Robert, I had a close look at the quarterly report, and I am not sure that the report is as great as it looks at first glance. There are some positive things:
- Backlog is trending in the right direction,
- The company has gotten out of a money losing business,
- Their new businesses look like they have some potential
- Their long-term debt is very low.
That being said, I think that some of CTY's claims in the Q4 report should be taken with a grain of salt. In order to get an accurate picture of what went on in FY '97, there are two balance sheet items that should be taken into account:
- Prepaid Expenses: This is work that CTY did in FY '97, but which can't be billed until FY '98 (or later).
- Unearned Revenue: This is revenue that was received in FY '97 for work which will not be done until FY '98.
These two items appear to be a normal part of CTY's business, and are present in CTY's statements going back to 1993 (the 1994 annual report is the earliest one I have).
Looking at the balance sheet, item "Unearned Contract Revenue" we see that it has increased from 248 thousand in 1996 to to 1.619 Million in 1997. This means that $1.371 million of CTY's revenue figure is not 1997 revenue at all, but is 1998 (or later) revenue. The prepaid expenses line item is up by about $600k or so, which means that $600k of 1997 expenses are really 1998 (or later) expenses.
To get a picture of what happened in FY '97, the change in unearned revenue (1.371 million) should be subtracted from the revenue line, and the change in prepaid expenses (603 thousand) should be subtracted from the expense line. When I made these adjustments I got the following results:
- Revenue is $58.761 million, which represents an increase of $89 thousand over 1995 revenue as stated in the 1995 annual report. But to compare apples to apples, I should apply the same type of correction to 1995 revenue, since in that year there was an increase in unearned revenue as well. When I do this, I find that 1997's revenue is about $511 thousand more than 1995's.
- Operating Profit is $10.1 Million after correction
- Pretax profit is $318,000 after correction
Maybe I will be able to refine the numbers after I see the annual report and audited financial statements.
There are a few other things that I am curious about:
- Why was there an $800 thousand increase in G&A expenses (a 27.5% increase)
- Accounts receivable are almost double last year and represent close to 20% of their revenue. Unbilled A/R is down close to $2 million. Maybe there was a push on to get a lot of revenue booked in the last quarter?
- There's an increase 1.3 million in goodwill (from acquisitions?) that will cause an increase in amortization - this will be a slight drag on earnings for the next few years.
Talk to you later.
Regards,
John Sladek |
