QEPC Q E P Company Inc (QX)

Q.E.P. CO., INC. (Nasdaq:QEPC), today announced financial results for its fiscal 2007 fourth quarter and year ended February 28, 2007. Lewis Gould, Q.E.P.�s Chairman and Chief Executive Officer, stated: �Business conditions continued to be challenging. However, sales stayed firm with the prior quarter and increased 4.8 percent to $53.3 million, compared to $50.8 million in the same period last year. In addition, I am pleased that our sales for the year increased 4.7 percent to an all-time record $216.0 million from $206.3 million for fiscal 2006. �For the fiscal 2007 fourth quarter, the Company reported net income of $458,000, or $0.13 per diluted share, compared to a net loss of $1.6 million, or a loss of $0.47 per share for the fourth quarter last fiscal year. After excluding the change in the put warrant liability and other non-recurring items, the Company reported net income of $83,000, or $0.02 per diluted share for fiscal 2007 as compared to a loss of $948,000, or a loss of $0.28 per share for fiscal 2007. �I am especially pleased to report that for the fourth quarter of fiscal 2007, the Company generated $2.4 million of cash from operations, compared to $0.1 million in the fourth quarter of fiscal 2006. For fiscal 2007, the Company generated $4.9 million of cash from operations, compared to $1.8 million for the same period last year. �Although, the current first quarter of fiscal 2008 has not been completed, initial indications are for positive results.� On April 26, 2007, the Company and its lenders executed a Ninth Amendment to the Loan Agreement. Certain financial covenants were made less restrictive and the Company�s ability to borrow against eligible inventory was increased. At the Company�s current inventory and receivable levels, this advance rate change served to increase available borrowings by approximately $2 million. Certain statements in this press release, including statements relating to the Company's expectation for the results of its first fiscal quarter, 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, 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�28,�2007, filed with the SEC, and in other reports already filed with the SEC. -Financial Information Follows- Q.E.P. CO., Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except share data) � February 28,2007 February 28,2006 ASSETS CURRENT ASSETS Cash and cash equivalents $ 822� $ 852� Accounts receivable, less allowance for doubtful accounts of approximately $354 and $361 as of February 28, 2007 and February 28, 2006, respectively � 34,491� 33,258� Inventories 27,042� 34,128� Prepaid expenses and other current assets 1,349� 3,717� Deferred income taxes 1,299� 617� Total current assets 65,003� 72,572� � Property and equipment, net 6,770� 8,296� Deferred income taxes, net 2,764� -� Goodwill 9,563� 16,799� Other intangible assets, net 2,831� 3,109� Other assets 225� 310� � Total Assets $ 87,156� $ 101,086� � LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 17,705� $ 24,041� Accrued liabilities 9,868� 7,655� Lines of credit 27,405� 26,284� Current maturities of long term debt 4,085� 4,431� Put warrant liability 861� 2,298� Total current liabilities 59,924� 64,709� � Notes payable 2,398� 4,950� Other long-term debt 2,551� 4,197� Deferred income taxes -� 213� Total Liabilities 64,873� 74,069� � Commitments and Contingencies --� --� � SHAREHOLDERS' EQUITY Preferred stock; 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at February 28, 2007 and 2006 337� 337� Common stock; 20,000 shares authorized, $.001 par value; 3,523 shares and 3,458 shares issued, and 3,440 shares and 3,387 shares outstanding at February 28, 2007 and 2006, respectively � 3� 3� Additional paid-in capital 9,981� 9,539� Retained earnings 15,003� 21,205� Treasury stock; 83 and 71 shares held at cost at February 28, 2007 and 2006, respectively (639) (543) Accumulated other comprehensive income (loss) (2,402) (3,524) 22,283� 27,017� TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 87,156� $ 101,086� Q.E.P. CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) � For the Three Months Ended February 28, For the Fiscal Year Ended February 28, 2007� 2006� 2007� 2006� � Net sales $ 53,258� $ 50,809� $ 216,006� $ 206,252� Cost of goods sold 38,088� 37,778� 156,326� 150,318� Gross profit 15,170� 13,031� 59,680� 55,934� � Operating costs and expenses: Shipping 5,856� 5,824� 23,577� 22,024� General and administrative 4,790� 4,877� 19,355� 18,821� Selling and marketing 3,110� 3,382� 12,581� 13,065� Impairment loss on goodwill and other intangibles -� -� 7,520� -� Other expense (income), net (2) 119� (43) (1,156) Total operating costs and expenses 13,754� 14,202� 62,990� 52,754� � Operating income (loss) 1,416� (1,171) (3,310) 3,180� � Change in put warrant liability 118� 188� 1,437� 1,238� Interest expense, net (810) (687) (2,977) (2,498) � Income (loss) before provision for income taxes 724� (1,670) (4,850) 1,920� � Provision for income taxes 266� (81) 723� 922� � Net income (loss) $ 458� $ (1,589) $ (5,573) $ 998� � Net income (loss) per share: Basic $ 0.13� $ (0.47) $ (1.64) $ 0.29� Diluted $ 0.13� $ (0.47) $ (1.64) $ 0.26� � Weighted-average number of common shares outstanding � Basic 3,437� 3,387� 3,411� 3,387� Diluted 3,594� 3,387� 3,411� 3,752� Net Income (Loss) Compared to Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items (In thousands except per share data) � While Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items is not a measure of financial performance under generally accepted accounting principles, the Company believes that the measure provides meaningful comparisons of the Company�s current and projected operating performance with its historical results. The Company uses Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items as an internal measure of its business and believes it is utilized as an important measure of performance by the investment community. Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items is not meant to be considered a substitute or replacement for Net Income 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 is as follows: � 2007� 2006� � � Net income (loss), as reported (a) $ (5,573) $ 998� � Add back (deduct): 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 the Holland subsidiary 478� -� Loss related to the disposition of certain assets and obligations of the Holland subsidiary, net of tax benefit 563� -� Gain on sale of carpet seaming tape business, net of tax -� (708) Change in put warrant liability (1,437) (1,238) Net income (loss) adjusted for the change in the put warrant liability and non-recurring items (b) $ 83� $ (948) � Earnings (loss) per share, as reported: Basic ((a)/(c)) $ (1.64) $ 0.29� Diluted ((a)/(d)) $ (1.64) $ 0.26� � Weighted average number of shares outstanding, as reported: Basic (c) 3,411� 3,387� Diluted (d) 3,411� 3,752� � Earnings per share adjusted for the change in the put warrant liability and non-recurring items: Basic ((b)/(e)) $ 0.02� $ (0.28) Diluted ((b)/(f)) $ 0.02� $ (0.28) � Weighted average number of shares outstanding as adjusted for the change in the put warrant liability and non-recurring items: Basic (e) 3,411� 3,387� Diluted (f) 3,657� 3,387� Q.E.P. CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) � Year Ended February 28, February 28, 2007� 2006� Cash flows from operating activities: Net income (loss) $ (5,573) $ 998� � Adjustments to reconcile net income (loss) to net cash provided by operating activities: � Depreciation and amortization 2,568� 3,906� Impairment loss on goodwill and other intangibles 7,520� -� Change in fair value of put warrant liability (1,437) (1,238) Write-off of Holland accumulated foreign translation adjustment 478� -� Bad debt expense 313� 359� Gain on sale of business -� (1,120) Stock-based compensation expense 171� -� Deferred income taxes (3,657) 235� Changes in assets and liabilities, net of acquisitions: Accounts receivable (1,256) (6,500) Inventories 7,355� (1,832) Prepaid expenses 2,381� 476� Other assets (78) (660) Trade accounts payable and accrued liabilities (3,926) 7,136� Net cash provided by operating activities 4,859� 1,760� � Cash flows from investing activities: Capital expenditures (730) (2,188) Acquisitions, net of cash acquired -� (2,512) Net cash used in investing activities (730) (4,700) � Cash flows from financing activities: Net borrowings under lines of credit 443� 2,072� Borrowings of long term debt -� 3,417� Repayments of notes payable (2,771) (2,668) Repayments of acquisition debt (1,885) (1,014) Purchase of treasury stock (120) (120) Proceeds from exercise of stock options 297� 9� Dividends (22) (16) Net cash provided by (used in) financing activities (4,058) 1,680� � Effect of exchange rate changes on cash (101) 243� � Net increase (decrease) in cash (30) (1,017) � Cash and cash equivalents at beginning of year 852� 1,869� � Cash and cash equivalents at end of year $ 822� $ 852�