Posted Tuesday, January 22, 2008 9:43 PM | Contributed by Jeff
Cedar Fair Entertainment Company today announced the declaration of a regular quarterly cash distribution of 47.5 cents per limited-partner unit, continuing the company’s annualized distribution rate of $1.90 per unit.
For all the people predicting gloom and doom based on the company's debt load, I have to imagine that continuing to pay out this distribution is not representative of a company with cash flow problems.
or it could be that the distribution is being maintained for one more quarter, in an attempt to prop up the stock price. The continued demise of the underlying fundamentals of the FUN balance sheet belie any improvement in their operating margins.
As further proof, I point to the blatant misleading headline on the recent attendance figures Press Release. Read the Yahoo message board for some serious dissection of the FUN financials.
the fundamentals are very clear. Current Free Cash Flow is less than Interest, Distribution, and Capex $$ as announced. Now, we all know that current announced capex spending for 2008 ("record capex" as Dick said actually is a mix of actual $$ and the book value of the stuff moving from GL. That's a one time move.Just like Six Flags, the debt load is huge, they aren't making enough to pay cutrent outflow, let alone pay down debt. If yoy don't think that's a problem, allow me to point you to the current mess in the housing and credit markets.As for current Stock Price in context of current market events, check the charts. You'll see that CF stock hit its 52 week low while at the same time the market was at near it's high (DEC 2007). Finally, I'll say that if things weren't so bad CF wouldn't have had to lie in the headline on their attendance Press Release.. Using a headline that says 2007 was higher than 2006, then in the actual release say that the 2006 numbers only include half a year of the Paramount numbers, is deceitful. The headline was deliberately used to continue the meme that things are rosy, when they aren't.*** This post was edited by CreditWh0re 1/23/2008 4:39:10 PM *** *** This post was edited by CreditWh0re 1/23/2008 4:40:37 PM ***
No matter how many people went through the turnstiles of the Paramount parks before CF bought them, and no matter how much they spent, not a penny of it is going to show up in CF's financials because it wasn't theirs to count.
The bank I've been with for more than 25 years was just acquired by another one. Do you think when the new bank does its financial reports, it's going to include the performance of the branches it acquired before the acquisition date?
"Current Free Cash Flow is less than Interest, Distribution, and Capex $$ as announced."
In their 3rd quarter report CF reported 9 month EBITDA of approx $291m, and estimated full year EBITDA between $325 & $335m.
Interest on 1.7b at 7.5% would be $127.5m Distribution is approx $100m 2007 "Capex $$ as announced" was $82m. For 2008 it increases to $88m. (I'm assuming 7.5%--I have no idea what their actual rate is, except I bet it is coming down again thanks to the Fed cutting interest rates)
$325-$127.5-$100-$88 = $9.5m In 2008 they are spending approximately 97% of their low end 2007 EBITDA estimate. Seems reasonable, prudent and conservative *** This post was edited by Captain Hawkeye 1/23/2008 8:45:32 PM ***
I think Hawkeye did a good job of discrediting the CreditWhore...but I do believe there is still cause to be concerned. As I said a couple of months ago. I have dialed into some of the recent Investor calls and the questioning, criticism, etc is more pronounced now than it has ever been.
To me, there is greater doubt about the decision makers on the part of the institutional investors and that doesn't bode well, in my opinion. I'm not one to jump ship with my limited holdings...I reinvest my dividends for emotional reasons, not financial ones. But, I am worried about the health of the company under the current regime.
I'm with you on that one. The danger doesn't appear in the financials, it appears in the ongoing decision making. I'm not sure the good old boys know how to manage this big thing they created. Their inability to retain the right talent says to me that they know better and don't value the expertise. I've worked in enough companies to know that never works out.
But hey, one positive of the low unit price is that it's returning more than 9.5% on the distribution alone.
I'm not sure I got smacked down or discredited, since the numbers presented above foe debt and interest had a HUGE assumption. Captain Hawk says he doesn't know what their interest rate is, then assumes 7.5%, then goes on to say that it would go lower due to fed (funds) rate cut this week. Even Hawk's assumption laden math gets him CLOSE to my number (and trust me, 9MM is close to zero, given the dollars we're talking about). Any change in avg debt rate or level gets you close to Full Year Free cash Flow being negative. In order to lower the rate that means a refinancing, and there are cost involved which would lower EBITDA further.Also, very few healthy companies spend 97% of EBITDA in Capex. Granted, certain industries do, but those companies either have huge ?et Income (CF has negative) OR are on huge growth cueves (CF is not)Finally let's not forget that Net Earnings are still negative, and we're not seeing any meaningful repayment on debt. For those that think debt doesn't matter, wxactly how/when are they going to repay that (nore than Hawk's) 1.7Billion. Remember this is the same argument we had with SIX at the beginning of the debt runup, and we've seen how that has played out. With corporate credit markets in recoil, where are they going to get any wiggle room to maneuver around Debt covenants, etc? Finally, Fed short term rates are not directly related to long term corp borrowing rates, (tthere are other mitigating factors) and certianly not for a company with the debt load like CF in this The earnings press conference is sched for Feb 7th. I'll publicly eat crow if I'm wrong, but I don't think I'll have to. *** This post was edited by CreditWh0re 1/24/2008 6:47:29 PM ***
Of the total term debt, $17.5 million is scheduled to mature in 2007. Based on interest rates in effect at year-end for variable-rate debt, cash interest payments for 2007 would total approximately $136 million, 54% higher than interest paid in 2006, which included only six months of interest payments from the acquisition of the Paramount Parks. In addition, cash distributions in 2007,at the current rate of $1.88 per unit, would total approximately $102 million,1% higher than the distributions paid in 2006
So, revised math (assuming interest rates in effect at the end of 2006):
For 2007: $136m(interest)+$102m(distribution)+$82m(Capex) = $320m. The low end EBITDA is $325m. So, for 2007, EDITDA will be AT LEAST 5m above "Interest, Distribution, and Capex $$ as announced" thus making the statement "Current Free Cash Flow is less than Interest, Distribution, and Capex $$ as announced" false.
Looking into the future, Interest rates have been cut by 1.75% since September. 1.75% of 1.7b is $29.75m dollers per year, so the 2008 interest expense will probably be closer to $110m than $136m. Capex increases to $88m. $136m (intrest assuming NO decrease)+103m(distribution increased to $1.90/unit)+88m(Capex) = $327m, or only $2m above their 2007 LOW end EBITDA estmate. And, again, I bet their interest rates reset lower after the Fed's first rate cut in September--and that caused them to decide they could afford an extra $6m in 2008 Capex. *** This post was edited by Captain Hawkeye 1/24/2008 7:31:24 PM ***
I agree that there's a problem with the decision makers at the top and their lack of appreciation/empowerment of everyone that works underneath Dick, Jack, and Peter. I think they'll be okay for this year financially, but they're going to be cutting it pretty close next year and beyond for a couple reasons:
1.) Their capital program for 2008 is relatively stingy for most parks except maybe Canada's Wonderland and they're reusing a bunch of rides from GL - something they won't be able to repeat next year. To put things in perspective, they spent far more (over 100 million) in the year 2000 with only 5 or 6 parks than they are for 2008 (88 million) with 12 parks. Assuming that their EBITDA for 2008 is going to increase or even stay the same is pretty questionable because it has historically required capital expenditures to maintain or increase attendance. This summer also had weather about as good as I can ever remember and the Halloween events were a huge success. Relying on so much to go right is taking a big chance.
3.) While they've been dealing with a crappy economy in Ohio and Michigan, the rest of the country has been on a five year bull run that started coming to an end after this past summer.
4.) They typically borrow money to fund operations during the offseason which will raise the 1.7B to probably 1.75 or 1.8 - effectively erasing any pay down that they've been able to achieve. They need to keep their EBITDA to debt ratio below 5.50 for 2007 and below 5.25 for 2008 if I remember correctly.
5.) They made a whole bunch of changes to season pass/parking pricing and we don't know how that will affect the bottom line. Not sure why they went in and undid everything at the Paramount parks that was working, had it backfire, and now they're adopting more of a Paramount strategy at the legacy parks where you could argue that the higher pricing was working just fine. They did too much too fast with pricing and removal of perks at the Paramount parks and it pissed people off.
If there is one thing that they have going for them, it's that they have a bunch of land, some ride assets, and maybe even a park to sell in order to give themselves some more wiggle room. I expect to see some of that happen before they are out of the woodwork and I think it's going to be a struggle for several years. I just hope the parks don't continue to decline like Cedar Point has over the past few years.
I still don't get why they're building such an expensive ride at Canada's Wonderland. Don't get me wrong, as a coaster monkey I think it's great, but how do you justify it when the park is doing exceptionally well without it? Will the ROI really be there?