November 27, 2007
VIA FEDERAL EXPRESS & EDGAR
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attn: Michael Fay
Sarah Risdal
Re: Six Flags, Inc.
Form 10-K: for the fiscal year ended December 31, 2006
Form 10-Q: for the quarterly period ended June 30, 2007
Commission File No. 1-13703
Ladies and Gentlemen:
I am in receipt of the comment letter dated November 8, 2007 of the staff
(the "Staff") of the Securities and Exchange Commission (the "Commission")
regarding the Form 10-K for the year ended December 31, 2006 of Six Flags, Inc.
("Six Flags" or the "Company"). Set forth below are our responses to your
numbered comments. As indicated in the letter, expanded or revised disclosure
outlined below will be contained in all applicable future filings with the
Commission.
Form 10-K for the Year Ended December 31, 2006
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations, page 32
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations, page 40
1. Please include the amount outstanding under your five-year revolving
credit facility in your contractual obligations table.
In all future filings, the Company will include the amount
outstanding under its revolving credit facility in its contractual
obligations table.
Item 8: Financial Statements and Supplementary Data, page 46
Consolidated Balance Sheets, page F-6
2. Please explain to us how you generate accounts receivable and why
you have approximately one month's sale outstanding in accounts
receivable. It is not clear why you have a significant amount of
accounts receivable when it appears that your business is primarily
cash based.
United States Securities and Exchange Commission
November 27, 2007
Page 2
The Company has generated accounts receivable primarily from
insurance, consignment sales of park tickets by third parties,
special events at the parks for companies and groups, advances to
the Company's hotel investment partnership and sponsorship sales.
The balance of $40.8 million at December 31, 2006, consisted of: (i)
$25.1 million receivable for insurance including $11.5 million
receivable for the Company's claim for its park in New Orleans, (ii)
$7.8 million for the consignment sales of tickets by third-parties
and for park special events, (iii) $2.2 million for an advance to
the Company's hotel investment partnership, (iv) $1.1 million for
sponsorship and (v) $4.6 million in miscellaneous receivables
primarily generated at the park level.
Note 1: Summary of Significant Accounting Policies, page F-11
Note (f): Advertising Costs, page F-12
3. Please quantify for us the amount of advertising costs that were
capitalized at year end and tell us the amount of these costs that
were expensed in the subsequent quarterly period. Refer to paragraph
49(d) of SOP 93-7 for required disclosure.
At December 31, 2006, the Company had $8.3 million in prepaid
advertising, all of which was for the 2007 season, consisting of
$2.9 million in prepaid advertising spots for Mexico, $2.7 million
in prepaid agency fees, $1.5 million in photo shoots, $0.6 million
in costs associated with the Company's Read to Succeed program,
which encourages children to read in return for Six Flags tickets,
and $0.6 million in miscellaneous costs.
Of the $8.3 million in prepaid advertising at December 31, 2007,
approximately $2.6 million was expensed in the quarter ended March
31, 2007.
In all future filings, the Company will disclose the amount of
advertising reported as assets in its balance sheet, as required by
paragraph 49(d) of SOP 93-7.
Note (i): Intangible Assets, page F-13
4. Please provide us the 2006 fair value analysis of your sole
reporting unit and the analysis that was used to allocate goodwill
to the Sale Parks disposition. In addition, explain to us the basis
for your fair value analysis if you did not assign the long-term
debt and mandatorily redeemable preferred stock to your sole
reporting unit and additionally reduce the fair value of the
reporting unit by the minority interest distributions. Refer to
paragraphs 23-25, 32, and 39 of SFAS 142 for guidance.
The fair value analysis of the Company's sole reporting unit as of
December 31, 2006 is set forth on Exhibit A attached to this letter.
The analysis that was used to allocate goodwill to the Sale Parks
disposition is set forth on Exhibit B attached to this letter. The
fair value analysis in Exhibit A appropriately considers the impact
of long-term debt, mandatorily redeemable preferred stock and
minority interest.
Exhibit A shows two tests to evaluate whether an impairment was
indicated at December 31, 2006 under SFAS 142. The first test looks
at the market value of the Company's common stock, and estimates the
fair value of the sole reporting unit based on the market value of
the stock plus a control premium and compares that value to the
carrying amount of the Company's stockholders' equity. The Company
estimated the control premium based on its research of valuation
methods; however, the control premium was not necessary to avoid the
indication of an
United States Securities and Exchange Commission
November 27, 2007
Page 3
impairment. According to paragraph 23 of SFAS 142, the test based on
the market value of the stock provides the best evidence of fair
value. The second test compares the value of the reporting unit
based on a multiple of adjusted earnings before interest, taxes,
depreciation and amortization ("EBITDA") with the carrying amount of
the reporting unit's equity. Applying a multiple to the adjusted
EBITDA is a widely used means to value theme parks and was based on
market research of comparable theme park sales. Under both tests, an
impairment was not indicated at December 31, 2006.
Exhibit B shows the calculation of the amount of goodwill allocated
to the Sale Parks. The methodology that was applied at the time the
parks were declared held for sale was to multiply the ratio of the
Sale Parks' average adjusted EBITDA for 2004 through 2006 over the
Company's average adjusted EBITDA for the same period multiplied by
the Company's total goodwill balance. Paragraph 39 of SFAS 142
requires the Company to allocate goodwill to the businesses being
sold based on the relative fair values of the business to be sold
and the portion to be retained. As applying a multiple to adjusted
EBITDA is a widely used means to value theme parks, the Company used
adjusted EBITDA to determine the relative fair value of the Sale
Parks and the associated allocable goodwill.
5. Please provide the disclosure required by paragraph 45(c) of SFAS
142 with regard to the changes in the carrying amount of goodwill
during the period.
In all future filings, the Company will disclose the changes in the
carrying amount of goodwill required by paragraph 45(c) of SFAS 142.
For the year ended December 31, 2006, the Company began the year
with $1,191,576,000 in goodwill. During the year, the Company
allocated $146,407,000 to the Sale Parks and $6,294,000 for the sale
of the Columbus, Ohio and Sacramento, California water parks and
other adjustments, leaving $1,038,875,000 at December 31, 2006 for
goodwill associated with continuing operations.
Note 3: Property and Equipment, page F-23
6. Please reconcile for us the 2005 net property and equipment amount
of $1,927,591,000 from the prior year Form 10-K with the 2005 net
property and equipment amount of $1,703,347,000 from the current
year Form 10-K. We note that $274,002,000 of property and equipment
has been reclassified as held for sale, however, the difference
between the reported amounts is only $224,244,000.
The difference between the $274,002,000 of property and equipment
that was disclosed as having been reclassified as held for sale at
December 31, 2005 on the balance sheet in the Form 10-K for the year
ended December 31, 2006 (the "2006 Form 10-K") and the $224,244,000
difference between property and equipment at December 31, 2005 as
reported on the balance sheets of the Form 10-K for the year ended
December 31, 2005 (the "2005 Form 10-K")and the 2006 Form 10-K is
$49,758,000. This difference was the amount of the property and
equipment associated with the Houston theme park that was classified
as held for sale at December 31, 2005 in both the 2005 Form 10-K and
the 2006 Form 10-K. The Houston theme park was sold in 2006.
Note 12: Commitments and Contingencies, page F-36
7. (verbal comment provided by the Staff) - Please explain why the
maximum partnership unit purchase obligation of $276,800,000 is not
recorded as a liability in the balance sheet
United States Securities and Exchange Commission
November 27, 2007
Page 4
pursuant to EITF Topic No. D-98 "Classification and Measurement of
Redeemable Securities."
The Company does not record a liability for the potential put of
partnership units by their holders pursuant to the guidance of EITF
Topic No. D-98 because the partnership units are minority interests
and are not part of the stockholders' equity or preferred equity of
the consolidated entity. EITF Topic No. D-98 addresses the treatment
of equity instruments under Regulation S-X and those that would be
treated like equity under EITF 00-19 "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock." EITF 00-19 specifically excludes subsidiary
ownership instruments from its scope. SFAS No. 150 "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity", which affected EITF Topic No. D-98, does
not apply to the partnership units as their redemption is not
certain to occur.
The Company accounts for the third-party partnership units as
minority interests under traditional consolidation accounting. The
acquisitions of those units are treated as partial purchases under
the guidance of paragraph 14 of SFAS No. 141 "Business
Combinations."
As requested in the Staff's letter, the Company hereby confirms to the Staff as
follows:
o The Company is responsible for the adequacy and accuracy of the
disclosures in its Commission filings;
o Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action with
respect to the filings; and
o The Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
If you have any questions regarding this letter or otherwise, please call me at
212-652-9384.
Sincerely,
Six Flags, Inc.
By: /s/ Jeffrey R. Speed
-----------------------------------------
Name: Jeffrey R. Speed
Title: Executive Vice President and Chief
Financial Officer
EXHIBIT A
Page 1 of 2
Six Flags, Inc.
Test for Goodwill Impairment - Step 1 SFAS 142
Stock Valuation Procedure ($ in thousands)
12/31/2006 1/12/2007 *
------------- -------------
Estimated number of shares outstanding (000's) 94,385 94,385
Stock price * $ 5.30 6.21
------------- -------------
Calculated value - before control premium = $ 500,241 $ 586,131
Control premium - 25% + 125,060 146,533
------------- -------------
Total fair value of shareholders' equity - December 31, 2006 = 625,301 732,664
Book value of shareholders' equity - December 31, 2006 - 367,280 367,280
------------- -------------
Excess of fair value over book value = 258,021 365,384
============= =============
NO IMPAIRMENT INDICATED
* Ending stock value after announcement of sale of 7 parks. As of 2/21/07, stock
is trading at the same value.
EXHIBIT A
Page 2 of 2
Six Flags, Inc.
Test for Goodwill Impairment - Step 1 SFAS 142
EBITDA Multiple Procedure ($ in thousands)
EBITDA (excluding Minority Interest and Management Change Costs)
2006 $ 194,679
2005 260,651
-------------
Average $ 227,665
Times Valuation Multiple * 11.6
-------------
Implied Enterprise Value = 2,640,914
Book value of debt - 12/31/06 2,525,444
Less: MI share of debt (a) (163,404)
Less: Cash on hand (24,295)
Less: Estimated cash proceeds from sale of 7 parks (264,394)
-------------
Net book value of debt - 2,073,351
-------------
Implied fair value of equity = 567,563
Book value of equity - 12/31/06 - 376,140
-------------
Excess of fair value over book value = $ 191,423
=============
NO IMPAIRMENT INDICATED
(a) MI share of debt equal to the amount of intercompany and third-party debt
owed by the partnerships, multiplied by the relative percentage of outside
ownership. Had net debt been allocated based on EBITDA, MI share would have been
$368,894, which would have made the excess of fair value over book value equal
to $392,551.
EXHIBIT B
Page 1 of 3
Goodwill Allocation Analysis
- --------------------------------------------------------------------------------
SFDL Goodwill Allocation
Net Intangibles @ 6/30/06 1,189,037,000
Identifible Intangibles @ 6/30/06 (12,046,100)
Accum Pension Ben Oblig @ 6/30/06 (3,367,100)
-------------
North America GW (excluding Identifable Intangibles) @ 6/30/06 1,173,623,800
SFDL Allocation % 5.0%
SFDL Net Goodwill 59,200,631
ADJ EBITDA (000's)
----------------------
SFDL NA BU
----------------------
2006 ** Fcst 11,209 234,324 4.8% 8&4 Fcst
2005 ** Act 15,168 294,874 5.1%
2004 Act 12,948 250,420 5.2%
----------------------
2004 - 2006 Avg 13,109 259,873 5.0%
** - Proforma Adj EBITDA adds back approximately $14.2MM & $12.6MM of Management
Restructure costs in 2006 and 2005 respectively
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SFEG Goodwill Allocation
Net Intangibles @ 6/30/06 1,189,037,000
Identifible Intangibles @ 6/30/06 (12,046,100)
Accum Pension Ben Oblig @ 6/30/06 (3,367,100)
-------------
North America GW (excluding Identifable Intangibles) @ 6/30/06 1,173,623,800
SFEG Allocation % 4.0%
SFEG Net Goodwill 46,370,149
ADJ EBITDA (000's)
----------------------
SFEG NA BU
----------------------
2006 ** Fcst 10,452 234,324 4.5% 8&4 Fcst
2005 ** Act 11,161 294,874 3.8%
2004 Act 9,190 250,420 3.7%
----------------------
2004 - 2006 Avg 10,268 259,873 4.0%
** - Proforma Adj EBITDA adds back approximately $14.2MM & $12.6MM of Management
Restructure costs in 2006 and 2005 respectively
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Enchanted Village Goodwill Allocation
Net Intangibles @ 6/30/06 1,189,037,000
Identifible Intangibles @ 6/30/06 (12,046,100)
Accum Pension Ben Oblig @ 6/30/06 (3,367,100)
-------------
North America GW (excluding Identifable Intangibles) @ 6/30/06 1,173,623,800
Ench Village Allocation % 1.3%
Ench Village Net Goodwill 15,228,500
ADJ EBITDA (000's)
----------------------
SEAWP NA BU
----------------------
2006 ** Fcst 4,000 234,324 1.7% 8&4 Fcst
2005 ** Act 3,885 294,874 1.3%
2004 Act 2,232 250,420 0.9%
----------------------
2004 - 2006 Avg 3,372 259,873 1.3%
** - Proforma Adj EBITDA adds back approximately $14.2MM & $12.6MM of Management
Restructure costs in 2006 and 2005 respectively
- --------------------------------------------------------------------------------
EXHIBIT B
Page 2 of 3
Goodwill Allocation Analysis
- --------------------------------------------------------------------------------
WW Concord Goodwill Allocation
Net Intangibles @ 6/30/06 1,189,037,000
Identifible Intangibles @ 6/30/06 (12,046,100)
Accum Pension Ben Oblig @ 6/30/06 (3,367,100)
-------------
North America GW (excluding Identifable Intangibles) @ 6/30/06 1,173,623,800
WW Concord Allocation % 0.7%
WW Concord Net Goodwill 7,777,668
ADJ EBITDA (000's)
----------------------
WW Con NA BU
----------------------
2006 ** Fcst 2,105 234,324 0.9% 8&4 Fcst
2005 ** Act 1,761 294,874 0.6%
2004 Act 1,301 250,420 0.5%
----------------------
2004 - 2006 Avg 1,722 259,873 0.7%
** - Proforma Adj EBITDA adds back approximately $14.2MM & $12.6MM of Management
Restructure costs in 2006 and 2005 respectively
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Splashtown Goodwill Allocation
Net Intangibles @ 6/30/06 1,189,037,000
Identifible Intangibles @ 6/30/06 (12,046,100)
Accum Pension Ben Oblig @ 6/30/06 (3,367,100)
-------------
North America GW (excluding Identifable Intangibles) @ 6/30/06 1,173,623,800
Splashtown Allocation % 0.6%
Splashtown Net Goodwill 6,698,979
ADJ EBITDA (000's)
----------------------
Splash NA BU
----------------------
2006 ** Fcst 994 234,324 0.4% 8&4 Fcst
2005 ** Act 2,241 294,874 0.8%
2004 Act 1,216 250,420 0.5%
----------------------
2004 - 2006 Avg 1,483 259,873 0.6%
** - Proforma Adj EBITDA adds back approximately $14.2MM & $12.6MM of Management
Restructure costs in 2006 and 2005 respectively
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Frontier City and WW Bay (OKC parks)
Net Goodwill @ 12/31/05 1,207,429,000
Identifible Intangibles @ 12/31/05 (12,486,200)
Accum Pension Ben Oblig @ 12/31/05 (3,367,100)
-------------
North America GW (excluding Identifable Intangibles) (@12/31/05) 1,191,575,700
OKC Allocation % 0.9%
OKC Net Goodwill 11,130,771
ADJ EBITDA (000's)
----------------------
OKC NA BU
----------------------
2005 Act 3,647 299,445 1.2%
2004 Act 2,565 253,554 1.0%
2003 Act 1,613 284,686 0.6%
----------------------
2003 - 2005 Avg 2,608 279,228 0.9%
- --------------------------------------------------------------------------------
EXHIBIT B
Page 3 of 3
Goodwill Allocation Analysis
- --------------------------------------------------------------------------------
Total Carve-Out Goodwill Allocation
Net Intangibles @ 6/30/06 1,189,037,000
Identifible Intangibles @ 6/30/06 (12,046,100)
Accum Pension Ben Oblig @ 6/30/06 (3,367,100)
-------------
North America GW (excluding Identifable Intangibles) @ 6/30/06 1,173,623,800
Total Allocation % 11.5%
Total Net Goodwill Allocation (7 Parks) 135,275,927
Frontier City and WW Bay (OKC parks) Goodwill
(Q1 Disco Ops Allocation) 11,130,771
Total Goodwill Carve-Out Financials 146,406,698
ADJ EBITDA (000's)
----------------------
Total NA BU
----------------------
2006 ** Fcst 28,759 234,324 12.3% 8&4 Fcst
2005 ** Act 34,215 294,874 11.6%
2004 Act 26,887 250,420 10.7%
----------------------
2004 - 2006 Avg 29,954 259,873 11.5%
** - Proforma Adj EBITDA adds back approximately $14.2MM & $12.6MM of Management
Restructure costs in 2006 and 2005 respectively
- --------------------------------------------------------------------------------