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Quality Products Announces Results For the Three and Six Months Ended March 31, 2012

Dépèche transmise le 4 mai 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 second quarter and six months operating results.

QUARTERLY RESULTS

Net income was $1,008,005 compared to $1,520,459 earned last year, a decrease of $(512,454) or (33.7)%. Revenues were $5,287,698 compared to $6,058,888 last year, a decrease of $(771,190) or (12.7)%. The gross margin increased to 43.8% this year from 43.1% 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 $1,368,833 compared to $821,988, an increase of $546,845 or 66.5%, and gross profit was $392,502 or 28.7% compared to $336,762 or 41.0%, an increase of $55,740 or 16.6%. Incoming orders were $2,297,461 compared to $1,225,930 last year, an increase of $1,071,531 or 87.4%. 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 $3,918,865 compared to $5,236,900 last year, a decrease of $(1,318,035) or (25.2)%. Gross profit was $1,924,323 or 49.1% compared to $2,271,795 or 43.4% last year, a decrease of $(347,472) or (15.3)%. Incoming orders were $2,813,070 compared to $3,079,557, a decrease of $(266,487) or (8.7)% compared to last year. A majority of this segment’s business is with the U.S. government from which we have experienced a reduction in orders. This may be a temporary slowdown until the Presidential election concludes, but we are unsure. However, if defense spending is reduced, which based on recent government discussions appears probable, it is likely this segment will continue to 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 $882,353 or 16.7% of sales in the current quarter compared to $883,079 or 14.6% last year, essentially unchanged.

Other income was $226,745 in the latest quarter compared to $692,041 last year, a decrease of $(465,296) or (67.2)%. The latest quarter includes no royalties from our joint participation in certain military contracts and approximately $241,000 of distributions and net realized gains from our investments. Last year included approximately $671,000 of royalties from our joint participation in certain military contracts and approximately $33,000 of distributions and net realized gains from our investments.

Income tax expense was $653,212 in the latest quarter compared to $897,060 last year, a decrease of $(243,848) or (27.2)%. This primarily resulted from lower pre-tax income.

Basic and diluted EPS was $0.42, down from $0.62 and the weighted average shares outstanding decreased to 2,410,066 from 2,468,522.

FISCAL SIX MONTHS RESULTS

Net income was $2,083,549 compared to $2,960,078 earned last year, a decrease of $(876,529) or (29.7)%. Revenues were $10,062,907 compared to $10,856,581 last year, a decrease of $(793,674), or (7.3)%. Gross margins were 46.6% this year, down from 49.1% 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 $2,283,676 compared to $1,546,806 last year, an increase of $736,870 or 47.6%. Gross profit was $715,850 or 31.3% compared to $617,269 or 39.9%, an increase of $98,581 or 16.0%. Additionally, incoming orders were $3,474,375 compared to $2,181,254 last year, an increase of $1,293,121 or 59.3%. 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 $7,779,231 compared to $9,309,775 last year, a decrease of $(1,530,544) or (16.4)%. Gross profit was $3,976,026 or 51.1% compared to $4,716,862 or 50.7% last year, a decrease of $(740,836) or (15.7)%. Incoming orders were $5,812,947 compared to $6,615,388 last year, a decrease of $(802,441) or (12.1)%. A majority of this segment’s business is with the U.S. government from which we have experienced a reduction in orders. This may be a temporary slowdown until the Presidential election concludes, but we are unsure. However, if defense spending is reduced, which based on recent government discussions appears probable, it is likely this segment will continue to 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 $1,756,431 or 17.5% of sales in 2012 compared to $1,722,068 or 15.9% in 2011, an increase of $34,363 or 2.0%. This primarily resulted from higher sales commissions this year.

2012 other income was $471,649 compared to $1,232,820 in 2011, a decrease of $(761,171) or (61.7)%. 2012 includes approximately $125,000 of royalties from our joint participation in certain military contracts and approximately $360,000 of distributions and net realized gains from our investments. 2011 included approximately $981,000 of royalties from our joint participation in certain military contracts and $361,000 of distributions and net realized gains from our investments.

Income tax expense was $1,323,545 in the current fiscal year compared to $1,884,806 last year, a decrease of $(561,261) or (29.8)%. This primarily resulted from lower pre-tax income.

Basic and diluted EPS decreased to $0.86 from $1.20 and the weighted average shares outstanding decreased to 2,412,115 from 2,471,539.

Backlog

On May 4th, the order backlog for Multipress was approximately $1.8 million, up from the previous quarter’s reported level of $1.5 million, and up from last year’s level of $955,000.

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

We do not provide financial estimates for future periods.

Liquidity & Cash Uses for the Six Months Ended March 31, 2012

As shown in the March 31, 2012 balance sheet, cash, short-term investments, accounts receivable and inventories totaled $9.7 million compared to $10.7 million of total liabilities. The balance outstanding under our credit lines was $7,596,114, leaving us with borrowing capacity of $4,903,886 at March 31, 2012, up by $932,170 from the previous quarter’s availability.

We generated positive operating cash flow of $1,907,624, while capital expenditures were $37,588. We received net cash of $285,084 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 March 31, 2012, we had remaining commitments to these entities of approximately $1.06 million which does not appear as a liability on our balance sheet. Subsequent to quarter-end, we have funded $42,000 of these remaining commitments.

During the six months we used $7,230,357 to pay common stock dividends. We also used $129,918 to repurchase shares of our common stock. Subsequent to quarter-end we purchased an additional 13,163 shares for $304,065. Through May 4th we have repurchased 364,451 shares, or 72.9% 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 March 31, 2012 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.

Currently, the Company is subject to an audit by the Internal Revenue Service (IRS) of its September 30, 2010 fiscal year tax return. No accrued liability has been recorded at March 31, 2012 since it cannot be estimated by management based on the current status of the audit.

Quality Products currently has 63 employees, down from 68 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, 2012

 

 
ASSETS
 
CURRENT ASSETS:
 
Cash $ 2,719,871
Short-term Investments 676,720

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

1,504,876

Inventories, net of reserve of $268,288 4,830,338
Deferred income taxes, current 350,790
Prepaid expenses and other current assets   108,868  
Total current assets   10,191,463  
 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $2,022,107

838,435

 
INVESTMENTS, non-current 3,932,426
 

INTANGIBLE ASSETS, net of accumulated amortization of $1,640,833

717,607

 

GOODWILL, net of accumulated amortization of $19,174

 

2,723,247

 
 
TOTAL ASSETS $ 18,403,178  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 
Accounts payable $ 1,005,203
Accrued payroll and payroll related expenses 492,040
Other accrued expenses and current liabilities 542,205
Taxes payable 69,856
Customer deposits   569,285  
Total current liabilities   2,678,589  
 
PENSION OBLIGATION 177,294
 
DEFERRED TAXES, non-current 298,009
 
LONG-TERM DEBT:
Line of Credit 7,596,114
 
 
TOTAL LIABILITIES   10,750,006  
 
STOCKHOLDERS' EQUITY:
 
Convertible preferred stock, Series A -
Convertible preferred stock, Series B -
Common stock 17
Additional paid-in capital 7,122,430
Accumulated other comprehensive (loss) (123,350 )
Retained earnings 685,943
Less cost of treasury stock (1,221 shares of common stock)   (31,868 )
Total stockholders' equity   7,653,172  
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,403,178  
 
       
QUALITY PRODUCTS, INC.
 
 
CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2012 AND 2011

 

Three Months

Six Months

(UNAUDITED)

(UNAUDITED)

2012

2011

2012

2011

 
NET SALES $ 5,287,698 $ 6,058,888 $ 10,062,907 $ 10,856,581
 
COST OF GOODS SOLD   2,970,873     3,450,331     5,371,031     5,522,449  
 
GROSS PROFIT 2,316,825 2,608,557 4,691,876 5,334,132
 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

882,353

   

883,079

   

1,756,431

   

1,722,068

 
 
INCOME FROM OPERATIONS

1,434,472

1,725,478

2,935,445

3,612,064

 
OTHER INCOME:
Interest expense (15,756 ) (15,520 ) (24,046 ) (21,170 )
 
Interest income 73 180 917 1,388
 
Royalty and other income  

242,428

   

707,381

   

494,778

   

1,252,602

 
 
Other income, net   226,745     692,041     471,649     1,232,820  
 

INCOME BEFORE PROVISION FOR INCOME TAXES

1,661,217

2,417,519

3,407,094

4,844,884

 

PROVISION FOR INCOME TAXES

 

653,212

   

897,060

   

1,323,545

   

1,884,806

 
 
NET INCOME $ 1,008,005   $ 1,520,459   $ 2,083,549   $ 2,960,078  
 

UNREALIZED GAIN ON SHORT-TERM INVESTMENTS, NET OF TAX

 

27,617

 

113,126

 

28,655

 

264,021

 
COMPREHENSIVE INCOME $ 1,035,622   $ 1,633,585   $ 2,112,204   $ 3,224,099  
 
BASIC INCOME PER SHARE:

$

.42

 

$

.62

 

$

.86

 

$

1.20

 
 
DILUTED INCOME PER SHARE:

$

.42

 

$

.62

 

$

.86

 

$

1.20

 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic 2,410,066 2,468,522 2,412,115 2,471,539
Diluted 2,410,066 2,468,522 2,412,115 2,471,539
 
   
QUALITY PRODUCTS, INC.
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED MARCH 31, 2012 AND 2011

 

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,083,549 $ 2,960,078

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

Depreciation and amortization 159,092 216,839
Inventory reserve 22,259 5,485
Bad Debt Expense 26,737 --
Deferred taxes -- 586,909
Pension expense -- 36,496
Loss on disposal of assets 27 150
(Gain) on sale of investments (190,537 ) (15,030 )
 

Changes in operating assets and liabilities:

Accounts receivable 718,842 92,384
Inventories (867,014 ) (655,658 )
Refundable income taxes -- 106,194
Other assets 72,849 61,892
Accounts payable 57,012 393,589
Accrued payroll (256,863 ) (180,341 )
Accrued expenses 55,760 (63,719 )
Taxes payable (37,226 ) 16,084
Customer deposits   63,137     451,540  
Net cash provided by operating activities   1,907,624     4,012,892  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (37,588 ) (34,327 )
Cash received from sale of investments 954,731 911,347
Purchase of investments   (669,647 )   (1,277,175 )
Net cash provided (used) by investing activities   247,496     (400,155 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
Proceeds from Line of Credit 5,139,477 1,800,000
Common Stock Repurchased (129,918 ) (527,663 )
Dividends paid to common shareholders   (7,230,357 )   (5,562,893 )
Net cash (used) by financing activities   (2,220,798 )   (4,290,556 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  

(65,678

)

 

(677,819

)

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

2,785,549

   

1,725,349

 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,719,871   $ 1,047,530  
 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest $ 24,046 $ 21,170
Cash paid for income taxes $ 1,360,772 $ 1,163,619
 

Business Wire

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