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Quality Products Announces Payment of a Special Dividend and Results For the Three and Six Months Ended March 31, 2011

Dépèche transmise le 11 mai 2011 par Business Wire

COLUMBUS, Ohio--(BUSINESS WIRE)--Quality Products, Inc. (Pink Sheets: QPDC), a manufacturer and distributor of aircraft ground support equipment (“Columbus Jack & Regent Manufacturing”) and hydraulic press machine tools (“Multipress”), today announced payment of a special dividend and reported fiscal 2011 second quarter and six months operating results.

SPECIAL DIVIDEND

The Company’s board of directors has approved a special one-time dividend of $1.25 per share, or approximately $3,043,000. The special dividend will be payable on July 1, 2011, to shareholders of record on June 17, 2011 and the Company will use up to $3,000,000 of debt to fund this dividend with the remainder provided by existing cash.

QUARTERLY RESULTS

Net income was $1,520,459 compared to $1,444,312 earned last year, an increase of $76,147 or 5.3%. Revenues were $6,058,888 compared to $5,244,273 last year, an increase of $814,615 or 15.5%. The gross margin decreased to 43.1% this year from 48.6% last year. As with most manufacturers, our margins can vary significantly depending on product mix and pricing pressures in the marketplace. Due to these factors, we consider the range of 35 – 40% to be normal for gross margins.

Shipments in the Multipress segment were $821,988 compared to $777,825, an increase of $44,163 or 5.7%, and gross profit was $336,762 or 41.0% compared to $333,380 or 42.9%, an increase of $3,382 or 1.0%. Incoming orders were up by $447,233 or 57.4% compared to last year. Historically, the visibility of future business for this segment has rarely exceeded six months, making it difficult to predict long-term trends.

Shipments in the ground support equipment segment were $5,236,900 compared to $4,466,448 last year, an increase of $770,452 or 17.2%. Gross profit was $2,271,795 or 43.4% compared to $2,213,213 or 49.6% last year, an increase of $58,582 or 2.6%. However, incoming orders decreased by $(1,265,265) or (29.1)% compared to last year. A majority of this segment’s business is with the U.S. government, so if defense spending is reduced it is likely this segment will be unfavorably impacted.

S G & A expenses were $883,079 or 14.6% of sales in the current quarter compared to $806,493 or 15.4% last year, an increase of $76,586 or 9.5%. This is primarily due to higher wages and benefits, higher consulting expenses, and higher public company expenses.

Other income in the latest quarter includes $671,000 of royalties for our joint participation in certain military contracts and approximately $33,000 of distributions and realized gains from our investments.

Income tax expense decreased by approximately $(27,000) primarily due to changes in estimates.

Basic and diluted EPS was $0.62, up from $0.42 and the weighted average shares outstanding decreased to 2,468,522 from 3,402,425.

FISCAL SIX MONTHS RESULTS

Net income was $2,960,078 compared to $2,417,685 earned last year, an increase of $542,393 or 22.4%. Revenues were $10,856,581 compared to $10,089,936 last year, an increase of $766,645, or 7.6%. The gross margin was 49.1% this year, up from 46.8% last year. While the gross margin in the current year is very strong, it should not be considered representative of future performance. As with most manufacturers, our margins can vary significantly depending on product mix and pricing pressures in the marketplace. Due to these factors, we consider the range of 35 – 40% to be normal for gross margins.

Shipments in the Multipress segment were $1,546,806 compared to $1,400,473 last year, an increase of $146,333 or 10.4%. Gross profit was $617,269 or 39.9% compared to $556,592 or 39.7%, an increase of $60,677 or 10.9%. Additionally, incoming orders were up by $1,112,947 or 47.3%. Historically, the visibility of future business for this segment has rarely exceeded six months, making it difficult to predict long-term trends.

Shipments in the ground support equipment segment were $9,309,775 compared to $8,689,463 last year, an increase of $620,312 or 7.1%. Gross profit was $4,716,862 or 50.7% compared to $4,165,218 or 47.9% last year, an increase of $551,644 or 13.2%. However, incoming orders decreased by $(625,025) or (8.6)%. A majority of this segment’s business is with the U.S. government, so if defense spending is reduced, it is likely this segment will be unfavorably impacted.

S G & A expenses were $1,722,068 or 15.9% of sales in 2011 compared to $1,726,745 or 17.1% in 2010, a decrease of $(4,677) or (0.3)%. This difference primarily relates to higher sales commissions in 2010.

2011 other income includes approximately $981,000 of royalties for our joint participation in certain military contracts and approximately $259,000 of distributions and realized gains from our investments.

Income tax expense increased by approximately $267,000 primarily due to higher taxable income in 2011.

Basic and diluted EPS increased to $1.20 from $0.70 and the weighted average shares outstanding decreased to 2,471,539 from 3,441,672.

Backlog

On May 11th, the order backlog for Multipress was approximately $955,000, up from the previous quarter’s reported level of $866,000, and up from last year’s level of $310,000.

The backlog for Columbus Jack was approximately $4.7 million, unchanged from the previous quarter’s reported level of $4.7 million, and down from last year’s level of $5.8 million.

We do not provide financial estimates for future periods.

Liquidity & Cash Uses for the Six Months Ended March 31, 2011

As shown in the March 31, 2011 balance sheet, cash, short-term investments, accounts receivable and inventories totaled $10.2 million compared to $5.2 million of total liabilities. The balance outstanding under our credit lines was $1,800,000, leaving us with borrowing capacity of $2,700,000 at March 31, 2011, up by $2,200,000 from the previous quarter’s availability. Subsequent to quarter-end we have repaid $800,000 of our debt. On May 11th the balance outstanding under our credit lines was $1,000,000, leaving us with borrowing capacity of $3,500,000.

We generated positive operating cash flow of $4,012,892, while capital expenditures were $34,327. We used net cash of $365,828 to purchase investments. The items classified on the balance sheet as "short-term investments" consist of various publicly traded mutual funds and common stocks. The items classified as "non-current investments" are minority positions in numerous non-related party private equity companies in manufacturing, service, distribution, technology, real estate, and financial industries. These are considered long-term investments and are not intended for short-term liquidation. Many of our “non-current” investments require the Company to commit to additional funding in excess of the initial contribution. These additional funds are collected from time-to-time, usually over 2 – 3 years, as the management of the investment deems it necessary. At March 31, 2011, we had remaining commitments to these entities of approximately $1.48 million. Subsequent to quarter-end, we did not fund any of these remaining commitments.

We also used $5,562,893 to pay a common stock dividend, and $527,663 to repurchase shares of our common stock. Through May 11th we have repurchased 325,757 shares, or 65.2% of the 500,000 shares authorized by the Board on May 20, 2010.

Other Information

Quality Products’ large number of smaller shareholders has become increasingly costly and burdensome to service. In addition to the stock repurchase program referenced above, the Board of Directors is considering effecting a reverse stock split as another solution to this issue. Such an action, if it were to occur, would reduce the number of shareholders by paying cash for the resulting fractional shares. Should the Company decide to proceed with this action, it will issue a separate communication at a later date more fully describing the matter.

On March 18th we received a letter from the Internal Revenue Service (IRS) indicating that the previously disclosed audit of our 2009 and 2008 tax years is final and no changes were made to our tax returns.

During 2010, the Company’s subsidiary, Multipress, was named as a defendant in a pending lawsuit. The Company has not accrued a liability in the financial statements since an estimate of the range of loss cannot be made at this time. However, management expects the lawsuit to be dismissed and does not expect any liability to the Company to result from this matter.

Quality Products currently has 67 employees, up from 65 in the previous report.

Columbus Jack will occasionally be a joint participant in certain military contracts which are awarded in the name of the other participating entity. As such, we will not recognize revenues associated with those contracts, but instead will recognize our share of the contract profits as royalty income.

For more information on products and services please visit: www.columbusjack.com, www.multipress.com, and www.regentgse.com.

This press release, other than the historical information, consists of "forward-looking statements" (as defined in the Private Securities Litigation Reform Act of 1995), which are identified by the use of words such as "believes", "expects", "projects", and similar expressions. While these statements reflect the Company's current beliefs and are based on assumptions that the Company believes are reasonable, they are subject to uncertainties and risks that could cause actual results to differ materially from anticipated results.

 

QUALITY PRODUCTS, INC.

 
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2011

 

ASSETS
 
CURRENT ASSETS:
 
Cash $ 1,047,530
Short-term Investments 3,274,814

Accounts receivable, net of allowance for doubtful accounts of $47,833

1,685,075

Inventories, net of reserve of $246,029 4,258,424
Refundable income taxes 35,347
Deferred income taxes, current 302,670
Prepaid expenses and other current assets   115,052  
Total current assets   10,718,912  
 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,759,139

1,023,151

 
INVESTMENTS, non-current 4,532,194
 

INTANGIBLE ASSETS, net of accumulated amortization of $1,575,512

782,926

 

GOODWILL, net of accumulated amortization of $19,174

2,723,247

 
TOTAL ASSETS $ 19,780,430  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 
Accounts payable $ 1,098,752
Accrued payroll and payroll related expenses 389,576
Other accrued expenses and current liabilities 176,190
Taxes payable 16,084
Accrued warranty 283,496
Customer deposits   696,414  
Total current liabilities   2,660,512  
 
PENSION OBLIGATION 173,790
 
DEFERRED TAXES, non-current 561,201
 
LONG-TERM DEBT:
Line of Credit 1,800,000
 
TOTAL LIABILITIES   5,195,503  
 
 
STOCKHOLDERS' EQUITY:
 
Convertible preferred stock, Series A -
Convertible preferred stock, Series B -
Common stock 17
Additional paid-in capital 12,296,360
Accumulated other comprehensive gain 332,300
Retained earnings 2,016,713
Less cost of treasury stock (3,459 shares of common stock)   (60,463 )
Total stockholders' equity   14,584,927  
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,780,430  
 

 
QUALITY PRODUCTS, INC.
 
CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2011 AND 2010

 

Three Months

 

Six Months

(UNAUDITED)

(UNAUDITED)

2011

 

2010

2011

 

2010

 
NET SALES $ 6,058,888 $ 5,244,273 $ 10,856,581 $ 10,089,936
 
COST OF GOODS SOLD   3,450,331     2,697,714   5,522,449     5,368,160  
 
GROSS PROFIT 2,608,557 2,546,559 5,334,132 4,721,776
 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

883,079

   

806,493

 

1,722,068

   

1,726,745

 
 
INCOME FROM OPERATIONS

1,725,478

1,740,066

3,612,064

2,995,031

 
OTHER INCOME:
Interest expense (15,520 ) -- (21,170 ) (2,797 )
Interest income 180 3,729 1,388 20,803
Royalty and other income

707,381

625,301

1,252,602

1,022,442

 
Other income, net   692,041     629,030   1,232,820     1,040,448  
 

INCOME BEFORE PROVISION FOR INCOME TAXES

2,417,519

2,369,096

4,844,884

4,035,479

 

PROVISION FOR INCOME TAXES

 

897,060

   

924,784

 

1,884,806

   

1,617,794

 
 
NET INCOME $ 1,520,459   $ 1,444,312 $ 2,960,078   $ 2,417,685  
 

UNREALIZED GAIN ON SHORT-TERM INVESTMENTS, NET OF TAX

113,126

81,296

264,021

130,421

 
COMPREHENSIVE INCOME $ 1,633,585   $ 1,525,608 $ 3,224,099   $ 2,548,106  

 

BASIC INCOME PER SHARE:

$

.62

 

$

.42

$

1.20

 

$

.70

 
 
DILUTED INCOME PER SHARE:

$

.62

 

$

.42

$

1.20

 

$

.70

 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic 2,468,522 3,402,425 2,471,539 3,441,672
Diluted 2,468,522 3,402,425 2,471,539 3,441,672
 

QUALITY PRODUCTS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED MARCH 31, 2011 AND 2010

 

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,960,078 $ 2,417,685

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 216,839 224,649
Inventory reserve 5,485 --
Deferred taxes 586,909 1,362,798
Pension expense 36,496 14,598
Loss (Gain) on disposal of assets 150 (4,476 )
(Gain) on sale of investments (15,030 ) (38,533 )
 

Changes in operating assets and liabilities:

Accounts receivable 92,384 272,652
Inventories (655,658 ) 3,574
Refundable income taxes 106,194 --
Other assets 61,892 201,115
Accounts payable 393,589 129,256
Accrued payroll (180,341 ) (172,118 )
Accrued expenses (63,719 ) (32,940 )
Taxes payable 16,084 (264,269 )
Customer deposits   451,540     8,869  
Net cash provided by operating activities   4,012,892     4,122,860  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (34,327 ) (471,120 )
Cash received from sale of asset -- 4,500
Cash received from sale of investments 911,347 493,408
Purchase of investments   (1,277,175 )   (1,701,490 )
Net cash (used) by investing activities   (400,155 )   (1,674,702 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on non-related party debt -- (158,438 )
Proceeds from Line of Credit 1,800,000 --
Common Stock Repurchased (527,663 ) (2,183,147 )
Dividends paid to common shareholders   (5,562,893 )   (691,446 )
Net cash (used) by financing activities   (4,290,556 )   (3,033,031 )
 
NET (DECREASE) IN CASH AND CASH EQUIVALENTS   (677,819 )   (584,873 )
 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

1,725,349

   

3,409,060

 
 

CASH AND CASH EQUIVALENTS, END OF PERIOD

$ 1,047,530   $ 2,824,187  
 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest $ 21,170 $ 2,797
Cash paid for income taxes $ 1,163,619 $ 519,264
 

Business Wire

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