SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________________
Commission file number 0-14870
QUIPP, INC.
-----------
(Exact name of registrant as specified in its charter)
Florida 59-2306191
------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 N.W. 157th Street, Miami, Florida 33014
--------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (305) 623-8700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of the registrant's common stock, $.01 par value,
outstanding at March 31, 1999 was 1,680,394.
<PAGE>
QUIPP, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets - 3
March 31, 1999 and December 31, 1998
Consolidated Statements of Income - 4
Three months ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows - 5
Three months ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
QUIPP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,176,548 $ 1,820,956
Securities available for sale - current 21,160,042 18,460,331
Accounts receivable, net 5,009,774 4,388,385
Inventories 3,205,366 2,989,950
Deferred tax asset - current 814,899 814,899
Prepaid expenses and other receivables 335,803 479,761
----------- -----------
Total current assets 31,702,432 28,954,282
Other assets:
Property, plant and equipment, net 1,811,781 1,837,161
Goodwill 398,056 405,861
Other assets 79,102 80,782
----------- -----------
Total assets $ 33,991,371 $ 31,278,086
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 100,000 $ 100,000
Accounts payable 797,717 1,425,757
Accrued salaries and wages 545,457 697,136
Deferred revenues 5,132,148 3,439,314
Income tax payable 418,242 167,704
Contract contingencies 829,552 596,397
Dividends payable 11,762,758 -
Other accrued liabilities 1,823,433 1,407,493
Total current liabilities 21,409,307 7,833,801
----------- -----------
Noncurrent liabilities:
Long-term debt 950,000 950,000
----------- -----------
Total liabilities 22,359,307 8,783,801
Shareholders' equity:
Common stock - par value $.01 per share, 8,000,000
shares authorized. 1,680,394 and 1,644,994 shares issued,
respectively, March 31, 1999 and December 31, 1998. 16,804 16,450
Additional paid-in capital 6,210,940 5,800,581
Retained earnings 5,404,320 16,677,254
----------- -----------
Total shareholders' equity 11,632,064 22,494,285
------------ ------------
Total liabilities and shareholders' equity $ 33,991,371 $ 31,278,086
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
QUIPP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31, 1999 March 31, 1998
=========================================================================================================
<S> <C> <C>
Net sales $ 6,509,038 $ 5,791,616
Cost of sales (4,259,809) (3,658,405)
--------------------------------------
Gross profit 2,249,229 2,133,211
Other operating income and expense items:
Selling, general and administrative expenses 1,345,187 1,149,598
Research and development expenses 361,391 143,562
--------------------------------------
Operating profit 542,651 840,051
Other income (expense):
Interest income 205,536 127,701
Interest expense (7,825) (10,781)
--------------------------------------
197,711 116,920
--------------------------------------
Income before income taxes 740,362 956,971
Income tax (250,538) (333,077)
--------------------------------------
Net income $ 489,824 $ 623,894
- -------------------------------------------------------------------------------------------------------
Per share amounts:
Basic income per common share 0.30 0.39
Diluted income per common share 0.28 0.37
Weighted average number of common and
common equivalent shares outstanding 1,762,710 1,692,597
=======================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
QUIPP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Cash provided by operations:
Net income $ 489,824 $ 623,894
Reconciliation of net income to net cash
Provided by (used in) operations:
Depreciation and amortization 60,595 79,236
Changes in operational assets and liabilities:
Accounts receivable, net (621,389) (639,893)
Inventories (215,416) (164,556)
Other assets, prepaid expenses and other receivables 143,958 (7,087)
Accounts payable and other accrued liabilities (333,503) (739,968)
Contract contingencies 233,155 81,326
Deferred revenues 1,692,833 298,546
Income tax payable 250,538 98,077
-------------------------------------
Net cash provided by (used in) operations 1,700,595 (370,425)
-------------------------------------
Cash flow from investing activities:
Securities purchased (11,619,222) (11,730,393)
Securities sold 8,919,512 12,098,099
Capital expenditures (25,731) (24,058)
-------------------------------------
Net cash (used in) provided by investing activities (2,725,441) 343,648
-------------------------------------
Cash flow from financing activities:
Conversion of stock options 380,438 36,000
-------------------------------------
Net cash provided by financing activities 380,438 36,000
-------------------------------------
(Decrease) increase in cash and cash equivalents (644,408) 9,223
Cash and cash equivalents at the beginning of the year 1,820,956 822,573
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the quarter $ 1,176,548 $ 831,796
- ----------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash payments made for:
Interest $ 5,017 $ 10,781
-------------------------------------
Income Taxes $ - $ 235,066
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</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
QUIPP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Quipp, Inc. and Quipp Systems, Inc. (a wholly owned subsidiary). All
significant intercompany transactions have been eliminated in consolidation. The
accompanying consolidated financial statements have been prepared on a basis
consistent with that used as of and for the year ended December 31, 1998 and, in
the opinion of management, reflect all adjustments (principally consisting of
normal recurring accruals) considered necessary to present fairly the financial
position of Quipp, Inc. as of March 31, 1999 and the results of its operations
and cash flows for the three months ended March 31, 1999. The results of
operations for the three months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the full year ending December 31,
1999. These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The consolidated balance sheet at December
31, 1998 was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. Certain
previously reported amounts have been reclassified to conform to the current
period's presentation.
NOTE 2 - INVENTORIES
Inventories at March 31, 1999 include material, labor and factory overhead and
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method. The composition of inventories at March 31,
1999 and December 31, 1998 is as follows:
March 31, 1999 December 31, 1998
- -----------------------------------------------------------------------------
Raw materials $1,232,681 $2,616,640
Work in process 1,684,994 179,388
Finished goods 287,691 193,922
------------------------------------------------------
$3,205,366 $2,989,950
NOTE 3 - EARNINGS PER SHARE
Earnings per share amounts are based upon the weighted average number of common
and common equivalent shares outstanding during the year. Common equivalent
shares are excluded from the computation in periods in which they have an
anti-dilutive effect. Basic EPS excludes all dilution, and is based upon the
weighted average number of common shares outstanding during the period. Diluted
EPS reflects the potential dilution that would occur if options, warrants,
convertible securities or other contracts to issue common stock were exercised
or converted into common stock.
6
<PAGE>
NOTE 4 - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130). This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. It does not, however, specify when to
recognize or how to measure items that make up comprehensive income. SFAS 130
was issued to address the concerns over the practice of reporting elements of
comprehensive income directly in equity. Adoption of this statement did not have
a material impact on the Company's financial statements.
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations: The following table presents statements of income items
expressed as a percentage of net sales for the periods indicated:
Three Months Ended
March 31,
1999 1998
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------
Net sales 100.0% 100.0%
Gross profit 34.6% 36.8%
Selling, general and administrative
expenses 20.7% 19.8%
Research and development 5.6% 2.5%
Interest income 3.2% 2.2%
Net income 7.5% 10.8%
Net sales for the three months ended March 31, 1999 were $6,509,038, an increase
of $717,422 (12.4%) over net sales of $5,791,616 for the corresponding period in
1998. The increase in net sales was due to stronger domestic sales.
Gross profit for the three months ended March 31, 1999 was $2,249,229, an
increase of $116,018 (5.4%) as compared to $2,133,211 for the corresponding
period in 1998. The decrease in gross profit as a percentage of net sales was
attributable to higher shipments of original equipment manufacturers (OEM)
equipment, which generally have lower margins than products manufactured by the
Company.
Selling, general and administrative expenses for the three months ended March
31, 1999 were $1,345,187, an increase of $195,589 (17.0%) as compared to
$1,149,598 for the corresponding period of 1998. As a percentage of sales,
selling, general and administrative expenses increased 0.9%. This increase was
mainly attributable to additional selling activities related to increased order
bookings. Orders booked for the three months ended March 31, 1999 were
$8,381,229, a record number for a first quarter. In addition, the Company
increased its efforts in the Latin American market and hired a Latin America
Sales Director.
Research and development expenses for the three months ended March 31, 1999 were
$361,391 an increase of $217,829 (151.7%) as compared to $143,562 for the
corresponding period of 1998. The increase was mainly attributable to two of the
new products under development, the palletizer and the gripper conveyer.
Interest income for the three months ended March 31, 1999 was $205,536 as
compared to $127,701 for the same period in 1998. The increase in interest
income was mainly attributable to higher balances in cash and cash equivalents
and securities available for sale during 1999.
7
<PAGE>
General
The Company's backlog as of March 31, 1999 was $12,949,320 compared to
$7,575,703 at March 31, 1998. The backlog at March 31, 1999 consists of
approximately $2,002,000 of OEM products as compared to the backlog at March 31,
9998 which consisted of $472,181 of OEM products. OEM products generally have
lower margins. The Company expects to ship all backlog items within the next
twelve months.
Liquidity
On March 31, 1999, cash, cash equivalents and securities available for sale
totaled $22,336,590 as compared to $20,281,287 at December 31, 1998, an increase
of $2,055,303 or 10.1%. This increase was primarily due to cash provided by
operations and financing activities. The net increase in cash provided by
operations was mainly attributable to an increase in deferred revenues of
$1,692,833 and the net increase in cash provided by financing activities
resulted from the exercise of stock options. The increase in cash, cash
equivalents and securities available for sale was offset to some extent by an
increase in accounts receivable, reflecting a larger volume of shipments in the
three months ended March 31, 1999 as compared to the prior quarter, an increase
in inventory and a decrease in accounts payable and other accrued liabilities.
Working capital on March 31, 1999 was $10,293,125 a decrease of $10,827,356 from
$21,120,481 at December 31, 1998. This decrease was primarily the result of the
declaration of a special dividend of $7.00 per share for shareholders of record
on April 8, 1999. On May 10, 1999 the Company distributed dividends of
$13,196,008. The Company believes that the remaining cash, cash equivalents and
securities available for sale together with cash generated from operations will
be sufficient to fund operations at the current level.
Year 2000 Disclosure
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. In other words, date
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities.
The Company has been engaged in an evaluation of its Year 2000 readiness in
connection with its information technology and non-information technology
systems. In addition, the Company has analyzed its products as they relate to
the Year 2000 issue. The Company has also attempted to analyze Year 2000 issues
relating to third parties with whom the Company has a business relationship. The
current status of the Company's efforts is as follows:
Internal Systems and Products
- -----------------------------
Information Technology Systems - The Company's manufacturing and accounting
software supplier has advised the Company that Year 2000 support of the software
was implemented in 1995 and that the Company's manufacturing and accounting
software is Year 2000 compliant. In addition, the Company's AS400 operating
system has been upgraded and the Company has received correspondence from the
vendor stating that the software is Year 2000 compliant. To confirm Year 2000
compliance, the Company began testing of its manufacturing, accounting and
operating system during the fourth quarter of 1998. Based on the results of
testing, the Company has implemented changes to the software. The Company is
continuing to test its systems for Year 2000 compliance and expects the testing
to be completed by June 1999. The Company's Year 2000 compliance costs to date
have been approximately $35,000. Based upon the testing completed thus far the
Company does not anticipate any additional material costs relating to the Year
2000 compliance.
The Company's manufacturing department was using a computerized data collection
system, to record labor time and attendance. This system was not Year 2000
compliant. The Company replaced the software and related hardware in February of
1999 with software and hardware that is certified by the manufacturer to be Year
2000 compliant.
Non-Information Technology Systems - The Company's heating, cooling, ventilation
and alarm systems include microprocessor-based components. The heating, cooling
and ventilation systems providers have advised the Company that these systems
are not date sensitive. The alarm company was unable to provide assurance of
Year 2000 compliance for its system. Therefore, the alarm system was replaced in
November 1998, with a system certified by the manufacturer to be compliant.
8
<PAGE>
Products - The Company's products are not materially date sensitive. Moreover,
products currently manufactured that have time and date functions are Year 2000
compliant and product notification bulletins have been sent to the customers
regarding Year 2000 issues. Therefore, the Company does not believe it has any
material exposure with regard to its products as a result of the Year 2000
issue.
Year 2000 Issues Relating to Third Parties
- ------------------------------------------
Vendors - The Company utilizes approximately 360 vendors to supply parts,
materials and components for its various products. The Company has surveyed its
major vendors, regarding their Year 2000 status. Several vendors have supplied
letters to the Company stating that they are either Year 2000 compliant or that
they would be Year 2000 compliant by December 31, 1998. However, the Company is
unable to verify this information, and it is possible that advice received from
vendors may be erroneous. Moreover, certain vendors have not responded to the
Company's request for information, and may not be Year 2000 compliant.
Nevertheless, the Company believes alternative sources of supply are available
for all required components. Therefore, absent widespread difficulties affecting
several critical vendors, the Company does not anticipate that vendors' Year
2000 issues would have a material adverse effect on the Company. In addition,
certain machine parts could be manufactured in the Company's in-house machine
shop.
The Company has received verbal verification from several of its freight
providers that they are Year 2000 compliant. However, the Company is unable to
verify this information and is not currently aware of the Year 2000 readiness of
certain outside service companies, such as telecommunications or utility
providers. The failure of these providers to be Year 2000 compliant could have a
material adverse effect on the Company, which is not currently quantifiable. In
the worst case, the Company's operations could be seriously disrupted.
Customers - The Company's customer base typically changes significantly from
year to year. Since the Company's equipment is designed to have an extended
life, significant repeat orders are not received on a regular basis. As a result
the Company is unable to predict the identity of most of its major customers in
the Year 2000 and thereafter. The Company is unable to make an inquiry as to
whether the customers' computer driven payment or purchasing processes are Year
2000 compliant. A customer's Year 2000 issues could cause a delay in receipt of
purchase orders or payment. If Year 2000 issues are widespread among the
Company's customers, the Company's sales and cash flow could be materially
adversely affected.
Forward Looking Statements
The statements contained above regarding the shipment of backlog during the next
twelve months; third party statements regarding Year 2000 readiness of their
products, services and systems; costs of Year 2000 measures; consequences of the
failure of Company products and systems, and outside parties to be Year 2000
compliant; and other Year 2000 related matters are forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. A
number of important factors could cause actual results to differ materially from
those in the forward looking statements including, among others, economic
conditions generally and specifically in the newspaper industry, change in
product demand, delays in shipment, cancellation of customer orders,
unanticipated hardware or software problems in connection with upgrades,
unavailability of vendors to replace vendors having Year 2000 difficulties,
inability of the Company to internally fabricate necessary machine parts and
unanticipated costs of Year 2000 measures.
Item 3 Quantitative and Qualitative Disclosure about Market Risk
Market Risk
The Company is exposed to various types of market risk, including changes in
interest rates. Market risk is the potential loss arising from adverse changes
in market rates and prices, such as interest rates. The Company does not enter
into derivatives or other financial instruments for trading or speculative
purposes. The Company's cash and investments exceed short and long-term debt,
therefore, the exposure to interest rates relates primarily to its investment
portfolios. Due to the short term maturities of the Company's investments,
management believes that there is no significant risk arising from interest rate
fluctuations. The Company is actively managing the investment portfolios to
increase return on investments, but, in order to ensure liquidity, only invests
in instruments with credit quality and where a secondary market exists. The
counterparties are major financial institutions and government agencies. The
Company's investment portfolios did not materially change from December 31, 1998
to March 31, 1999.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) During the quarter for which this report is filed the Company
filed a Form 8-K dated March 8, 1999, which reported
information under Item 5 (other information).
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUIPP, INC.
Date: May 14, 1999 By: \s\Anthony P. Peri
-----------------------
Anthony P. Peri
President and Chief Executive Officer
By:\s\Jeffrey S. Barocas
Jeffrey S. Barocas
Chief Financial Officer and Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Quipp, Inc., Quarterly Report on Form 10-Q for the quarter ended March
31, 1999 and is qualified in its entirety by reference to such Form
10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,176,548
<SECURITIES> 21,160,042
<RECEIVABLES> 5,227,563
<ALLOWANCES> 217,789
<INVENTORY> 3,205,366
<CURRENT-ASSETS> 31,702,432
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,991,371
<CURRENT-LIABILITIES> 21,409,307
<BONDS> 950,000
0
0
<COMMON> 16,804
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,991,371
<SALES> 6,509,038
<TOTAL-REVENUES> 6,509,038
<CGS> 4,259,809
<TOTAL-COSTS> 5,966,387
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,825
<INCOME-PRETAX> 740,362
<INCOME-TAX> 250,538
<INCOME-CONTINUING> 489,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 489,824
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.28
</TABLE>
