QEPC Q E P Company Inc (QX)

Q.E.P. CO., INC. (Nasdaq:QEPC), today announced financial results for its fiscal 2007 first quarter ended May 31, 2006. For the fiscal 2007 first quarter, net sales increased 8.5 percent to a quarterly record $54.1 million, compared with $49.9 million in the fiscal 2006 first quarter. Increased sales volume in several of the Company's product categories including underlayment, adhesives and carpet tools contributed to the first quarter's sales growth. In addition, the complete integration of the Capitol USA acquisition contributed to higher sales of the Company's adhesive products. Sales outside North America accounted for approximately 22 percent of sales in the fiscal 2007 first quarter. The gross profit for the fiscal 2007 first quarter increased to $15.3 million from $14.4 million in the same period last year. Gross profit as a percentage of sales for the fiscal 2007 first quarter was 28.2 percent, up sequentially from the fourth quarter's 25.7 percent, but down compared with 28.8 percent for the fiscal 2006 first quarter. Gross margins continue to be effected by high raw material prices. In addition, the gross margins for the quarter were also impacted by higher volumes of rebates from the Company's home center customers. For the 2007 fiscal first quarter, pretax income was $386,000, down from $1.5 million in the same period last year, which included a $1.1 million gain from the sale of Roberts Tape and $505,000 expense for the change in the warrant put liability. For the fiscal 2007 first quarter, the Company reported net income of $244,000, or $0.06 per diluted share, compared to $770,000, or $0.21 per diluted share, for the first quarter last fiscal year. Lewis Gould, Q.E.P.'s Chairman and Chief Executive Officer, stated: "I am pleased with the progress we are making in the integration of Capitol USA, the higher level of business compared with the same period last year, and the sequential financial improvements in cost controls, price increases and profitability. We are slowly making progress, even though our profitability has performed under our expectations for the past six quarters. "In addition, during the quarter we successfully amended our loan agreement with our lenders and increased sales to home centers by approximately 10 percent from further product penetration. We are pleased with the breadth of our products that answer the needs of the professional and do-it-yourselfer. The sale of these product offerings is positioning the Company to increase its market share in our various niche businesses," concluded Mr. Gould. The Company will host a conference call at 9:30 a.m. Eastern Time today to discuss this press release and to answer questions. To participate in the conference call, please dial 800-936-9754 five to 10 minutes before the call is scheduled to begin. The financial information to be discussed during the conference call is included in the Company's Form 10-Q filed with the Securities and Exchange Commission ("SEC") on July 17, 2006 and will be added to Q.E.P.'s website at www.qep.com in the Investor Relations section. Certain statements in this press release, including statements regarding our integration of the Capitol USA business, and financial improvements in cost controls, price increases and profitability, our growth in our net sales, the sale of our product offerings positioning us to increase our market share in our various niche businesses and our ability to implement additional price increases are forward-looking statements, which are made pursuant to the safe-harbor provisions of the 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 price increases initiatives, and the success of our sales and marketing efforts. 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 28, 2006, filed with the SEC, and in other reports already filed with the SEC. -0- *T Q.E.P. CO., INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per-share data; unaudited) Three Months Ended 5/31/06 5/31/05 ----------- ----------- Net sales $54,132 $49,873 Cost of goods sold 38,866 35,522 ----------- ----------- Gross profit 15,266 14,351 Costs and expenses Shipping 5,548 5,034 General and administrative 5,052 4,583 Selling and marketing 3,558 4,445 Other expense (2) (1,153) ----------- ----------- Total costs and expenses 14,156 13,800 ----------- ----------- Operating income 1,110 2,442 Change in warrant put liability ---- 505 Interest expense 724 487 ----------- ----------- Income before provision for income taxes 386 1,450 Provision for income taxes 142 680 ----------- ----------- Net income $244 $770 =========== =========== Basic net income per common share $0.07 $0.22 =========== =========== Diluted net income per common share $0.06 $0.21 =========== =========== Weighted average number of common shares - diluted 3,838 3,618 CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) 5/31/06 2/28/06 ----------- ---------- (unaudited) Assets Current Assets Cash and cash equivalents $731 $852 Accounts receivable 32,899 33,258 Inventories 33,447 34,128 Other current assets 3,969 4,334 ----------- ---------- Total current assets 71,046 72,572 Property and equipment, net 8,131 8,296 Goodwill 16,967 16,799 Other intangible assets, net 3,079 3,109 Other assets 212 310 ----------- ---------- Total Assets $99,435 $101,086 =========== ========== Liabilities and Shareholders' Equity Current liabilities Trade accounts payable $21,630 $24,041 Accrued liabilities 6,423 7,655 Lines of credit 29,342 26,284 Current maturities of long-term debt 4,449 4,431 Warrant put liability 1,789 1,789 ----------- ---------- Total current liabilities 63,633 64,200 Notes payable 3,139 4,950 Other long-term debt 4,367 4,197 Deferred income taxes 217 213 ----------- ---------- Total Liabilities 71,356 73,560 Shareholders' equity 28,079 27,526 ----------- ---------- Total Liabilities and Shareholders' Equity $99,435 $101,086 =========== ========== *T