation of a Chapter 11 proceeding would not only add substantial expense and uncertainty to the process, but could adversely affect our operations during this period.

        If a pre-packaged or pre-arranged plan is unsuccessful, we would likely become subject to a "free fall" Chapter 11 proceeding, which could become a lengthy, costly and highly disruptive proceeding, and have a more pronounced adverse effect on our business than a filing made pursuant to a pre-packaged or pre-arranged plan. A "free fall" proceeding would likely involve contested issues with our multiple creditors, including our lessors, parties to supply contracts, parties to all of our license agreements and the numerous other contractual arrangements to which we are a party. Moreover, in such a proceeding, we do not believe that we would be able to obtain a replacement credit facility having terms as favorable as our current Credit Facility if we were required to obtain a replacement facility. A Chapter 11 filing that is not pre-packaged or pre-arranged could also cause critical members of our senior management team to pursue other opportunities following the expiration of their employment agreements with us. Most of our current employment agreements expire in late 2009 and early 2010 and new management agreements will likely be contingent upon the successful consummation of a restructuring plan. Moreover, a time consuming and disruptive Chapter 11 proceeding could have a negative impact on our cash flows due to a likely reduction in trade credit terms and increase the possibility of a decrease in customer attendance, including daily attendees to our parks and purchasers of advance and group tickets and season passes, all of whom could be concerned regarding our viability.

         A CHAPTER 11 FILING COULD HAVE OTHER ADVERSE CONSEQUENCES, EVEN IF PRE-PACKAGED OR PRE-ARRANGED.

        Any Chapter 11 filing, even in connection with a pre-packaged or pre-arranged plan, may have adverse effects on our business and operations. A Chapter 11 filing could create uncertainties about the future of our business, which could cause (i) suppliers to attempt to cancel our contracts or restrict ordinary credit terms, require financial assurances of performance or refrain entirely from shipping goods, (ii) employees to become distracted from performance of their duties or more easily attracted to other career opportunities, (iii) a reduction in sponsorship and international development revenues, and (iv) our guests to consider spending their discretionary dollars on other entertainment alternatives during the current economic crisis. There is also a risk that the threat or commencement of a Chapter 11 proceeding, in light of the deterioration in the U.S. economy, could cause investors in the Partnership Parks to "put" certain of their investments to us for repayment pursuant to the Partnership Parks agreements. Depending upon the extent of these puts, there is a risk that we could ultimately be required to forfeit the Partnership Parks to Time Warner, which has guaranteed our put obligations under the Partnership Parks agreements if we fail to meet such obligations. Additionally, even if it is not required to fund any puts, Time Warner could acquire our interests in the Partnership Parks if we otherwise default under our arrangements with them. Also, pursuant to our interest rate swap arrangements, a Chapter 11 filing could result in the acceleration of our payments thereunder, which depending upon then existing interest rates could result in a substantial payment to the counterparty. Some of these concerns and effects typically become more acute when a Chapter 11 proceeding continues for a protracted period without indication of how or when the proceeding may be completed.

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        In addition, if we file a pre-packaged or pre-arranged plan or a "free fall" Chapter 11 proceeding is commenced, there is a risk that our counterparties may object to our assumption of executory contracts (including our important licenses and intellectual property), and if those counterparties succeed, we would lose the benefits of these agreements. We believe that many of these contracts including, without limitation, our license agreements for the Warner Bros., DC Comics, Hanna-Barbara, The Wiggles and Thomas the Tank Engine and Friends characters, as well as our sponsorship agreements, are important to the operation of our parks and the customer experience at those parks, and that our international development agreements are important to the future growth and development of our brand.

         OUR HIGH LEVEL OF INDEBTEDNESS AND OTHER MONETARY OBLIGATIONS REQUIRE THAT A SIGNIFICANT PART OF OUR CASH FLOW BE USED TO PAY INTEREST AND FUND THESE OTHER OBLIGATIONS.

        We have a high level of debt. Our total indebtedness, as of December 31, 2008, was approximately $2.37 billion, plus approximately $302 million of PIERS including dividends in arrears. Based on estimated interest rates for floating-rate debt and after giving effect to applicable interest rate swaps we entered into in February 2008, and the debt exchange we effected in June 2008, annual cash interest payments for 2009 on (i) non-revolving credit debt outstanding at December 31, 2008 and (ii) anticipated levels of working capital revolving borrowings for the year will aggregate approximately $175 million net of cash interest expected to be received. In addition, the annual dividend requirements on our outstanding PIERS total approximately $20.8 million (we also have $20.8 million of dividends in arrears related to the decision of our Board of Directors not to declare and pay the second, third and fourth quarter dividends in 2008 and the first quarter dividend in 2009). See the contractual obligations chart on page 45. We are required to redeem for cash on August 15, 2009 all of our outstanding PIERS at 100% of the liquidation preference ($287.5 million), plus accrued and unpaid dividends ($31.3 million assuming dividends are accrued and not paid through the mandatory redemption date). See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Capital Commitments and Resources."

        In addition to making interest payments on debt and our obligations under the PIERS, we must satisfy the following obligations with respect to the Partnership Parks:

    We must make annual distributions to our partners in the Partnership Parks, which will amount to approximately $60.7 million in 2009 (of which we will receive approximately $20.0 million in 2009 as a result of our ownership interest in the parks) with similar amounts (adjusted for changes in cost of living) payable in future years.

    We must spend a minimum of approximately 6% of each park's annual revenues over specified periods for capital expenditures.

    Each year we must offer to purchase a specified maximum number of partnership units from our partners in the Partnership Parks, which number accumulates to the extent units are not tendered. Since only an immaterial number of units have been tendered in the annual offerings to purchase, the maximum number of units that we could be required to purchase in 2009 would result in an aggregate payment by us of approximately $335.2 million. The annual incremental unit purchase obligation (without taking into account accumulation from prior years) aggregates approximately $31.1 million for both parks based on current purchase prices. As we purchase additional units, we are entitled to a proportionate increase in our share of the minimum annual distributions.

        We expect to use cash flow from the operations at the Partnership Parks to satisfy our annual distribution and capital expenditure obligations with respect to these parks before we use any of our other funds. The two partnerships generated approximately $37.9 million of aggregate net cash

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provided by operating activities after capital expenditures during 2008 (net of advances from the general partner). The obligations relating to Six Flags Over Georgia continue until 2027 and those relating to Six Flags Over Texas continue until 2028.

        Although we are contractually committed to make approximately CAD$13.4 million of capital and other expenditures at La Ronde no later than May 1, 2011, the vast majority of our capital expenditures in 2009 and beyond will be made on a discretionary basis, although such expenditures are important to the parks' ability to sustain and grow revenues. We spent $90.3 million on capital expenditures for all of our continuing operations in the 2008 calendar year (net of property insurance recoveries) and we plan on spending approximately $100 million on capital expenditures in 2009.

        Our high level of debt, stockholders' deficit and other obligations could have important negative consequences to us and investors in our securities. These include the following:

    We may not be able to satisfy all of our obligations, including, but not limited to, our obligations under the instruments governing our outstanding debt, which would cause a cross-default or cross-acceleration on most of our other debt.

    We could have difficulties obtaining necessary financing in the future for working capital, capital expenditures, debt service requirements, Partnership Park obligations, refinancings or other purposes.

    We will have to use a significant part of our cash flow to make payments on our debt and to satisfy the other obligations set forth above, which may reduce the capital available for operations and expansion.

    Adverse economic or industry conditions may have more of a negative impact on us.

        We cannot be sure that cash generated from our parks will be as high as we expect or that our expenses will not be higher than we expect. Because a large portion of our expenses are fixed in any given year, our operating cash flow margins are highly dependent on revenues, which are largely driven by attendance levels, in-park spending and sponsorship and licensing activity. A lower amount of cash generated from our parks or higher expenses than expected, when coupled with our significant debt obligations, could adversely affect our ability to fund our operations.

         RESTRICTIVE COVENANTS—OUR FINANCIAL AND OPERATING ACTIVITIES ARE LIMITED BY RESTRICTIONS CONTAINED IN THE TERMS OF OUR FINANCINGS.

        The terms of the instruments governing our indebtedness impose significant operating and financial restrictions on us. These restrictions may significantly limit or prohibit us from engaging in certain types of transactions, including the following:

    incurring additional indebtedness;

    creating liens on our assets;

    paying dividends;

    selling assets;

    engaging in mergers or acquisitions; and

    making investments.

        Further, under the Credit Facility, our principal direct wholly-owned subsidiary, Six Flags Operations, Inc., and its subsidiaries are required to comply in certain circumstances with a senior secured leverage ratio and a leverage ratio.

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        Although we are currently in compliance with all of these financial covenants and restrictions, events beyond our control, such as weather and economic, financial and industry conditions, may affect our ability to continue meeting these financial ratios. The need to comply with these financial covenants and restrictions could limit our ability to execute our strategy and expand our business or prevent us from borrowing more money when necessary.

        If we breach any of the covenants contained in the Credit Facility or the indentures governing our outstanding notes, the principal of and accrued interest on the applicable debt could become immediately due and payable. In addition, that default could constitute a cross-default under the instruments governing all of our other indebtedness. If a cross-default occurs, the maturity of almost all of our indebtedness could be accelerated and the debt become immediately due and payable. If that happens, we would not be able to satisfy our debt obligations, which would have a material adverse effect on our operations and the interests of our creditors and stockholders.

        We can make no assurances that we will be able to comply with these restrictions in the future or that our compliance would not cause us to forego opportunities that might otherwise be beneficial to us. We also cannot predict the types or severity of covenants that could accompany any new financing or restructuring of our existing obligations.

         THE GLOBAL FINANCIAL CRISIS AND RECESSION MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS AND FINANCIAL CONDITION THAT WE CURRENTLY CANNOT PREDICT.

        The global financial crisis and recession may have an adverse impact on our business and our financial condition. The current negative economic conditions affect our guests' levels of discretionary spending. A decrease in discretionary spending due to decreases in consumer confidence in the economy or us, a continued economic slowdown or further deterioration in the economy, could adversely affect the frequency with which our guests choose to visit our theme parks and the amount that our guests spend on our products when they visit. This could lead to a decrease in our revenues, operating income and cash flows.

        Additionally, the global financial crisis and recession could impact our ability to obtain supplies, services and credit as well as the ability of third parties to meet their obligations to us, including, for example, payment of claims by our insurance carriers and/or the funding of our line of credit by the participating lenders in the Credit Facility.

        While we believe that we have sufficient liquidity to operate until the mandatory redemption of the PIERS in August 2009, a significant decrease in revenues and cash flows due to the impact of our financial condition and the overall economy could result in us having an unanticipated cash shortfall, which could compel us to file under Chapter 11 before we have completed our efforts to obtain an out-of-court restructuring or a pre-packaged or pre-arranged plan under Chapter 11. Such a circumstance would likely cause a free fall Chapter 11 proceeding, which could have a material adverse effect on our business. See the above risk factor regarding the potential impact of a long and protracted Chapter 11 proceeding.

         CHANGES IN OUR CREDIT RATINGS MAY ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK AND NEGATIVELY IMPACT OUR ABILITY TO REFINANCE OUR REMAINING DEBT.

        Credit rating agencies continually review their ratings for the companies they follow, including us. In September 2008, Moody's Investors Service downgraded (i) our corporate family rating to "Caa2" from "Caa1," (ii) our probability of default to "Caa2" from "Caa1" and (iii) the debt rating of the Credit Facility to "B2" from "B1." In June 2008, Standard & Poor's Ratings Service reassigned our (i) corporate credit rating to "CCC+" and (ii) the debt rating of the Credit Facility to "B." Both rating agencies have placed our ratings on "negative outlook." A further negative change in our ratings or the

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perception that such a change could occur, which would be likely if we were to enter into a Chapter 11 proceeding, may further adversely affect the market price of our securities, including our common stock and public debt.

         VARIOUS FACTORS—LOCAL CONDITIONS, EVENTS, NATURAL DISASTERS, DISTURBANCES AND TERRORIST ACTIVITIES—CAN ADVERSELY IMPACT PARK ATTENDANCE.

        Lower attendance at our parks may be caused by various local conditions, events, weather or natural disasters. In addition, since some of our parks are near major urban areas and appeal to teenagers and young adults, there may be disturbances at one or more parks which negatively affect our image. This may result in a decrease in attendance at the affected parks. We work with local police authorities on security-related precautions to prevent these types of occurrences. We can make no assurance, however, that these precautions will be able to prevent any disturbances. We believe that our ownership of many parks in different geographic locations reduces the effects of these types of occurrences on our consolidated results.

        Our business and financial results were adversely impacted by the terrorist activities occurring in the United States on September 11, 2001. Terrorist alerts and threats of future terrorist activities may adversely affect attendance at our parks. We cannot predict what effect any further terrorist activities that may occur in the future may have on our business and results of operations.

         RISK OF ACCIDENTS—THERE IS A RISK OF ACCIDENTS OCCURRING AT OUR PARKS OR COMPETING PARKS WHICH MAY REDUCE ATTENDANCE AND NEGATIVELY IMPACT OUR OPERATIONS.

        Almost all of our parks feature "thrill rides." While we carefully maintain the safety of our rides, there are inherent risks involved with these attractions. An accident or an injury (including water-borne illnesses on water rides) at any of our parks or at parks operated by our competitors, particularly accidents or injuries that attract media attention, may reduce attendance at our parks, causing a decrease in revenues.

        We maintain insurance of the type and in amounts that we believe are commercially reasonable and that are available to businesses in our industry. We maintain multi-layered general liability policies that provide for excess liability coverage of up to $100.0 million per occurrence. For incidents occurring at our domestic parks after November 15, 2003, our self-insured retention is $2.5 million per occurrence. For incidents at those parks during the twelve months prior to that date, the retention is $2.0 million per occurrence. For incidents during the twelve months ended November 15, 2002, the retention is $1.0 million per occurrence. For most prior incidents, our policies did not provide for a self-insured retention. The self-insured retention relating to our international parks is nominal with respect to all applicable periods. Our general liability policies cover the cost of punitive damages only in certain jurisdictions in which a claim occurs. Our current insurance policies expire on December 31, 2009. 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.

         ADVERSE WEATHER CONDITIONS—BAD WEATHER CAN ADVERSELY IMPACT ATTENDANCE AT OUR PARKS.

        Because most of the attractions at our theme parks are outdoors, attendance at our parks is adversely affected by bad weather and forecasts of bad weather. The effects of bad weather on attendance can be more pronounced at our water parks. Bad weather and forecasts of bad or mixed weather conditions can reduce the number of people who come to our parks, which negatively affects our revenues. Although we believe that our ownership of many parks in different geographic locations

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reduces the effect that adverse weather can have on our consolidated results, we believe that our operating results in certain years were adversely affected by abnormally hot, cold and/or wet weather in a number of our major U.S. markets. In addition, since a number of our parks are geographically concentrated in the eastern portion of the United States, a weather pattern that affects that area could adversely affect a number of our parks. Also, bad weather and forecasts of bad weather on weekend days have greater negative impact than on weekdays because weekend days are typically peak days for attendance at our parks.

         SEASONALITY—OUR OPERATIONS ARE SEASONAL.

        Our operations are seasonal. Approximately 83% of our annual park attendance and revenue occurs during the second and third calendar quarters of each year. As a result, when conditions or events described in the above risk factors occur during the operating season, particularly during the peak season of July and August, there is only a limited period of time during which the impact of those conditions or events can be mitigated. Accordingly, such conditions or events may have a disproportionately adverse effect on our revenues and cash flow. In addition, most of our expenses for maintenance and costs of adding new attractions are incurred when the parks are closed in the mid to late autumn and winter months. For this reason, a sequential quarter to quarter comparison is not a good indication of our performance or of how we will perform in the future.

        Due to the seasonal nature of our business, we are largely dependent upon our revolving facilities totaling $275.0 million to fund off-season expenses. Our ability to borrow under the revolving facilities is dependent upon compliance with certain conditions, including a senior secured leverage ratio and the absence of any material adverse change in our business or financial condition. If we were to become unable to borrow under the revolving facilities, we would likely be unable to pay in full our off-season obligations and may be unable to meet our repurchase obligations (if any) with respect to repurchases of partnership units in the Partnership Parks. The working capital revolving credit facility expires in March 2013. In October 2008, we borrowed $244.2 million under the revolving facility portion of the Credit Facility to ensure the availability of liquidity to fund our off-season expenditures given difficulties in the global credit markets. At December 31, 2008, we had $210.3 million in unrestricted cash and $1.5 million available (after reduction for outstanding letters of credit of approximately $29.4 million) on our $275 million revolving credit facility.

         COMPETITION—THE THEME PARK INDUSTRY COMPETES WITH NUMEROUS ENTERTAINMENT ALTERNATIVES.

        Our parks compete with other theme, water and amusement parks and with other types of recreational facilities and forms of entertainment, including movies, sports attractions and vacation travel. Our business is also subject to factors that affect the recreation and leisure time industries generally, such as general economic conditions, including relative fuel prices, and changes in consumer spending habits. The principal competitive factors of a park include location, price, the uniqueness and perceived quality of the rides and attractions, the atmosphere and cleanliness of the park and the quality of its food and entertainment.

         CUSTOMER PRIVACY—IF WE ARE UNABLE TO PROTECT OUR CUSTOMERS' CREDIT CARD DATA, WE COULD BE EXPOSED TO DATA LOSS, LITIGATION AND LIABILITY, AND OUR REPUTATION COULD BE SIGNIFICANTLY HARMED.

        In connection with credit card sales, we transmit confidential credit card information securely over public networks and store it in our data warehouse. Third parties may have the technology or know-how to breach the security of this customer information, and our security measures may not effectively prohibit others from obtaining improper access to this information. If a person is able to circumvent our security measures, he or she could destroy or steal valuable information or disrupt our

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operations. Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and any resulting negative publicity could significantly harm our reputation.

         LABOR COSTS—INCREASED COSTS OF LABOR, PENSION, POST-RETIREMENT AND MEDICAL AND OTHER EMPLOYEE HEALTH AND WELFARE BENEFITS MAY REDUCE OUR RESULTS OF OPERATIONS.

        Labor is a primary component in the cost of operating our business. We devote significant resources to recruiting and training our managers and employees. Increased labor costs, due to competition, increased minimum wage or employee benefit costs or otherwise, would adversely impact our operating expenses. In addition, our success depends on our ability to attract, motivate and retain qualified employees to keep pace with our needs. If we are unable to do so, our results of operations may be adversely affected.

        With more than 2,000 full-time employees, our results of operations are also substantially affected by costs of retirement and medical benefits. In recent years, we have experienced significant increases in these costs as a result of macro-economic factors beyond our control, including increases in health care costs, declines in investment returns on pension plan assets and changes in discount rates used to calculate pension and related liabilities. At least some of these macro-economic factors may continue to put pressure on the cost of providing pension and medical benefits. Although we have actively sought to control increases in these costs (including our decision in February 2006 to "freeze" our pension plan, effective March 31, 2006, and certain revisions to our employee health and welfare benefits), there can be no assurance that we will succeed in limiting cost increases, and continued upward pressure, including as a result of any new legislation, could reduce the profitability of our businesses.

         HOLDING COMPANY STRUCTURE—ACCESS TO CASH FLOW OF MOST OF OUR SUBSIDIARIES IS LIMITED.

        We are a holding company whose primary assets consist of shares of stock or other equity interests in our subsidiaries, and we conduct substantially all of our current operations through our subsidiaries. Almost all of our income is derived from our subsidiaries. Accordingly, we are dependent on dividends and other distributions from our subsidiaries to generate the funds necessary to meet our obligations, including the payment of principal and interest on our indebtedness. We had $210.3 million of cash and cash equivalents on a consolidated basis at December 31, 2008, of which $4.4 million was held at the holding company level.

        Other than our holdings in the Partnership Parks, all of our current operations are conducted by subsidiaries of Six Flags Operations, Inc., our principal direct wholly-owned subsidiary. We may, in the future, transfer other assets to Six Flags Operations, Inc. or other entities owned by us. The Credit Facility and the indenture governing Six Flags Operations, Inc.'s senior notes due 2016 limit the ability of Six Flags Operations, Inc. to pay dividends or make other distributions to us. Six Flags Operations, Inc. may not make cash distributions to us unless it is in compliance with the covenants set forth in the Credit Agreement and the indenture governing its senior notes due 2016 and it is not otherwise in default thereunder. If it is in compliance, Six Flags Operations, Inc. is permitted to make dividends to us in certain circumstances from cash generated by certain asset dispositions and the incurrence of certain indebtedness in order to enable us to pay amounts in respect of any refinancing or repayment of debt under the indentures governing our outstanding notes and, in certain circumstances, the PIERS. Similarly, if it is in compliance, Six Flags Operations, Inc. may make additional cash distributions to us generally limited to an amount equal to the sum of:

    cash interest payments on the public debt issued by Holdings;

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    payments we are required to make under our agreements with our partners in the Partnership Parks; and

    cash dividends on our preferred stock.

         SHARES ELIGIBLE FOR FUTURE SALE—THE PRICE OF OUR COMMON STOCK MAY DECLINE DUE TO POSSIBLE SALES OF SHARES AND THE ISSUANCE OF SHARES OF COMMON STOCK IN ANY RESTRUCTURING OR CHAPTER 11 FILING.

        As of March 1, 2009, there were approximately 97.8 million shares of our common stock outstanding, all of which are transferable without restriction or further registration under the Securities Act of 1933, as amended, except for any shares held by our affiliates. At that date, we also had outstanding options held by management and directors to purchase approximately 6.7 million shares and under our current option plans we may issue options to purchase an additional 3.7 million shares.

        In addition, the PIERS are convertible at the option of the holders into 13.8 million shares of common stock, and our convertible notes are convertible into 44.1 million shares, although we can elect to deliver cash to satisfy note conversions. Due to the market value of our common stock at December 31, 2008, we do not anticipate conversions of the PIERS or convertible notes under their existing terms. In addition, we expect that we will be required to issue a significant amount of additional common stock in any restructuring or Chapter 11 proceeding we pursue which would likely have a significantly dilutive impact on, or result in the elimination of, our existing shares of common stock. The sale or issuance or expectation of sales or issuances of a large number of shares of common stock or securities convertible into common stock in the public market might negatively affect the market price of our common stock.

        The price of our common stock could also be adversely affected by our decision to make a Chapter 11 filing or the expectation of a filing, due to the potential negative impacts of a filing as well as the potential dilutive impact on, or elimination of, existing shares of common stock.

         ANTI-TAKEOVER PROVISIONS—ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE DOCUMENTS AND THE LAW OF THE STATE OF DELAWARE AS WELL AS CHANGE OF CONTROL PROVISIONS IN CERTAIN OF OUR DEBT AND OTHER AGREEMENTS COULD DELAY OR PREVENT A CHANGE OF CONTROL, EVEN IF THAT CHANGE WOULD BE BENEFICIAL TO STOCKHOLDERS OR HAVE A MATERIALLY NEGATIVE IMPACT ON OUR BUSINESS.

        Certain provisions in our Restated Certificate of Incorporation and in our debt instruments and those of our subsidiaries may have the effect of deterring transactions involving a change in control of us, including transactions in which stockholders might receive a premium for their shares.

        Our Restated Certificate of Incorporation provides for the issuance of up to 5,000,000 shares of preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors. The authorization of preferred shares empowers our board of directors, without further stockholder approval, to issue preferred shares with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our common stock. If issued, the preferred stock could also dilute the holders of our common stock and could be used to discourage, delay or prevent a change of control of us.

        So long as our common stock is listed on a national securities exchange or held of record by more than 2,000 holders, we are also subject to the anti-takeover provisions of the Delaware General Corporation Law, which could have the effect of delaying or preventing a change of control in some circumstances. Furthermore, upon a change of control, the holders of substantially all of our outstanding indebtedness are entitled at their option to be repaid in cash. These provisions may have

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the effect of delaying or preventing a change of control. All of these factors could materially adversely affect the price of our common stock.

        On December 2, 2008, our board of directors adopted a stockholder rights plan and declared a dividend distribution of one preferred stock purchase right (a "Right") for each outstanding share of our common stock. The distribution was paid on December 17, 2008 to stockholders of record as of the close of business on December 17, 2008. Each Right, if and when it becomes exercisable, entitles the holder to buy 1/1000 of a share of preferred stock at a price of $1.25 per 1/1000 of a share subject to adjustment (the "Exercise Price"). If any person or group becomes the beneficial owner of 15% or more of our common stock at any time after the date of the plan (with certain limited exceptions), then each Right not owned by such person or group will entitle its holder to purchase, at the Exercise Price, shares of our common stock or, in certain circumstances, common stock of the acquiring person, having a market value of twice the Exercise Price. The description and terms of the Rights are set forth in a rights agreement between us and The Bank of New York Mellon, as rights agent.

        In addition, our Credit Agreement, the indentures governing our senior debt and the certificate of designation for the PIERS contain provisions pursuant to which it would be an event of default under our Credit Agreement and we would be required to offer to repurchase the debt and the PIERS if any "person" becomes the beneficial owner of more than 35% of our common stock. This could deter certain parties from seeking to acquire us and if any "person" were to become the beneficial owner of more than 35% of our common stock, we would not be able to repay or repurchase such indebtedness and PIERS.

        We have the exclusive right to use certain Warner Bros. and DC Comics characters in our theme parks in the United States (except in the Las Vegas metropolitan area), Canada, Mexico and other countries. Warner Bros. can terminate these licenses under certain circumstances, including the acquisition of us by persons engaged in the movie or television industries. This could deter certain parties from seeking to acquire us.

         OUR SHARES MAY BE DE-LISTED FROM THE NEW YORK STOCK EXCHANGE.

        On October 6, 2008, we were notified by the New York Stock Exchange (the "NYSE") that the we are not in compliance with the NYSE's continued listing criteria under Section 802.01C of the NYSE Listed Company Manual because the average closing price of our common stock has been less than $1.00 for thirty consecutive trading days. On October 27, 2008, we were notified by the NYSE that we are not in compliance with the NYSE's continued listing criteria under Section 802.01B of the NYSE Listed Company Manual because our average market capitalization has been less than $75 million for thirty consecutive trading days and, at the same time, our stockholders' equity had been less than $75 million. We are required to remedy each of these matters in a timely manner as set forth in the applicable NYSE rules in order to maintain our listing on the NYSE, and, if we are unable to do so, we may be delisted by the NYSE.

        We have a six-month compliance period from the date of notification of our noncompliance to bring our share price and average share price back above $1.00. On February 26, 2009, the NYSE suspended the $1.00 average closing price requirement until June 30, 2009. If we have not regained compliance with the average closing price requirement by June 30, 2009, the six-month compliance period will recommence and we will have the remaining balance of such period within which time we must regain compliance in order to remain listed. On December 9, 2008, we submitted a plan to the NYSE to address our compliance with the NYSE's minimum market capitalization and stockholders' equity listing criteria. On January 22, 2009, the NYSE accepted our plan, however, the NYSE may delist our common stock in the future if we do not satisfy the NYSE's minimum listing criteria, including maintaining a minimum market capitalization of $15,000,000 through June 30, 2009, and $25,000,000 thereafter.

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        If delisting occurs, it could be more difficult to buy or sell our common stock and the price of our common stock could decline. Delisting could also affect our ability to raise capital. If we were delisted from the NYSE, we could seek to move trading of our common stock to the OTC Bulletin Board. This method of trading could significantly impair our ability to raise new capital.

         WE MAY BE REQUIRED TO RECOGNIZE CANCELLATION OF INDEBTEDNESS INCOME AND OUR ABILITY TO UTILIZE OUR NET OPERATING LOSS CARRYFORWARDS MAY BE LIMITED IF WE SUCCESSFULLY CONSUMMATE A DEBT RESTRUCTURING.

        We will have cancellation of indebtedness ("COD") income if we consummate a debt restructuring and the value of the common stock issued in exchange for our notes is less than the adjusted issue price of the notes. However, this COD income will be excluded from taxable income if the debt restructuring occurs pursuant to a Chapter 11 plan of reorganization or, if not, to the extent we are insolvent as determined under the Internal Revenue Code of 1986, as amended, immediately before an out-of-court restructuring. If the COD income is excluded from our taxable income, we will be required to reduce our favorable tax attributes, including our net operating loss carryforwards ("NOLs"), by the amount of COD income that is excluded.

        To the extent we are made solvent by a debt restructuring in an out-of-court solution, the COD income would be taxable income, which may be offset with our NOLs for regular tax purposes. However, for alternative minimum tax ("AMT") purposes, only 90% of our taxable income may be offset with NOLs. Therefore, 10% of our AMT income, including any taxable COD income, cannot be offset with NOLs and will be subject to AMT.

        Federal legislation was recently enacted that allows an eligible taxpayer to elect to defer COD income arising from an exchange of stock for debt that occurs in 2009 or 2010. If this election is made, the taxpayer can defer tax on the COD income for five taxable years (in the case of COD income arising in 2009) or four taxable years (in the case of COD income arising in 2010), and then recognize 20% of the COD income in each of the next five taxable years beginning with 2014. If this election is made, the COD income exclusions for a Chapter 11 filing and insolvency would not apply.

        Further, our ability to utilize our NOLs may be limited by Section 382 of the Internal Revenue Code of 1986, as amended, if we consummate a debt restructuring that results in an ownership change. In such case, an annual limitation will be imposed on the amount of our pre-ownership change NOLs that may be utilized to offset future taxable income. This annual limitation generally will be equal to the value of our stock immediately before the ownership change (or, if the ownership change occurs pursuant to a Chapter 11 reorganization and an election is made, the value of our stock immediately after the ownership change), in either case, subject to certain reductions, multiplied by the "long-term tax-exempt rate" for the month in which the ownership change occurs. This rate (currently, approximately 5.5%) is published monthly by the Internal Revenue Service. Any portion of the annual limitation that is not used in a particular year may be carried forward and used in subsequent years.

        The annual limitation is increased by certain 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 our tax depreciation expense during this five year period is less than it would be if our assets had a tax basis on the date of the ownership change equal to their fair market value. Because most of our assets are theme park assets, which are depreciated on an accelerated basis over a seven-year recovery period, we expect any NOL limitation to be substantially increased by built-in income for the five years following an ownership change and to result in a carryforward of excess limitation to future periods. Nevertheless, because the value of our outstanding common stock is currently low, any annual limitation resulting from an ownership change will likely be correspondingly low. Even after being increased by built-in income, we expect the cumulative NOL limitation to be

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substantially less than the current amount of our NOLs. As a result, a significant amount of our NOLs are expected to expire unused as a result of an ownership change. Alternatively, if an ownership change occurs pursuant to a Chapter 11 proceeding and certain requirements are satisfied, no limitation would be imposed on the use of our NOLs following the ownership change. Instead, however, our NOLs would be reduced by interest deducted during the applicable look-back period on notes that are converted into stock in the restructuring.

         SIX FLAGS HAS NOT PAID CASH DIVIDENDS ON ITS COMMON STOCK AND DOES NOT CURRENTLY ANTICIPATE DOING SO IN THE FORESEEABLE FUTURE.

        Six Flags has not paid cash dividends to date on its common stock and does not currently anticipate paying any cash dividends on its common stock in the foreseeable future. The terms of the Credit Facility and our senior debt restrict our ability to pay cash dividends on our common stock and repurchase shares of our common stock.

         A RESTRUCTURING COULD HAVE OTHER ACCOUNTING IMPLICATIONS.

        If we restructure our debt and other obligations in an out-of-court transaction, it could result in book carrying amount of our stockholders' equity exceeding our fair market value of equity. Currently, we have a deficit balance in stockholders' equity, therefore book equity does not exceed the fair market value of equity. Because we have one reporting unit for purposes of assessing impairment under Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," if the book carrying amount of stockholders' equity were to exceed fair market value of equity after an out-of-court restructuring, an impairment could be indicated for the single reporting unit and we would be required to determine the implied fair value of our goodwill and compare that value to the goodwill carrying amount. If the carrying amount was greater than the implied fair value, a goodwill impairment charge would be recorded for the difference.

        If we restructure under Chapter 11, the financial statements would be subject to the accounting prescribed by Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." If our existing stockholders end up with less than 50% of our voting shares after we emerge from a Chapter 11 proceeding, we would apply "Fresh-Start Reporting," in which our assets and liabilities would be recorded at their estimated fair value using the principles of purchase accounting contained in Statement of Financial Accounting Standards No. 141R, "Business Combinations," with the difference between our estimated fair value and our identifiable assets and liabilities being recognized as goodwill.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our 2008 fiscal year and that remain unresolved.

ITEM 2.    PROPERTIES

        Set forth below is a brief description of our material real estate at March 1, 2009. See also "Business—Description of Parks."

Six Flags America, Largo, Maryland—523 acres (fee ownership)
Six Flags Discovery Kingdom, Vallejo, California—138 acres (fee ownership)
Six Flags Fiesta Texas, San Antonio, Texas—224 acres (fee ownership)
Six Flags Great Adventure, Hurricane Harbor & Wild Safari, Jackson,
New Jersey—2,200 acres (fee ownership)
Six Flags Great America, Gurnee, Illinois—304 acres (fee ownership)

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Six Flags Hurricane Harbor, Arlington, Texas—47 acres (fee ownership)
Six Flags Hurricane Harbor, Valencia, California—12 acres (fee ownership)
Six Flags Kentucky Kingdom, Louisville, Kentucky—58 acres (fee ownership and leasehold interest)(1)
Six Flags Magic Mountain, Valencia, California—250 acres (fee ownership)
Six Flags Mexico, Mexico City, Mexico—110 acres (occupied pursuant to concession agreement)(2)
Six Flags New England, Agawam, Massachusetts—284 acres (substantially all fee ownership)
Six Flags New Orleans, New Orleans, Louisiana—226 acres (fee ownership and leasehold interest)(3)
Six Flags Over Georgia, Atlanta, Georgia—290 acres (leasehold interest)(4)
Six Flags Over Texas, Arlington, Texas—217 acres (leasehold interest)(4)
Six Flags St. Louis, Eureka, Missouri—497 acres (fee ownership)
Six Flags White Water Atlanta, Marietta, Georgia—69 acres (fee ownership)(5)
La Ronde, Montreal, Canada—146 acres (leasehold interest)(6)
The Great Escape, Lake George, New York—351 acres (fee ownership)


(1)
Approximately 38 acres are leased under ground leases with terms (including renewal options) expiring between 2021 and 2049, with the balance owned by us.

(2)
The concession agreement is with the Federal District of Mexico City. The agreement expires in 2017.

(3)
The site on which the park is located is leased from the Industrial Development Board of the City of New Orleans. The lease expires in 2077. Amount shown includes a separate parcel of 86 acres which we own.

(4)
Lessor is the limited partner of the partnership that owns the park. The Six Flags Over Georgia and Six Flags Over Texas leases expire in 2027 and 2028, respectively, at which time we have the option to acquire all of the interests in the respective lessor that we have not previously acquired.

(5)
Owned by the Georgia Partnership.

(6)
The site is leased from the City of Montreal. The lease expires in 2065.

        We have granted to our lenders under the Credit Facility a mortgage on substantially all of our United States properties.

        In addition to the foregoing, we lease office space and a limited number of rides and attractions at our parks. See Note 13 to Notes to Consolidated Financial Statements.

        We consider our properties to be well maintained, in good condition and adequate for their present uses and business requirements.

ITEM 3.    LEGAL PROCEEDINGS

        The nature of the industry in which we operate tends to expose us to claims by visitors, generally for injuries. Historically, the great majority of these claims have been minor. Although we believe that we are adequately insured against visitors' claims, if we become subject to damages that cannot by law be insured against, such as punitive damages or certain intentional misconduct by employees, there may be a material adverse effect on our operations.

        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 March 2009, we are required to pay $254,000 (which is accrued in other expense as of

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December 31, 2008) into the settlement fund based on our meeting certain performance criteria in 2008. In March 2010, we may be required to pay up to a maximum of $2,500,000 into the settlement fund based on us meeting certain performance criteria in 2009.

        On February 1, 2007, Images Everywhere, Inc. and John Shawn Productions, Inc. filed a case against Six Flags Theme Parks Inc. 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 license agreements and/or under a consulting arrangement. In October 2006, we terminated our 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 us 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 our 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. We will continue to defend ourselves vigorously, as we believe the plaintiffs' claims are without merit.

        On March 1, 2007, Safety Braking Corporation, Magnetar Technologies Corp. and G&T Conveyor Co. filed a Complaint for Patent Infringement (the "Complaint") in the United States District Court for the District of Delaware naming Six Flags, Inc., Six Flags Theme Parks Inc., and certain of our other subsidiaries as defendants, along with other industry theme park owners and operators. The Complaint alleges that we are liable for direct or indirect infringement of United States Patent No. 5,277,125 because of our ownership and/or operation of various theme parks and amusement rides. The Complaint does not include specific allegations concerning the location or manner of alleged infringement. The 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. We have contacted the manufacturers of the amusement rides that we believe may be impacted by this case requiring such manufacturers to honor their indemnification obligations with respect to this case. We have tendered the defense of this matter to certain of the ride manufacturers.

        On January 6, 2009, a civil action against us was commenced in the State Court of Cobb County, Georgia. The plaintiff is seeking damages against us for personal injuries, including an alleged brain injury, as a result of an altercation with a group of individuals on property next to Six Flags Over Georgia on July 3, 2007. The plaintiff, who had exited the park, claims that we were negligent in our security of the premises. Four of the individuals who allegedly participated in the altercation are also named as defendants in the litigation. Our consolidated financial statements do not include any expenses or liabilities related to the above action as a loss has not been deemed probable or estimable.

        We are party to various other legal actions arising in the normal course of business. We do not expect to incur any material liability by reason of such actions.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2008.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "SIX." The following table shows, for the periods indicated, the high and low sales prices for our common stock as reported by the NYSE.

 
  Sales Price  
 
  High   Low  

2009

             

First Quarter (through March 2, 2009)

  $ 0.36   $ 0.23  

2008

             

Fourth Quarter

  $ 0.80   $ 0.16  

Third Quarter

  $ 1.38   $ 0.25  

Second Quarter

  $ 2.50   $ 1.13  

First Quarter

  $ 2.39   $ 1.46  

2007

             

Fourth Quarter

  $ 3.68   $ 1.91  

Third Quarter

  $ 6.10   $ 2.89  

Second Quarter

  $ 6.80   $ 5.81  

First Quarter

  $ 6.59   $ 5.27  

        As of March 1, 2009, there were 1,231 holders of record of our common stock, which does not reflect holders who beneficially own common stock held in nominee or street name. We paid no cash dividends on our common stock during the three years ended December 31, 2008. We do not anticipate paying any cash dividends on our common stock during the foreseeable future. The indentures relating to our public debt limit the payment of cash dividends to common stockholders. See Note 6 to Notes to Consolidated Financial Statements.

Securities Authorized for Issuance Under Equity Compensation Plans

        Set forth below is information regarding our equity compensation plans at December 31, 2008:

Plan Category
  Number of shares
of common stock to be
issued upon exercise
of outstanding options,
warrants and rights
  Weighted-
average
exercise price of
outstanding
options, warrants
and rights
  Number of shares of common
stock remaining available for
future issuance under equity
compensation plans (excluding
securities reflected in column(a))(1)
 
 
  (a)
  (b)
  (c)
 

Equity compensation plans approved by security holders

    6,884,000   $ 6.57     3,502,000  

Equity compensation plans not approved by security holders

             
                 
 

Total

    6,884,000   $ 6.57     3,502,000  

        See Note 1(q) to Notes to Consolidated Financial Statements.


(1)
Plans permit, in addition to grant of stock options and stock appreciation rights, the issuance of shares of common stock.

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Performance Graph

        This performance graph shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

        The following graph shows a comparison of the five year cumulative total stockholder return on our common stock (assuming all dividends were reinvested), The Standard & Poor's ("S&P") 500 Stock Index, The S&P Midcap 400 Index and The S&P Entertainment Movies & Entertainment Index.


COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Six Flags, Inc., The S&P 500 Index,
The S&P Midcap 400 Index And The S&P Movies & Entertainment Index

GRAPHIC


        *$100 invested on 12/31/03 in stock or index, including reinvestment of dividends.
        Fiscal year ending December 31.

        Copyright© 2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

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ITEM 6.    SELECTED FINANCIAL DATA

        The selected financial data below as of and for each of the years in the five-year period ended December 31, 2008 are derived from our audited financial statements. Our audited financial statements for the three-year period ended December 31, 2008 are included elsewhere in this report.

        Our audited financial statements for the three-year period ended December 31, 2008 included herein and the following selected historical financial data for the five-year period ended on that date reflect the effects of our reclassification of the results of twelve parks, including the Sale Parks and Six Flags New Orleans, as discontinued operations.

 
  Year Ended December 31,  
 
  2008   2007   2006   2005   2004  
 
  (in thousands, except per share amounts)
 

Statement of Operations Data:

                               

Revenue:

                               
 

Theme park admissions

  $ 534,777   $ 524,195   $ 522,653   $ 524,352   $ 474,490  
 

Theme park food, merchandise and other

    427,492     408,034     393,811     398,328     366,033  
 

Sponsorship, licensing and other fees

    59,029     38,596     25,713     20,433     20,980  
                       

Total revenue

    1,021,298     970,825     942,177     943,113     861,503  
                       

Operating costs and expenses:

                               
 

Operating expenses (including stock-based compensation of ($214, $1,480, $0, $0 and $0 in 2008, 2007, 2006, 2005 and 2004, respectively, and excluding depreciation and amortization shown separately below)

    419,250     430,174     413,289     380,898     351,523  
 

Selling, general and administrative (including stock-based compensation of $5,988, $11,045, $15,728, $2,794, and $643 in 2008, 2007, 2006, 2005 and 2004, respectively, and excluding depreciation and amortization shown separately below)

    214,340     243,886     239,360     189,244     173,794  
 

Costs of products sold

    86,457     81,472     79,985     82,197     71,402  
 

Depreciation and amortization

    139,609     137,906     131,499     124,817     121,694  
 

Loss on disposal of assets

    17,692     39,243     27,057     13,741     11,362  
                       

Total operating costs and expenses

    877,348     932,681     891,190     790,897     729,775  
                       

Income from operations

    143,950     38,144     50,987     152,216     131,728  
                       

Other expense:

                               
 

Interest expense, net

    (176,174 )   (197,643 )   (199,908 )   (183,419 )   (191,083 )
 

Minority interest in earnings

    (40,728 )   (39,684 )   (40,223 )   (39,794 )   (37,686 )
 

Equity in operations of partnerships

    (806 )   (502 )   (948 )        
 

Net gain (loss) on debt extinguishment

    107,743     (13,210 )       (19,303 )   (37,731 )
 

Other expense

    (14,627 )   (20,122 )   (11,566 )   (10,879 )   (14,356 )
                       

Total other expense

    (124,592 )   (271,161 )   (252,645 )   (253,395 )   (280,856 )
                       

Income (loss) from continuing operations before income taxes, discontinued operations, and cumulative effect of a change in accounting principle

    19,358     (233,017 )   (201,658 )   (101,179 )   (149,128 )

Income tax expense

    (116,630 )   (6,203 )   (4,318 )   (3,705 )   (24,757 )
                       

Loss from continuing operations before discontinued operations and cumulative effect of a change in accounting principle

    (97,272 )   (239,220 )   (205,976 )   (104,884 )   (173,885 )

Discontinued operations, net of tax benefit of $50,160 in 2004

    (15,691 )   (13,939 )   (98,604 )   (6,054 )   (290,924 )
                       

Loss before cumulative effect of a change in accounting principle

    (112,963 )   (253,159 )   (304,580 )   (110,938 )   (464,809 )

Cumulative effect of a change in accounting principle

            (1,038 )        
                       

Net loss

    (112,963 ) $ (253,159 ) $ (305,618 ) $ (110,938 ) $ (464,809 )
                       

Net loss applicable to common stock

  $ (134,933 ) $ (275,129 ) $ (327,588 ) $ (132,908 ) $ (486,777 )
                       

Net loss per average common share outstanding—basic and diluted:

                               

Loss from continuing operations

  $ (1.23 ) $ (2.76 ) $ (2.42 ) $ (1.36 ) $ (2.10 )

Discontinued operations

    (0.16 )   (0.14 )   (1.05 )   (0.07 )   (3.13 )

Cumulative effect of a change in accounting principle

            (0.01 )        
                       

Net loss

  $ (1.39 ) $ (2.90 ) $ (3.48 ) $ (1.43 ) $ (5.23 )
                       

Weighted average number of common shares outstanding—basic and diluted

    96,950     94,747     94,242     93,110     93,036  
                       

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  As of December 31,  
 
  2008   2007   2006   2005   2004  
 
  (in thousands)
 

Balance Sheet Data:

                               

Cash and cash equivalents(1)

  $ 210,332   $ 28,388   $ 24,295   $ 80,510   $ 67,764  

Total assets

  $ 3,030,845   $ 2,945,319   $ 3,187,616   $ 3,491,922   $ 3,641,031  

Total long-term debt (excluding current maturities)(2)

  $ 2,112,272   $ 2,239,073   $ 2,126,888   $ 2,128,756   $ 2,125,121  

Total debt(2)

  $ 2,366,242   $ 2,257,788   $ 2,240,947   $ 2,242,357   $ 2,149,515  

Redeemable minority interests(3)

  $ 414,394   $ 415,350   $ 418,145   $ 418,951   $ 418,951  

Mandatorily redeemable preferred stock (represented by the PIERS)(4)

  $ 302,382   $ 285,623   $ 284,497   $ 283,371   $ 282,245  

Stockholders' equity (deficit)(3)

  $ (443,825 ) $ (252,620 ) $ (6,213 ) $ 314,259   $ 449,216  

(1)
Excludes restricted cash.

(2)
Excludes $123.1 million at December 31, 2004 of indebtedness which had been called for prepayment. Assuming the refinancing of that indebtedness had been completed by such date, total long-term debt and total debt at such date would be $2,138.6 million and $2,163.0 million, respectively.

(3)
Reflects accounting change related to the adoption of EITF Topic D-98, as amended, in all periods presented. See Note 1(w) to Notes to Consolidated Financial Statements.

(4)
Includes $15.6 million of accrued dividends in arrears.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis presents information that we believe is relevant to an assessment and understanding of our consolidated financial position and results of operations. This information should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8. Our consolidated financial statements and this discussion and analysis reflect the effects of our reclassification of the assets, liabilities and results of parks previously divested including the Sale Parks plus our park in New Orleans, as discontinued operations.

        On July 31, 2007, we acquired all of the assets of Six Flags Discovery Kingdom (formerly Six Flags Marine World) that were owned by the City of Vallejo, California, our joint venture partner, for a cash purchase price of $52,777,000. The purchase price was allocated to the acquisition of the land that the park is situated on ($22,100,000), the real and personal property that was acquired ($9,146,000) and the elimination of the minority interest liability related to the joint venture ($11,513,000). The remaining costs in excess of the fair value of the assets that were acquired ($10,018,000) were recorded as goodwill, which is deductible for tax purposes.

        On June 18, 2007, we acquired a 40% interest in a venture that owns DCP for a net investment of approximately $39.7 million. We use the DCP library, which includes the Golden Globes, the American Music Awards, the Academy of Country Music Awards, So You Think You Can Dance, American Bandstand and Dick Clark's New Year's Rockin' Eve, to provide additional product offerings in our parks. In addition, we believe that our investment in DCP provides us additional sponsorship and promotional opportunities. Red Zone Capital Partners II, L.P. ("Red Zone"), a private equity fund managed by Daniel M. Snyder and Dwight C. Schar, both members of our Board of Directors, is the majority owner of the parent of DCP. 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%.

        In April 2007, we completed the sale to PARC 7F-Operations Corporation of the stock of subsidiaries that owned three of our water parks and four of our theme parks for an aggregate purchase price of $312 million, consisting of $275 million in cash, a note receivable for $37 million (the "PARC Note") and a limited rent guarantee by us of up to $10 million (the "PARC Guarantee"). The parks sold were Darien Lake near Buffalo, NY; Waterworld USA in Concord, CA; Elitch Gardens in

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Denver, CO; Splashtown in Houston, TX; Frontier City and the White Water Bay water park in Oklahoma City, OK; and Wild Waves and Enchanted Village near Seattle, WA (the "Sale Parks").

        In March 2007, we reversed $1.1 million of the $84.5 million non-cash impairment charge that we recorded against assets held for sale in connection with the Sale Parks in our consolidated financial statements for the year ended December 31, 2006. The net proceeds from the sale were used to repay indebtedness, fund capital expenditures and acquire the minority interests in Six Flags Discovery Kingdom and DCP.

        During the first quarter of 2006, we exercised our right to terminate the ground lease at our Sacramento, California water park following the 2006 season. In March 2007, we sold substantially all of the assets of the water park for approximately $950,000. In November 2006, we completed the sale of substantially all of the assets of our water park in Columbus, Ohio to our lessor, the Columbus Zoo, for $2.0 million. The net proceeds from the sale of each of the Sacramento and Columbus assets were used to repay indebtedness. In March 2006, we recorded a non-cash impairment charge on these transactions in the amount of $11.4 million.

        Our New Orleans park sustained extensive damage in Hurricane Katrina in late August 2005 and has not reopened 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 a 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. While the separate Named Storm provision of our insurance policies explicitly covers flood damage and does not contain a separate sublimit, in February 2008, the court ruled in summary judgment that the flood insurance sublimit was applicable to the policies, including the Named Storm provision. We have appealed this ruling. In the event the sublimit is ultimately applied to our claim, the claims adjustment process will require determination of the actual amount of our loss and the portion caused by wind which is not subject to any sublimit.

        We have filed property insurance claims, including business interruption, with our insurers. We have an insurance receivable of $4.0 million at December 31, 2008, which reflects part of our claim for business interruption and the destroyed assets. The receivable is net of $34.7 million in payments received from our insurance carriers. Since December 31, 2008, we received $1.6 million in additional payments from our insurance carriers. We are entitled to replacement cost value of losses provided we spend the proceeds of the insurance receipts on new rides and attractions within a two year period at any of our domestic parks. Our receivable, net of 2009 cash receipts, totals $2.4 million, which we, at a minimum, expect to recover from resolution of the wind damage claim, including the difference between replacement cost and the actual cash value of the wind losses and business interruption claims. We do not intend to operate a theme park on the site that was damaged by Hurrican Katrina. Pursuant to our lease from the City of New Orleans, we are obligated to re-invest in the site to the extent of insurance proceeds received from property damages. However, in such event, we would have the use of such re-investment assets as well as all other leased property for the term of the lease. We are in discussion with the City of New Orleans with regard to cancellation of the lease.

General

        Our revenue is primarily derived from the sale of tickets for entrance to our parks (approximately 52.4% of revenues in 2008), the sale of food, merchandise, games and attractions inside our parks as well as sponsorship, licensing and other fees. Revenues from sponsorship, licensing and other fees can

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be impacted by the term, timing and extent of services and fees, which can result in fluctuations from year to year. Per capita total revenue is defined as total revenue divided by attendance.

        Our principal costs of operations include salaries and wages, employee benefits, advertising, outside services, maintenance, utilities and insurance. A large portion of our expenses is relatively fixed. Costs for full-time employees, maintenance, utilities, advertising and insurance do not vary significantly with attendance.

Results of Operations

        Summary data for the years ended December 31 were as follows (in thousands, except per capita revenue):

 
   
   
   
  Percentage Changes  
Summary of Operations
  2008   2007   2006   2008 v. 2007   2007 v. 2006  

Total revenue

  $ 1,021,298   $ 970,825   $ 942,177     5.2 %   3.0 %
                           

Operating expenses

    419,250     430,174     413,289     (2.5 )   4.1  

Selling, general and administrative

    214,340     243,886     239,360     (12.1 )   1.9  

Costs of products sold

    86,457     81,472     79,985     6.1     1.9  

Depreciation and amortization

    139,609     137,906     131,499     1.2     4.9  

Loss on disposal of assets

    17,692     39,243     27,057     (54.9 )   45.0  
                           

Income from operations

    143,950     38,144     50,987     277.4     (25.2 )

Interest expense, net

    176,174     197,643     199,908     (10.9 )   (1.1 )

Minority interest in earnings

    40,728     39,684     40,223     2.6     (1.3 )

Equity in operations of partnerships

    806     502     948     60.6     (47.0 )

Net (gain) loss on debt extinguishment

    (107,743 )   13,210         (915.6 )   N/A  

Other (income) expense

    14,627     20,122     11,566     (27.3 )   74.0  
                           

Income (loss) from continuing operations before income taxes

    19,358     (233,017 )   (201,658 )   (108.3 )   15.6  

Income tax expense

    116,630     6,203     4,318     1,780.2     43.7  
                           

Loss from continuing operations

  $ (97,272 ) $ (239,220 ) $ (205,976 )   (59.3 )   16.1  
                           

Other Data:

                               

Attendance

    25,342     24,902     24,840     1.8 %   0.2 %

Per capita revenue

  $ 40.30   $ 38.99   $ 37.93     3.4     2.8  

Year ended December 31, 2008 vs. Year ended December 31, 2007

        Revenue.    Revenue in 2008 totaled $1,021.3 million compared to $970.8 million for 2007, representing a 5.2% increase. The increase arose out of a $1.31 (3.4%) increase in total revenue per capita (representing total revenue divided by total attendance) coupled with a 0.4 million increase in attendance. Total revenue per capita growth reflects increased sponsorship, licensing and other fees, increased ticket revenue and increased rentals, food and beverage, parking, merchandise and other in-park revenues. Per capita guest spending, which excludes sponsorship, licensing and other fees, increased $0.54 (1.4%) to $37.97 from $37.43 in 2007. Admissions revenue per capita increased $0.06 (0.3%) in 2008 compared to 2007, driven primarily by price and ticket mix (i.e., season pass, main gate, group sales and other discounted or complimentary tickets). Increased revenues from rentals, food and beverage, parking, merchandise and other guest services resulted in a $0.48 (3.0%) increase in non-admissions guest spending in 2008 compared to 2007.

        Operating Expenses.    Operating expenses for 2008 decreased $10.9 million (2.5%) compared to expenses for 2007. The decrease includes: (i) a reduction in non-performance based salary and wage expense and benefit costs primarily from lower full-time headcount, improved seasonal labor

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management and reduced workers' compensation expenses ($7.5 million), (ii) a decrease in repairs and maintenance costs ($4.9 million), (iii) a reduction in contract shows ($3.2 million) related to our decision to replace select shows with DCP library content, partially offset by (i) an increase in utility costs ($3.0 million), (ii) an increase in performance based compensation expense ($1.4 million) and (iii) an increase in credit card transaction fees ($1.1 million) related to an increase in on-line ticket and season pass sales.

        Selling, general and administrative.    Selling, general and administrative expenses for 2008 decreased $29.5 million (12.1%) compared to 2007. The decrease primarily reflects (i) a decrease in marketing expenses ($33.7 million) related to our more efficient and targeted marketing plan, with more online focus and concentrated spending in the early portion of the season, (ii) a reduction in consulting and legal fees ($4.2 million) and (iii) a reduction in travel related costs ($3.3 million) partially offset by (i) higher insurance expenses primarily related to current year adverse development in general liability claims from prior years ($6.5 million), (ii) an increase in salary, wage and benefit costs ($2.8 million) driven by an increase in performance-based compensation, partially offset by other reductions and (iii) costs related to our international development projects and fluctuations in foreign currency exchange rates related to expenses at our parks located in Mexico and Canada ($2.9 million).

        Costs of products sold.    Costs of products sold in 2008 increased $5.0 million (6.1%) compared to costs for 2007, primarily related to the increase in food and beverage, merchandise and games sales along with an increase in product and freight costs. As a percentage of our in-park guest spending, costs of products sold increased slightly in 2008.

        Depreciation and amortization.    Depreciation and amortization expense for 2008 increased $1.7 million (1.2%) compared to 2007. The increase was attributable to our on-going capital program.

        Loss on disposal of assets.    Loss on disposal of assets decreased $21.6 million (54.9%) in 2008 compared to 2007 primarily related to management's decision to write off and dispose of certain inefficient rides and attractions in 2007.

        Interest expense, net.    Interest expense, net decreased $21.5 million (10.9%) compared to 2007, reflecting lower outstanding long-term debt and lower interest rates in 2008 versus 2007.

        Minority interest in earnings.    Minority interest in earnings, which reflects the third party share of the operations of the parks that were not wholly owned by us, Six Flags Over Georgia (including White Water Atlanta), Six Flags Over Texas and Six Flags Discovery Kingdom (formerly Six Flags Marine World), increased $1.0 million (2.6%) primarily related to the increase in the partnership distributions at Six Flags Over Texas and Six Flags Over Georgia partially offset by our purchase of the minority interest in Six Flags Discovery Kingdom that was effective July 31, 2007. Cash distributions to minority interests were $40.7 million in 2008 and $45.8 million in 2007.

        Other expense.    Other expense in 2008 decreased $5.5 million (27.3%) to $14.6 million in 2008 primarily related to (i) the settlement that occurred in the third quarter of 2007 for a class action lawsuit related to our California parks ($9.6 million), (ii) the severance and medical costs, that occurred in the fourth quarter of 2007, related to a reduction in our full-time workforce through an early retirement program and select layoffs ($3.6 million), (iii) amounts that were accrued in the third quarter of 2007 for certain contingencies, net of reversals ($3.4 million) and (iv) the change in fair value of the interest rate swaps that occurred during the first quarter of 2008 when the swaps had not yet been designated as hedges and the change in fair values of the interest rate swaps that occurred in the fourth quarter of 2008 because we no longer qualified for hedge accounting.

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        Income tax expense.    Income tax expense was $116.6 million for 2008 compared to a $6.2 million expense for 2007, primarily reflecting a non-cash income tax charge of $110.8 million due to an increase in our valuation allowance for deferred tax assets that are primarily derived from our carryforward of net operating losses. The tax expense was affected by the valuation allowance applied to our U.S. net deferred tax assets during both years. The current period valuation allowance was $622.5 million at December 31, 2008 and $499.8 million at December 31, 2007. See "Critical Accounting Issues" and Note 1(o) to Notes to Consolidated Financial Statements.

        At December 31, 2008, we estimated that we had approximately $1,781.3 million of net operating loss ("NOLs") carryforwards for Federal income tax purposes and substantial state net operating loss carryforwards. The NOLs are subject to review and potential disallowance by the income tax regulators upon audit of our income tax returns and those of our subsidiaries. See "Risk Factors-Our Ability To Utilize Our Net Operating Loss Carryforwards May Be Limited If We Successfully Consummate A Debt Restructuring." See Note 9 to Notes to Consolidated Financial Statements.

Year ended December 31, 2007 vs. Year ended December 31, 2006

        Revenue.    Revenue in 2007 totaled $970.8 million compared to $942.2 million for 2006, representing a 3.0% increase. The increase arose out of a $1.06 (2.8%) increase in total revenue per capita (representing total revenue divided by total attendance) on flat attendance despite 1.4% fewer operating days. Total revenue per capita growth reflects increased sponsorship, licensing and other fees and increased food and beverage, parking, rentals, games and other in-park revenues. Per capita guest spending, which excludes sponsorship and other revenues not related to guest spending, increased $0.54 (1.5%) to $37.43 from $36.89 in 2007 compared to 2006. Admissions revenue per capita increased $0.01 (0.0%) in 2007 compared to 2006, driven primarily by price and ticket mix (i.e. season tickets, main gate, group sales and other discounted or complimentary tickets). Increased revenues from food and beverage, parking, rentals, games and other guest services resulted in a $0.53 (3.4%) increase in non-admissions guest spending in 2007 compared to 2006.

        Operating Expenses.    Operating expenses for 2007 increased $16.9 million (4.1%) compared to expenses for 2006. The increase includes: (i) an anticipated increase in salaries and wages ($11.2 million) primarily related to our continued focus on guest service and diversified product offerings partially offset by severance payments made to several Park Presidents (formerly referred to as General Managers) in the first quarter of 2006, (ii) increased utility costs ($2.3 million), (iii) increased credit card fees ($1.5 million) related to an increase in on-line ticket and season pass sales and (iv) increased other operating expenses ($2.6 million). These increases were also partially offset by a reduction in employee benefit costs primarily related to the decision to freeze our pension plan in March of 2006.

        Selling, general and administrative.    Selling, general and administrative expenses for 2007 increased $4.5 million (1.9%) compared to 2006. The increase primarily reflects our planned increase in advertising expenses ($25.6 million) partially offset by (i) a decrease in salaries and wages ($12.7 million) primarily related to the severance expenses recorded in the first quarter of 2006 from the management change ($8.0 million) and the reduction of stock-based compensation ($4.7 million) primarily due to the issuance of restricted stock and the early vesting of options in the first quarter of 2006 for our former Chief Financial Officer pursuant to the terms of his termination agreement, (ii) a reduction in insurance expenses ($5.9 million) primarily related to a reduction in our insurance reserve for guest claims based on claims experience trends and (iii) a reduction in employee benefit costs ($1.6 million) primarily related to relocation costs and training initiatives in 2006.

        Costs of products sold.    Costs of products sold in 2007 increased $1.5 million (1.9%) compared to costs for 2006, reflecting primarily the increase in in-park revenues. As a percentage of theme park

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food, merchandise and other revenue, costs of products sold decreased slightly in 2007 compared to 2006.

        Depreciation and amortization.    Depreciation and amortization expense for 2007 increased $6.4 million (4.9%) compared to 2006. The increase was attributable to our on-going capital program.

        Loss on disposal of assets.    Loss on disposal of assets increased $12.2 million (45.0%) in 2007 compared to 2006 primarily related to management's decision to write off and dispose of certain inefficient rides and attractions.

        Interest expense, net.    Interest expense, net decreased $2.3 million (1.1%) compared to 2006, reflecting lower average debt levels in 2007 versus 2006.

        Minority interest in earnings.    Minority interest in earnings, which reflects the third party share of the operations of the parks that were not wholly owned by us, Six Flags Over Georgia (including White Water Atlanta), Six Flags Over Texas and Six Flags Discovery Kingdom (formerly Six Flags Marine World), decreased $0.5 million (1.3%) primarily related to our purchase of the minority interest in Six Flags Discovery Kingdom that was effective July 31, 2007 partially offset by the increase in the partnership distributions at Six Flags Over Texas and Six Flags Over Georgia. Cash distributions to minority interests were $45.8 million in 2007 and $46.5 million in 2006.

        Other expense.    Other expense in 2007 increased $8.6 million (74.0%) to $20.1 million in 2007 primarily related to (i) the settlement of a class action lawsuit related to our California parks ($9.6 million), (ii) the severance and medical costs related to a reduction in our full-time workforce through an early retirement program and select layoffs ($3.6 million) and (iii) amounts accrued for certain contingencies ($5.3 million), partially offset by a reduction of $10.4 million related to the 2006 reimbursement of certain expenses incurred by Red Zone LLC in connection with its successful consent solicitation, which reimbursement was approved by our stockholders.

        Income tax expense.    Income tax expense was $6.2 million for 2007 compared to a $4.3 million expense for 2006, primarily reflecting income tax on earnings in Mexico and the effect of a new income tax applicable to our parks located in Texas. The tax expense was affected by the valuation allowance applied to our U.S. net deferred tax assets during both years. The current period valuation allowance was $499.8 million in 2007 and $422.8 million in 2006. See "Critical Accounting Issues" and Note 1(o) to Notes to Consolidated Financial Statements.

Results of Discontinued Operations

        The consolidated balance sheets and the consolidated statements of operations for all periods presented reflect select assets of the parks being sold as assets held for sale, select liabilities as liabilities from discontinued operations and the operating results as results of discontinued operations. See Note 2 to Notes to Consolidated Financial Statements.

        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. We have recorded appropriate provisions for impairment and liabilities related to the abandonment of the New Orleans park operations in the condensed consolidated balance sheets as of December 31, 2008 and 2007 and the condensed consolidated statements of operations for all periods presented reflect the operating results as results of discontinued operations. See Notes 2 and 13 to Notes to Consolidated Financial Statements.

        In April 2007, we completed the sale to PARC 7F-Operations Corporation of the Sale Parks for an aggregate purchase price of $312 million, consisting of $275 million in cash, the PARC Note and the PARC Guarantee. As a result of the sale, we recognized a loss of $2.3 million. In March 2007, we

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reversed $1.1 million of the $84.5 million non-cash impairment charge that we recorded against assets held for sale in connection with the Sale Parks in our consolidated financial statements for the year ended December 31, 2006. During the first quarter of 2006, we exercised our right to terminate the ground lease at our Sacramento, California water park following the 2006 season. In March 2007, we sold substantially all of the assets of the water park for approximately $950,000. In November 2006, we completed the sale of substantially all of the assets of our water park in Columbus, Ohio to our lessor, the Columbus Zoo, for $2.0 million. In October 2005, we permanently closed Six Flags AstroWorld in Houston, Texas and on June 1, 2006, sold the 104 acre site on which the park was located for an aggregate purchase price of $77 million. We relocated select rides, attractions and other equipment from Six Flags AstroWorld to our remaining parks and have sold certain other equipment.

Liquidity, Capital Commitments and Resources

    General

        Our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, investments in parks (including capital projects), preferred stock dividends (to the extent declared) and payments to our partners in the Partnership Parks. We did not pay a dividend on our common stock during 2008, nor do we expect to pay such dividends in 2009. We believe that, based on historical and anticipated operating results, cash flows from operations, available cash and borrowings under the Credit Facility will be adequate to meet our future liquidity needs, including anticipated requirements for working capital, capital expenditures, scheduled debt and obligations under arrangements relating to the Partnership Parks, through August 2009, at which time the PIERS are mandatorily redeemable. As discussed in Note 1(c) to the Consolidated Financial Statements, we have prepared our financial statements assuming we will continue as a going concern, however, given the current negative conditions in the economy generally and the credit markets in particular, there is substantial uncertainty that we will be able to effect a refinancing of our debt on or prior to maturity or the PIERS prior to their mandatory redemption date on August 15, 2009.

        Our current and future liquidity is, in addition to our refinancing needs, greatly dependent upon our operating results, which are driven largely by overall economic conditions as well as the price and perceived quality of the entertainment experience at our parks. Our liquidity could also be adversely affected by disruption in the availability of credit as well as unfavorable weather, accidents or the occurrence of an event or condition at our parks, including terrorist acts or threats, negative publicity or significant local competitive events, that could significantly reduce paid attendance and, therefore, revenue at any of our parks. See "Risk Factors." We may be unable to borrow under the Credit Facility or be required to repay amounts outstanding and/or may need to seek additional financing. In addition, we expect that we will be required to refinance all or a significant portion of our existing debt on or prior to maturity (including the mandatory redemption of the PIERS on August 15, 2009) and potentially seek additional financing. If we are unable to pay or refinance the PIERS at or prior to the mandatory redemption date, such failure would constitute a default under the Credit Facility, which would permit the lenders to accelerate the obligations thereunder. If the lenders were to accelerate the amounts due under the Credit Facility, a cross default would also be triggered under our public indentures, which would likely result in most or all of our long-term debt becoming due and payable. In that event, we would be unable to fund these obligations. Such a circumstance could have a material adverse effect on our operations and the interests of our creditors and stockholders. The degree to which we are leveraged could adversely affect our ability to obtain any additional financing. See "Risk Factors."

        We are exploring a number of alternatives for the refinancing of our indebtedness and the PIERS, including a restructuring either in or out-of-court. We believe the consummation of a successful restructuring is critical to our continued viability. Any restructuring will likely be subject to a number of

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conditions, many of which will be outside of our control, including the agreement of our creditors and other parties, and may limit our ability to utilize our net operating loss carry forwards if there is an ownership change, which is likely. We can make no assurances that any restructuring that we pursue will be successful, or what the terms thereof would be or what, if anything, our existing debt and equity holders would receive in any restructuring, which will depend on our enterprise value, although we believe that any restructuring would be highly dilutive to our existing equity holders and certain debt holders. In addition, we can make no assurances with respect to what the value of our debt and equity will be following the consummation of any restructuring.

        On June 16, 2008, we completed a private debt exchange in which we issued $400.0 million of 121/4% Senior Notes due 2016 ("New Notes") of Six Flags Operations Inc., a direct wholly owned subsidiary of Holdings, in exchange for (i) $149.2 million of our 87/8% Senior Notes due 2010 ("2010s"), (ii) $231.6 million of our 93/4% Senior Notes due 2013 ("2013s") and (iii) $149.9 million of our 95/8% Senior Notes due 2014 ("2014s"). The benefits of this transaction include reducing debt principal by approximately $130.6 million, extending our debt maturities (including a majority of our nearest term debt maturity in 2010) and decreasing our annual cash interest expense. The transaction resulted in a net gain on extinguishment of debt of $107.7 million related to the 2013s and 2014s (net of $3.3 million of transaction costs related to the 2010s that were charged to expense immediately as the exchange of the 2010s was not deemed to be a substantial modification under the guidance of Emerging Issues Task Force Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments"). We also recorded a $14.1 million premium on the New Notes representing the difference between the carrying amount of the 2010s and the carrying amount of the New Notes on the exchange as this portion of the exchange was not deemed a substantial modification. This premium will be amortized as an offset to interest expense over the life of the New Notes. See Note 6(b) to Notes to Consolidated Financial Statements.

        In May 2007, we entered into the Credit Facility, which consists of an $850.0 million Tranche B term loan maturing on April 30, 2015 and revolving facilities totaling $275.0 million maturing on March 31, 2013. We used the proceeds from the Credit Facility to refinance amounts outstanding under our previous senior secured credit facility and the remaining proceeds were used for working capital and general corporate purposes. See Note 6(a) to Notes to Consolidated Financial Statements.

        Our total indebtedness, as of December 31, 2008, was approximately $2,366.2 million. Based on estimated interest rates for floating-rate debt and after giving effect to applicable interest rate hedging arrangements we entered into in February 2008, and the debt exchange that we effected in June 2008, annual cash interest payments for 2009 on non-revolving credit debt outstanding at December 31, 2008 and anticipated levels of working capital revolving borrowings for the year will aggregate approximately $175 million, net of cash interest expected to be received. None of our public debt matures prior to February 2010 and none of the facilities under the Credit Facility mature before March 31, 2013, except that $8.5 million of principal amortizes each year. Our Board of Directors decided that we would not declare and pay a quarterly dividend on May 15, 2008, August 15, 2008 or November 15, 2008 for the PIERS. We are required to redeem all of our outstanding preferred stock on August 15, 2009 for cash at 100% of the liquidation preference ($287.5 million), plus accrued and unpaid dividends ($31.3 million assuming dividends are accrued and not paid through the mandatory redemption date). The PIERS are accounted for as mezzanine equity and if not redeemed or restructured at or prior to the redemption date of August 15, 2009, they will be reclassified as a current liability. We plan on spending approximately $100.0 million on capital expenditures for the 2009 calendar year. At December 31, 2008, we had approximately $210.3 million of unrestricted cash and $1.5 million available under our credit agreement, which takes into account letters of credit in the amount of $29.4 million that were then outstanding under the revolving facilty portions of the Credit Facility.

        Due to the seasonal nature of our business, we are largely dependent upon our revolving facility totaling $275.0 million to fund off-season expenses. Our ability to borrow under the revolving facility is

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dependent upon compliance with certain conditions, including a senior secured leverage ratio and the absence of any material adverse change in our business or financial condition. If we were to become unable to borrow under the revolving facility, we would likely be unable to pay in full our off-season obligations. The revolving facility expires on March 31, 2013. The terms and availability of the Credit Facility and other indebtedness would not be affected by a change in the ratings issued by rating agencies in respect of our indebtedness. In October 2008, we borrowed $244.2 million under the revolving facility portion of the Credit Facility to ensure that we would have liquidity to fund our off-season expenditures given difficulties in the global credit markets. This amount remained outstanding through December 31, 2008.

        During the year ended December 31, 2008, net cash provided by operating activities was $66.9 million. Net cash used in investing activities in 2008 was $93.7 million, consisting primarily of capital expenditures ($90.3 million, net of property insurance proceeds we received for insurance claims related to our New Orleans park, our Mexico park and our Maryland park). Net cash provided by financing activities in 2008 was $210.5 million, representing primarily borrowings under the revolving facility of the Credit Facility partially offset by the repayment of borrowings under the revolving facility of the Credit Facility, payment of debt issuance costs and the payment of preferred stock dividends declared during the first quarter of 2008.

        Since our business is both seasonal in nature and involves significant levels of cash transactions, our net operating cash flows are largely driven by attendance and per capita guest spending levels because our cash-based expenses are relatively fixed and do not vary significantly with either attendance or levels of per capita spending. These cash-based operating expenses include salaries and wages, employee benefits, advertising, outside services, repairs and maintenance, utilities and insurance. As of December 31, 2008, changes for the year in working capital, excluding the current portion of long-term debt, impacting operating cash flows had a negative impact of approximately $26.9 million.

    Long-Term Debt and Preferred Stock

        Our debt at December 31, 2008 included $1,281.1 million of fixed-rate senior unsecured notes, with staggered maturities ranging from 2010 to 2016, $837.3 million under the term loan portion of the Credit Facility and $247.8 million of other indebtedness, including $244.2 million under the revolving facilities under the Credit Facility and $3.3 million of indebtedness at Six Flags Over Texas and Six Flags Over Georgia. Except in certain circumstances, the public debt instruments do not require principal payments prior to maturity. The Credit Facility includes an $850.0 million term loan ($837.3 million of which was outstanding at December 31, 2008) and a revolving facility totaling $275.0 million ($244.2 million of which was outstanding at December 31, 2008 (as well as letters of credit in the amount of $29.4 million)). The revolving facilities terminate on March 31, 2013. The term loan facility requires quarterly principal repayments in the amount of $2,125,000 which commenced on September 30, 2007 with all remaining principal due at maturity on April 30, 2015. All of our outstanding preferred stock ($287.5 million liquidation preference plus accrued and unpaid dividends) must be redeemed on August 15, 2009 (to the extent not previously converted into common stock). See Notes 6 and 10 to Notes to Consolidated Financial Statements included herein for additional information regarding our indebtedness and preferred stock.

    Partnership Park Obligations

        In connection with our 1998 acquisition of the former Six Flags, we guaranteed certain obligations relating to Six Flags Over Georgia and Six Flags Over Texas (the "Partnership Parks"). These obligations continue until 2027, in the case of the Georgia park, and 2028, in the case of the Texas park. Among such obligations are (i) minimum annual distributions (including rent) of approximately $60.7 million in 2009 (subject to cost of living adjustments in subsequent years) to partners in these two Partnerships Parks (of which we will be entitled to receive in 2009 approximately $20.0 million based on

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our present ownership of approximately 26% of the Georgia Limited Partner and approximately 38% of the Texas Limited Partner at December 31, 2008), (ii) minimum capital expenditures at each park during rolling five-year periods based generally on 6% of park revenues and (iii) an annual offer to purchase a maximum number of 5% per year (accumulating to the extent not purchased in any given year) of limited partnership units at the Specified Prices (as defined below).

        After payment of the minimum distribution, we are entitled to a management fee equal to 3% of prior year gross revenues and, thereafter, any additional cash will be distributed 95% to us, in the case of the Georgia park, and 92.5% to us, in the case of the Texas park.

        The purchase price for the annual offer to purchase a maximum number of 5% per year of limited partnership units in the Partnership Parks is based on the greater of (i) a total equity value of $250.0 million (in the case of Georgia) and $374.8 million (in the case of Texas) or (ii) a value derived by multiplying the weighted-average four year EBITDA of the park by 8.0 (in the case of the Georgia park) and 8.5 (in the case of the Texas park) (the "Specified Prices"). As of December 31, 2008, we owned approximately 26% and 38% of the Georgia Limited Partner units and Texas Limited Partner units, respectively. The remaining redeemable units of approximately 74% and 62% of the Georgia Limited Partner and Texas Limited Partner, respectively, represent an ultimate redemption value for the limited partnership units of approximately $414.4 million at December 31, 2008. In 2027 and 2028, we will have the option to purchase all remaining units in the Georgia Limited Partner and the Texas Limited Partner, respectively, at a price based on the Specified Prices, increased by a cost of living adjustment. Pursuant to the 2008 annual offer, we purchased 0.22 units from the Texas partnership and one-quarter unit from the Georgia partnership for approximately $1.0 million in May 2008. Pursuant to the 2007 annual offer, we purchased one unit in the Texas Limited Partner and one-half unit in the Georgia Limited Partner for approximately $2.8 million in May 2007. Approximately 0.52 units in the Texas Limited Partner were tendered in 2006. The annual unit purchase obligation (without taking into account accumulation from prior years) aggregates approximately $31.1 million for both parks based on current purchase prices. As we purchase additional units, we are entitled to a proportionate increase in our share of the minimum annual distributions. Since only an immaterial number of units have been tendered in the annual offerings to purchase since 1998, the maximum number of units that we could be required to purchase for both parks in 2009 would result in an aggregate payment by us of approximately $335.2 million.

        In connection with our acquisition of the former Six Flags, we entered into a Subordinated Indemnity Agreement (the "Subordinated Indemnity Agreement") with certain Six Flags entities, Time Warner Inc. ("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. Pursuant to the Subordinated Indemnity Agreement, we have deposited into escrow $15.2 million as a source of funds in the event Timer Warner Inc. is required to honor its guarantee. 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 $9.0 million of capital expenditures at these parks for the 2009 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 requirements, before any funds are required from us. The two partnerships generated approximately $37.9 million of aggregate net cash provided by operating activities after capital expenditures during 2008 (net of advances from

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the general partner). At December 31, 2008, we had total loans outstanding of $198.5 million to the partnerships that own the Partnership Parks, primarily to fund the acquisition of Six Flags White Water Atlanta and to make capital improvements.

    Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

        We had guaranteed the payment of a $32,200,000 construction term loan incurred by HWP Development LLC (a joint venture in which we own an approximate 41% interest) 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. On November 5, 2007, we refinanced the loan with a $33,000,000 term loan ($32,660,000 and $32,971,000 of which was outstanding at December 31, 2008 and December 31, 2007, 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 Development LLC or its managing member (in which we own an approximate 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 the joint venture to repay the loan will be dependent upon the joint venture'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.

        For the years ended December 31, 2008, 2007 and 2006, we have received or accrued $769,000, $801,000 and $649,000, respectively, in management fee revenues from the joint venture. We have advanced the joint venture approximately $0.9 million and $2.2 million as of December 31, 2008 and 2007, respectively. During 2008, we contributed approximately $913,000 to the joint venture for our portion of four capital calls.

        Set forth below is certain information regarding our debt, preferred stock and lease obligations at December 31, 2008 (in thousands):

 
  Payment Due by Period  
Contractual Obligations
  2009   2010–2012   2013–2015   2016 and
beyond
  Total  

Long term debt(1)

  $ 253,970   $ 158,947   $ 1,540,127   $ 413,198   $ 2,366,242  

PIERS(2)

    287,500                 287,500  

Interest/dividends on long term debt and PIERS(3)

    208,174     475,565     315,189     26,541     1,025,469  

Real estate and operating leases(4)

    8,605     21,585     18,491     142,207     190,888  

Purchase Obligations(5)

    104,818     15,371     12,600         132,789  
                       
 

Total

  $ 863,067   $ 671,468   $ 1,886,407   $ 581,946   $ 4,002,888  
                       

(1)
Includes capital lease obligations. Payments are shown at principal amount. Payments shown include $244.2 million of principal payments in 2009 for the outstanding balance on our revolving credit facilities as of December 31, 2008.

(2)
Amount shown excludes annual dividends of approximately $20.8 million, which we are permitted to pay in either cash or common stock. The amount shown for the 2009 cash redemption obligations assumes no conversion of PIERS prior thereto.

(3)
Assumes average outstanding balance for the revolving credit facilities of $244.2 million until their maturity on March 31, 2013 at a 5% interest rate. Includes $31.3 million of PIERS dividends

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    ($15.6 million of which were accrued as of December 31, 2008 and an additional $15.6 million which is assumed to accrue prior to the August 15, 2009 redemption date).

(4)
Assumes for lease payments based on a percentage of revenues, future payments at 2008 revenue levels. Also does not give effect to cost of living adjustments. Obligations not denominated in U.S. Dollars have been converted based on the exchange rates existing on December 31, 2008.

(5)
Represents obligations at December 31, 2008 with respect to insurance, inventory, media and advertising commitments, computer systems and hardware, estimated annual license fees to Warner Bros. (through 2015 only), a minimum number of whole pizzas and other items from Papa John's and new rides and attractions. Of the amount shown for 2009, approximately $54.9 million represents capital items. The amounts in respect of new rides and attractions were computed at December 31, 2008 and include estimates by us of costs needed to complete such improvements that, in certain cases, were not legally committed at that date. Amounts shown do not include obligations to employees that cannot be quantified at December 31, 2008 which are discussed below. Amounts shown also do not include purchase obligations existing at the individual park-level for supplies and other miscellaneous items since such amount was not readily available. None of the park-level obligations is individually material.

    Other Obligations

        During the years ended December 31, 2008, 2007 and 2006, we made contributions to our defined benefit pension plan of $2.0 million, $8.9 million and $6.6 million, respectively. Our pension plan was "frozen" effective March 31, 2006, pursuant to which participants (excluding certain union employees) no longer continue to earn future pension benefits. We expect to make contributions of approximately $2.9 million in 2009 to our pension plan based on the 2008 actuarial valuation. In addition, we anticipate the need to make additional contributions to the extent required by the Pension Protection Act funding requirements which require us to fund at least 75% of the projected pension obligation no later than September 2009. We also expect to make contributions of approximately $2.7 million in 2009 to our 401(k) plan. Our estimated expense for employee health insurance for 2009 is $11.7 million. See Note 11 to Notes to Consolidated Financial Statements.

        Although we are contractually committed to make approximately CAD$13.4 million of capital and other expenditures at La Ronde no later than May 1, 2011, the vast majority of our capital expenditures in 2009 and beyond will be made on a discretionary basis. We plan on spending approximately $100.0 million on capital expenditures for all of our operations for the 2009 season.

        During the three years ended December 31, 2003, insurance premiums and self-insurance retention levels increased substantially. However, as compared to the policies since that time, our current policies, which expire in December 2009, cover substantially the same risks (none of the property insurance policies covered terrorist activities), do not require higher aggregate premiums and do not have substantially larger self-insurance retentions (liability insurance retentions are $2.5 million per occurrence and workers' compensation retentions are $750,000 per occurrence). 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. See "Legal Proceedings" for information on certain significant litigation.

        We may from time to time seek to retire our outstanding debt (including the PIERS) through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on the prevailing market

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conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Critical Accounting Policies

        In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles. Results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our consolidated financial condition and results and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

    Property and Equipment

        Property and equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of those assets. Changes in circumstances such as technological advances, changes to our business model or changes in our capital strategy could result in the actual useful lives differing from our estimates. In those cases in which we determine that the useful life of property and equipment should be shortened, we depreciate the remaining net book value in excess of the salvage value over the revised remaining useful life, thereby increasing depreciation expense evenly through the remaining expected life.

    Accounting for Income Taxes

        As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation periods for our property and equipment and deferred revenue, for tax and financial accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets (primarily net operating and capital loss carryforwards) will be recovered from future taxable income. To the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must reflect such amount as income tax expense in the consolidated statements of operations.

        Significant management judgment is required in determining our provision or benefit for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded an additional current period valuation allowance of $77.0 million for December 31, 2007 and $122.7 million for December 31, 2008, due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating and capital loss carryforwards and tax credits, before they expire. The valuation allowance, at December 31, 2008, is based on our estimates of taxable income solely from the reversal of existing deferred tax liabilities by jurisdiction in which we operate and the period over which deferred tax assets reverse. The valuation allowance in prior periods was based on our estimate of taxable income, primarily consisting of the reversal of existing deferred tax liabilities and, to some extent, a tax planning strategy, by jurisdiction in which we operate and the period over which our deferred tax assets will reverse. In the current period, we determined that due to current conditions in the credit markets, real estate markets and our current financial position, that the tax planning strategy was no longer feasible and we only utilized existing reversing deferred tax liabilities to determine the valuation allowance. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to increase or decrease our valuation allowance which could materially impact our consolidated financial position and results of operations.

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        Variables that will impact whether our deferred tax assets will be utilized prior to their expiration include, among other things, attendance, per capita spending and other revenues, capital expenditures, interest rates, operating expenses, sales of assets, and changes in state or federal tax laws. In determining the valuation allowance we do not consider, and under generally accepted accounting principles cannot consider, the possible changes in state or federal tax laws until the laws change. We reduced our level of capital expenditures in 2008 and we will further reduce our capital expenditures in 2009. To the extent we reduce capital expenditures, our future accelerated tax deductions for our rides and equipment will be reduced, and our interest expense deductions would decrease as the debt balances are reduced by cash flow that previously would have been utilized for capital expenditures. Increases in capital expenditures without corresponding increases in net revenues would reduce short-term taxable income and increase the likelihood of additional valuation allowances being required as net operating loss carryforwards expire prior to their utilization. Conversely, increases in revenues in excess of operating expenses would reduce the likelihood of additional valuation allowances being required as the short-term taxable income would increase and we may be able to utilize net operating loss carryforwards prior to their expiration. See Note 1(o) to Notes to Consolidated Financial Statements and "Risk Factors."

    Valuation of Long-Lived and Intangible Assets and Goodwill

        Long-lived assets were $2,620.0 million including goodwill and other intangible assets of $1,059.5 million as of December 31, 2008. Long-lived assets included property and equipment and intangible assets.

        In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", became effective and as a result, as of January 1, 2002, we ceased amortizing goodwill. In lieu of amortization, we are required to perform an annual impairment review, which we do as of the end of each year and more frequently upon the occurrence of certain events. We recognize one reporting unit for all of our parks. In 2006 and years after, we consisted of a single reporting unit and we compared the market price of our stock, representing market capitalization of the single reporting unit, to the carrying amount of our stockholders' equity (deficit). Based on the foregoing, no impairment was required for 2006, 2007 or 2008. Our unamortized goodwill is $1,048.1 million at December 31, 2008. See Note 1(k) to Notes to Consolidated Financial Statements.

        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.

Market Risks and Sensitivity Analyses

        Like other companies, we are exposed to market risks relating to fluctuations in interest rates and currency exchange rates. The objective of our financial risk management is to minimize the negative impact of interest rate and foreign currency exchange rate fluctuations on our operations, cash flows and equity. We do not acquire market risk sensitive instruments for trading purposes.

        In February 2008, we entered into two interest rate swap agreements that effectively converted $600,000,000 of the term loan component of the Credit Facility (see Note 6(a) to Notes to Consolidated Financial Statements) 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

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rate swap arrangements, our interest rates range from 5.325% to 5.358% (with an average of 5.342%). See Note 5 to Notes to Consolidated Financial Statements.

Interest Rate and Debt Sensitivity Analysis

        The following analysis presents the sensitivity of the market value, operations and cash flows of our market-risk financial instruments to hypothetical changes in interest rates as if these changes occurred at December 31, 2008. The range of changes chosen for this analysis reflect our view of changes which are reasonably possible over a one-year period. Market values are the present values of projected future cash flows based on the interest rate assumptions. These forward looking disclosures are selective in nature and only address the potential impacts from financial instruments. They do not include other potential effects which could impact our business as a result of these changes in interest and exchange rates.

        At December 31, 2008, we had total debt of $2,366.2 million, of which $1,281.1 million represents fixed-rate debt and the balance represents floating-rate debt. Of the floating-rate debt, $600.0 million is subject to interest rate swap agreements. For fixed-rate debt, interest rate changes affect the fair market value but do not impact book value, operations or cash flows. Conversely, for floating-rate debt, interest rate changes generally do not affect the fair market value but do impact future operations and cash flows, assuming other factors remain constant.

        Additionally, increases and decreases in interest rates impact the fair value of interest rate swap agreements. A decrease in LIBOR rates increases the fair value of interest rate swap agreements. However, over the term of an interest rate swap agreement, the economic effect of changes in interest rates is fixed as one will pay a fixed amount and is not subject to changes in interest rates.

        Assuming other variables remain constant (such as foreign exchange rates and debt levels), and assuming our working capital revolver is fully drawn for the entire year, the pre-tax operating and cash flow impact resulting from a one percentage point increase in interest rates would be approximately $4.8 million excluding the impact of interest rate swaps entered into in February 2008. See Note 5 to Notes to Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

        In December 2007, we elected to early adopt Emerging Issues Task Force ("EITF") Topic D-98, "Classification and Measurement of Redeemable Securities," as amended at the March 12, 2008 meeting of the EITF. As a result of this change, we reflected the full redemption price of the puttable limited partnership units for Six Flags Over Georgia and Six Flags Over Texas as "mezzanine equity," which is located between liabilities and equity on our balance sheet, with a reduction of minority interest liability and capital in excess of par value. In the future, if limited partnership units are put to us, we will account for the acquisition by reducing redeemable minority interests with an offsetting increase to capital in excess of par value as well as recording the purchase of the assets and disbursement of cash. The adoption of Topic D-98 did not affect our statement of operations or statement of cash flows. Comparative financial statements of prior years have been adjusted to apply this new method retrospectively. See Note 1(w) to Notes to Consolidated Financial Statements. As a result of our adoption of SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51," ("SFAS 160") as of January 1, 2009, future purchases of puttable limited partnership units will no longer be subject to purchase accounting but will be accounted for by reducing our redeemable minority interests and cash, respectively.

        In December 2004, the FASB published SFAS 123(R), which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. We adopted SFAS 123(R)

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on January 1, 2006 under the modified prospective method of application. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. See Note 1(q) to Notes to Consolidated Financial Statements for additional information on the impact of adopting SFAS 123(R).

        In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 was adopted beginning January 1, 2007.

        As a result of adopting FIN 48, we recognized $32,943,000 in deferred tax assets associated with net operating losses that relate to tax contingencies acquired in connection with purchase business combinations and an offsetting increase to the deferred tax asset valuation allowance, as this deferred tax asset was determined to not be realizable. We have a total of $48,072,000 in unrecognized tax benefits associated with other net operating losses related to acquired tax contingencies. If the benefits of these losses were to be recognized, the impact would likely be an increase in the deferred tax asset valuation allowance, unless we determine the net operating losses would be utilized prior to their expiration. If the benefit was not offset by a valuation allowance, it would be offset against the balance of goodwill, in accordance with SFAS 109.

        In September 2006, the FASB issued SFAS No. 157 ("SFAS 157"), "Fair Value Measurement." SFAS 157 provides a common definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. However, SFAS 157 does not require any new fair value measurements. We adopted SFAS 157 on January 1, 2008. The adoption of SFAS 157 had no impact on our financial statements, but did require additional disclosure.

        SFAS 157 defines fair value as the exchange prices that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. In accordance with SFAS 157, these two types of inputs have created the following fair value hierarchy:

    Level 1: quoted prices in active markets for identical assets

    Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument

    Level 3: inputs to the valuation methodology are unobservable for the asset or liability

        This hierarchy requires the use of observable market data when available.

        In September 2006, the FASB issued SFAS No. 158 ("SFAS 158"), "Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)." SFAS 158 requires recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability in the balance sheet and recognition of changes in that funded status in comprehensive income (loss) in the year in which the changes occur. SFAS 158 also requires measurement of the funded status of a plan as of the date of the balance sheet. We adopted the recognition provision of SFAS 158 in the fourth quarter of 2006, and the measurement

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date provisions in 2008. The adoption of SFAS 158 resulted in a $4.0 million reduction to other comprehensive income (loss). See Note 11 to Notes to Consolidated Financial Statements for additional information on the impact of adopting SFAS 158.

        In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB 108"), "Considering the Effects of Prior Year Misstatements in Current Year Financial Statements." SAB 108 expresses the SEC Staff's views regarding the process of quantifying financial statement misstatements. SAB 108 addresses the diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. SAB 108 is effective for the year ending December 31, 2006. The cumulative effect of the initial application of SAB 108 must be reported in the carrying amounts of assets and liabilities as of the beginning of the year, with the offsetting balance to retained earnings. We adopted SAB No. 108 and adjusted our opening retained earnings for the year ended December 31, 2006 by approximately $14.5 million of which approximately $11.6 million reflects a change in our accounting for leases and approximately $2.9 million reflects a change in our accounting for accrued vacation. Prior to 2006, we did not record the effects of scheduled rent increases on a straight-line rent basis for certain real estate leases that were established between 1997 and 2004 at several of our properties. Prior to 1998, we awarded vacation in the current year to all of our employees. In 1998, the policy was changed to award vacation one year after the date of hire and therefore a vacation accrual should have been established for all employees hired after 1998. We reviewed the annual amount of additional expense incurred in prior periods for both of these adjustments and considered the effects to be immaterial to prior periods. See Note 1(w) to Notes to Consolidated Financial Statements for additional information on the impact of adopting SAB 108.

        In February 2007, the FASB issued SFAS No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115." SFAS 159 permits entities to choose to measure certain financial instruments and other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Unrealized gains and losses on any item for which we elect the fair value measurement option would be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007, provided we also elect to apply the provisions of SFAS 157 at the same time. We adopted SFAS 159 on January 1, 2008 concurrent with our adoption of SFAS 157. At January 1, 2008, we did not elect to apply the provisions of SFAS 159 to eligible items at the effective date. SFAS 159 had no impact on our consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS 141(R)"), which replaces Statement No. 141. SFAS 141(R) retains the fundamental requirements of Statement No. 141 that an acquirer be identified and the acquisition method of accounting (previously called the purchase method) be used for all business combinations. SFAS 141(R)'s scope is broader than that of Statement No. 141, which applied only to business combinations in which control was obtained by transferring consideration. By applying the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses, SFAS 141(R) improves the comparability of the information about business combinations provided in financial reports. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures identifiable assets acquired, liabilities assumed and noncontrolling interest in the acquiree, as well as any resulting goodwill. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will evaluate how the new requirements of SFAS 141(R) would impact any business combinations completed in 2009 or thereafter.

        In December 2007, the FASB also issued SFAS No. 160. SFAS 160 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a

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component of equity. SFAS 160 also establishes reporting requirements that provide disclosures that identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years, and interim periods within the fiscal year, beginning after December 15, 2008, and early adoption is prohibited. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 will be applied prospectively. As a result of our adoption of SFAS 160 as of January 1, 2009, future purchases of puttable limited partnership units will no longer be subject to purchase accounting but will be accounted for by reducing our redeemable minority interests and cash, respectively.

        In March 2008, the FASB issued SFAS No. 161 ("SFAS 161"), "Disclosures about Derivative Instruments and Hedging Activities, an Amendment of SFAS 133." SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity's derivative instruments and hedging activities and their effects on the entity's financial position, financial performance and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133. SFAS 161 also applies to non-derivative hedging instruments and all hedged items designated and qualifying under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 encourages, but does not require, comparative disclosures for periods prior to its final adoption. We do not expect the adoption of SFAS 161 on our consolidated financial statements to have a significant impact.

        In May 2008, the FASB issued Staff Position No. APB 14-1 ("FSP APB 14-1"), "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)." FSP APB 14-1 requires issuers of convertible debt to account separately for the liability and equity components of these instruments in a manner that reflects the issuer's nonconvertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 with retroactive application to all periods presented during which any such convertible debt instruments were outstanding. FSP APB 14-1 will change the accounting treatment for our convertible notes due in May 2015 ("Convertible Notes") and will result in an increase to non-cash interest reported in our historical financial statements as well as our future financial statements as long as we continue to have the Convertible Notes outstanding. We adopted FSP APB 14-1 on January 1, 2009. If we had adopted FSP APB 14-1 as of December 31, 2008, we estimate that the initial impact to the consolidated balance sheet would have been a decrease in long-term debt of approximately $66.5 million for the recognition of a debt discount and an aggregate decrease in stockholders' deficit of approximately $65.8 million. The debt discount, upon adoption, will be amortized to interest expense resulting in an increase in non-cash interest expense of approximately $7.6 million in 2009.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Reference is made to the information appearing under the subheading "Market Risks and Sensitivity Analyses" under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 35 of this Annual Report on Form 10-K.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements and schedules listed in Item 15(a)(1) and (2) are included in this Annual Report on Form 10-K beginning on page F-1.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        We have had no disagreements with our independent registered public accounting firm on any matter of accounting principles or practices or financial statement disclosure.

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ITEM 9A.    CONTROLS AND PROCEDURES

    Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

        Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation, as of December 31, 2008, of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or 15(d)-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) to ensure that information required to be disclosed by us in the reports that we submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

    Management's Report on Internal Control Over Financial Reporting

        Management's Report on Internal Control Over Financial Reporting, which appears on page F-2 of this Annual Report on Form 10-K, is incorporated by reference herein.

    Changes in Internal Control Over Financial Reporting During the Quarter Ended December 31, 2008

        There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2008 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

        None.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

        The information required by this item concerning our directors and executive officers, compliance with Section 16 of the Securities and Exchange Act of 1934, as amended, our code of ethics and other corporate governance information is incorporated by reference to the information set forth in the section entitled "Proposal 1: Election of Directors," "Compliance with Section 16(a) of the Exchange Act" and "Corporate Governance" in our Proxy Statement for our 2009 annual meeting of stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the fiscal year ended December 31, 2008 (the "2009 Proxy Statement").

ITEM 11.    EXECUTIVE COMPENSATION

        The information required by this item is incorporated by reference to the information set forth in the section entitled "Executive Compensation," "Corporate Governance" and "Compensation Committee Report" in the 2009 Proxy Statement. Information relating to Securities Authorized for Issuance Under Equity Compensation Plans is included in Item 5 of Part II hereof.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information required by this item is incorporated by reference to the information set forth in the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the 2009 Proxy Statement.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

        The information required by this item is incorporated by reference to the information set forth in the section entitled "Transactions with Related Persons" and "Corporate Governance—Independence" in the 2009 Proxy Statement.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

        The information required by this item is incorporated by reference to the information set forth in the section entitled "Proposal 2: Ratification of Independent Public Accountants" in the 2009 Proxy Statement.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

        (a)(1) and (2) Financial Statements and Financial Statement Schedules

        The following consolidated financial statements of Six Flags, Inc. and its subsidiaries, the notes thereto, the related report thereon of independent registered public accounting firm, and financial statement schedules are filed under Item 8 of this Annual Report on Form 10-K:

Management's Report on Internal Control Over Financial Reporting

 
F-2

Report of Independent Registered Public Accounting Firm (Internal Controls)

 
F-3

Report of Independent Registered Public Accounting Firm (Financial Statements)

 
F-4

Consolidated Balance Sheets—December 31, 2008 and 2007

 
F-5

Consolidated Statements of Operations
Years ended December 31, 2008, 2007 and 2006

 
F-6

Consolidated Statements of Stockholders' Equity (Deficit) and Other Comprehensive Income (Loss)
Years ended December 31, 2008, 2007 and 2006

 
F-7

Consolidated Statements of Cash Flows
Years ended December 31, 2008, 2007 and 2006

 
F-8

Notes to Consolidated Financial Statements

 
F-10

        Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because they either are not required under the related instructions, are inapplicable, or the required information is shown in the financial statements or notes thereto.

(a)(3)

 

See Exhibit Index

(b)

 

Exhibits

 

See Item 15(a)(3) above.

        Neither Six Flags, Inc., nor any of its consolidated subsidiaries, has outstanding any instrument with respect to its long-term debt, other than those filed as an exhibit to this Annual Report on Form 10-K, under which the total amount of securities authorized exceeds 10% of the total assets of Six Flags, Inc. and its subsidiaries on a consolidated basis. Six Flags, Inc. hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument that defines the rights of holders of such long-term debt that is not filed or incorporated by reference as an exhibit to this Annual Report on Form 10-K.

        Six Flags, Inc. will furnish any exhibit upon the payment of a reasonable fee, which fee shall be limited to Six Flags, Inc.'s reasonable expenses in furnishing such exhibit.

55


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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 11, 2009

  SIX FLAGS, INC.

 

By:

 

/s/ MARK SHAPIRO  
     
Mark Shapiro
President and Chief Executive Officer

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        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the following capacities on the dates indicated.

Signature
 
Title
 
Date

 

 

 

 

 

 

 
/s/ MARK SHAPIRO

Mark Shapiro
  Chief Executive Officer (Principal Executive Officer), President, and Director   March 11, 2009

/s/ JEFFREY R. SPEED

Jeffrey R. Speed

 

Chief Financial Officer (Principal Financial Officer)

 

March 11, 2009

/s/ KYLE BRADSHAW

Kyle Bradshaw

 

Senior Vice President, Finance and Chief Accounting Officer (Principal Accounting Officer)

 

March 11, 2009

/s/ DANIEL M. SNYDER

Daniel M. Snyder

 

Chairman of the Board and Director

 

March 11, 2009

/s/ C.E. ANDREWS

C.E. Andrews

 

Director

 

March 11, 2009

/s/ MARK JENNINGS

Mark Jennings

 

Director

 

March 11, 2009

/s/ JACK KEMP

Jack Kemp

 

Director

 

March 11, 2009

/s/ ROBERT MCGUIRE

Robert McGuire

 

Director

 

March 11, 2009

/s/ PERRY ROGERS

Perry Rogers

 

Director

 

March 11, 2009

/s/ DWIGHT SCHAR

Dwight Schar

 

Director

 

March 11, 2009

/s/ HARVEY WEINSTEIN

Harvey Weinstein

 

Director

 

March 11, 2009

57


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SIX FLAGS, INC.

Index to Consolidated Financial Statements

F-1


Table of Contents


Management's Report on Internal Control Over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2008.

        The effectiveness of our internal control over financial reporting as of December 31, 2008 has been audited by KPMG LLP, the independent registered public accounting firm that audited our financial statements included herein, as stated in their report which is included herein.


 

 

/s/ MARK SHAPIRO  
   
Mark Shapiro
Chief Executive Officer of the Company

 

 

/s/ JEFFREY R. SPEED  
   
Jeffrey R. Speed
Chief Financial Officer of the Company

March 11, 2009

F-2


Table of Contents


Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Six Flags, Inc.:

        We have audited Six Flags, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, Six Flags, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Six Flags, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity (deficit) and other comprehensive income (loss) and cash flows for each of the years in the three-year period ended December 31, 2008, and our report dated March 11, 2009 expressed an unqualified opinion on those consolidated financial statements, and included an explanatory paragraph related to the Company's ability to continue as a going concern.


 

 

KPMG LLP

Dallas, Texas
March 11, 2009

F-3


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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Six Flags, Inc.:

        We have audited the accompanying consolidated balance sheets of Six Flags, Inc. and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity (deficit) and other comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Six Flags, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

        The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1(c) to the consolidated financial statements, the Company has incurred recurring losses, has a stockholders' deficit and substantial liquidity needs arising in August 2009 raising substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in note 1(c). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

        As described in Note 1 to the consolidated financial statements, as of January 1, 2008, the Company adopted Financial Accounting Standards No. 157, Fair Value Measurement, and as of December 31, 2007, the Company adopted Emerging Issues Task Force ("EITF") Topic D-98, Classification and Measurement of Redeemable Securities, as amended, at the March 12, 2008 meeting of the EITF. As of January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109. Additionally, as of January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment; as of December 31, 2006, the Company adopted the balance sheet recognition provisions of Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R), and Securities and Exchange Commission Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Six Flags, Inc.'s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2009 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.


 

 

KPMG LLP

Dallas, Texas
March 11, 2009

F-4


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SIX FLAGS, INC.

Consolidated Balance Sheets

December 31, 2008 and 2007

 
  2008   2007  

ASSETS

             

Current assets:

             
 

Cash and cash equivalents

  $ 210,332,000     28,388,000  
 

Accounts receivable

    20,057,000     26,512,000  
 

Inventories

    24,909,000     26,361,000  
 

Prepaid expenses and other current assets

    41,450,000     39,144,000  
           
   

Total current assets

    296,748,000     120,405,000  

Other assets:

             
 

Debt issuance costs

    31,910,000     36,472,000  
 

Restricted-use investment securities

    16,061,000     12,731,000  
 

Deposits and other assets

    66,167,000     70,325,000  
           
   

Total other assets

    114,138,000     119,528,000  

Property and equipment, at cost

    2,654,939,000     2,625,195,000  
 

Less accumulated depreciation

    1,094,466,000     987,744,000  
           
   

Total property and equipment

    1,560,473,000     1,637,451,000  

Assets held for sale

        3,617,000  

Intangible assets, net of accumulated amortization

    1,059,486,000     1,064,318,000  
           
   

Total assets

  $ 3,030,845,000     2,945,319,000  
           

LIABILITIES and STOCKHOLDERS' DEFICIT

             

Current liabilities:

             
 

Accounts payable

  $ 25,060,000     42,748,000  
 

Accrued compensation, payroll taxes and benefits

    22,934,000     19,397,000  
 

Accrued insurance reserves

    33,929,000     35,883,000  
 

Accrued interest payable

    42,957,000     29,980,000  
 

Other accrued liabilities

    45,001,000     47,270,000  
 

Deferred income

    17,594,000     23,329,000  
 

Liabilities from discontinued operations

    1,400,000      
 

Current portion of long-term debt

    253,970,000     18,715,000  
           
   

Total current liabilities

    442,845,000     217,322,000  

Long-term debt

    2,112,272,000     2,239,073,000  

Liabilities from discontinued operations

    6,730,000      

Other long-term liabilities

    74,337,000     25,670,000  

Deferred income taxes

    121,710,000     14,901,000  

Redeemable minority interests

   
414,394,000
   
415,350,000
 

Mandatorily redeemable preferred stock (redemption value of $287,500,000 plus accrued and unpaid dividends of $15,633,000 as of December 31, 2008)

    302,382,000     285,623,000  

Stockholders' deficit:

             
 

Preferred stock of $1.00 par value

         
 

Common stock, $.025 par value, 210,000,000 shares authorized and 97,726,233 and 95,239,728 shares outstanding at December 31, 2008 and 2007, respectively

    2,443,000     2,381,000  
 

Capital in excess of par value

    1,404,346,000     1,393,622,000  
 

Accumulated deficit

    (1,794,156,000 )   (1,659,223,000 )
 

Accumulated other comprehensive income (loss)

    (56,458,000 )   10,600,000  
           
   

Total stockholders' deficit

    (443,825,000 )   (252,620,000 )
           
   

Total liabilities and stockholders' deficit

  $ 3,030,845,000     2,945,319,000  
           

See accompanying notes to consolidated financial statements.

F-5


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SIX FLAGS, INC.

Consolidated Statements of Operations

Years Ended December 31, 2008, 2007 and 2006

 
  2008   2007   2006  

Revenues:

                   
 

Theme park admissions

  $ 534,777,000     524,195,000     522,653,000  
 

Theme park food, merchandise and other

    427,492,000     408,034,000     393,811,000  
 

Sponsorship, licensing and other fees

    59,029,000     38,596,000     25,713,000  
               
   

Total revenues

    1,021,298,000     970,825,000     942,177,000  
               

Operating costs and expenses:

                   
 

Operating expenses (including stock-based compensation of $214,000, $1,480,000 and $0 in 2008, 2007 and 2006, respectively, and excluding depreciation and amortization shown separately below)

    419,250,000     430,174,000     413,289,000  
 

Selling, general and administrative (including stock-based compensation of $5,988,000, $11,045,000 and $15,728,000 in 2008, 2007 and 2006, respectively, and excluding depreciation and amortization shown separately below)

    214,340,000     243,886,000     239,360,000  
 

Costs of products sold

    86,457,000     81,472,000     79,985,000  
 

Depreciation

    138,406,000     136,657,000     130,620,000  
 

Amortization

    1,203,000     1,249,000     879,000  
 

Loss on disposal of assets

    17,692,000     39,243,000     27,057,000  
               
   

Total operating costs and expenses

    877,348,000     932,681,000     891,190,000  
               
   

Income from operations

    143,950,000     38,144,000     50,987,000  
               

Other income (expense):

                   
 

Interest expense

    (178,516,000 )   (200,846,000 )   (202,826,000 )
 

Interest income

    2,342,000     3,203,000     2,918,000  
 

Minority interest in earnings

    (40,728,000 )   (39,684,000 )   (40,223,000 )
 

Equity in operations of partnerships

    (806,000 )   (502,000 )   (948,000 )
 

Net gain (loss) on debt extinguishment

    107,743,000     (13,210,000 )    
 

Other expense

    (14,627,000 )   (20,122,000 )   (11,566,000 )
               
   

Total other expense

    (124,592,000 )   (271,161,000 )   (252,645,000 )
               
   

Income (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of a change in accounting principle

    19,358,000     (233,017,000 )   (201,658,000 )

Income tax expense

    116,630,000     6,203,000     4,318,000  
               
   

Loss from continuing operations before discontinued operations and cumulative effect of a change in accounting principle

    (97,272,000 )   (239,220,000 )   (205,976,000 )

Discontinued operations

    (15,691,000 )   (13,939,000 )   (98,604,000 )
               
   

Loss before cumulative effect of a change in accounting principle

    (112,963,000 )   (253,159,000 )   (304,580,000 )

Cumulative effect of a change in accounting principle (see Note 1)

            (1,038,000 )
               
   

Net loss

  $ (112,963,000 )   (253,159,000 )   (305,618,000 )
               
   

Net loss applicable to common stock

  $ (134,933,000 )   (275,129,000 )   (327,588,000 )
               

Weighted average number of common shares outstanding-basic and diluted:

    96,950,000     94,747,000     94,242,000  
               

Net loss per average common share outstanding—basic and diluted:

                   
 

Loss from continuing operations

    (1.23 )   (2.76 )   (2.42 )
 

Discontinued operations

    (0.16 )   (0.14 )   (1.05 )
 

Cumulative effect of a change in accounting principle

            (0.01 )
               
   

Net loss

  $ (1.39 )   (2.90 )   (3.48 )
               

See accompanying notes to consolidated financial statements.

F-6


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SIX FLAGS, INC.

Consolidated Statements of Stockholders' Equity (Deficit) and Other Comprehensive Income (Loss)

Years Ended December 31, 2008, 2007 and 2006

 
  Preferred stock   Common stock    
   
   
   
 
 
   
   
  Accumulated
other
comprehensive
income (loss)
   
 
 
  Shares
issued
  Amount   Shares
issued
  Amount   Capital in
excess of
par value
  Accumulated
deficit
  Total  

Balances at December 31, 2005

      $     93,201,528   $ 2,330,000   $ 1,370,976,000   $ (1,042,042,000 ) $ (17,005,000 ) $ 314,259,000  

Cumulative effect of adjustments resulting from the adoption of SAB No. 108 (Note 1(w))

                        (14,464,000 )       (14,464,000 )

Issuance of common stock

            1,183,200     30,000     134,000             164,000  

Stock-based compensation

                    16,766,000             16,766,000  

Net loss

                        (305,618,000 )       (305,618,000 )

Other comprehensive loss—

                                                 
 

Foreign currency translation adjustment

                            (490,000 )   (490,000 )
 

Additional minimum liability on defined benefit retirement plan

                            11,572,000     11,572,000  
 

Cash flow hedging derivatives

                            6,000     6,000  
                                                 

Comprehensive loss

                                              (294,530,000 )
                                                 

Adjustment to initially apply FASB Statement No. 158 (Note 11)

                            (4,034,000 )   (4,034,000 )

Preferred stock dividends

                        (21,970,000 )       (21,970,000 )
                                               

Net change in redemption value of redeemable minority interest

                    (2,404,000 )           (2,404,000 )
                                   

Balances at December 31, 2006

            94,384,728     2,360,000     1,385,472,000     (1,384,094,000 )   (9,951,000 )   (6,213,000 )

Issuance of common stock

            855,000     21,000     (21,000 )            

Stock-based compensation

                    8,814,000             8,814,000  

Net loss

                        (253,159,000 )       (253,159,000 )

Other comprehensive loss—

                                                 
 

Foreign currency translation adjustment

                            11,952,000     11,952,000  
 

Actuarial gain on defined benefit retirement plan

                            8,526,000     8,526,000  
 

Amortization of prior service cost on defined benefit retirement plan

                            73,000     73,000  
                                                 

Comprehensive loss

                                              (232,608,000 )
                                                 

Preferred stock dividends

                        (21,970,000 )       (21,970,000 )
                                               

Net change in redemption value of redeemable minority interest

                    (643,000 )           (643,000 )
                                   

Balances at December 31, 2007

            95,239,728     2,381,000     1,393,622,000     (1,659,223,000 )   10,600,000     (252,620,000 )

Issuance of common stock

            2,486,505     62,000     (62,000 )            

Stock-based compensation

                    9,902,000             9,902,000  

Net loss

                        (112,963,000 )       (112,963,000 )

Other comprehensive loss—

                                                 
 

Foreign currency translation adjustment

                            (27,163,000 )   (27,163,000 )
 

Cash flow hedging derivatives

                            4,526,000     4,526,000  
 

Actuarial loss on defined benefit retirement plan

                            (44,444,000 )   (44,444,000 )
 

Amortization of prior service cost on defined benefit retirement plan

                            23,000     23,000  
                                                 

Comprehensive loss

                                              (180,021,000 )
                                                 

Preferred stock dividends

                        (21,970,000 )       (21,970,000 )
                                               

Net change in redemption value of redeemable minority interest

                    884,000             884,000  
                                   

Balances at December 31, 2008

      $     97,726,233   $ 2,443,000   $ 1,404,346,000   $ (1,794,156,000 ) $ (56,458,000 ) $ (443,825,000 )
                                   

See accompanying notes to consolidated financial statements.

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Table of Contents


SIX FLAGS, INC.

Consolidated Statements of Cash Flows

Years Ended December 31, 2008, 2007 and 2006

 
  2008   2007   2006  

Cash flow from operating activities:

                   
 

Net loss

  $ (112,963,000 )   (253,159,000 )   (305,618,000 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

                   
 

Depreciation and amortization

    139,609,000     137,906,000     131,499,000  
 

Minority interest in earnings

    40,728,000     39,684,000     40,223,000  
 

Minority interest distributions

    (40,728,000 )   (45,812,000 )   (46,505,000 )
 

Stock-based compensation

    6,202,000     12,525,000     15,728,000  
 

Cumulative effect of a change in accounting principle

            1,038,000  
 

Interest accretion on notes payable

    (780,000 )   229,000     237,000  
 

Net (gain) loss on debt extinguishment

    (107,743,000 )   13,210,000      
 

(Gain) loss on discontinued operations

    11,747,000     (8,849,000 )   119,100,000  
 

Amortization of debt issuance costs

    5,906,000     7,667,000     9,539,000  
 

Other including loss on disposal of assets

    28,395,000     43,607,000     26,885,000  
 

(Increase) decrease in accounts receivable

    (2,638,000 )   13,179,000     (11,413,000 )
 

(Increase) decrease in inventories, prepaid expenses and other current assets

    (5,123,000 )   (5,384,000 )   1,778,000  
 

Increase in deposits and other assets

    4,151,000     365,000     15,326,000  
 

Increase (decrease) in accounts payable, deferred income, accrued liabilities and other long-term liabilities

    (22,431,000 )   14,136,000     9,839,000  
 

Increase (decrease) in accrued interest payable

    12,977,000     (6,697,000 )   2,655,000  
 

Deferred income tax expense (benefit)

    109,620,000     1,236,000     (507,000 )
               
   

Total adjustments

    179,892,000     217,002,000     315,422,000  
               
   

Net cash provided by (used in) operating activities

    66,929,000     (36,157,000 )   9,804,000  
               

Cash flow from investing activities:

                   
 

Additions to property and equipment

    (99,213,000 )   (115,632,000 )   (122,582,000 )
 

Property insurance recovery

    8,962,000     1,500,000     21,446,000  
 

Purchase of identifiable intangible assets

    (258,000 )   (1,952,000 )    
 

Capital expenditures of discontinued operations

    (473,000 )   (1,050,000 )   (6,874,000 )
 

Acquisition of theme park assets

        (54,132,000 )   (417,000 )
 

Acquisition of equity interest in partnership

        (39,654,000 )    
 

Purchase of restricted-use investments

    (3,330,000 )   (1,640,000 )   (11,091,000 )
 

Proceeds from sale of discontinued operations

        275,950,000     79,000,000  
 

Proceeds from sale of assets

    634,000     789,000     502,000  
               
   

Net cash provided by (used in) investing activities

    (93,678,000 )   64,179,000     (40,016,000 )
               

Cash flow from financing activities:

                   
 

Repayment of borrowings

    (297,535,000 )   (1,309,052,000 )   (365,847,000 )
 

Proceeds from borrowings

    522,908,000     1,324,750,000     363,583,000  
 

Net cash proceeds from issuance of common stock

            164,000  
 

Payment of cash dividends

    (5,211,000 )   (20,844,000 )   (20,844,000 )
 

Payment of debt issuance costs

    (9,688,000 )   (19,127,000 )   (2,950,000 )
               
   

Net cash provided by (used in) financing activities

    210,474,000     (24,273,000 )   (25,894,000 )
               

Effect of exchange rate changes on cash

  $ (1,781,000 )   344,000     (109,000 )
               

Increase (decrease) in cash and cash equivalents

    181,944,000     4,093,000     (56,215,000 )

Cash and cash equivalents at beginning of year

    28,388,000     24,295,000     80,510,000  
               

Cash and cash equivalents at end of year

  $ 210,332,000     28,388,000     24,295,000  
               

Supplemental cash flow information:

                   
 

Cash paid for interest

  $ 163,482,000     199,701,000     190,477,000  
               
 

Cash paid for income taxes

  $ 7,019,000     5,047,000     4,702,000  
               

See accompanying notes to consolidated financial statements.

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SIX FLAGS, INC.

Consolidated Statements of Cash Flows (Continued)

Years Ended December 31, 2008, 2007 and 2006

Supplemental disclosure of noncash investing and financing activities

    2008

        —None

    2007

        —Recorded an $11,400,000 note receivable related to the sale of the Sale Parks. See Note 1(e).

        —Recorded a $1,400,000 limited rent guarantee related to the sales of the Sale Parks. See Note 13.

    2006

        —Acquired approximately $617,000 of assets through a capital lease.

See accompanying notes to consolidated financial statements.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies

    (a) Description of Business

        We own and operate regional theme amusement and water parks. During 2006, we owned or operated 30 parks, including an indoor water park adjacent to The Great Escape, which opened in February 2006. After giving effect to the sale of nine parks on or prior to April 2007, we own or operate 21 parks, including 18 operating domestic parks, one park in Mexico, one park in Canada, and our New Orleans 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 and has not reopened since. We have recorded appropriate provisions for impairment and liabilities related to the abandonment of the New Orleans park operations. The accompanying 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 2 and 13.

        In April 2007, we completed the sale to PARC 7F-Operations Corporation of the stock of subsidiaries that owned three of our water parks and four of our theme parks for an aggregate purchase price of $312 million, consisting of $275 million in cash, a note receivable for $37 million (the "PARC Note") and a limited rent guarantee by us of up to $10 million (the "PARC Guarantee"). The parks sold were Darien Lake near Buffalo, NY; Waterworld USA in Concord, CA; Elitch Gardens in Denver, CO; Splashtown in Houston, TX; Frontier City and the White Water Bay water park in Oklahoma City, OK; and Wild Waves and Enchanted Village near Seattle, WA (the "Sale Parks"). The accompanying consolidated financial statements for all years presented reflect ther results as a discontinued operation. See Note 2.

        During the first quarter of 2006, we exercised our right to terminate the ground lease at our Sacramento, California water park following the 2006 season. In March 2007, we sold substantially all of the assets of the water park for approximately $950,000. In November 2006, we completed the sale of substantially all of the assets of our water park in Columbus, Ohio to our lessor, the Columbus Zoo for $2.0 million. The accompanying consolidated financial statements as of December 31, 2007 and for the years ended December 31, 2007 and 2006 reflect select assets and liabilities of the parks held for sale as assets held for sale, the liabilities as liabilities from discontinued operations and their results as discontinued operations. See Note 2.

        In July 2007, we acquired all of the assets of Six Flags Discovery Kingdom (formerly Six Flags Marine World) that were owned by the City of Vallejo, California, our joint venture partner, for a cash purchase price of $52,777,000. See Note 2.

        Unless otherwise indicated, references herein to "we," "our" or "Six Flags" means Six Flags, Inc. and our subsidiaries, and "Holdings" refers only to Six Flags, Inc., without regard to our subsidiaries.

    (b) Basis of Presentation

        Our accounting policies reflect industry practices and conform to U.S. generally accepted accounting principles.

        The consolidated financial statements include our accounts, our majority and wholly-owned subsidiaries, and limited partnerships and limited liability companies in which we beneficially own 100% of the interests.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

        During the fourth quarter of 2003, we adopted Statement of Financial Accounting Standards ("SFAS") Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51" which was subsequently reissued in December 2003 as Interpretation No. 46—Revised (FIN 46). Pursuant to those provisions we consolidate the partnerships and joint ventures that own Six Flags Over Texas, Six Flags Over Georgia, Six Flags White Water Atlanta and Discovery Kingdom (formerly Six Flags Marine World) as we have determined that we have the most significant economic interest because we receive a majority of these entity's expected losses or expected residual returns and have the ability to make decisions that significantly affect the results of the activities of these entities. The equity interests owned by nonaffiliated parties in these entities are reflected in the accompanying consolidated balance sheets as redeemable minority interest. The portion of earnings from these parks owned by non-affiliated parties in these entities is reflected as minority interest in earnings in the accompanying consolidated statements of operations and in the consolidated statements of cash flows.

        Intercompany transactions and balances have been eliminated in consolidation.

    (c) Liquidity and Going Concern

        The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern. This assumes a continuing of operations and the realization of assets and liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments that might result if we were forced to discontinue operations. We have had a history of net losses. Our net losses are principally attributable to insufficient revenue to cover our relatively high percentage of fixed costs, including the interest costs on our debt and our depreciation expense. We also have a stockholders' deficit of $443.8 million at December 31, 2008. Additionally, our Preferred Income Equity Redeemable Shares ("PIERS") are required to be redeemed in August 2009, at which time we will be required to redeem all of the PIERS for cash at 100% of the liquidation preference ($287.5 million), plus accrued and unpaid dividends ($31.3 million assuming dividends are accrued and not paid through the mandatory redemption date). Given the current negative conditions in the economy generally and the credit markets in particular, there is substantial uncertainty that we will be able to effect a refinancing of our debt on or prior to maturity or the PIERS prior to their mandatory redemption date on August 15, 2009. As a result of these factors, there is substantial doubt about our ability to continue as a going concern unless a successful restructuring occurs.

        If we are unable to refinance or restructure the PIERS at or prior to the mandatory redemption date, such failure would constitute a default under our amended and restated credit facility (the "Credit Facility"), which would permit the lenders to accelerate the obligations thereunder. If the lenders were to accelerate the amounts due under the Credit Facility, a cross-default would also be triggered under our public debt indentures, which would likely result in most or all of our long-term debt becoming due and payable. In that event, we would be unable to fund these obligations. Such a circumstance could have a material adverse effect on our operations and the interests of our creditors and stockholders.

        We are exploring a number of alternatives for the refinancing of our indebtedness and the PIERS, including a restructuring either in or out-of-court. We believe the consummation of a successful restructuring is critical to our continued viability. Any restructuring will likely be subject to a number of conditions, many of which will be outside of our control, including the agreement of our PIERS

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)


holders, common stockholders, creditors and other parties, and may limit our ability to utilize our net operating loss carry forwards if there is an ownership change, which is likely. We can make no assurances that any restructuring that we pursue will be successful, or what the terms thereof would be or what, if anything, our existing debt and equity holders would receive in any restructuring, which will depend on our enterprise value, although we believe that any restructuring would be highly dilutive to our existing equity holders and certain debt holders. In addition, we can make no assurances with respect to what the value of our debt and equity will be following the consummation of any restructuring.

        We may be compelled to seek an in-court solution in the form of a pre-packaged or pre-arranged filing under Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq., as amended ("Chapter 11") if we are unable to successfully negotiate a timely out-of-court restructuring agreement with our PIERS holders, common stockholders and creditors. Such a court filing would likely occur prior to the maturity of the PIERS or well in advance of such date, if we were to conclude at such time that an out-of-court solution is not feasible or advantageous.

        The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or classification of liabilities related to the going concern uncertainty.

        If we restructure our debt and other obligations in an out-of-court transaction, it could result in the book carrying amount of our stockholders' equity exceeding our fair market value of equity. (Currently, we have a deficit balance in stockholders' equity, therefore book equity does not exceed the fair market value of equity). Because we have one reporting unit for purposes of assessing impairment under SFAS No. 142, "Goodwill and Other Intangible Assets," if the book carrying amount of stockholders' equity were to exceed fair market value of equity after an out-of-court restructuring, an impairment could be indicated for the single reporting unit and we would be required to determine the implied fair value of our goodwill and compare that value to the goodwill carrying amount. If the carrying amount was greater than the implied fair value, a goodwill impairment charge would be recorded for the difference.

        If we restructure under Chapter 11, our financial statements would be subject to the accounting prescribed by Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." If our existing stockholders end up with less than 50% of our voting shares after we emerge from Chapter 11, we would apply "Fresh-Start Reporting," in which our assets and liabilities would be recorded at their estimated fair value using the principles of purchase accounting contained in Statement of Financial Accounting Standards No. 141R, "Business Combinations," with the difference between our estimated fair value and our identifiable assets and liabilities being recognized as goodwill.

        Our ability to utilize our NOLs may be limited by Section 382 of the Internal Revenue Code of 1986, as amended, if we consummate a debt restructuring that results in an ownership change. In such case, an annual limitation will be imposed on the amount of our pre-ownership change NOLs that may be utilized to offset future taxable income. This annual limitation generally will be equal to the value of our stock immediately before the ownership change (or, if the ownership change occurs pursuant to a Chapter 11 reorganization and an election is made, the value of our stock immediately after the ownership change), in either case, subject to certain reductions, multiplied by the "long-term tax-exempt rate" for the month in which the ownership change occurs. This rate (currently,

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)


approximately 5.5%) is published monthly by the Internal Revenue Service. Any portion of the annual limitation that is not used in a particular year may be carried forward and used in subsequent years. Therefore, an additional valuation allowance may be required on our deferred tax assets.

    (d) Cash Equivalents

        Cash equivalents of $180,000,000 and $1,100,000 at December 31, 2008 and 2007, respectively, consist of short-term highly liquid investments with a remaining maturity as of purchase date of three months or less, which are readily convertible into cash. For purposes of the consolidated statements of cash flows, we consider all highly liquid debt instruments with remaining maturities as of their purchase date of three months or less to be cash equivalents.

    (e) PARC Note

        We recorded the PARC Note of $37.0 million 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 Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." As of December 31, 2008, we have collected payments in the amount of $4.0 million leaving the PARC Note receivable balance at $7.4 million. See Note 2.

    (f) Inventories

        Inventories are stated at weighted average cost or market value and primarily consist of products for resale including merchandise and food and miscellaneous supplies. We have recorded a valuation allowance for slow moving inventory of $434,000 and $381,000 as of December 31, 2008 and 2007, respectively.

    (g) Prepaid Expenses and Other Current Assets

        Prepaid expenses and other current assets include $19,762,000 and $18,742,000 of spare parts inventory for existing rides and attractions at December 31, 2008 and 2007, respectively. These items are expensed as the repair or maintenance of rides and attractions occur.

    (h) Advertising Costs

        Production costs of commercials and programming are charged to operations in the year first aired. The costs of other advertising, promotion, and marketing programs are charged to operations when incurred with the exception of direct-response advertising which is charged to the period it will benefit. At December 31, 2008 and 2007, we had $7,662,000 and $6,761,000 in prepaid advertising, respectively. The amounts capitalized at year end are included in prepaid expenses.

        Advertising and promotions expense was $93,078,000, $126,374,000 and $100,819,000 during the years ended December 31, 2008, 2007 and 2006, respectively.

    (i) Debt Issuance Costs

        We capitalize costs related to the issuance of debt. The amortization of such costs is recognized as interest expense using the interest method over the term of the respective debt issue.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

    (j) Property and Equipment

        Rides and attractions are depreciated using the straight-line method over 5-25 years. Land improvements are depreciated using the straight-line method over 10-15 years. Buildings and improvements are depreciated over their estimated useful lives of approximately 30 years by use of the straight-line method. Furniture and equipment are depreciated using the straight-line method over 5-10 years. Maintenance and repairs are charged directly to expense as incurred, while betterments and renewals are generally capitalized as property and equipment. When an item is retired or otherwise disposed of, the cost and applicable accumulated depreciation are removed and the resulting gain or loss is recognized.

    (k) Intangible Assets

        Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually. To accomplish this, we identify our reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. We then determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. For 2006, 2007 and 2008, we consisted of a single reporting unit and compared the market price of our stock, representing market capitalization of the single reporting unit, to the carrying amount of our stockholders' equity (deficit). For each year, the fair value of the single reporting unit exceeded our carrying amount. Accordingly, no impairment was required.

        If the fair value of the reporting unit were to be less than the carrying amount, we would compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Our unamortized goodwill is $1,048.1 million at December 31, 2008.

        The following table provides a reconciliation of the carrying amount of our goodwill as of December 31, 2008 and December 31, 2007 (in thousands):

 
  December 31, 2008   December 31, 2007  

Beginning balance

  $ 1,052,009   $ 1,038,874  

Exchange rate adjustments

    (4,360 )   1,761  

Acquisition of minority interests in Six Flags Discovery Kingdom and Partnership Park units

    473     11,374  
           

Ending balance

  $ 1,048,122   $ 1,052,009  
           

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

        The following table reflects our intangible assets which are subject to amortization (in thousands):

 
  As of December 31, 2008   As of December 31, 2007   As of December 31, 2006  
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Gross
Carrying
Amount
  Accumulated
Amortization
  Gross
Carrying
Amount
  Accumulated
Amortization
 

Non-compete agreements

  $ 110     110     110     110     110     110  

Licenses and other

    19,142     7,778     18,884     6,575     16,932     5,325  
                           

  $ 19,252     7,888     18,994     6,685     17,042     5,435  
                           

        We expect that amortization expense on our existing intangible assets subject to amortization will average approximately $830,000 over each of the next five years. The range of useful lives of the intangible assets is from 2 to 25 years, with a weighted average of 21.4 years.

    (l) 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 considered to be impaired, the 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.

    (m) Revenue Recognition

        We recognize revenue upon admission into our parks, provision of our services, or when products are delivered to our customer. For season pass and other multi-use admissions, we recognize a pro-rata portion of the revenue as the customer attends our parks. Revenues are presented net of sales taxes collected from our guests and remitted to government taxing authorities in the accompanying consolidated statements of operations. Deferred income at December 31, 2008 primarily reflects advanced sales of 2009 season passes.

    (n) Interest Expense

        Interest on notes payable is generally recognized as expense on the basis of stated interest rates. Notes payable assumed in an acquisition are carried at amounts adjusted to impute a market rate of interest cost (when the obligations were assumed).

    (o) Income Taxes

        Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases including net operating loss and other tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. We have

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

recorded a valuation allowance of $622,524,000, $499,815,000 and $422,817,000 as of December 31, 2008, 2007 and 2006, respectively, due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating loss and other tax carryforwards before they expire. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable.

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

        We classify interest and penalties attributable to income taxes as part of income tax expense. As of December 31, 2008, we had approximately $3.6 million accrued for interest and penalties.

        Beginning in 2006, we no longer permanently reinvested foreign earnings, therefore, United States deferred income taxes have been provided on foreign earnings. The impact was an increase to deferred tax liabilities and a reduction to the valuation allowance of approximately $21,852,000 in 2006.

    (p) 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. No adjustments for the exercise of stock options or the conversion of the convertible notes or the PIERS were included in the 2008, 2007 and 2006 computations of diluted loss per share because the effect would have been antidilutive. See Note 1(q) for additional information relating to the number of stock options outstanding.

        The PIERS, which are shown as mandatorily redeemable preferred stock on our consolidated balance sheets, were issued in January 2001 and are convertible into 13,789,000 shares of common stock. Our convertible notes were issued in November 2004 and are convertible into approximately 44,094,000 shares of common stock.

        Preferred stock dividends and amortization of related issue costs of $21,970,000 were included in determining net loss applicable to common stock in 2008, 2007 and 2006.

    (q) Stock Compensation

        As described below, we maintain stock-based compensation arrangements under which employees and directors are awarded grants of restricted stock and stock options. Prior to January 1, 2006, we accounted for these awards under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") as permitted under SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, compensation expense for stock options was not recognized as long as the stock options granted had an exercise price equal to or greater than the market price of our common stock on the date of grant. Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123(R)") using the modified-prospective transition method. Under this transition method, compensation expense recognized beginning January 1, 2006 includes compensation

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

expense for all stock-based payment arrangements granted prior to, but not yet vested as of, January 1, 2006, based on the grant date fair value and expense attribution methodology determined in accordance with the provisions of SFAS 123, a cumulative effect for liability based awards granted prior to January 1, 2006, and compensation cost for all stock-based payment arrangements granted subsequent to December 31, 2005, based on the grant date fair value and expense attribution methodology determined in accordance with the provisions of SFAS 123(R). During the three years ended December 31, 2008, 2007 and 2006, stock-based compensation was $6,202,000, $12,525,000 (included $3,711,000 of accrued 2007 bonuses that were paid in stock during the first quarter of 2008 and were included in accrued compensation in the accompanying consolidated balance sheet as of December 31, 2007), and $15,728,000, respectively.

        As a result of adopting SFAS 123(R), a cumulative effect loss of $1,038,000 was recognized on certain liability based options and our loss from continuing operations before income taxes for the year ended December 31, 2006 was $8,579,000 higher than if we had continued to account for stock-based payment arrangements under APB 25. Basic and diluted net loss per share for the year ended December 31, 2006 would have been $3.38 if we had not adopted SFAS 123(R), compared to reported basic and diluted loss per share of $3.48.

        Certain members of our management and professional staff have been issued seven-, eight- and ten-year options to purchase common shares under our 2008, 2007, 2006, 2004, 2001, 1998, 1996, 1995 and 1993 Stock Option and Incentive Plans (collectively, the "Option Plans"). Through December 31, 2008, all stock options granted under the Option Plans have been granted with an exercise price equal to the underlying stock's fair value at the date of grant. Except for conditional options issued in 1998, options generally may be exercised on a cumulative basis with 20% of the total exercisable on the date of issuance and with an additional 20% being available for exercise on each of the succeeding anniversary dates. Any unexercised portion of the options will automatically terminate upon the seventh, eighth or tenth anniversary of the issuance date or following termination of employment with the exception of grants that contain provisions which, in the event of a change in control of us, may accelerate the vesting of the awards.

        In June 2001, our stockholders approved a stock option plan for non-management directors providing for options with respect to an aggregate of 250,000 shares. In June 2004, our stockholders approved a stock option plan for employees and directors providing for options with respect to 1,800,000 shares. In May 2006, our stockholders approved a stock option plan for employees and directors providing for options with respect to 2,000,000 shares. In May 2007, our stockholders approved a stock option plan for employees and directors providing for options with respect to 4,000,000 shares of our common stock. In May 2008, our stockholders approved a stock option plan for employees and directors providing for options with respect to 3,250,000 shares of our common stock. Through December 31, 2005, we have granted to our non-management directors an aggregate of 1,185,000 options with a weighted average exercise price of $9.12 and weighted average remaining life to maturity of 2.22 years. During the first quarter of 2006, four of our former non-management directors exercised 96,000 of their previously granted options and forfeited their remaining 304,000 options upon their removal from our board. Additionally, we issued 745,000 and 465,000 shares to our current non-management directors in 2006 and 2007, respectively. Other than exercise prices, the terms of the directors' options are comparable to options issued to management.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

        At December 31, 2008, there were 3,502,000 additional shares available for grant under the Option Plans. In June 2006, 2,810,000 options that had been issued as liability based options to 16 employees were modified to obtain equity based status. This modification resulted in $4,022,000 of liabilities, related to stock-based compensation, to be reclassified to equity. The per share weighted-average fair value of stock options granted during 2007 and 2006, and after consideration of the modification, was $1.99 and $4.60, respectively, on the date of grant or the modification date. No stock options were granted during 2008.

        The estimated fair value of options granted without a market condition 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 estimated fair value of options granted to our President and Chief Executive Officer with a market condition was calculated using the Monte Carlo 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 equal to the expected volatility utilized in the Black-Scholes option pricing valuation model described above. The expected dividend yield is based on expected dividends for the expected term of the stock options. The vesting hurdles were based on the market prices of our common stock pursuant to the terms of the option grants ($12 and $15) and the exercise multiple utilized was 1.75 which assumes that the option holder will exercise once the stock price has appreciated to 1.75 times the grant price.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

        The weighted-average assumptions used in the option pricing valuation models for options granted in the years ended 2008, 2007 and 2006 are as follows:

 
  2008   2007   2006  
 
  Employees   Directors   Employees   Directors   Employees   Directors  

Risk-free interest rate

            4.32 %   4.23 %   4.77 %   4.55 %

Expected life (in years)

            4.98     5.63     5.33     6.25  

Expected volatility

            53 %   59 %   60 %   55 %

Expected dividend yield

                         

        Stock option activity during the years indicated is as follows:

 
  Shares   Weighted Avg. Exercise Price   Weighted Avg. Remaining Contractual Term   Aggregate Intrinsic Value ($000)  

Balance at December 31, 2005

    3,323,000   $ 16.48              
 

Granted

    3,100,000     8.76              
 

Exercised

    (1,056,000 )   6.96              
 

Forfeited

    (1,156,000 )   17.92              
 

Expired

    (936,000 )   25.00              
                         

Balance at December 31, 2006

    3,275,000     9.81              
 

Granted

    3,850,000     4.07              
 

Exercised

                     
 

Forfeited

    (190,000 )   8.53              
 

Expired

    (41,000 )   20.00              
                         

Balance at December 31, 2007

    6,894,000     6.56              
 

Granted

                     
 

Exercised

                     
 

Forfeited

    (10,000 )   2.17              
 

Expired

                     
                         

Balance at December 31, 2008

    6,884,000     6.57     7.04      
                         

Vested and expected to vest at December 31, 2008

    6,768,000     6.62     7.01      
                         

Options exercisable at December 31, 2008

    3,207,000   $ 7.17     6.67      
                         

        At December 31, 2008, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $2.17 to $13.70 and 7.04 years, respectively. The total intrinsic value of options exercised during 2008, 2007 and 2006 was $0, $0 and $3.8 million, respectively. The total fair value of options that vested during 2008, 2007 and 2006 was $3.7 million, $3.8 million and $3.8 million, respectively.

        At December 31, 2008, 2007, and 2006, options exercisable were 3,207,000, 1,982,000 and 935,000, respectively, and weighted-average exercise price of those options was $7.17, $7.87 and $11.10, respectively.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

        As of December 31, 2008, there was $2.4 million of unrecognized compensation expense related to our option awards. The weighted average period over which that cost is expected to be recognized is 2.03 years.

    Restricted Stock Grants

        Restricted shares of our common stock may be awarded under the Option Plans and are subject to restrictions on transferability and other restrictions, if any, as the Compensation Committee may impose. The Compensation Committee may also determine when and under what circumstances the restrictions may lapse and whether the participant receives the rights of a stockholder, including, without limitation, the right to vote and receive dividends. Unless the Compensation Committee determines otherwise, restricted stock that is still subject to restrictions is 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.

        We issued 820,000 shares of restricted stock during the year ended December 31, 2006 to certain executives, which vest as follows: (i) 50,000 shares vested on March 31, 2006 upon the resignation of our former Chief Financial Officer, (ii) 173,333 shares vested in January 2007, (iii) 11,666 shares vested in January 2008, (iv) 3,333 shares vested in January 2009, (v) 286,666 shares will vest in January 2010 and (vi) 295,002 shares will vest in January 2011.

        We issued 855,000 shares of restricted stock during the year ended December 31, 2007 to certain executives, which vest as follows: (i) 1,667 shares vested on January 1, 2008, (ii) 1,667 shares vested on January 1, 2009, (iii) 201,664 shares will vest on January 1, 2010 and (iv) 650,002 shares will vest on January 1, 2011.

        We issued 2,505,518 shares of restricted stock during the year ended December 31, 2008 as settlement for 2007 accrued management 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 the year and (v) 293,078 shares will vest in 2011 if certain performance based financial goals of the Company are met.

        A summary of the status of our restricted stock awards as of December 31, 2008 and changes during the twelve months then ended is presented below:

 
  Shares   Weighted Average
Grant Date Fair Value
 

Non-vested balance at January 1, 2008

    1,451,667   $ 5.65  

Granted

    2,505,518     1.80  

Vested

    (2,206,760 )   1.83  

Forfeited

    (19,013 )   1.76  
             

Non-vested balance at December 31, 2007

    1,731,412   $ 4.99  
             

        The weighted average grant date fair value per share of our restricted stock awards granted during the twelve months ended December 31, 2008, 2007 and 2006 was $1.80, $3.62 and $8.54, respectively.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)


The total grant date fair value of our restricted stock distributed during the years ended December 31, 2008, 2007 and 2006 was $4.5 million, $3.1 million and $7.0 million, respectively. The total fair value of restricted stock that vested during the years ended December 31, 2008, 2007 and 2006 was $4.0 million, $1.5 million and $1.7 million, respectively. As of December 31, 2008, there was $1.9 million of unrecognized compensation costs related to our restricted stock awards. The weighted average period over which that cost is expected to be recognized is 1.99 years.

    (r) Investment Securities

        Restricted-use investment securities at December 31, 2008 consist of funds deposited in escrow in a short term money market to satisfy the Subordinated Indemnity Agreement we have with Time Warner related to the Partnership Parks as a source of funds in the event Time Warner is required to honor its guarantee to the partners of these parks.

        Interest income is recognized when earned and increases the escrow funds available in the event Time Warner is required to honor its guarantee.

        In addition, we have CAD$1.0 million deposited in escrow in an interest bearing account to backstop a letter of credit issued to the city of Montreal related to the land lease at our park in Canada.

    (s) Comprehensive Income (Loss)

        Comprehensive income (loss) consists of net loss, changes in the foreign currency translation adjustment, changes in the fair value of derivatives that are designated as hedges and changes in the net actuarial gains and amortization of prior service costs on our defined benefit retirement plan and is presented in the consolidated statements of stockholders' equity (deficit) and other comprehensive income (loss) as accumulated other comprehensive income (loss).

    (t) Redeemable minority interest

        We record the carrying amount of our redeemable minority interests at their fair value at the date of issuance. We recognize the changes in their redemption value immediately as they occur and adjust the carrying value of these redeemable minority interests to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the redeemable minority interests. We conduct an annual review to determine if the fair value of the limited partnership units is less than the redemption amount. If the fair value of the limited partnership units is less than the redemption amount, a charge to earnings for the difference will be taken, resulting in an earnings per share impact. The redemption amount at the end of each reporting period did not exceed the fair value of the limited partnership units.

    (u) Use of Estimates

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We evaluate our estimates and assumptions on an ongoing

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

    (v) Reclassifications

        Reclassifications have been made to certain amounts reported in 2007 and 2006 to conform to the 2008 presentation.

    (w) Impact of Recently Issued Accounting Pronouncements

        In September 2006, the FASB issued SFAS No. 157 ("SFAS 157"), "Fair Value Measurement." SFAS 157 provides a common definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. However, SFAS 157 does not require any new fair value measurements. We adopted SFAS 157 on January 1, 2008. The adoption of SFAS 157 had no impact on our financial statements, but did require additional disclosure

        SFAS 157 defines fair value as the exchange prices that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. In accordance with SFAS 157, these two types of inputs have created the following fair value hierarchy:

    Level 1: quoted prices in active markets for identical assets

    Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument

    Level 3: inputs to the valuation methodology are unobservable for the asset or liability

        This hierarchy requires the use of observable market data when available.

        In September 2006, the FASB issued SFAS No. 158 ("SFAS 158"), "Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)." SFAS 158 requires recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability in the balance sheet and recognition of changes in that funded status in comprehensive income in the year in which the changes occur. SFAS 158 also requires measurement of the funded status of a plan as of the date of the balance sheet. We adopted the recognition provision of SFAS 158 in the fourth quarter of 2006 and the measurement date provisions in 2008. The adoption of SFAS 158 resulted in a $4.0 million reduction to other comprehensive income (loss). See Note 11 for additional information on the impact of adopting SFAS 158.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)

        In December 2007, we elected to early adopt Emerging Issues Task Force ("EITF") Topic D-98, "Classification and Measurement of Redeemable Securities," as amended at the March 12, 2008 meeting of the EITF. As a result of this change, we have reflected the full redemption price of the puttable limited partnership units for Six Flags Over Georgia and Six Flags Over Texas as "mezzanine equity," which is located between liabilities and equity on our balance sheet, with a reduction of minority interest liability and capital in excess of par value. In the future, if limited partnership units are put to us, we will account for the acquisition by reducing redeemable minority interests with an offsetting increase to capital in excess of par value as well as recording the purchase of the assets and disbursement of cash. The adoption of Topic D-98 did not affect our statement of operations or statement of cash flows. As a result of our adoption of SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements-an amendment of Accounting Research Bulletin No. 51," ("SFAS 160") as of January 1, 2009, future purchases of puttable limited partnership units will no longer be subject to purchase accounting but will be accounted for by reducing our redeemable minority interests and cash, respectively. Comparative financial statements of prior years have been adjusted to apply this new method retrospectively. The following financial statement line items for fiscal years 2006 and 2005 were affected by the change in accounting principle:

Consolidated Statement of Stockholders' Equity (Deficit) and Other Comprehensive Income (Loss)

December 31, 2005

 
  As originally
reported
  Effect of
adoption of EITF
Topic D-98
  As adjusted  

Capital in excess of par value

  $ 1,750,925,000   $ (379,949,000 ) $ 1,370,976,000  

Net change in redemption value of redeemable minority interests

  $   $ (3,100,000 ) $ (3,100,000 )

Total stockholders' equity (deficit) and other comprehensive income (loss)

  $ 694,208,000   $ (379,949,000 ) $ 314,259,000  

December 31, 2006

 
  As originally
reported
  Effect of
adoption of EITF
Topic D-98
  As adjusted  

Capital in excess of par value

  $ 1,767,825,000   $ (382,353,000 ) $ 1,385,472,000  

Net change in redemption value of redeemable minority interests

  $   $ (2,404,000 ) $ (2,404,000 )

Total stockholders' equity (deficit) and other comprehensive income (loss)

  $ 376,140,000   $ (382,353,000 ) $ (6,213,000 )

        In December 2004, the FASB published SFAS 123(R), which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. We adopted SFAS 123(R) on January 1, 2006 under the modified prospective method of application. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans,

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)


performance-based awards, share appreciation rights, and employee share purchase plans. See Note 1(q) for additional information on the impact of adopting SFAS 123(R).

        In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 was adopted beginning January 1, 2007.

        As a result of adopting FIN 48, we recognized $32,943,000 in deferred tax assets associated with net operating losses that relate to tax contingencies acquired in connection with purchase business combinations and an offsetting increase to the deferred tax asset valuation allowance, as this deferred tax asset was determined to not be realizable. We have a total of $48,072,000 in unrecognized tax benefits associated with other net operating losses related to acquired tax contingencies. If the benefits of these losses were to be recognized, the impact would likely be an increase in the deferred tax asset valuation allowance, unless we determine the net operating losses would be utilized prior to their expiration. If the benefit was not offset by a valuation allowance, it would be offset against the balance of goodwill, in accordance with SFAS 109.

        In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB 108"), "Considering the Effects of Prior Year Misstatements in Current Year Financial Statements." SAB 108 expresses the SEC Staff's views regarding the process of quantifying financial statement misstatements. SAB 108 addresses the diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. SAB 108 is effective for the year ending December 31, 2006. The cumulative effect of the initial application of SAB 108 must be reported in the carrying amounts of assets and liabilities as of the beginning of the year, with the offsetting balance to retained earnings. We adopted SAB No. 108 and adjusted our opening retained earnings for the year ended December 31, 2006 by approximately $14.5 million of which approximately $11.6 million reflects a change in our accounting for leases and approximately $2.9 million reflects a change in our accounting for accrued vacation. Prior to 2006, we did not record the effects of scheduled rent increases on a straight-line rent basis for certain real estate leases that were established between 1997 and 2004 at several of our properties. Prior to 1998, we awarded vacation in the current year to all of our employees. In 1998, the policy was changed to award vacation one year after the date of hire and therefore a vacation accrual should have been established for all employees hired after 1998. We reviewed the annual amount of additional expense incurred in prior periods for both of these adjustments and considered the effects to be immaterial to prior periods.

        In February 2007, the FASB issued SFAS No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115." SFAS 159 permits entities to choose to measure certain financial instruments and other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Unrealized gains and losses on any item for which we elect the fair value measurement option would be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007, provided we also elect to apply the

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)


provisions of SFAS 157 at the same time. We adopted SFAS 159 on January 1, 2008 concurrent with our adoption of SFAS 157. At January 1, 2008, we did not elect to apply the provisions of SFAS 159 to eligible items at the effective date. SFAS 159 had no impact on our consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS 141(R)"), which replaces SFAS No. 141. SFAS 141(R) retains the fundamental requirements of Statement No. 141 that an acquirer be identified and the acquisition method of accounting (previously called the purchase method) be used for all business combinations. SFAS 141(R)'s scope is broader than that of Statement No. 141, which applied only to business combinations in which control was obtained by transferring consideration. By applying the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses, SFAS 141(R) improves the comparability of the information about business combinations provided in financial reports. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures identifiable assets acquired, liabilities assumed and noncontrolling interest in the acquiree, as well as any resulting goodwill. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will evaluate how the new requirements of SFAS 141(R) would impact any business combinations completed in 2009 or thereafter.

        In December 2007, the FASB also issued SFAS 160. SFAS 160 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 160 also establishes reporting requirements that provide disclosures that identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years, and interim periods within the fiscal year, beginning after December 15, 2008, and early adoption is prohibited. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 will be applied prospectively. We are currently assessing the impact of SFAS 160 on our consolidated financial statements. As a result of our adoption of SFAS 160 as of January 1, 2009, future purchases of puttable limited partnership units will no longer be subject to purchase accounting but will be accounted for by reducing our redeemable minority interests and cash, respectively.

        In March 2008, the FASB issued SFAS No. 161 ("SFAS 161"), "Disclosures about Derivative Instruments and Hedging Activities, an Amendment of SFAS 133." SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity's derivative instruments and hedging activities and their effects on the entity's financial position, financial performance and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133. SFAS 161 also applies to non-derivative hedging instruments and all hedged items designated and qualifying under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 encourages, but does not require, comparative disclosures for periods prior to its final adoption. We do not expect the adoption of SFAS 161 on our consolidated financial statements to have a significant impact.

        In May 2008, the FASB issued Staff Position No. APB 14-1 ("FSP APB 14-1"), "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)." FSP APB 14-1 requires issuers of convertible debt to account separately for the liability and equity components of these instruments in a manner that reflects the issuer's nonconvertible debt

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(1) Summary of Significant Accounting Policies (Continued)


borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 with retroactive application to all periods presented during which any such convertible debt instruments were outstanding. FSP APB 14-1 will change the accounting treatment for our convertible notes due in May 2015 ("Convertible Notes") and will result in an increase to non-cash interest reported in our historical financial statements as well as our future financial statements as long as we continue to have the Convertible Notes outstanding. We adopted FSP APB 14-1 on January 1, 2009. If we had adopted FSP APB 14-1 as of December 31, 2008, we estimate that the initial impact to the consolidated balance sheet would have been a decrease in long-term debt of approximately $66.5 million for the recognition of a debt discount and an aggregate decrease in stockholders' deficit of approximately $65.8 million. The debt discount, upon adoption, will be amortized to interest expense resulting in an increase in non-cash interest expense of approximately $7.6 million in 2009.

(2) Acquisition and Disposition of Theme Parks

        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. We have recorded appropriate provisions for impairment and liabilities related to the abandonment of the New Orleans park operations in the condensed consolidated balance sheets as of December 31, 2008 and 2007 and the condensed consolidated statements of operations for all periods presented reflect the operating results as results of discontinued operations. See Note 13.

        On July 31, 2007, we acquired all of the assets of Six Flags Discovery Kingdom (formerly Six Flags Marine World) that were owned by the City of Vallejo, California, our joint venture partner, for a cash purchase price of $52,777,000. The purchase price was allocated to the acquisition of the land that the park is situated on ($22,100,000), the real and personal property that was acquired ($9,146,000) and the elimination of the minority interest liability related to the joint venture ($11,513,000). The remaining costs in excess of the fair value of the assets that were acquired ($10,018,000) were recorded as goodwill, which is deductible for tax purposes.

        The following table reflects the unaudited pro forma net loss and net loss per share as if this transaction occurred on January 1, 2006 (in thousands except per share amounts):

 
  2007   2006  

Net loss

  $ (249,785 ) $ (300,781 )
           

Net loss applicable to common stock

  $ (271,755 ) $ (322,751 )
           

Weighted average number of common shares outstanding—basic and diluted:

    94,747     94,242  

Net loss per average common share outstanding—basic and diluted:

  $ (2.87 ) $ (3.42 )
           

        In April 2007, we completed the sale to PARC 7F-Operations Corporation of the Sale Parks for an aggregate purchase price of $312 million, consisting of $275 million in cash, the PARC Note and the PARC Guarantee. As a result of the sale, we recognized a loss of $2.3 million. The consolidated statements of operations for all periods presented reflect the operating results of the Sale Parks as results of discontinued operations.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(2) Acquisition and Disposition of Theme Parks (Continued)

        In March 2007, we reversed $1.1 million of the $84.5 million non-cash impairment charge that we recorded against assets held for sale in connection with the Sale Parks in our consolidated financial statements for the year ended December 31, 2006. During the first quarter of 2006, we exercised our right to terminate the ground lease at our Sacramento, California water park following the 2006 season. In March 2007, we sold substantially all of the assets of the water park for approximately $950,000. In November 2006, we completed the sale of substantially all of the assets of our water park in Columbus, Ohio to our lessor, the Columbus Zoo, for $2.0 million. In March 2006, we recorded a non-cash impairment loss on these transactions in the amount of $11.4 million.

        In October 2005, we permanently closed Six Flags AstroWorld in Houston, Texas and on June 1, 2006, sold the 104 acre site on which the park was located for an aggregate purchase price of $77 million. We recorded a non-cash impairment charge of $14.4 million related to this transaction for the quarter ended March 31, 2006. We relocated select rides, attractions and other equipment from Six Flags AstroWorld to our remaining parks and have sold certain other equipment.

        On April 8, 2004, we sold all of the stock of Walibi S.A., our wholly-owned subsidiary that indirectly owned the seven parks we owned in Europe. The purchase price was approximately $200.0 million, of which Euro 10.0 million ($12.1 million as of April 8, 2004) was received in the form of a nine and one half year note from the buyer and $11.6 million represented the assumption of certain debt by the buyer, with the balance paid in cash. During February 2006, the note was repurchased by the buyer for $12.0 million. See Note 6.

        Pursuant to SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," our consolidated financial statements have been reclassified for all relevant periods presented to reflect the operations, assets and liabilities of the parks sold and held for sale in 2005, 2006, 2007 and 2008 as discontinued operations and for all periods presented to reflect the operations of the Sale Parks and our New Orleans park as discontinued operations on the December 31, 2008 and 2007 consolidated balance sheets as follows:

 
  December 31,
2008
  December 31,
2007
 
 
  (in thousands)
 

Current assets

  $   $  

Property, plant and equipment, net

        3,617  

Intangible assets

         

Other assets

         
           

Total assets held for sale

  $   $ 3,617  
           

Current liabilities

  $ 1,400   $  

Other liabilities

    6,730      
           
 

Total liabilities from discontinued operations

  $ 8,130   $  
           

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(2) Acquisition and Disposition of Theme Parks (Continued)

        The following are components of the net results of discontinued operations, including the Sale Parks, for the years ended December 31, 2008, 2007 and 2006.

 
  Years Ended December 31,  
 
  2008   2007   2006  
 
  (in thousands)
 

Operating revenue

  $   $ 2,313   $ 126,328  
               

Gain (loss) on sale of discontinued operations

        (1,888 )   968  

Income (loss) from discontinued operations before income taxes

    (12,277 )   (17,403 )   12,810  

Impairment on assets held for sale

    (3,490 )   1,088     (112,382 )

Reduction in contingent liabilities from sale indemnities

    76     4,264      
               

Net results of discontinued operations

  $ (15,691 ) $ (13,939 ) $ (98,604 )
               

        Our long-term debt is at the consolidated level and is not reflected at each individual park. Thus, we have not allocated a portion of interest expense to the discontinued operations.

(3) Property and Equipment

        Property and equipment, at cost, are classified as follows:

 
  December 31,  
 
  2008   2007  

Land

  $ 145,046,000   $ 145,065,000  

Land improvements

    368,860,000     365,051,000  

Buildings and improvements

    445,656,000     441,999,000  

Rides and attractions

    1,373,995,000     1,359,091,000  

Equipment

    321,382,000     313,989,000  
           

Total

    2,654,939,000     2,625,195,000  

Less accumulated depreciation

    1,094,466,000     987,744,000  
           

  $ 1,560,473,000   $ 1,637,451,000  
           

(4) Minority Interest, Partnership and Joint Ventures

        Minority interest represents the third parties' share of the assets of the four parks that are less than wholly-owned, Six Flags Over Texas, Six Flags Over Georgia (including Six Flags White Water Atlanta which is owned by the partnership that owns Six Flags Over Georgia) and Six Flags Discovery Kingdom (formerly Six Flags Marine World) until July 31, 2007 when we acquired the remaining minority interests. See Note 2.

        In April 1997, we became manager of Six Flags Discovery Kingdom (formerly Six Flags Marine World), then a marine and exotic wildlife park located in Vallejo, California, pursuant to a contract

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(4) Minority Interest, Partnership and Joint Ventures (Continued)

with an agency of the City of Vallejo under which we were entitled to receive an annual base management fee of $250,000 and up to $250,000 annually in additional management fees based on park revenues. In November 1997, we exercised our option to lease approximately 40 acres of land within the site for nominal rent and an initial term of 55 years (plus four ten-year and one four-year renewal options). We added theme park rides and attractions on the leased land, which is located within the existing park, in order to create one fully-integrated regional theme park at the site. During the quarter ended June 30, 2007, we exercised our option to acquire the minority interest of Six Flags Discovery Kingdom for approximately $52,777,000. The acquisition closed on July 31, 2007. Prior to that time, we were entitled to receive, in addition to the management fee, 80% of the cash flow generated by the combined operations at the park, after combined operating expenses and debt service on outstanding third party debt obligations relating to the park.

        We have accounted for our interest in the HWP Development, LLC joint venture under the equity method and have included our investment of $2,257,000 and $2,050,000 as of December 31, 2008 and 2007, respectively, in deposits and other assets in the accompanying consolidated balance sheets.

        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 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%. We have accounted for our investment under the equity method and have included our investment of $39,513,000 and $39,613,000 as of December 31, 20008 and 2007, respectively, in deposits and other assets in the accompanying consolidated balance sheets.

        See Note 13 for a description of the partnership arrangements applicable to Six Flags Over Texas and Six Flags Over Georgia.

(5) 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 Credit Facility (see Note 6(a)) 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 range from 5.325% to 5.358% (with an average of 5.342%). The change in fair value prior to hedge designation was recorded in other expense in the statements of operations in the amount of $1,633,000.

        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

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(5) Derivative Financial Instruments (Continued)


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 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 twelve months ended December 31, 2008:

 
  Gain  

Beginning balance at January 1, 2008

  $  

Change in cash flow hedge

    6,775,000  

Reclassification to interest expense

    (2,249,000 )
       

Ending balance at December 31, 2008

  $ 4,526,000  
       

        As of December 31, 2008, approximately $3,257,000 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, we recorded a $15,032,000 loss in other expense when interest rates swaps no longer met the SFAS 133 probability test and hedge accounting treatment was discontinued for the two interest rate swaps.

        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.

        We have 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 are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first three years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates) at commonly quoted intervals, and credit risk. Mid-market LIBOR pricing is 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, are 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 are collected from Bloomberg on the last market day of the period. The same rates used to bootstrap the yield curve are used to discount the future cash flows. We are 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 using credit default swap rates resulted in a substantial reduction of the liability recorded at December 31, 2008.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(5) Derivative Financial Instruments (Continued)

        The fair value of the interest rate swaps was approximately $9,070,000 at December 31, 2008 and is recorded in other long-term liabilities and is considered a Level 2 fair value measurement.

        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 are 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 consolidated balance sheet in "Accumulated other comprehensive income (loss)" (AOCL) 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 Facility. 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.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(6) Long-Term Debt

        At December 31, 2008 and 2007, long-term debt consists of:

 
  2008   2007  

Long-term debt:

             

Credit Facility(a)

  $ 1,081,408,000     850,750,000  

121/4% Senior Notes due 2016(b)

    400,000,000      

87/8% Senior Notes due 2010(c)

    131,077,000     280,300,000  

93/4% Senior Notes due 2013(d)

    142,441,000     374,000,000  

95/8% Senior Notes due 2014(e)

    314,787,000     464,650,000  

41/2% Convertible Senior Notes due 2015(f)

    280,000,000     280,000,000  

Other

    3,745,000     8,961,000  

Net premiums

    12,784,000     (873,000 )
           

    2,366,242,000     2,257,788,000  

Less current and called portions

    253,970,000     18,715,000  
           

  $ 2,112,272,000     2,239,073,000  
           

      (a)
      On May 25, 2007, we entered into the Credit Facility, which provides for the following: (i) an $850,000,000 term loan maturing on April 30, 2015 ($837,250,000 and $845,750,000 of which was outstanding at December 31, 2008 and December 31, 2007, respectively); (ii) a revolving facility totaling $275,000,000 ($244,158,000 and $5,000,000 of which was outstanding at December 31, 2008 and December 31, 2007, respectively (as well as letters of credit in the amount of $29,368,000 and $27,289,000 on those dates); and (iii) an uncommitted optional term loan tranche of up to $300,000,000. The interest rate on borrowings under the Credit Facility can be fixed for periods ranging from one to twelve months, subject to certain conditions. At our option, the interest rate is based upon specified levels in excess of the applicable base rate or LIBOR. At December 31, 2008, the weighted average interest rates for borrowings under the term loan and the revolving facility were 5.55% and 4.38%, respectively. At December 31, 2007, the weighted average interest rates for borrowings under the term loan and the revolving facility were 7.25% and 7.35%, respectively. Commencing on September 30, 2007, Six Flags Theme Parks Inc., the primary borrower under the Credit Facility, is required to make quarterly principal repayments on the term loan in the amount of $2,125,000 with all remaining principal due at maturity on April 30, 2015. The utilization of the revolving facility is available until March 31, 2013. The Credit Facility contains 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. We were in compliance with our financial covenants at December 31, 2008.

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(6) Long-Term Debt (Continued)

        On May 25, 2007, we repaid amounts that were outstanding on our previous senior secured credit facility which included a $300,000,000 revolving credit facility ($65,000,000 and $105,000,000 of which was outstanding at May 25, 2007 and December 31, 2006, respectively), an $82,500,000 multi-currency facility (none of which was outstanding at May 25, 2007 or December 31, 2006 (excluding letters of credit in the amounts of $33,055,000 and $33,147,000 on those dates)) and a $655,000,000 term loan ($635,722,000 and $638,625,000 of which was outstanding as of May 25, 2007 and December 31, 2006, respectively). At December 31, 2006, the weighted average interest rate for borrowings under the term loan and the revolving credit facility were 8.62% and 8.61%, respectively.

        During 2007, we recognized a net loss on debt extinguishment of $10,918,000 for the write-off of debt issuance costs related to our previous senior secured credit facility and for the costs paid to the underwriters in connection with the Credit Facility.

      (b)
      On June 16, 2008, we completed a private debt exchange in which we issued $400,000,000 of 121/4% Senior Notes due 2016 ("New Notes") of Six Flags Operations Inc., a direct wholly owned subsidiary of Holdings, in exchange for (i) $149,223,000 of our 87/8% Senior Notes due 2010 ("2010s"), (ii) $231,559,000 of our 93/4% Senior Notes due 2013 ("2013s") and (iii) $149,863,000 of our 95/8% Senior Notes due 2014 ("2014s"). The benefits of this transaction include reducing debt principal by $130,645,000, extending our debt maturities (including a majority of our nearest term debt maturity in 2010) and decreasing our annual cash interest expense. The transaction resulted in a net gain on extinguishment of debt of $107,743,000 related to the 2013s and 2014s (net of $3,264,000 of transaction costs related to the 2010s that were charged to expense immediately as the exchange of the 2010s was not deemed to be a substantial modification under the guidance of EITF Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments"). We also recorded a $14,146,000 premium on the New Notes representing the difference between the carrying amount of the 2010s and the carrying amount of the New Notes on the exchange as this portion of the exchange was not deemed a substantial modification. This premium will be amortized as an offset to interest expense over the life of the New Notes. The New Notes require annual interest payments of $49,000,000, are guaranteed by Holdings, and except in the event of a change in control of Holdings and certain other circumstances, do not require any principal payments prior to their maturity in 2016.

      (c)
      On February 11, 2002, Holdings issued $480,000,000 principal amount of the 2010s. As of December 31, 2006, we had repurchased $179,700,000 of the 2010s. A gross loss of $4,599,000 due to the repurchase of the 2010s was recognized in 2004. We repurchased an additional $20,000,000 of the 2010s during June 2007. We recognized a net loss on extinguishment of $167,000 due to the repurchase of the 2010s in June 2007. In June 2008, we exchanged $149,223,000 of the 2010s for the New Notes referenced in Note 6(b). We recognized a net loss of $3,264,000 related to the transaction costs paid for the exchange that were expensed immediately as the exchange of the 2010s was not deemed to be a substantial modification. The 2010s are senior unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank equal to the other senior notes of Holdings. The 2010s require annual interest payments of approximately $11,633,000 (87/8%

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(6) Long-Term Debt (Continued)

        per annum) and, except in the event of a change in control of Holdings and certain other circumstances, do not require any principal payments prior to their maturity in 2010. The 2010s are redeemable, at Holdings' option, in whole or in part, at any time on or after February 1, 2006, at varying redemption prices beginning at 104.438% and reducing annually until maturity.

        The indenture under which the 2010s were issued limits our ability to dispose of assets; incur additional indebtedness or liens; pay dividends; engage in mergers or consolidations; and engage in certain transactions with affiliates.

      (d)
      On April 16, 2003, Holdings issued $430,000,000 principal amount of the 2013s. As of December 31, 2006 we had repurchased $42,000,000 principal amount of the 2013s. A gross loss of $1,979,000 due to this repurchase was recognized in 2004. We repurchased an additional $14,000,000 of the 2013s during June 2007. A net gain on extinguishment of $430,000 due to this repurchase was recognized in June 2007. In June 2008, we exchanged $231,559,000 of the 2013s for the New Notes referenced in Note 6(b). We recognized a net gain on extinguishment of $67,977,000 as the exchange of the 2013s was deemed to be a substantial modification. The 2013s are senior unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank equal to the other Holdings senior notes. The 2013s require annual interest payments of approximately $13,888,000 (93/4% per annum) and, except in the event of a change in control of Holdings and certain other circumstances, do not require any principal payments prior to their maturity in 2013. The 2013s are redeemable, at Holdings' option, in whole or in part, at any time on or after April 15, 2008, at varying redemption prices beginning at 104.875% and reducing annually until maturity. The indenture under which the 2013s were issued contains covenants substantially similar to those relating to the other Holdings senior notes.

      (e)
      On December 5, 2003, Holdings issued $325,000,000 principal amount of the 2014s. As of December 31, 2004, we had repurchased $16,350,000 principal amount of the 2014s. A gross loss of $837,000 due to this repurchase was recognized in 2004. In January 2005, we issued an additional $195,000,000 of the 2014s, the proceeds of which were used to fund the redemption of $181,155,000 principal amount of other senior notes of Holdings. We repurchased an additional $39,000,000 principal amount of the 2014s during June 2007. A net gain on extinguishment of $1,563,000 due to this repurchase was recognized in June 2007. In June 2008, we exchanged $149,863,000 of the 2014s for the New Notes referenced in Note 6(b). We recognized a net gain on extinguishment of $43,030,000 as the exchange of the 2014s was deemed to be a substantial modification. The 2014s are senior unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank equal to the other Holdings senior notes. The 2014s, including the January additional amount, require annual interest payments of approximately $30,298,000 (95/8% per annum) and, except in the event of a change in control of Holdings and certain other circumstances, do not require any principal payments prior to their maturity in 2014. The 2014s are redeemable, at Holdings' option, in whole or in part, at any time on or after June 1, 2009, at varying redemption prices beginning at 104.813% and reducing annually until maturity. The indenture under which the 2014s were issued contains covenants

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(6) Long-Term Debt (Continued)

        substantially similar to those relating to the other Holdings senior notes. All of the net proceeds of the original issuance of the 2014s, together with proceeds of term loan borrowings under the Credit Facility, were used to redeem in full the other senior notes of Holdings. A gross loss of $25,178,000 was recognized in 2004 on this redemption.

      (f)
      On November 19, 2004, Holdings issued $299,000,000 principal amount of Convertible Notes. During June and July 2007 we repurchased $19,000,000 principal amount of the Convertible Notes. A net loss on extinguishment of $4,118,000 due to this repurchase was recognized in June 2007. The Convertible Notes are senior unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank equal to the other Holdings senior notes. Except during specified non-convertibility periods, the Convertible Notes are convertible into our common stock at an initial conversion rate of 157.4803 shares of common stock for each $1,000 principal amount of Convertible Notes, subject to adjustment, representing an initial conversion price of $6.35 per share. Upon conversion of the notes, we have the option to deliver common stock, cash or a combination of cash and common stock. The Convertible Notes require annual interest payments of approximately $12,600,000 (41/2% per annum) and, except in the event of a change in control of Holdings and certain other circumstances, do not require any principal payments prior to their maturity in 2015. The Convertible Notes are redeemable, at Holdings' option, in whole or in part, at any time after May 15, 2010 at varying redemption prices beginning at 102.143% and reducing annually until maturity. The net proceeds of the Convertible Notes were used to repurchase a portion of the 2010s and to repurchase and redeem other senior notes of Holdings. A gross loss of $3,922,000 was recognized in 2004 due to the redemption of the senior notes with a portion of the proceeds from the sale of the 2004 discontinued operations (See Note 2). A gross loss of $19,303,000 was recognized due to the redemption in 2005 of the other senior notes.

        Annual maturities of long-term debt during the five years subsequent to December 31, 2008, are as follows (does not assume acceleration of maturity of the term loan portion of the Credit Facility (See Note 6(a)):

2009

  $ 253,970,000  

2010

    140,931,000  

2011

    9,388,000  

2012

    8,628,000  

2013

    150,941,000  

Thereafter

    1,802,384,000  
       

  $ 2,366,242,000  
       

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(6) Long-Term Debt (Continued)

        The Credit Facility and the indenture relating to the New Notes limit the ability of Six Flags Operations, Inc. to pay dividends or make other distributions to us. Six Flags Operations, Inc. may not make cash distributions to us unless it is in compliance with the covenants set forth in those documents and it is not otherwise in default thereunder. If it is in compliance, Six Flags Operations is permitted to make dividends to us in certain circumstances from cash generated by certain asset dispositions and the incurrence of certain indebtedness in order to enable us to pay amounts in respect of any refinancing or repayment of debt under the indentures governing our outstanding notes and in certain circumstances the PIERS. Similarly, if it is in compliance, Six Flags Operations may make additional cash distributions to us generally limited to an amount equal to the sum of:

    cash interest payments on the public notes issued by Holdings;

    payments we are required to make under our agreements with our partners in the Partnership Parks; and

    cash dividends on our preferred stock.

(7) Selling, General and Administrative Expenses

        Selling, general and administrative expenses are composed of the following:

 
  2008   2007   2006  

Park selling, general and administrative expenses

  $ 157,826,000     182,512,000     156,209,000  

Corporate general and administrative expenses

    56,514,000     61,374,000     83,151,000  
               

Total selling, general and administrative expenses

  $ 214,340,000     243,886,000     239,360,000  
               

(8) Fair Value of Financial Instruments

        The following table and accompanying information present the carrying amounts and estimated fair values of our financial instruments at December 31, 2008 and 2007. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.

 
  2008   2007  
 
  Carrying
Amount
  Fair
value
  Carrying
Amount
  Fair
Value
 

Financial assets (liabilities):

                         

Restricted-use investment securities

  $ 16,061,000     16,061,000     12,731,000     12,731,000  

Long-term debt (including current portion)

    (2,366,242,000 )   (924,181,000 )   (2,257,788,000 )   (1,846,390,000 )

PIERS

    (302,382,000 )   (8,280,000 )   (285,623,000 )   (165,025,000 )

Interest rate swaps

    (9,070,000 )   (9,070,000 )        

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(8) Fair Value of Financial Instruments (Continued)

        The carrying amounts shown in the table are included in the 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.

    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.

    Interest rate swaps: The fair value of our interest rate swaps is based on quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability at commonly quoted intervals and credit risk, which is considered a Leve1 2 fair value measurement (See Note 5).

(9) Income Taxes

        Income tax expense (benefit) allocated to continuing operations for 2008, 2007 and 2006 consists of the following:

 
  Current   Deferred   Total  

2008:

                   
 

U.S. federal

  $     103,913,000     103,913,000  
 

Foreign

    4,972,000     (1,162,000 )   3,810,000  
 

State and local

    2,038,000     6,869,000     8,907,000  
               

  $ 7,010,000     109,620,000     116,630,000  
               

2007:

                   
 

U.S. federal

  $          
 

Foreign

    2,132,000     1,236,000     3,368,000  
 

State and local

    2,835,000         2,835,000  
               

  $ 4,967,000     1,236,000     6,203,000  
               

2006:

                   
 

U.S. federal

  $          
 

Foreign

    3,094,000     (507,000 )   2,587,000  
 

State and local

    1,731,000         1,731,000  
               

  $ 4,825,000     (507,000 )   4,318,000  
               

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SIX FLAGS, INC.

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2008, 2007 and 2006

(9) Income Taxes (Continued)

        Recorded income tax expense (benefit) allocated to continuing operations differed from amounts computed by applying the U.S. federal income tax rate of 35% in 2008, 2007 and 2006 to loss before income taxes as follows:

 
  2008   2007   2006  

Computed "expected" federal income tax expense (benefit)

  $ 6,776,000     (81,556,000 )   (70,580,000 )

Change in valuation allowance

    94,275,000     84,616,000     54,865,000  

Effect of foreign earnings earned and remitted in the same year

    4,356,000     3,838,000      

Effect of change in APB 23 deferred taxes on unremitted foreign earnings

            21,852,000  

Effect of state and local income taxes, net of federal tax benefit

    9,008,000     (4,557,000 )   (7,363,000 )

Nondeductible compensation

    2,253,000     2,017,000     3,515,000  

Effect of foreign income taxes

    1,789,000     1,590,000     1,884,000  

Other, net

    (1,827,000 )   255,000     145,000  
               

  $ 116,630,000     6,203,000     4,318,000  
               

        The change in valuation allowance attributable to continuing operations, discontinued operations and other comprehensive loss and equity is presented below:

 
  2008   2007   2006  

Continuing operations

  $ 94,275,000     84,616,000     54,865,000  

Discontinued operations

    5,963,000