QEPC Q E P Company Inc (QX)

Record Nine Month Sales – $214.0 Million

Record Third Quarter Sales – $73.1 Million

Nine Month Net Income – $6.9 Million

Third Quarter Net Income – $2.7 Million

Q.E.P. CO., INC. (Pink Sheets:QEPC) (the "Company") today reported its consolidated results of operations for the first nine months and third quarter of its fiscal year ending February 28, 2013 and announced that it had filed a notice with the Office of Fair Trading in England of its proposed acquisition of the Homelux Limited, Tile Accessories Limited and Homelux BV businesses.

Fiscal Year 2013 Results of Operations

The Company reported record net sales of $214.0 million for the nine months ended November 30, 2012, an increase of $13.4 million or 6.7%, including the impact of completed acquisitions, from the $200.6 million reported in the same period of fiscal 2012. As a percentage of net sales, gross profit was 29.0% in the first nine months of fiscal 2013 compared to 30.7% in the first nine months of fiscal 2012.

Net sales for the third quarter of fiscal 2013 totaled $73.1 million, an increase of $8.2 million or 12.6% from the $64.9 million reported for the third quarter of fiscal 2012, reflecting a gross profit in both periods of 29.2%.

Lewis Gould, Chairman of the Board of Directors, commented, "We are pleased with our sales for fiscal 2013 which included our recent acquisitions and growth with our existing customer base. Our margins, however, reflect continuing competitive pressure, along with increases in costs. As a result, the Company is redoubling its efforts to increase sales by acquisitions and new product launches." Mr. Gould continued, "The Company's balance sheet is extremely strong as is our cash flow to permit us to pursue our strategic objectives."

The increase in net sales for the nine months ended November 30, 2012 principally reflects an increase in sales from the recent US acquisitions of Nupla Corporation, Imperial Industries, Inc. and our US injection molding operations. Also contributing to the increase was an expansion of product lines with existing customers in the Company's operations outside North America.

The decrease in the Company's gross margin percentage on a fiscal year-to-date basis principally reflects reduced pricing in our mass merchant channels, changes in our methods of distributing products and the strengthening of the US dollar relative to European currencies. During the third quarter of fiscal 2013, these margin percentage pressures were offset by an improved product mix and certain product cost decreases.

In combination, the increase in net sales and the margin pressures experienced during the first nine months of fiscal 2013 resulted in a modest increase in gross profit to $62.0 million from $61.5 million for the nine months ended November 30, 2012 and 2011, respectively. During the third quarter of fiscal 2013, gross profit increased $2.4 million as net sales increased.

Operating expenses for the first nine months and third quarter of fiscal 2013 were $51.7 million and $18.2 million, respectively, or 24.2% and 24.8% of net sales in those periods. By comparison, operating expenses before restructuring charges for the first nine months and third quarter of fiscal 2012 were $46.1 million and $15.4 million, respectively, or 23.0% and 23.7% of net sales. The increase in operating expenses as a percentage of net sales principally reflects an increased investment in personnel, increased freight rates in certain markets and net transaction costs associated with the Company's acquisition activities. Restructuring charges included in operating expenses for the nine months ended November 30, 2011 relate to non-cash charges associated with the Company's Argentine operations.

In addition to pricing changes realized to date, recently, the Company agreed to a price reduction related to a product distributed exclusively through a significant customer. In addition, the Company has been notified by that customer of its intent to discontinue its purchases of certain other products during fiscal 2014. The pricing change in combination with the scope and timing of the reduction in purchases, if they occur as expected, will have a material adverse effect on the Company's future sales and operating income.

Non-operating income for fiscal 2013 represents the provisional estimate of the fair value of net assets acquired in excess of the purchase price associated with certain of the Company's acquisition activities.

The Company's effective tax rate for the first nine months and third quarter of fiscal 2013 was 34.2% and 29.3%, respectively. The Company's effective tax rate for the first nine months and third quarter of fiscal 2012 was 32.6% and 35.8%, respectively. The fluctuation in the Company's effective tax rate principally is the result of changes in the proportion of the Company's earnings sourced in jurisdictions with different statutory tax rates, the impact of fiscal 2013 non-operating income, which is not included in taxable income, and a fiscal 2012 tax benefit from the restructuring of the Company's Argentine operations.

Net income for the first nine months and third quarter of fiscal 2013 was $6.9 million and $2.7 million, respectively, or $2.07 and $0.80, respectively, per diluted share. For the comparable periods of fiscal 2012, net income was $9.0 million and $2.2 million, respectively, or $2.66 and $0.64, respectively, per diluted share.

Operating earnings before interest, taxes, depreciation, amortization and restructuring charges (EBITDAR) for the first nine months and third quarter of fiscal 2013 was $12.4 million and $4.0 million, respectively, as compared to $17.4 million and $4.2 million, respectively, for the comparable periods of fiscal 2012.

Cash provided by operations during the first nine months of fiscal 2013 was $6.2 million as compared to $9.6 million in the first nine months of fiscal 2012, reflecting both the decrease in income and an additional investment in working capital. During fiscal 2013 the Company made investments totaling $9.7 million which include the completion of four acquisitions. The investments were funded through a combination of cash from operations and from the Company's domestic revolving credit facility. By comparison, the cash provided by operations during the first nine months of fiscal 2012 of $9.6 million was used to fund the acquisition of Porta-Nails, Inc. and capital expenditures while reducing aggregate borrowings.

Working capital at the end of the Company's fiscal 2013 third quarter was $36.9 million compared to $35.9 million at the end of the 2012 fiscal year. Aggregate debt at the end of the Company's fiscal 2013 third quarter was $16.8 million or 33% of equity compared to $12.7 million or 28% of equity at the end of the 2012 fiscal year. The increase in debt is associated with the funding of acquisitions during fiscal 2013.

Acquisitions

The Company also reported that today it is notifying the UK Office of Fair Trading (the "OFT") of its proposed acquisition of the Homelux® and TileRite® distribution businesses ("Homelux") of Homelux Nenplas Limited. The OFT reviews proposed acquisitions as part of its responsibility to enforce consumer protection laws and competition laws in the UK. Homelux is a full range, worldwide supplier of tiling accessories. The parties have agreed that execution of the Homelux acquisition agreements will not occur until after completion of the OFT's review and receipt of a favorable tax ruling.  There can be no assurance that the transaction will be consummated.

Separately, the Company noted that after consideration of the bids placed during the auction of the assets of Harper Brush Works, Inc., in which the Company was the initial "stalking horse bidder", the Company withdrew from the transaction.

Investor Call

The Company further reported that it will be hosting a conference call to discuss these results and to answer your questions at 10:00 a.m. Eastern Time on Thursday, December 20, 2012. If you would like to join the conference call, dial 1-877-941-1427 toll free from the US or 1-480-629-9664 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Third Quarter Conference Call / Conference ID 4582213. A replay of the conference call will be available until midnight December 27, 2012 by calling 1-877-870-5176 toll free from the US and entering pin number 4582213; internationally, please call 1-858-384-5517 using the same pin number.

Q.E.P. Co., Inc., founded in 1979, is a world class, worldwide provider of innovative, quality and value-driven flooring and industrial solutions. As a leading worldwide manufacturer, marketer and distributor QEP delivers 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. In addition the Company provides industrial tools with cutting edge technology to all of the industrial trades. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Nupla®, HISCO®, Vitrex®, PRCI®, Porta-Nail® and Elastiment®, the Company markets over 5,000 products. The Company sells its products to home improvement retail centers, specialty distribution outlets, municipalities and industrial solution providers in 50 states and throughout the world.

This press release contains forward-looking statements, including statements regarding sales and sales growth, increased pricing pressures, future market position and profitability, changes in future pricing and product offerings to a significant customer, potential acquisition opportunities, benefits and timing, cost and product mix changes, and capital availability. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. We do not undertake to update our forward-looking statements.

-Financial Information Follows-

CONTACT: Q.E.P. Co., Inc.
         Richard A. Brooke
         Senior Vice President and Chief Financial Officer
         561-994-5550

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