Exhibit 99.1
CONTACT: Q.E.P. Co., Inc. Stuart F. Fleischer Chief Financial Officer 561-994-5550
Q.E.P. CO., INC. REPORTS STRONG FISCAL 2008 RESULTS
RECORD ANNUAL SALES - $217.5 MILLION RECORD ANNUAL OPERATING INCOME - $9.7 MILLION
BOCA RATON, FLORIDA—May 29, 2008—Q.E.P. CO., INC. (Nasdaq: QEPC) (the “Company” or “Q.E.P.”), today filed a Form 10-K with the SEC to announce its financial results for the fourth quarter and fiscal year ended on February 29, 2008.
Lewis Gould, Q.E.P.’s Chairman and Chief Executive Officer, stated: “Fiscal 2008 was a good, important and profitable year. We achieved record sales of $217.5 million even with the loss of sales from the divestiture of two non-core businesses that occurred in the first half of the year. I am delighted that the Company was able to significantly improve our gross margin for both the 2008 fourth quarter to 29.5% from 2007’s fourth quarter of 27.9% and for the full year to 28.9% from last year’s 27.5%, as we turned around our bottom line from a loss in fiscal 2007 to a meaningful profit in fiscal 2008. In addition, during fiscal 2008, we purchased a large manufacturing and distribution facility in California to provide improved service to the Company’s West Coast customers, removed a major stock overhang by settling and terminating the outstanding put warrant liability and, as previously mentioned, divested two non-core businesses.”
The Company achieved record net sales of $217.5 million in fiscal 2008, which were $1.5 million higher than fiscal 2007 net sales of $216.0 million. For the fourth quarter of fiscal 2008, net sales were $48.8 million, a decrease of $4.5 million from the $53.3 million reported in the same quarter of fiscal 2007.
A better product mix at the Company’s North American operations resulted in the gross margin increasing both for the fiscal 2008 fourth quarter and fiscal year compared to the same periods in 2007. The gross margin in the 2008 fourth quarter increased 162 basis points and for the full year it improved 140 basis points. The gross profit for fiscal 2008 grew $3.5 million to $62.8 million despite a $0.5 million fourth quarter decrease in the gross profit. For the 2008 fourth quarter, gross profit was $14.4 million. | ||
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By controlling operating expenses, the Company reported record annual operating income of nearly $9.7 million, compared to an operating loss in fiscal 2007 of $3.6 million (due primarily to a $7.5 million impairment loss on goodwill and other intangibles). Fourth-quarter operating income was $1.4 million, or $0.4 million higher than the fourth quarter of fiscal 2007.
The Company reported annual net income of $2.2 million, or $0.61 per diluted share, compared to a net loss of $5.8 million, or a loss of $1.71 per diluted share for fiscal 2007. Fourth-quarter net income was $0.5 million, or $.14 per diluted share, compared to net income of $0.2 million, or $0.06 per diluted share for the fourth quarter of fiscal 2007.
Excluding the change in the put warrant liability and other non-recurring items, the Company reported fiscal 2008 adjusted net income of $3.6 million, or $1.00 per diluted share, compared to an adjusted net loss of $0.2 million, or a loss of $0.05 per diluted share for fiscal 2007.
In addition, the Company generated $7.2 million of cash from operations in fiscal 2008, compared to $4.9 million of cash from operations in fiscal 2007. With the cash generated from operations and the sale of the Company’s O’Tool and Stone Holdings operations, the Company paid the $2.3 million put warrant settlement and reduced its debt by $5.9 million.
The Company will host a conference call to discuss these results and to answer questions at 10:00 a.m. ET, Friday May 30, 2008. To participate in the conference call, please dial 1-800-762-9439 five to 10 minutes before the call is scheduled to begin.
While we hope you will be able to join us for the call, we have arranged to have the teleconference session available for replay from 1:00 p.m. ET on May 30, 2008 until midnight on June 6, 2008. The number to hear the teleconference replay is 1-800-406-7325. The access code for the replay is 3884239.
Certain statements in this press release are forward-looking statements, which are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are made only as of the date of this report and are subject to risks and uncertainties which could cause actual results to differ materially from those discussed in the forward-looking statements and from historical results of operations. Among the risks and uncertainties that could cause such a difference are our assumptions relating to the expected growth in sales of our products, the continued success of our manufacturing processes, continued increases in the cost of raw materials and finished goods, improvements in productivity and cost reductions, the continued success of initiatives with certain of our customers, the success of our initiatives, the success of our sales and marketing efforts and other
business and economic factors. A more detailed discussion of risks attendant to the forward-looking statements included in this press release are set forth in the “Forward-Looking Statements” section of our Annual Report on Form 10-K for the year ended February 29, 2008, filed with the SEC, and in our quarterly reports filed with the SEC.
-Financial Information Follows-
Q.E.P. CO., Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
February 29, 2008 | February 28, 2007 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 949 | $ | 822 | ||||
Accounts receivable, less allowance for doubtful accounts of approximately $431 and $354 as of February 29, 2008 and February 28, 2007, respectively | 32,543 | 34,491 | ||||||
Inventories | 26,496 | 27,042 | ||||||
Prepaid expenses and other current assets | 2,505 | 1,349 | ||||||
Deferred income taxes | 754 | 1,299 | ||||||
Total current assets | 63,247 | 65,003 | ||||||
Property and equipment, net | 7,851 | 6,770 | ||||||
Deferred income taxes, net | 1,787 | 2,764 | ||||||
Goodwill | 9,685 | 9,563 | ||||||
Other intangible assets, net | 2,717 | 2,831 | ||||||
Other assets | 339 | 225 | ||||||
Total Assets | $ | 85,626 | $ | 87,156 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Trade accounts payable | $ | 15,968 | $ | 18,037 | ||||
Accrued liabilities | 11,690 | 9,769 | ||||||
Lines of credit | 24,537 | 27,405 | ||||||
Current maturities of long term debt | 1,977 | 4,085 | ||||||
Put warrant liability | — | 861 | ||||||
Total current liabilities | 54,172 | 60,157 | ||||||
Notes payable | 4,472 | 2,398 | ||||||
Other long-term debt | 250 | 2,551 | ||||||
Other long-term liabilities | 377 | — | ||||||
Total Liabilities | 59,271 | 65,106 | ||||||
Commitments and Contingencies | — | — | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
Preferred stock; 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at February 29, 2008 and February 28, 2007 | 337 | 337 | ||||||
Common stock; 20,000 shares authorized, $.001 par value; 3,528 shares and 3,523 shares issued, and 3,433 shares and 3,440 shares outstanding at February 29, 2008 and February 28, 2007, respectively | 3 | 3 | ||||||
Additional paid-in capital | 10,154 | 9,981 | ||||||
Retained earnings | 16,574 | 14,770 | ||||||
Treasury stock; 95 and 83 shares held at cost at February 29, 2008 and February 28, 2007, respectively | (756 | ) | (639 | ) | ||||
Accumulated other comprehensive income (loss) | 43 | (2,402 | ) | |||||
26,355 | 22,050 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 85,626 | $ | 87,156 | ||||
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
For the Three Months Ended | For the Fiscal Year Ended | |||||||||||||||
February 29, 2008 | February 28, 2007 | February 29, 2008 | February 28, 2007 | |||||||||||||
Net sales | $ | 48,790 | $ | 53,258 | $ | 217,505 | $ | 216,006 | ||||||||
Cost of goods sold | 34,408 | 38,420 | 154,684 | 156,658 | ||||||||||||
Gross profit | 14,382 | 14,838 | 62,821 | 59,348 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Shipping | 5,785 | 5,856 | 23,037 | 23,577 | ||||||||||||
General and administrative | 4,224 | 4,790 | 18,051 | 19,355 | ||||||||||||
Selling and marketing | 3,192 | 3,110 | 13,166 | 12,581 | ||||||||||||
Impairment loss on goodwill and other intangibles | — | — | — | 7,520 | ||||||||||||
Other expense (income), net | (265 | ) | (2 | ) | (1,118 | ) | (43 | ) | ||||||||
Total costs and expenses | 12,936 | 13,754 | 53,136 | 62,990 | ||||||||||||
Operating income (loss) | 1,446 | 1,084 | 9,685 | (3,642 | ) | |||||||||||
Change in put warrant liability | — | 118 | (1,439 | ) | 1,437 | |||||||||||
Interest expense, net | (584 | ) | (810 | ) | (2,538 | ) | (2,977 | ) | ||||||||
Income (loss) before provision for income taxes | 862 | 392 | 5,708 | (5,182 | ) | |||||||||||
Provision for income taxes | 376 | 167 | 3,512 | 624 | ||||||||||||
Net income (loss) | $ | 486 | $ | 225 | $ | 2,196 | $ | (5,806 | ) | |||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.14 | $ | 0.07 | $ | 0.63 | $ | (1.71 | ) | |||||||
Diluted | $ | 0.14 | $ | 0.06 | $ | 0.61 | $ | (1.71 | ) | |||||||
Weighted average number of common shares outstanding | ||||||||||||||||
Basic | 3,433 | 3,437 | 3,435 | 3,411 | ||||||||||||
Diluted | 3,542 | 3,594 | 3,588 | 3,411 | ||||||||||||
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended | ||||||||
February 29, 2008 | February 28, 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 2,196 | $ | (5,806 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,089 | 2,568 | ||||||
Impairment loss on goodwill and other intangibles | — | 7,520 | ||||||
Change in fair value of put warrant liability | 1,439 | (1,437 | ) | |||||
Write-off of accumulated foreign translation adjustment | 323 | 478 | ||||||
Bad debt expense | 284 | 313 | ||||||
Gain on sale of plant and equipment | (135 | ) | — | |||||
Gain on sale of businesses | (547 | ) | — | |||||
Stock-based compensation expense | 244 | 171 | ||||||
Deferred income taxes | 1,522 | (3,657 | ) | |||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | 1,708 | (1,256 | ) | |||||
Inventories | (254 | ) | 7,355 | |||||
Prepaid expenses | (1,126 | ) | 2,381 | |||||
Other assets | 115 | (78 | ) | |||||
Trade accounts payable and accrued liabilities | (646 | ) | (3,693 | ) | ||||
Net cash provided by operating activities | 7,212 | 4,859 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (2,981 | ) | (730 | ) | ||||
Proceeds from sales of equipment | 244 | — | ||||||
Proceeds from sales of businesses | 3,801 | — | ||||||
Net cash provided by (used in) investing activities | 1,064 | (730 | ) | |||||
Cash flows from financing activities: | ||||||||
Net borrowings under lines of credit | (3,202 | ) | 443 | |||||
Borrowings of long term debt | 3,509 | — | ||||||
Repayments of notes payable | (3,218 | ) | (2,771 | ) | ||||
Repayments of acquisition debt | (2,948 | ) | (1,885 | ) | ||||
Settlement of put warrant liability | (2,300 | ) | — | |||||
Purchase of treasury stock | (120 | ) | (120 | ) | ||||
Proceeds from exercise of stock options | 34 | 297 | ||||||
Dividends | (22 | ) | (22 | ) | ||||
Net cash used in financing activities | (8,267 | ) | (4,058 | ) | ||||
Effect of exchange rate changes on cash | 118 | (101 | ) | |||||
Net increase (decrease) in cash | 127 | (30 | ) | |||||
Cash and cash equivalents at beginning of year | 822 | 852 | ||||||
Cash and cash equivalents at end of year | $ | 949 | $ | 822 | ||||
Non-GAAP Financial Measures
(In thousands except per share data)
Net Income Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items and Earnings Per Share Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items are Non-GAAP financial measures. The Company has included these Non-GAAP financial measures because it believes that the measures provide an indicator of profitability and performance of the Company’s operations and provide a meaningful comparison of its current operating performance with its historical results. The Company uses Net Income Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items and Earnings Per Share Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items as internal measures of its business. Net Income Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items and Earnings Per Share Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items are not meant to be considered a substitute or replacement for Net Income and Earnings Per Share as prepared in accordance with generally accepted accounting principles. The reconciliation of Net Income to Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items and Earnings Per Share to Earnings Per Share Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items is as follows:
Year Ended | ||||||||
February 29, 2008 | February 28, 2007 | |||||||
Net income (loss), as reported (a) | $ | 2,196 | $ | (5,806 | ) | |||
Add back (deduct): | ||||||||
(Gain) loss on sale of businesses, net of tax | (346 | ) | 563 | |||||
Impairment loss on goodwill and other intangible assets, net of tax | — | 6,052 | ||||||
Realization of currency translation loss related to the disposition of certain assets and obligations of foreign subsidiary | 323 | 478 | ||||||
Change in put warrant liability | 1,439 | (1,437 | ) | |||||
Net income adjusted for the change in the put warrant liability and non-recurring items (b) | $ | 3,612 | $ | (150 | ) | |||
Earnings (loss) per share, as reported: | ||||||||
Basic ((a)/(c)) | $ | 0.63 | $ | (1.71 | ) | |||
Diluted ((a)/(d)) | $ | 0.61 | $ | (1.71 | ) | |||
Weighted average number of shares outstanding, as reported: | ||||||||
Basic (c) | 3,435 | 3,411 | ||||||
Diluted (d) | 3,588 | 3,411 | ||||||
Earnings per share adjusted for the change in the put warrant liability and non-recurring items: | ||||||||
Basic ((b)/(e)) | $ | 1.05 | $ | (0.05 | ) | |||
Diluted ((b)/(f)) | $ | 1.00 | $ | (0.05 | ) | |||
Weighted average number of shares outstanding as adjusted for the change in the put warrant liability and non-recurring items: | ||||||||
Basic (e) | 3,435 | 3,411 | ||||||
Diluted (f) | 3,588 | 3,411 |