updated 12/20/2010 11:16:28 AM ET 2010-12-20T16:16:28

Nine Month Sales – $182.2 Million
Quarterly Sales – $61.0 Million

Nine Month Net Income – $6.9 Million
Quarterly Net Income – $3.0 Million

BOCA RATON, Fla., Dec. 20, 2010 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (Pink Sheets:QEPC) (the "Company") today announced its financial results for the first nine months and third quarter of its fiscal year ending on February 28, 2011.

The Company reported record net sales of $182.2 million for the nine months ended November 30, 2010, an increase of $26.2 million from the $156.0 million reported in the same period of fiscal 2010. As a percentage of net sales, gross profit was 30.2% in the first nine months of fiscal 2011 compared to 31.5% in the first nine months of fiscal 2010.  Net sales for the third quarter of fiscal 2011 were $61.0 million with a gross profit margin of 30.9% compared to net sales of $54.2 million and a gross profit margin of 32.3% for the third quarter of fiscal 2010.

Lewis Gould, Chairman of the Company's Board of Directors, commented: "We are pleased with the general trend of the Company's businesses as we continue to focus on opportunities to improve operations and to expand our product lines and market share." 

Mr. Gould also noted that outside directors Mr. David Kreilein, Managing Director of Centre Lane Partners, and Mr. Emil Vogel, President of Tarnow Associates, were reelected to the Company's Board of Directors at the Company's December 3, 2010 annual meeting of shareholders, along with Mr. Lewis Gould and Mr. Leonard Gould, President of the Company. On December 8, 2010, the Company further announced that Mr. Martin Cooperman, a Senior Leadership Team Member of Grant Thornton LLP prior to his recent retirement from the firm, was elected to join the Company's Board of Directors at its next meeting.

The increase in net sales for both the nine months ended November 30, 2010 and for the quarter then ended continues to principally reflect the expansion of the Company's operations to include a comprehensive line of hardwood flooring through its February 2010 acquisition of its Harris®Wood operations. While the majority of the increase in net sales was the result of the Harris®Wood business, the increase in net sales also reflects modest year over year growth in net sales from the Company's operations outside of North America, a decrease in certain accumulated sales allowances and the benefit of changes in foreign currency exchange rates compared to the U.S. Dollar.

As a result of the substantial increase in net sales, gross profit for the nine months ended November 30, 2010 and the third quarter of fiscal 2011 was $55.0 million and $18.8 million, respectively, up from $49.1 million and $17.5 million, respectively, in fiscal 2010. The reduction in the gross profit as a percentage of net sales for the current fiscal year's nine month and quarterly operations reflects the lower average margins inherent in our Harris®Wood operations and the relative growth of those operations since acquisition as well as selected cost increases.

Operating expenses for the first nine months and third quarter of fiscal 2011 were $43.7 million and $14.3 million, respectively, or 24.0% and 23.4% of net sales in those periods, compared to $38.0 million and $13.8 million, respectively, or 24.3% and 25.5% of net sales in the comparable fiscal 2010 periods. The increase in operating expenses is the result of the addition of the Harris®Wood operations, other increases in personnel and marketing costs consistent with the Company's growth strategy, costs associated with the restructuring of certain of the Company's Latin American operations and the impact of changes in foreign currency exchange rates compared to the U.S. dollar.

Operating income for the first nine months and third quarter of fiscal 2011 was $11.3 million and $4.6 million, respectively, as compared to the prior year amounts of $11.1 million and $3.7 million, respectively. During the 2011 fiscal year, increased operating costs generally offset the accretive benefit of our acquired Harris®Wood operations.

The increase in net interest expense in the current fiscal year principally reflects the costs associated with debt issued in connection with the acquisition of the Company's Harris®Wood operations offset by savings associated with reduced balances under the Company's lines of credit.

The provision for income taxes as a percentage of income before taxes for the first nine months and third quarter of fiscal 2011 was 33.1% and 30.3% compared to 36.1% and 35.9%, respectively, in the comparable fiscal 2010 periods. The decrease in the effective tax rates during the 2011 fiscal year as compared to the 2010 fiscal year principally reflects the net tax benefit of restructuring certain of the Company's Latin American operations.

Net income for the first nine months and third quarter of fiscal 2011 was $6.9 million and $3.0 million, respectively, or $2.02 and $0.87 per diluted share. For the comparable periods of fiscal 2010, net income was $6.5 million and $2.2 million, respectively, or $1.86 and $0.63 per diluted share.

Cash provided by operations during the first nine months of fiscal 2011 was $7.2 million and was used to fund capital expenditures principally related to expanding the Company's manufacturing capabilities, a reduction in aggregate debt and the purchase of treasury stock. By comparison, cash provided by operations during the first nine months of fiscal 2010 was $14.1 million, substantially all of which was used to reduce debt.

Working capital at the end of the Company's fiscal year 2011 third quarter was $23.3 million compared to $19.7 million at the Company's fiscal 2010 year-end. Aggregate debt at the end of the Company's fiscal year 2011 third quarter was $23.6 million compared to $26.8 million at the Company's fiscal 2010 year-end representing a debt to equity ratio of 0.74 at the end of the current quarter down from 1.03 at the fiscal 2010 year end.

Q.E.P. Co., Inc., founded in 1979, is a leading worldwide manufacturer, marketer and distributor of a comprehensive line of hardwood flooring, flooring installation tools, adhesives and flooring related products targeted for the professional installer as well as the do-it-yourselfer. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Vitrex®, PRCI®, BRUTUS® and Elastiment®, the Company markets over 3,000 flooring and flooring related products. In addition to a complete hardwood flooring line, Q.E.P. products are used primarily for surface preparation and installation of wood, laminate, ceramic tile, carpet and vinyl flooring. The Company sells its products to home improvement retail centers and specialty distribution outlets in 50 states and throughout the world.

This press release contains forward-looking statements, including statements regarding company performance, the potential growth of product lines and the ability to gain market share that involve risks and uncertainties. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. 

-Financial Information Follows-   

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
         
  For the Three Months

Ended November 30,
For the Nine Months

Ended November 30,
  2010 2009 2010 2009
         
Net sales  $ 61,035  $ 54,167  $ 182,211  $ 156,003
Cost of goods sold  42,203  36,690  127,195  106,932
Gross profit  18,832  17,477  55,016  49,071
         
Costs and expenses:        
Shipping  5,871  6,066  18,811  17,217
General and administrative  4,862  4,381  14,200  12,346
Selling and marketing  3,575  3,119  10,799  8,243
Other (income) expense, net  (49)  223  (143)  147
Total costs and expenses  14,259  13,789  43,667  37,953
         
Operating income  4,573  3,688  11,349  11,118
         
Interest expense, net  (326)  (266)  (1,053)  (901)
         
Income before provision for income taxes  4,247  3,422  10,296  10,217
         
Provision for income taxes  1,288  1,230  3,405  3,691
         
Net income   $ 2,959  $ 2,192  $ 6,891  $ 6,526
         
Net income per share:        
Basic  $ 0.89  $ 0.64  $ 2.07  $ 1.87
Diluted  $ 0.87  $ 0.63  $ 2.02  $ 1.86
         
Weighted average number of common shares outstanding:        
Basic  3,304  3,432  3,321  3,486
Diluted  3,394  3,470  3,414  3,499
 
 
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
     
  November 30,

2010 (Unaudited)
February 28, 2010
ASSETS    
Current Assets    
Cash  $ 1,265  $ 856
Accounts receivable, less allowance for doubtful accounts of $658 and $621 as of November 30, 2010 and February 28, 2010, respectively  35,112  32,792
Inventories  28,012  30,485
Prepaid expenses and other current assets  2,086  2,497
Deferred income taxes  1,392  1,386
Total current assets  67,867  68,016
     
Property and equipment, net  13,664  12,385
Deferred costs  661  1,322
Deferred income taxes  1,798  1,776
Intangibles, net  2,517  2,788
Other assets  214  237
     
Total Assets  $ 86,721  $ 86,524
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current Liabilities    
Trade accounts payable   $ 15,995  $ 19,555
Accrued liabilities  14,578  13,547
Lines of credit  10,965  12,443
Current maturities of notes payable  3,021  2,749
Total current liabilities  44,559  48,294
     
Notes payable  9,569  11,639
Other long term liabilities  547  566
Total Liabilities  54,675  60,499
     
SHAREHOLDERS' EQUITY    
Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at November 30, 2010 and February 28, 2010  337  337
Common stock, 20,000 shares authorized, $.001 par value; 3,696 shares issued; 3,303 and 3,402 shares outstanding at November 30, 2010 and February 28, 2010, respectively  4  4
Additional paid-in capital  10,406  10,419
Retained earnings  25,160  18,276
Treasury stock, 393 and 294 shares held at cost at November 30, 2010 and February 28, 2010, respectively  (3,091)  (1,823)
Accumulated other comprehensive loss  (770)  (1,188)
Total Shareholders' Equity 32,046 26,025
Total Liabilities and Shareholders' Equity  $ 86,721  $ 86,524
 
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands) 
(Unaudited) 
     
   For the Nine Months Ended

November 30, 
  2010 2009
     
Cash flows from operating activities:    
Net income   $ 6,891  $ 6,526
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization  1,955  1,094
Realized accumulated foreign currency translation adjustment  456  -- 
Other non-cash adjustments  257  173
Changes in assets and liabilities:    
Accounts receivable  (2,432)  (2,071)
Inventories  2,514  2,452
Prepaid expenses and other assets  774  1,161
Trade accounts payable and accrued liabilities  (3,260)  4,802
Net cash provided by operating activities  7,155  14,137
     
Cash used in investing activities - Capital expenditures  (1,942)  (471)
     
Cash flows from financing activities:    
Net repayments under lines of credit  (1,565)  (12,168)
Repayments of notes payable  (1,921)  (1,578)
Borrowings of notes payable  --   930
Purchase of treasury stock  (1,297)  (405)
Dividends paid and other  (20)  (7)
Net cash used in financing activities  (4,803)  (13,228)
     
Effect of exchange rate changes on cash  (1)  105
     
Net increase in cash  409  543
Cash at beginning of period  856  695
Cash at end of period  $ 1,265  $ 1,238
CONTACT:  Q.E.P. Co., Inc.
          Richard A. Brooke, Senior Vice President and Chief Financial 
           Officer
          561-994-5550

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