BOCA RATON, Fla., Jan. 22, 2009 (GLOBE NEWSWIRE) -- Q.E.P. Co., Inc. (Nasdaq:QEPC) (the "Company") today filed a Form 10-Q with the SEC to announce its financial results for the third quarter of its fiscal year ending on February 28, 2009.
The Company reported quarterly net sales of $48.6 million for the third quarter of fiscal 2009, a decrease of $6.0 million from the $54.6 million reported in the same quarter of fiscal 2008. In addition, gross profit margin decreased from 28.8% in the third quarter of fiscal 2008 to 24.1% in the third quarter of fiscal 2009.
Net sales were $162.5 million for the first nine months of fiscal 2009 with a gross profit margin of 27.9% compared to net sales of $168.7 million with a gross profit margin of 28.7% for the first nine months of fiscal 2008.
In the third quarter of fiscal 2009, principally due to the decline in its market valuation, the Company recorded a $7.9 million non-cash goodwill impairment charge. The non-cash goodwill impairment charge, along with lower sales and gross profit margin, resulted in third quarter fiscal 2009 operating loss of $8.4 million compared to operating income of $2.0 million for the third quarter of fiscal 2008 and year to date fiscal 2009 operating loss of $3.9 million compared to operating income of $8.2 million for fiscal 2008.
Net loss for the third quarter of fiscal 2009 was $8.4 million ($2.48 per diluted share) compared to net income of $0.8 million ($0.22 per diluted share) for the third quarter of fiscal 2008. In all periods presented, a significant portion of the goodwill impairment charge and the change in the put warrant liability are non-deductible for tax purposes.
Year to date fiscal 2009 net loss was $6.3 million ($1.86 per diluted share) compared to net income of $1.7 million ($0.47 per diluted share) for the first nine months of fiscal 2008.
Excluding the non-cash charge for impairment, change in the put warrant liability and other non-recurring items, the Company reported quarterly adjusted net loss of $0.9 million ($0.28 per diluted share) for the third quarter of fiscal 2009, compared to adjusted net income of $1.1 million ($0.31 per diluted share) for the third quarter of fiscal 2008. Excluding those same items for the nine months ended November 30, 2008, the Company reported adjusted net income of $1.1 million ($0.32 per diluted share) compared to adjusted net income of $3.1 million ($0.85 per diluted share) for the nine months ended November 30, 2007.
As of November 30, 2008, the Company had breached certain financial covenants under the domestic credit facility and, accordingly, was in default under that credit facility and under certain other international and domestic facilities. As a result, on January 22, 2009, the Company entered into a Forbearance Agreement through March 16, 2009 applicable to the Company's domestic credit facility. There can be no assurance that the Company will be in compliance with the terms of its credit facilities upon the termination of the Forbearance Agreement, or able to either amend its credit facilities, obtain continued forbearance or additional financing on terms acceptable to the Company, or that such financing will be available at all.
Lewis Gould commented, "It is important to note that despite the state of the global economy, the core values of QEP and relationships we have remain strong. Our customer partners, banking partners, and vendor partners are all dealing with the same macroeconomic forces that QEP is. When the economy eventually stabilizes, we believe we will be well poised for the inevitable market upswing. In the meantime, we are undertaking steps necessary to return to profitability."
Certain statements in this press release are forward-looking statements, which are made pursuant to the safe-harbor provisions of the Private 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 continuing availability of financing and the affects of other business or economic circumstances. 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" sections of our Annual Report on Form 10-K for the year ended February 29, 2008 filed with the SEC and in our Quarterly Report on Form 10-Q for the quarter ended November 30, 2008 filed with the SEC.
Q.E.P. CO., Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
Nov 30, Feb 29,
2008 2008
------- -------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 896 $ 949
Accounts receivable, less allowance for
doubtful accounts of $464 and $431 as of
November 30, 2008 and February 29, 2008,
respectively 27,276 32,543
Inventories 31,575 26,496
Prepaid expenses and other current assets 2,748 2,505
Deferred income taxes 741 754
------- -------
Total current assets 63,236 63,247
Property and equipment, net 6,691 7,851
Deferred costs 2,606 --
Deferred income taxes 2,295 1,787
Goodwill 839 9,685
Other intangible assets, net 2,269 2,717
Other assets 273 339
------- -------
Total Assets $78,209 $85,626
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $15,957 $15,968
Accrued liabilities 9,450 11,690
Lines of credit 31,260 24,537
Current portion of long term debt 4,500 1,977
------- -------
Total current liabilities 61,167 54,172
Notes payable 592 4,472
Other long term debt -- 250
Other long term liabilities 479 377
------- -------
Total Liabilities 62,238 59,271
------- -------
Commitments and Contingencies -- --
SHAREHOLDERS' EQUITY
Preferred stock, 2,500,000 shares authorized,
$1.00 par value; 336,660 shares issued and
outstanding at November 30, 2008 and
February 29, 2008 337 337
Common stock; 20,000,000 shares authorized,
$.001 par value; 3,531,341 and 3,528,341
shares issued, and 3,367,585 and 3,433,363
shares outstanding at November 30, 2008 and
February 29, 2008, respectively 3 3
Additional paid-in capital 10,251 10,154
Retained earnings 10,236 16,574
Treasury stock; 163,756 and 94,978
shares (held at cost) outstanding at
November 30, 2008 and February 29, 2008,
respectively (1,113) (756)
Accumulated other comprehensive income (loss) (3,743) 43
------- -------
Total Shareholders' Equity 15,971 26,355
------- -------
Total Liabilities and Shareholders' Equity $78,209 $85,626
======= =======
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
For the Three Months For the Nine Months
Ended November 30, Ended November 30,
------------------- -------------------
2008 2007 2008 2007
-------- -------- -------- --------
Net sales $ 48,626 $ 54,590 $162,511 $168,715
Cost of goods sold 36,896 38,874 117,201 120,276
-------- -------- -------- --------
Gross profit 11,730 15,716 45,310 48,439
Operating costs and
expenses:
Shipping 5,276 5,473 18,094 17,252
General and
administrative 3,801 5,014 12,839 13,827
Selling and marketing 3,176 3,444 10,574 9,974
Impairment of goodwill 7,927 -- 7,927 --
Other expense
(income), net (100) (167) (245) (853)
-------- -------- -------- --------
Total operating costs
and expenses 20,080 13,764 49,189 40,200
-------- -------- -------- --------
Operating income (loss) (8,350) 1,952 (3,879) 8,239
Change in put warrant
liability -- -- -- (1,439)
Interest expense, net (542) (656) (1,575) (1,954)
-------- -------- -------- --------
Income (loss) before
provision for income
taxes (8,892) 1,296 (5,454) 4,846
Provision (benefit)
for income taxes (516) 502 871 3,136
-------- -------- -------- --------
Net income (loss) $ (8,376) $ 794 $ (6,325) $ 1,710
======== ======== ======== ========
Net income (loss)
per share:
Basic $ (2.48) $ 0.23 $ (1.86) $ 0.49
======== ======== ======== ========
Diluted $ (2.48) $ 0.22 $ (1.86) $ 0.47
======== ======== ======== ========
Weighted average number of
common shares outstanding
Basic 3,377 3,430 3,412 3,436
======== ======== ======== ========
Diluted 3,377 3,567 3,412 3,603
======== ======== ======== ========
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
For the Nine Months
Ended November 30,
-------- --------
2008 2007
-------- --------
Cash flows from operating activities:
Net income (loss) $ (6,325) $ 1,710
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,355 1,565
Impairment of goodwill 7,927 --
Change in fair value of put warrant liability -- 1,439
Write-off of realized accumulated foreign
translation adjustment -- 323
Bad debt expense 182 159
Gain on sale of equipment -- (135)
Gain on sale of businesses -- (605)
Stock-based compensation expense (38) 254
Deferred income taxes (482) 2,283
Changes in assets and liabilities:
Accounts receivable 1,744 935
Inventories (8,232) (2,463)
Prepaid expenses and other current assets (403) (235)
Deferred costs and other assets (2,545) 22
Trade accounts payable and accrued liabilities 209 (2,196)
-------- --------
Net cash provided by (used in)
operating activities (6,608) 3,056
-------- --------
Cash flows from investing activities:
Capital expenditures (824) (2,754)
Proceeds from sale of equipment -- 244
Proceeds from sale of businesses 335 3,589
-------- --------
Net cash provided by (used in)
investing activities (489) 1,079
-------- --------
Cash flows from financing activities:
Net borrowings under lines of credit 8,280 530
Borrowings of long-term debt 478 1,683
Repayments of long-term debt (1,197) (3,520)
Settlement of put warrant liability -- (2,300)
Purchase of treasury stock (359) (100)
Proceeds from exercise of stock options -- 34
Dividends (13) (22)
-------- --------
Net cash provided by (used in)
financing activities 7,189 (3,695)
-------- --------
Effect of exchange rate changes on cash (145) 82
-------- --------
Net increase (decrease) in cash (53) 522
Cash and cash equivalents at beginning of period 949 822
-------- --------
Cash and cash equivalents at end of period $ 896 $ 1,344
======== ========
Non-GAAP Financial Measures (In thousands except per share data)
Net Income (Loss) Adjusted for the Non-Cash Charge for Impairment, Change in the Put Warrant Liability and Other Non-Recurring Items and Net Income (Loss) Per Share Adjusted for the Non-Cash Charge for Impairment, Change in the Put Warrant Liability and Other Non-Recurring Items are Non-GAAP financial measures. The Company has included these Non-GAAP financial measures because it believes that the measures provide an indicator of profitability and performance of the Company's operations and provide a meaningful comparison of its current operating performance with its historical results. The Company uses Net Income (Loss) Adjusted for the Non-Cash Charge for Impairment, Change in the Put Warrant Liability and Other Non-Recurring Items and Net Income (Loss) Per Share Adjusted for the Non-Cash Charge for Impairment, Change in the Put Warrant Liability and Other Non-Recurring Items as internal measures of its business. Net Income (Loss) Adjusted for the Non-Cash Charge for Impairment, Change in the Put Warrant Liability and Other Non-Recurring Items and Net Income (Loss) Per Share Adjusted for the Non-Cash Charge for Impairment, Change in the Put Warrant Liability and Other Non-Recurring Items are not meant to be considered a substitute or replacement for Net Income and Earnings Per Share as prepared in accordance with generally accepted accounting principles. The reconciliation of Net Income (Loss) to Net Income (Loss) Adjusted for the Non-Cash Charge for Impairment, Change in the Put Warrant Liability and Non-Recurring Items and Net Income (Loss) Per Share to Net Income (Loss) Per Share Adjusted for the Non-Cash Charge for Impairment, Change in the Put Warrant Liability and Other Non-Recurring Items is as follows:
For the Three Months For the Nine Months
Ended November 30, Ended November 30,
------------------- -------------------
2008 2007 2008 2007
-------- -------- -------- --------
Net income (loss),
as reported (a) $ (8,376) $ 794 $ (6,325) $ 1,710
Add back (deduct):
Gain on sale of businesses,
net of tax -- -- -- (383)
Impairment of goodwill,
net of tax 7,445 -- 7,445 --
Realization accumulated
foreign currency
translation loss related
to the disposition of
certain assets and
obligations of the foreign
subsidiaries -- 323 -- 323
Change in put
warrant liability -- -- -- 1,439
-------- -------- -------- --------
Net income (loss) adjusted
for the non-cash charge
for impairment, change in
the put warrant liability
and other non-recurring
items (b) $ (931) $ 1,117 $ 1,120 $ 3,089
======== ======== ======== ========
Net income (loss)
per share, as reported:
Basic ((a)/(c)) $ (2.48) $ 0.23 $ (1.86) $ 0.49
Diluted ((a)/(d)) $ (2.48) $ 0.22 $ (1.86) $ 0.47
Weighted average number
of shares outstanding,
as reported:
Basic (c) 3,377 3,430 3,412 3,436
Diluted (d) 3,377 3,567 3,412 3,603
Net income (loss) per share
adjusted for the non-cash
charge for impairment,
change in the put warrant
liability and
non-recurring items:
Basic ((b)/(e)) $ (0.28) $ 0.32 $ 0.32 $ 0.89
Diluted ((b)/(f)) $ (0.28) $ 0.31 $ 0.32 $ 0.85
Weighted average number of
shares outstanding as
adjusted for the non-cash
charge for impairment,
change in the put warrant
liability and
non-recurring items:
Basic (e) 3,377 3,430 3,412 3,436
Diluted (f) 3,377 3,567 3,449 3,603