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, 2000.
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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
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QUIPP, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-2306191
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 N.W. 157th Street, Miami, Florida 33014
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(Address of principal executive offices)
Registrant's telephone number, including area code (305) 623-8700
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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, 2000 was 1,887,184.
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QUIPP, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
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Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets - 3
March 31, 2000 and December 31, 1999
Consolidated Statements of Income - 4
Three months ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows - 5
Three months ended March 31, 2000 and 1999
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 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 9
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2
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PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
QUIPP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 2000 December 31, 1999
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ASSETS
Current assets:
Cash and cash equivalents $ 2,420,400 $ 2,868,262
Securities 14,230,738 10,471,056
Accounts receivable, net 4,194,512 4,586,990
Inventories 2,933,962 2,617,641
Deferred tax asset-current 888,719 888,719
Prepaid expenses and other receivables 797,291 539,488
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Total current assets 25,465,622 21,972,156
Other assets:
Property, plant and equipment, net 2,008,533 2,014,148
Goodwill 366,836 374,641
Other assets 72,381 74,061
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$ 27,913,372 $ 24,435,006
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 100,000 $ 100,000
Accounts payable 1,341,517 1,112,944
Accrued salaries and wages 824,020 850,110
Deferred revenues 4,949,168 3,105,344
Income taxes payable 441,228 7,482
Contract contingencies 898,192 898,192
Other accrued liabilities 1,541,949 1,379,601
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Total current liabilities 10,096,074 7,453,673
Long-term debt 850,000 850,000
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Total liabilities 10,946,074 8,303,673
Shareholders' equity:
Common stock - par value $.01 per share, 8,000,000
shares authorized, 1,887,184 and 1,885,144 shares
issued and outstanding, respectively in 2000 and 1999 18,871 18,851
Additional paid-in capital 8,991,167 8,958,547
Retained earnings 7,957,260 7,153,935
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Total shareholders' equity 16,967,298 16,131,333
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Total liabilities and shareholders' equity $ 27,913,372 $ 24,435,006
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See accompanying notes to the consolidated financial statements
3
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QUIPP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the three months ended
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March 31, 2000 March 31, 1999
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Net sales $ 7,496,058 $ 6,509,038
Cost of sales 4,847,622 4,259,809
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Gross profit 2,648,436 2,249,229
Other operating income and expense items:
Selling, general and
administrative expenses 1,441,780 1,345,187
Research and development 98,087 361,391
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Operating profit 1,108,569 542,651
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Other income (expense):
Interest income 136,650 205,536
Interest expense (9,310) (7,825)
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127,340 197,711
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Income before income taxes 1,235,909 740,362
Income taxes 432,584 250,538
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Net income $ 803,325 $ 489,824
Per share amounts:
Basic income per common share .43 0.30
Diluted income per common share .42 0.28
Basic average number of common
and common equivalent shares outstanding 1,886,870 1,651,397
Weighted average number of common
and common equivalent shares outstanding 1,903,169 1,762,710
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See accompanying notes to the consolidated financial statements.
4
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QUIPP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(Unaudited)
2000 1999
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Cash provided by operations:
Net income $ 803,325 $ 489,824
Reconciliation of net income to net cash
provided by operations:
Depreciation and amortization 64,524 60,595
Issuance of shares to employees 32,640
Changes in operational assets and liabilities:
Accounts receivable, net 392,478 (621,389)
Inventories (316,321) (215,416)
Other assets, prepaid expenses and
other receivables (256,123) 143,958
Accounts payable and other accrued liabilities 364,831 (333,503)
Contract contingencies -- 233,155
Deferred revenues 1,843,824 1,692,833
Income taxes payable 433,746 250,538
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Net cash provided by operations 3,362,924 1,700,595
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Cash flow from investing activities:
Securities purchased (9,524,141) (11,619,222)
Securities sold 5,764,459 8,919,512
Capital expenditures (51,104) (25,731)
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Net cash used in investing activities (3,810,786) (2,725,441)
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Cash flow from financing activities
Conversion of stock options -- 380,438
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Net cash provided by financing activities -- 380,438
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Decrease in cash and cash equivalents (447,862) (644,408)
Cash and cash equivalents at beginning of year 2,868,262 1,820,956
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Cash and cash equivalents at end of quarter $ 2,420,400 $ 1,176,548
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Supplemental disclosure of cash payments made for:
Interest $ 9,310 $ 5,017
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See accompanying notes to the consolidated financial statements.
5
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QUIPP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Quipp, Inc. and its wholly owned subsidiaries, Quipp Systems, Inc.
and Quipp International Sales Corporation. Quipp International Sales Corporation
began business as a foreign sales corporation on March 1, 2000. 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, 1999 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. and subsidiaries as of March 31, 2000 and the results of
their operations and cash flows for the three months ended March 31, 2000. The
results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2000. 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, 1999 was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
NOTE 2 - INVENTORIES
Inventories at March 31, 2000 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,
2000 and December 31, 1999 is as follows:
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March 31, 2000 December 31, 1999
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Raw materials $1,529,810 $2,152,647
Work in process 1,316,041 403,689
Finished goods 88,111 61,305
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$2,933,962 $2,617,641
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NOTE 3 - EARNINGS PER SHARE
Earnings per share (EPS) is 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.
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.
6
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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:
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Three Months Ended
March 31,
2000 1999
(Unaudited) (Unaudited)
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Net sales 100.0% 100.0%
Gross profit 35.3% 34.6%
Selling, general and administrative
expenses 19.2% 20.7%
Research and development 1.3% 5.6%
Interest income 1.8% 3.2%
Net income 10.7% 7.5%
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Net sales for the three months ended March 31, 2000 were $7,496,058, an increase
of $987,020 (15.2%) over net sales of $6,509,038 for the corresponding period in
1999. Our sales growth was primarily due to improved international sales and
increased sales of original equipment manufacturer (OEM) equipment. The increase
in international sales reflects our increased sales efforts, including the
hiring of a sales representative and additional support staff in 1999.
Additionally, we sell OEM equipment to compliment our product line and provide
our customers with a single source for integrated post press material handling
systems.
Gross profit for the three months ended March 31, 2000 was $2,648,436, an
increase of $399,207 (17.7%) as compared to $2,249,229 for the corresponding
period in 1999. The increased gross profit was primarily due to improved sales.
Selling, general and administrative expenses for the three months ended March
31, 2000 were $1,441,780, an increase of $96,593 (7.2%) as compared to
$1,345,187 for the corresponding period in 1999. The increase was due in part to
higher selling costs resulting from increased sales. We also incurred increased
selling, general and administrative costs from the additional sales and sales
support staff hired to improve our sales efforts to international markets.
Research and development expenses for the three months ended March 31, 2000 were
$98,087, a decrease of $263,304 (72.9%) as compared to $361,391 for the same
period in 1999. The decrease is due to substantial completion of the development
of our two new products, the palletizer and Quipp Gripp II(TM), to which we
devoted most of our research and development expenditures in 1999. For the three
months ended March 31, 2000, we have focused our efforts, with respect to these
products, on custom design, production and installation. Costs related to these
activities are charged to inventory or cost of goods sold as incurred.
Interest income for the three months ended March 31, 2000 was $136,650 as
compared to $205,536 for the same period in 1999. The decrease in interest
income resulted from lower cash and cash equivalents and securities available
due to the payment of a $13,196,008 special cash dividend in May 1999.
General
Our Company's backlog as of March 31, 2000 was $13,820,221 compared to
$12,949,320 at March 31, 1999. The backlog at March 31, 2000 included
approximately $3,092,000 of OEM products as compared to $2,000,000 of OEM
products in the March 31, 1999 backlog. OEM products generally have lower
margins than the products manufactured by the Company. We expect to ship all
backlog items within the next twelve months.
7
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Liquidity
On March 31, 2000, cash and cash equivalents and securities available for sale
totaled $16,651,138 as compared to $13,339,318 at December 31, 1999, an increase
of $3,311,820 or 24.8%. This increase was primarily due to cash provided by
operations. Working capital on March 31, 2000 was $15,369,548, an increase of
$851,065 from $14,518,483 at December 31, 1999. 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.
Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission (SEC) issued SEC Staff
Accounting Bulletin No. 101 (SAB 101) "Revenue Recognition in Financial
Statements". This bulletin discusses the SEC Staff's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
Companies whose fiscal year begin between December 16, 1999 and March 15, 2000
must adopt this bulletin no later than their second quarter beginning after
December 15, 1999. We are currently evaluating the impact of SAB 101 on our
financial statements. Should we determine that a change in accounting policy is
necessary, it will be made effective April 1, 2000 and would result in a
cumulative adjustment to net income as of April 1, 2000. The adjustment would be
recorded as deferred revenue and recognized as revenue in future periods. In
addition, a change of policy on revenue recognition, if required, may impact the
period in which we recognize revenue in the future. Prior financial results
would not be restated.
Forward Looking Statements
The statements contained in this Quarterly Report on Form 10-Q, including
statements concerning shipment of backlog orders and adequacy of available
resources, 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, but not limited to, economic conditions generally and
specifically in the newspaper industry, demand and market acceptance for new and
existing products, the impact of competitive products and pricing, manufacturing
capacity, delays in shipment, cancellation of customer orders, and engineering
and production difficulties.
Item 3 Quantitative and Qualitative Disclosure about Market Risk
Market Risk
We are 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. We do not enter into derivatives or
other financial instruments for trading or speculative purposes. Because our
cash and investments exceed short and long-term debt, the exposure to interest
rates relates primarily to our investment portfolio. Due to the short term
maturities of our investments, we believe we bear no significant risk arising
from interest rate fluctuations. We are managing our investment portfolios to
increase return on investments, but, in order to ensure safety and liquidity,
will only invest in instruments with credit quality where a secondary market
exists. The counterparties are major financial institutions and government
agencies. The nature of the Company's investments did not materially change from
December 31, 1999 to March 31, 2000.
8
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PART II - OTHER INFORMATION
Item 4 Exhibits and Reports on Form 8-K
(a) Exhibit No. Description of Exhibit
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(27) Financial Data Schedule
(b) No reports on form 8-K were filed during the quarter for
which this report is filed.
9
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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 8, 2000 By: /s/ Anthony P. Peri
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Anthony P. Peri
President and Chief Executive Officer
By: /s/ Jeffrey S. Barocas
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Jeffrey S. Barocas
Chief Financial Officer and Treasurer
10
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<LEGEND>
This schedule contains summary financial information extracted from Quipp, Inc.,
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and is
qualified In its entirety by reference to such Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,420,400
<SECURITIES> 14,230,738
<RECEIVABLES> 4,500,936
<ALLOWANCES> 306,424
<INVENTORY> 2,933,962
<CURRENT-ASSETS> 25,465,622
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,913,372
<CURRENT-LIABILITIES> 10,096,074
<BONDS> 850,000
0
0
<COMMON> 18,871
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,913,372
<SALES> 7,496,058
<TOTAL-REVENUES> 7,496,058
<CGS> 4,847,622
<TOTAL-COSTS> 6,387,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,310
<INCOME-PRETAX> 1,235,909
<INCOME-TAX> 432,584
<INCOME-CONTINUING> 803,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 803,325
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.42
</TABLE>
