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Quality Products Announces Results For the Three and Twelve Months Ended September 30, 2011

Dépèche transmise le 29 décembre 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 reported fiscal 2011 fourth quarter and twelve months operating results.

QUARTERLY RESULTS

Net income was $1,781,706 compared to $1,683,157 earned last year, an increase of $98,549 or 5.9%. Revenues were $5,845,627 compared to $4,956,351 last year, an increase of $889,276 or 17.9%. The gross margin increased to 46.2% this year from 44.3% 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 $924,600 compared to $847,804, an increase of $76,796 or 9.1%, and gross profit was $282,562 or 30.6% compared to $354,212 or 41.8%, a decrease of $(71,650) or 20.2%. Incoming orders were $556,130 compared to $922,553 last year, a decrease of $(366,423) or (39.7)%. 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 $4,921,027 compared to $4,108,547 last year, an increase of $812,480 or 19.8%. Gross profit was $2,418,111 or 49.1% compared to $1,831,584 or 44.6% last year, an increase of $586,527 or 32.0%. However, incoming orders were $4,841,596 compared to $6,021,200, a decrease of $(1,179,604) or (19.6)% compared to last year. A majority of this segment’s business is with the U.S. government, so if defense spending is reduced, which based on recent government discussions appears probable, it is likely this segment will be unfavorably impacted. Historically, when equipment orders have declined, the impact has been somewhat muted by an increase in higher-margin parts orders as customers repair existing equipment instead of buying new equipment. However, we are unable to quantify this effect.

S G & A expenses were $878,589 or 15.0% of sales in the current quarter compared to $906,372 or 18.2% last year, a decrease of $(27,783) or (3.1)%. This is primarily due to lower bad debt expenses this year.

Other expense was $(40,378) in the latest quarter compared to other income of $394,719 last year, a decrease of $(435,097) or (110.2)%. The latest quarter includes no royalties for our joint participation in certain military contracts and approximately $(41,000) of distributions and net realized losses from our investments. Last year included approximately $544,000 of royalties for our joint participation in certain military contracts and approximately $253,000 of distributions and net realized gains from our investments.

Income tax expense decreased by approximately $(233,000) primarily due to year-end reconciling adjustments.

Basic and diluted EPS was $0.66, up from $0.50 and the weighted average shares outstanding decreased to 2,425,543 from 2,555,083.

FISCAL TWELVE MONTHS RESULTS

Net income was $5,746,254 compared to $5,760,874 earned last year, a decrease of $(14,620) or (0.3)%. Revenues were $22,010,379 compared to $20,838,273 last year, an increase of $1,172,106, or 5.6%. Gross margins were 47.4% this year, down from 48.9% 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 $3,987,902 compared to $2,861,948 last year, an increase of $1,125,954 or 39.3%. Gross profit was $1,417,468 or 35.5% compared to $1,164,725 or 40.7%, an increase of $252,743 or 21.7%. Additionally, incoming orders were $4,132,328 compared to $2,907,057 last year, an increase of $1,225,271 or 42.1%. 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 $18,022,477 compared to $17,976,325 last year, an increase of $46,152 or 0.3%. Gross profit was $9,017,264 or 50.0% compared to $9,017,120 or 50.2% last year, an increase of $144 or 0.0%. However, incoming orders were $16,974,457 compared to $17,422,441 last year, a decrease of $(447,984) or (2.6)%. A majority of this segment’s business is with the U.S. government, so if defense spending is reduced, which based on recent government discussions appears probable, it is likely this segment will be unfavorably impacted. Historically, when equipment orders have declined, the impact has been somewhat muted by an increase in higher-margin parts orders as customers repair existing equipment instead of buying new equipment. However, we are unable to quantify this effect.

S G & A expenses were $3,563,736 or 16.2% of sales in 2011 compared to $3,691,257 or 17.7% in 2010, a decrease of $(127,521) or (3.5)%. This difference primarily relates to higher sales commissions in 2010.

2011 other income was $1,683,890 compared to $2,507,181 in 2010, a decrease of $(823,291) or (32.8)%. 2011 includes approximately $1.27 million of royalties for our joint participation in certain military contracts and approximately $877,000 of distributions and net realized gains from our investments. Additionally, we recognized an impairment loss of $(419,000) on certain investments. 2010 included approximately $1.7 million of royalties, $1.1 million of distributions and net realized gains from our investments, and an impairment loss of $(411,000).

Income tax expense decreased by approximately $(437,000) primarily due to a domestic manufacturing deduction and lower taxable income in 2011.

Basic and diluted EPS increased to $2.34 from $1.87 and the weighted average shares outstanding decreased to 2,451,192 from 3,077,516.

Backlog

On December 29th, the order backlog for Multipress was approximately $1.2 million, up from the previous quarter’s reported level of $1.0 million, and up from last year’s level of $814,000.

The backlog for Columbus Jack was approximately $4.3 million, down from the previous quarter’s reported level of $5.9 million, and down from last year’s level of $6.2 million.

We do not provide financial estimates for future periods.

Liquidity & Cash Uses for the Twelve Months Ended September 30, 2011

As shown in the September 30, 2011 balance sheet, cash, short-term investments, accounts receivable and inventories totaled $9.6 million compared to $5.7 million of total liabilities. The balance outstanding under our credit lines was $2,456,637, leaving us with borrowing capacity of $2,043,363 at September 30, 2011, down by $1,812,859 from the previous quarter’s availability. On December 29th the balance outstanding under our credit lines was $707,400, leaving us with borrowing capacity of $3,792,600.

We generated positive operating cash flow of $6,650,045, while capital expenditures were $80,351. We received net cash of $2,109,980 from the sale and purchase of 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 September 30, 2011, we had remaining commitments to these entities of approximately $1.19 million. Subsequent to quarter-end, we have not funded any of these remaining commitments. However, we did commit to and fund a new investment for $160,000.

During the twelve months we used $8,602,043 to pay common stock dividends. We also used $1,474,068 to repurchase shares of our common stock during the twelve months. Through December 29th we have repurchased 346,067 shares, or 69.2% 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.

During 2010 & 2011, the Company’s subsidiary, Multipress, was named as a defendant in multiple lawsuits. The Company has not accrued a liability at September 30, 2011 for the pending litigation since an estimate of the range of loss cannot be made at this time. During 2011, the defense of these cases was assumed by a third party, but there is the possibility of the defense reverting back to Multipress. However, based on the outcome of a similar claim involving Multipress, management expects the lawsuits to be fully dismissed and does not expect any liability to the Company to result from this matter.

Quality Products currently has 67 employees, unchanged from 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
SEPTEMBER 30, 2011

 
ASSETS
 
CURRENT ASSETS:
Cash $ 2,785,549
Short-term Investments 595,043

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

2,250,454

Inventories, net of reserve of $246,029 3,985,585
Deferred income taxes, current 350,790

Prepaid expenses and other current assets

  181,717  
Total current assets   10,149,138  
 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,889,905

934,637

 
INVESTMENTS, non-current 4,064,993
 

INTANGIBLE ASSETS, net of accumulated amortization of $1,615,505

742,934

 

GOODWILL, net of accumulated amortization of $19,174

 

2,723,247

 
 
TOTAL ASSETS $ 18,614,949  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 
Accounts payable $ 948,190
Accrued payroll and payroll related expenses 748,903
Other accrued expenses and current liabilities 486,445
Taxes payable 107,082
Customer deposits   506,148  
Total current liabilities   2,796,768  
 
PENSION OBLIGATION 177,055
 
DEFERRED TAXES, non-current 283,247
 
LONG-TERM DEBT:
Line of Credit 2,456,637
 
TOTAL LIABILITIES   5,713,707  
 
 
STOCKHOLDERS' EQUITY:
 
Convertible preferred stock, Series A -
Convertible preferred stock, Series B -
Common stock 17
Additional paid-in capital 11,705,800
Accumulated other comprehensive (loss) (152,005 )
Retained earnings 1,763,739
Less cost of treasury stock (17,175 shares of common stock)   (416,309 )
Total stockholders' equity   12,901,242  
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,614,949  
 

QUALITY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND TWELVE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

 
 

Three Months

 

Twelve Months

(UNAUDITED)

 

 

2011

 

2010

2011

2010

 
NET SALES $ 5,845,627 $ 4,956,351 $ 22,010,379 $ 20,838,273
 

COST OF GOODS SOLD

  3,144,954     2,761,541     11,575,647     10,647,414  
 
GROSS PROFIT 2,700,673 2,194,810 10,434,732 10,190,859
 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

878,589

   

906,372

   

3,563,736

   

3,691,257

 
 
INCOME FROM OPERATIONS

1,822,084

1,288,438

6,870,996

6,499,602

 
OTHER INCOME:
Interest expense (8,888 ) (492 ) (37,516 ) (23,519 )
Interest income 50 3,478 1,618 34,668
Royalty and other income

387,812

803,023

2,139,140

2,907,322

Impairment loss   (419,352 )   (411,290 )   (419,352 )   (411,290 )
Other income(expense), net   (40,378 )  

394,719

   

1,683,890

   

2,507,181

 
 

INCOME BEFORE PROVISION FOR INCOME TAXES

1,781,706

1,683,157

8,554,886

9,006,783

 

PROVISION FOR INCOME TAXES

 

162,921

   

396,765

   

2,808,632

   

3,245,909

 
 
NET INCOME $ 1,618,785   $ 1,286,392   $ 5,746,254   $ 5,760,874  
 

 

UNREALIZED GAIN(LOSS) ON SHORT-TERM INVESTMENTS, NET OF TAX

 

(435,428

 

)

 

267,016

 

(203,137

 

)

 

109,955

 

MINIMUM PENSION LIABILITY, NET OF TAX

 

 

(17,147

 

)

 

 

(18,927

 

)

 

 

(17,147

 

)

 

 

(18,927

 

)

 
COMPREHENSIVE INCOME $ 1,166,210   $ 1,534,481   $ 5,525,970   $ 5,851,902  
 
BASIC INCOME PER SHARE:

$

.66

 

$

.50

 

$

2.34

 

$

1.87

 
 
DILUTED INCOME PER SHARE:

$

.66

 

$

.50

 

$

2.34

 

$

1.87

 
 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:

Basic 2,425,543 2,555,083 2,451,192 3,077,516
Diluted 2,425,543 2,555,083 2,451,192 3,077,516
 

QUALITY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

   

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,746,254 $ 5,760,874

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

Depreciation and amortization 391,518 444,794
Bad Debt Expense 6,475 34,727
Deferred taxes 374,315 2,648,922
Pension expense (22,715 ) (39,950 )
Gain on sale of investments (335,024 ) (241,375 )
Impairment loss 419,352 411,290

Changes in operating assets and liabilities:

Accounts receivable (479,469 ) (67,779 )
Inventories (377,335 ) 85,223
Refundable income taxes 141,541 (141,541 )
Other assets (4,773 ) 195,515
Accounts payable 243,025 (74,336 )
Accrued payroll 178,987 37,440
Accrued expenses (462 ) 134,135
Taxes payable 107,082 (383,232 )
Customer deposits   261,274     32,618  
Net cash provided by operating activities   6,650,045     8,837,325  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (80,351 ) (551,743 )
Cash received from sale of investments 4,582,573 1,710,008
Purchase of investments   (2,472,593 )   (3,293,436 )
Net cash provided (used) by investing activities   2,029,629     (2,135,171 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on non-related party debt -- (158,438 )
Proceeds from Line of Credit 2,456,637 --
Common Stock Repurchased (1,474,068 ) (7,535,981 )
Dividends paid to common shareholders   (8,602,043 )   (691,446 )

Net cash (used) by financing activities

  (7,619,474 )   (8,385,865 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  

1,060,200

   

(1,683,711

)

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

1,725,349

   

3,409,060

 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,785,549   $ 1,725,349  
 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest $ 37,516 $ 23,519
Cash paid for income taxes $ 2,185,694 $ 1,121,761
 

Business Wire

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