QUST and QUSTW
Hi Joe, it's been a long time.
Read through this 10Q from today.
This company looks solid and way undervalued:
The results of operations through September 30, 1998 include the operating results of the Company's inventory logistics management business, Questron Distribution Logistics, Inc. ("QDL"), its master distribution of fasteners business, Integrated Material Systems, Inc. ("IMS") and its lithium battery and battery pack distribution business, Power Components, Inc. (PCI"). QDL includes the operating results of Quest Electronic Hardware, Inc. ("Quest"), Webb Distribution ("Webb"), California Fasteners, Inc. ("Calfast"), Fas-Tronics, Inc. ("Fas-Tronics") and Fortune Industries, Inc. ("Fortune").
The Company's revenues for the three month and nine month periods ended September 30, 1998 amounted to $17,799,542 and $38,871,478, respectively, which represent a record level of revenues for the Company, compared with $6,645,650 and $15,738,987 for the comparable prior year periods. The significant growth in the Company's revenues for such periods is primarily attributable to the acquisitions of Calfast, Fas-Tronics and Fortune, as well as the internal growth of the other QDL branches and the opening of a new QDL branch in Grand Rapids, MI during the second quarter of 1998. The revenues associated with the acquired businesses of Calfast, Fas-Tronics and Fortune for the three and nine month periods ended September 30, 1998 amounted to $9,957,463 and $17,136,913, respectively, compared with $939,119 for both the three and nine month periods ended September 30, 1997.
The Company's operating income was $2,763,864 and $5,877,237, respectively, for the three month and nine month periods ended September 30, 1998, compared with operating income of $777,218 and $1,710,017 for the comparable prior year periods. The increase in operating income for the three month and nine month periods ended September 30, 1998, compared with the comparable prior year periods, is primarily due to the increased operating income attributable to the acquired businesses, as well as internal growth. Operating income as a percentage of sales for the three and nine month periods ended September 30, 1998 amounted to 15.5% and 15.1%, respectively, compared with 11.7% and 10.9% for the three month and nine month periods ended September 30, 1997, respectively. This improvement is attributable to the successful integration of the acquired businesses and the resultant cost savings from the combination of these businesses with the Company.
Interest expense, which reflects the cost of borrowings associated with the acquisition of Calfast in September 1997 and the acquisitions of Fas-Tronics and Fortune as of July 1, 1998, as well as borrowings associated with QDL's working capital needs, for the three month and nine month periods ended September 30, 1998 amounted to $1,008,785 and $1,621,558, respectively. For the comparable periods of the prior year, the Company's results include interest expense of $79,433 and $206,532, respectively. The increase in interest expense principally reflects the costs of increased borrowings to complete the acquisitions of Calfast, Fas-Tronics and Fortune, and to support the working capital needs of QDL.
The provision for income taxes for the three month and nine month periods ended September 30, 1998 and 1997, respectively, reflects a federal income tax provision at an effective rate of 35% and 35.1%, respectively, and a state income tax provision at an effective rate of 6% and 6.2%, respectively, for the states in which the Company does business.
Net income for the three month and nine month periods ended September 30, 1998 amounted to $1,035,497 and $2,510,851, respectively, compared with net income of $409,600 and $882,546 for the comparable prior year periods. This improvement reflects the increased operating income attributable to the acquired businesses, as well as continued internal growth, partially reduced by increased corporate expenses, interest expense, and income taxes.
Net income per share reflects a deduction for preferred stock dividends, including one-time, non-cash dividends associated with the automatic conversion of preferred stock into common stock. The preferred stock converted into common stock on July 2, 1998, causing the acceleration of the amortization of the imputed one-time, non-cash dividend. Accordingly, the common stock into which the preferred stock converted (1,653,125 shares of common stock) is included in the common shares outstanding for the three months ended September 30, 1998 and is included for one quarter in the weighted average number of common shares outstanding for the nine months ended September 30, 1998. The effect of this one-time, non-cash dividend is anti-dilutive, accordingly, the presentation of net income per diluted common share is presented on the face of the income statement as the same amount as net income per common share. Before such deduction, however, the net income per diluted common share is $.22 and $.52 for the three months and nine months ended September 30, 1998, respectively. Net income per common share and net income per diluted common share in the fourth quarter of 1998 will not be impacted by such non-cash dividends.
Liquidity and Capital Resources
At September 30, 1998, the Company had $87,587 in cash and short-term investments, compared to $875,080 as of December 31, 1997. As of September 30, 1998, the Company had working capital of $18,411,641, compared with working capital of $9,046,826 as of December 31, 1997.
For the nine months ended September 30, 1998, the net cash used by the Company's operating activities amounted to $1,388,090, principally reflecting the increase in inventories, receivables, prepaid expenses and other assets, offset in part by the profits of the Company and the increases in accounts payable, accrued expenses, income taxes payable and deferred income taxes.
For the nine months ended September 30, 1998, the net cash used in the Company's investing activities amounted to $18,241,203, including $17,066,558 net cash consideration paid in connection with the acquisitions of Fas-Tronics and Fortune and $600,000 net cash consideration paid in connection with the deferred purchase price of Calfast. The Company also had capital expenditures $568,679 for the acquisition of fixed assets, $392,040 of which represents the purchase and installation of a new on-line, real-time computer system. The Company does not have significant commitments for capital expenditures as of September 30, 1998 and no significant commitments are anticipated for the next twelve months.
For the nine months ended September 30, 1998, the net cash provided by the Company's financing activities amounted to $18,841,800, which consists of $30,000,000 of bank financing associated with the acquisitions of Fas-Tronics and Fortune and the refinancing of existing bank debt, $5,647,799 of bank borrowings under the Company's revolving credit facility, as well as $371,228 of net proceeds from a capital lease for the purchase of the Company's computer system, reduced by long-term debt principal payments of $9,583,334, revolving facility repayments of $5,472,340, fees and expenses associated with the bank financing of $1,976,300, principal payments of $63,943 on various capital leases and principal payments of $81,310 on notes issued for acquired businesses.
In connection with the acquisitions of Fas-Tronics and Fortune, the Company entered into a $45,000,000 Loan and Security Agreement with Madeleine L.L.C. and Congress Financial Corporation (Florida) providing for term debt of $30,000,000 and a revolving credit facility of $15,000,000. At September 30, 1998, $472,596 was borrowed and outstanding under the revolving facility. Of the remaining amount of the $15,000,000 revolving credit facility, or $14,527,404, $14,205,294 was available at September 30, 1998 for future working capital needs. Amounts outstanding under the revolving facility bear interest at a rate equal to 1.0% above the lender's prime rate with a minimum rate of interest of 9% per annum. As of November 10, 1998, the interest rate under the revolving facility was 9%. In order to secure the obligations of the Company and its subsidiaries under the revolving facility and the related term loan facility under the loan and security agreement with the lender, the Company entered into a stock pledge agreement with the lender whereby the Company pledged to the lender the shares of capital stock of each of its subsidiaries at the date of such agreement and any shares of its subsidiaries in which the Company may thereafter acquire an interest. In addition, the Company and its subsidiaries granted a security interest in substantially all of their assets to the lender.
The Company intends to continue to identify and evaluate potential merger and acquisition candidates engaged in businesses complementary to its business. While certain of such additional potential acquisition opportunities are at various stages of consideration and evaluation, none is at any definitive stage at this time. Management believes that its working capital, funds available under its credit agreement, and funds generated from operations will be sufficient to meet its obligations through 1999, exclusive of cash requirements associated with any business acquisitions.
BTW - It looks like Zacks used the wrong EPS when they reported a few weeks ago. They used $0.06(Effect of one-time, non-cash, preferred stock dividend), estimates were $0.18, actual was $0.22. Play with the numbers you'll see what I mean. |
