Please demonstrate ANY year where FGP has generated cash flow more than its distribution. Let's do some math:
Let's look at operating income, add back depreciation (no cash) and deduct capital expenditures (cash) and deduct interest expense (cash), and compare that to their distributions for fiscal years ending July (income tax is nil):
2011: 109+83-50-102 = $40 million vs. distributions of $145 million 2010: 167+83-45-101 = $104 million vs. distributions of $140 million 2009: 159+83-54-89 = $99 million vs. distributions of $133 million 2008: 122+86-44-87 = $77 million vs. distributions of $127 million 2007: 137+87-47-88 = $89 million vs. distributions of $127 million
So let's cacluate the hole on the simple math above:
2011: ($105) million 2010: ($36) million 2009: ($34) million 2008: ($50) million 2007: ($38) million
So over 5 years that's payments outstripping the cash generation of about $263 million.
Total debt right now looks about $1.3 billion. Total debt in FY 2007 was $1.07 billion.
So they overpaid about $263 million, and racked up additional debt of about $230 million.
See a pattern here? Now look at the debt covenants and ask yourself how long this can continue.
Let's ignore this winter and just look at the average of the above FY 2007-FY 2011 numbers. I calculate about $82 million on average, vs. distributions of $150 million.
My rough math above is that to stabilize the debt they probably need a 50% cut in tne distributionn but the longer they wait the more likely they may have to cut it completely to pay down debt. In my opinion they should do the right thing now and cut it by 75%, start paying down debt and then gradually increase the dividend over time on a sustainable basis. Of course this would knock the yield down to 3.6% on the current share price which is why I think a single digit share price is where it's headed.
This is why I have been loaded to the gills with put options. The warm weather has just been gravy.
Please explain where I am wrong and why they can keep paying and why I should go long. Thanks
Cuz, imo, at current pps of approximately 14.5 it is oversold. Based on company statistics and numbers, the upside potential is now greater than the downside potential.
To me, everything in the market is about probabilities - for every stock, the plus and minus probabilities change as the stock price goes up or down, affected by unpredictable variables, i.e. the weather, for FGP. Variables vary for each company depending on the type of business. The weight of such variables also vary in importance and impact to the business.
For FGP, an important and significant variable is the weather. Since the weather, especially winter weather was warmer than normal, and the current weather is warmer than normal, the probability of it going lower is now higher than the probability of it to continue going higher. Therefore, the odds of FGP numbers improving on the upside is now higher than the probability of it continuing on the downside.
That's why I am now bullish. :-)
(But don't take me seriously - I just like to "talk" and play around. Hehe.)
You obviously took Accounting 101, but apparently dropped out to major in being an #$%$ You don't understand how a partnership functions. I am a retired CPA, and I'm only going to give you a hint, and an assignment. Read the 10-K and the partnership agreement. Then you'll be a more intelligent basher.