Bloodhound,
John from where I sit the unearned revenue is a GOOD thing. That is usually a deposit for work to be done Also the fact that the backlog increased by 35% while having a RECORD quarter is also very positive.
Growing unearned contract revenue is a good thing if it isn't booked it as real revenue - which is what I was worried about. In order for a change to appear on the balance sheet, there has to be a change either on the income statement or the cash flow statement. There was not enough detail in the figures on the press release, so I had to do a bit more digging to figure out what was going on.
I looked at last year's annual report to see how they treated the unearned revenue. It contains the statement "Income on contracts is recognized as the net realizable value of services provided using the percentage of completion method based on management estimates". This would mean that unearned contract revenue isn't normally booked as revenue. Recognizing that, my question became where does it appear - and the answer I found is - on the cash flow statement.
Looking at note 15 to last year's financial statements shows that most of last year's unearned contract revenue was reflected on the cash flow statement as a change in non-cash working capital. This year's cash flow statement shows a change in non-cash working capital items of $11.8MM, which is a big enough number to contain the $10.6MM in unearned contract revenue. This is a net number of course which will be explained in detail when we get this year's annual report.
It appears that my original fear was ungrounded.
Onto another matter. The press release contains the statement: At the same time, the Board voted to declare a dividend of 18 cents per common share, representing, at the time, a 6.5 percent return.
Now most people who are into this stock paid a lot more than $2.75, so the 6.5% number is a bit irritating - maybe they should have left this part out of the press release. For me, an 18 cent dividend represents a return of about 3.5% on my original purchase price.
Also, the amount required to pay this dividend exceeded the companies earnings for the year, so the shareholder's equity actually decreased by about $200K or so as a result of paying off this dividend. That being the case, only a portion of the dividend is really income-related, the rest of it should be considered as a return of capital.
The fact that they are returning more than they made shows that they do not have a better use for the money. Typically, companies only return a portion of their current year's profits to the shareholders, and reinvest the rest in (hopefully) profit-making ventures. Usually, the shareholder's equity does not decrease Y/Y as a result of dividend payments.
In the case of CTY, total equity it decreased by about 1.25% from about $2.39 / share last year, to about $2.36 this year. Not much to sweat about IMO, except that the trend in declining shareholder equity Y/Y continues despite the record year. Hopefully their dividend payout ratio in future years will be at a more sustainable level. Also, I much prefer getting dividends than having the company do a share buyback through a normal course issuer .
Anyways, its nice to have confirmed (more-or-less) that the growth in sales was real. It looks like the new focus for the company is starting to pay off. Maybe if things go well over the next few quarters the share price will be back to where it was when I first invested :-) Here's hoping ...
Regards,
John Sladek |
