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Quality Products Announces Results For the Three Months Ended December 31, 2011

Dépèche transmise le 3 février 2012 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 2012 first quarter operating results.

QUARTERLY RESULTS

Net income was $1,075,544 compared to $1,439,616 earned last year, a decrease of $(364,072) or (25.3)%. Revenues were $4,775,209 compared to $4,797,693 last year, a decrease of $(22,484) or (0.5)%. The gross margin decreased to 49.7% this year from 56.8% 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 $914,843 compared to $724,818, an increase of $190,025 or 26.2%, and gross profit was $323,348 or 35.3% compared to $280,507 or 38.7%, an increase of $42,841 or 15.3%. Incoming orders were $1,524,973 compared to $1,136,036 last year, an increase of $388,937 or 34.2%. 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 $3,860,366 compared to $4,072,875 last year, a decrease of $(212,509) or (5.5)%. Gross profit was $2,051,703 or 53.1% compared to $2,445,068 or 60.0% last year, a decrease of $(393,365) or (16.1)%. Incoming orders were $3,037,279 compared to $3,535,831, a decrease of $(498,552) or (14.1)% 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 $874,078 or 18.3% of sales in the current quarter compared to $838,990 or 17.5% last year, an increase of $35,088 or 4.2%. This is primarily due to higher sales commission expenses this year.

Other income was $244,904 in the latest quarter compared to $540,778 last year, a decrease of $(295,874) or (54.7)%. The latest quarter includes approximately $125,000 of royalties for our joint participation in certain military contracts and approximately $119,000 of distributions and net realized gains from our investments. Last year included approximately $310,000 of royalties for our joint participation in certain military contracts and approximately $226,000 of distributions and net realized gains from our investments.

Income tax expense was $670,333 in the latest quarter compared to $987,747 last year, a decrease of $(317,414) or (32.1)%. This is primarily due to lower pre-tax income.

Basic and diluted EPS was $0.45, down from $0.58 and the weighted average shares outstanding decreased to 2,414,142 from 2,474,490.

Backlog

On February 2nd, the order backlog for Multipress was approximately $1.5 million, up from the previous quarter’s reported level of $1.2 million, and up from last year’s level of $866,000.

The backlog for Columbus Jack was approximately $3.5 million, down from the previous quarter’s reported level of $4.3 million, and down from last year’s level of $4.7 million.

We do not provide financial estimates for future periods.

Liquidity & Cash Uses for the Three Months Ended December 31, 2011

As shown in the December 31, 2011 balance sheet, cash, short-term investments, accounts receivable and inventories totaled $9.4 million compared to $4.3 million of total liabilities. The balance outstanding under our credit lines was $528,284, leaving us with borrowing capacity of $3,971,716 at December 31, 2011, up by $1,928,353 from the previous quarter’s availability.

As discussed in detail below, subsequent to quarter-end we established a new loan agreement with our bank, borrowed from this new credit line, and paid a cash dividend to our common shareholders. On February 2nd the balance outstanding under our credit lines was $8,350,090, leaving us with borrowing capacity of $4,149,910.

We generated positive operating cash flow of $1,949,506, while capital expenditures were $37,588. We received net cash of $97,530 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 December 31, 2011, we had remaining commitments to these entities of approximately $1.19 million. Subsequent to quarter-end, we have funded $107,000 of these remaining commitments.

During the three months we did not pay any common stock dividends. However, subsequent to quarter-end, on February 1st , we paid a common stock dividend of $3.00 per share or a total of $7,230,357. We used $650 to repurchase shares of our common stock during the three months. Subsequent to quarter-end we purchased an additional 4,000 shares for $97,400. Through February 2nd we have repurchased 350,067 shares, or 70.0% 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 December 31, 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 68 employees, up from 67 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.

On January 11, 2012 the Company entered into a $12,000,000 revolving line of credit agreement with a regional bank, payable at a variable interest rate of LIBOR plus 1.75%. The credit availability under this line amortizes by $3,000,000 in each of January 2014 and January 2015, with a final balloon payment of up to $6,000,000 due when the line matures on January 11, 2016. All assets of the Company are held as collateral. This line replaced the Company’s $4,000,000 revolving line which was scheduled to mature in October 2013. The bank also extended the maturity date of the Company’s existing $500,000 revolving line of credit agreement to April 2013 from the original date of April 2012.

On February 1, 2012 the Company paid a special one-time dividend of $3.00 per share for a total of $7,230,357. The special dividend was funded with bank financing.

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)
DECEMBER 31, 2011

 

ASSETS
 
CURRENT ASSETS:
Cash $ 2,865,994
Short-term Investments 554,487

Accounts receivable, net of allowance for doubtful accounts of $74,570

1,407,744

Inventories, net of reserve of $246,029 4,581,169
Deferred income taxes, current 350,790
Prepaid expenses and other current assets   153,173  
Total current assets   9,913,357  
 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,954,876

905,666

 
INVESTMENTS, non-current 4,063,430
 

INTANGIBLE ASSETS, net of accumulated amortization of $1,628,169

730,270

 

GOODWILL, net of accumulated amortization of $19,174

 

2,723,247

 
 
TOTAL ASSETS $ 18,335,970  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 
Accounts payable $ 835,767
Accrued payroll and payroll related expenses 525,499
Other accrued expenses and current liabilities 287,782
Taxes payable 651,415
Customer deposits   1,069,212  
Total current liabilities   3,369,675  
 
PENSION OBLIGATION 177,055
 
DEFERRED TAXES, non-current 283,782
 
LONG-TERM DEBT:
Line of Credit 528,284
 
TOTAL LIABILITIES   4,358,796  
 
 
STOCKHOLDERS' EQUITY:
 
Convertible preferred stock, Series A -
Convertible preferred stock, Series B -
Common stock 17
Additional paid-in capital 11,705,150
Accumulated other comprehensive (loss) (150,967 )
Retained earnings 2,839,283
Less cost of treasury stock (17,175 shares of common stock)   (416,309 )
Total stockholders' equity   13,977,174  
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,335,970  
 
 

QUALITY PRODUCTS, INC.

 
CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

 

Three Months

(UNAUDITED)
 

2011

2010

 
NET SALES $ 4,775,209 $ 4,797,693
 
COST OF GOODS SOLD   2,400,158     2,072,118  
 
GROSS PROFIT 2,375,051 2,725,575
 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

874,078

   

838,990

 
 
INCOME FROM OPERATIONS

1,500,973

1,886,585

 
OTHER INCOME:
Interest expense (8,290 ) (5,650 )
Interest income 844 1,208
Royalty and other income  

252,350

   

545,220

 
Other income, net   244,904     540,778  
 

INCOME BEFORE PROVISION FOR INCOME TAXES

1,745,877

2,427,363

 

PROVISION FOR INCOME TAXES

 

670,333

   

987,747

 
 
NET INCOME $ 1,075,544   $ 1,439,616  
 

 

UNREALIZED GAIN ON SHORT-TERM INVESTMENTS, NET OF TAX

 

1,038

150,895

 
COMPREHENSIVE INCOME $ 1,076,582   $ 1,590,511  
 
BASIC AND DILUTED INCOME PER SHARE:

$

.45

 

$

.58

 
 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:

Basic & Diluted 2,414,142 2,474,490
 
 
QUALITY PRODUCTS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010
 

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,075,544 $ 1,439,616

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

Depreciation and amortization 79,197 109,454
Inventory reserve -- 5,485
Bad Debt Expense 26,737 34,727
Deferred taxes -- 586,909
Pension expense -- 27,269
Loss on disposal of assets 27 150
(Gain) on sale of investments (53,837 ) (65,233 )

Changes in operating assets and liabilities:

Accounts receivable 815,974 116,071
Inventories (595,584 ) (1,054,776 )
Refundable income taxes -- (141,541 )
Other assets 28,543 26,231
Accounts payable (112,424 ) 181,910
Accrued payroll (223,405 ) (343,611 )
Accrued expenses (198,663 ) (92,172 )
Taxes payable 544,333 235,296
Customer deposits   563,064     61,748  
Net cash provided by operating activities   1,949,506     1,375,888  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (37,588 ) (16,570 )
Cash received from sale of investments 426,414 555,469
Purchase of investments   (328,884 )   (672,304 )
Net cash provided (used) by investing activities   59,942     (133,405 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (Payments on) Line of Credit (1,928,353 ) 4,000,000
Common Stock Repurchased (650 ) (347,168 )
Dividends paid to common shareholders   --     (5,562,893 )
Net cash (used) by financing activities   (1,929,003 )   (1,910,061 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  

80,445

   

(667,578

)

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

2,785,549

   

1,725,349

 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,865,994   $ 1,057,771  
 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest $ 8,290 $ 5,650
Cash paid for income taxes $ 126,000 $ 24,000
 

Business Wire

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