Six Flags Analysis of Goodwill
Six Flags, Inc. is the largest regional theme park operator in the world. Currently Six Flags operates 18 parks in the US, one in Canada and one in Mexico. In the aggregate, Six Flags’ theme parks offer over 800 rides, including more than 120 roller coasters. The following questions pertain to Six Flags’ goodwill.
To begin, obtain a copy of Six Flags, Inc. December 31, 2008 10-K, which was filed with the SEC March 11, 2009. A link to the report is available via Six Flags’ webpage at www.sixflags.com. Please address the following questions regarding Six Flags’ goodwill. Perform computations for 2007 and 2008 unless otherwise indicated.
1. Examine Six Flags’ auditors’ report on the financial statements. Is there anything noteworthy about this report?
The Company will continue as a going concern…with substantial doubt about its ability to continue as a going concern due to recurring losses, stockholder’s deficit, and substantial liquidity needs. The financial statements don’t include any adjustments that might result from the outcome of this uncertainty.
2. Examine Six Flags’ balance sheet. Compute the percentage of total assets comprised by intangible assets, net of amortization. Are intangible assets a significant component of Six Flags’ total assets?
Intangible assets/total assets: $1,059,486/3,030,845=34.96%
Yes, intangible assets are a significant component of total assets, at almost 35%
3. Refer to part (k) of footnote (1). What is Six Flags’ goodwill balance at December 31, 2008? What proportion of Six Flags’ 2008 intangible assets is attributable to goodwill? Is goodwill a significant component of Six Flags’ total assets? Has Six Flags taken any impairment charges against its goodwill in 2008 or 2007?
Goodwill Dec. 31, 2008 = $1,048.1 million
Int. Assets/goodwill = $1,059,486/$1,048,122 = 101.08%
Yes, goodwill is a significant component of assets at 101.08%
No, according to the Six Flag’s, the company has not taken any impairment charges in 2008 or 2007; however, in note 2 it does have recorded impairment on assets held for sale ($3,490) and $1,088 for 2008 and 2007, respectively.
4. Examine Six Flags’ stockholders equity section and note any issues of concern. Based on what you observe, what do you conclude about Six Flags’ past profitability?
The Company was less than $75 million; book equity does not exceed the fair market value of equity; since 2004 – 2008 the Company’s stockholder equity has a negative trend, which signifies no profit
5. Compute Six Flags’ net profit margin (Net income (loss)/Total revenues) for the last three years. How has Six Flags’ performed over the last three years?
Net Income seems to be increasing each year, along with Revenues; the perfomance over the last 3 years is in a positve trend
6. Read part (c) of footnote (1). What factors does management identify as casting substantial doubt on Six Flags’ ability to continue as a going concern? What happens if Six Flags defaults on its PIERS?
The factors that management identifies as casting substantial doubt on the Company’s ability to continue as a going concern are 1) a history of net losses, which are principally attributable to insufficient revenue to cover fixed costs; 2) a stockholder’s deficit; 3) substantial uncertainty about being able to refinance its debt.
If the Company defaults on its PIERS, then the lenders would be permitted to accelerate the obligations due from Six Flags. Also, such a default would result in most or all of Six Flag’s long-term debt to become due and payable....
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