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 June 30, 2000.
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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 June 30, 2000 was 1,893,501.
<PAGE>
QUIPP, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets - 3
June 30, 2000 and December 31, 1999
Consolidated Statements of Income - 4
Three and six months ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows - 5
Six months ended June 30, 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 9
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Shareholders 10
Item 6 - Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
QUIPP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,448,289 $ 2,868,262
Securities 16,270,662 10,471,056
Accounts receivable, net 5,722,132 4,586,990
Inventories 3,838,055 2,617,641
Deferred tax asset-current 888,719 888,719
Prepaid expenses and other receivables 703,117 539,488
----------- -----------
Total current assets 28,870,974 21,972,156
Other assets:
Property, plant and equipment, net 2,005,895 2,014,148
Goodwill 359,031 374,641
Other assets 70,701 74,061
----------- -----------
$31,306,601 $24,435,006
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 100,000 $ 100,000
Accounts payable 2,139,512 1,112,944
Accrued salaries and wages 645,342 850,110
Deferred revenues 6,275,984 3,105,344
Income taxes payable 210,454 7,482
Contract contingencies 819,595 898,192
Other accrued liabilities 1,697,998 1,379,601
----------- -----------
Total current liabilities 11,888,885 7,453,673
Long-term debt 850,000 850,000
Total liabilities 12,738,885 8,303,673
----------- -----------
Shareholders' equity:
Common stock - par value $.01 per share, 8,000,000
shares authorized, 1,893,501 and 1,885,144 shares
issued and outstanding, respectively in 2000 and 1999 18,935 18,851
Additional paid-in capital 9,111,127 8,958,547
Retained earnings 9,437,654 7,153,935
----------- -----------
Total shareholders' equity 18,567,716 16,131,333
----------- -----------
Total liabilities and shareholders' equity $31,306,601 $24,435,006
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
3
<PAGE>
QUIPP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
====================================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 9,168,000 $ 8,930,581 $ 16,664,058 $ 15,439,619
Cost of sales 5,540,235 5,801,993 10,387,857 10,061,802
----------- ----------- ------------ ------------
Gross profit 3,627,765 3,128,588 6,276,201 5,377,817
Other operating income and expense items:
Selling , general and
administrative expenses 1,379,313 1,487,361 2,821,093 2,832,548
Research and development 159,643 150,087 257,730 511,478
----------- ----------- ------------ ------------
Operating profit 2,088,809 1,491,140 3,197,378 2,033,791
----------- ----------- ------------ ------------
Other income (expense):
Interest income 199,652 135,784 336,302 341,320
Interest expense (10,932) (9,350) (20,242) (17,175)
----------- ----------- ------------ ------------
188,720 126,434 316,060 324,145
----------- ----------- ------------ ------------
Income before income taxes 2,277,529 1,617,574 3,513,438 2,357,936
Income tax 797,135 584,101 1,229,719 834,639
----------- ----------- ------------ ------------
Net income $ 1,480,394 $ 1,033,473 $ 2,283,719 $1,523,298
-----------------------------------------------------------------------------------------------------------------------------------
Per share amounts:
Basic income per common share 0.78 0.55 1.21 0.87
Diluted income per common share 0.77 0.55 1.19 0.83
Basic average number of common 1,889,725 1,885,144 1,888,305 1,824,765
shares outstanding
Diluted average number of common and
common equivalent shares outstanding 1,930,455 1,887,149 1,916,886 1,885,144
===================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
QUIPP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash provided by operations:
Net income $ 2,283,719 $ 1,523,298
Reconciliation of net income to net cash
provided by operations:
Depreciation and amortization 131,386 117,984
Issuance of shares to employees 152,664 28,676
Changes in operational assets and liabilities:
Accounts receivable, net (1,135,142) (138,468)
Inventories (1,220,414) (793,802)
Other assets, prepaid expenses and
other receivables (160,269) 121,088
Accounts payable and other accrued liabilities 1,140,197 366,854
Contract contingencies (78,597) 233,155
Deferred revenues 3,170,640 (597,545)
Income taxes payable 202,972 149,139
------------ ------------
Net cash provided by operations 4,487,156 1,010,379
------------ ------------
Cash flow from investing activities:
Securities purchased (16,163,199) (17,609,022)
Securities sold 10,363,593 26,752,199
Capital expenditures (107,523) (122,276)
------------ ------------
Net cash (used in) provided by investing activities (5,907,129) 9,020,901
------------ ------------
Cash flow from financing activities:
Special dividend paid on common stock -- (13,196,008)
Exercise of stock options -- 2,805,500
------------ ------------
Net cash used in financing activities -- (10,390,508)
------------
Decrease in cash and cash equivalents (1,419,973) (359,228)
Cash and cash equivalents at the beginning of the year 2,868,262 1,820,956
------------ ------------
Cash and cash equivalents at end of the quarter $ 1,448,289 $ 1,461,728
------------ ------------
Supplemental disclosure of cash payments made for:
Interest $ 20,242 $ 14,367
------------ ------------
Income Taxes $ 1,003,000 $ 687,000
------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
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. as of June 30, 2000 and the results of its operations
and cash flows for the six months ended June 30, 2000. The results of operations
for the six months ended June 30, 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 June 30, 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 June 30,
2000 and December 31, 1999 is as follows:
June 30, 2000 December 31, 1999
-----------------------------------------------------------------------------
Raw materials $2,350,572 $2,152,647
Work in process 1,302,089 403,689
Finished goods 185,394 61,305
----------------------------------------------
$3,838,055 $2,617,641
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.
6
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 39.6% 35.0% 37.7% 34.8%
Selling, general and administrative
expenses 15.0% 16.7% 16.9% 18.3%
Research and development 1.7% 1.7% 1.5% 3.3%
Interest income 2.2% 1.5% 2.0% 2.2%
Net income 16.1% 11.6% 13.7% 9.9%
</TABLE>
Three Months ending June 30, 2000
---------------------------------
Net sales for the three months ended June 30, 2000 were $9,168,000, an increase
of $237,419 (2.7%) over net sales of $8,930,581 for the corresponding period in
1999. Our sales growth was primarily due to improved Latin American sales and
increased sales of integrated post press material handling systems which include
original equipment manufacturer (OEM) equipment. Our Latin American sales
increased from approximately $15,000 for the three months ended June 30, 1999 to
approximately $1,230,000 for the three months ended June 30, 2000.
Gross profit for the three months ended June 30, 2000 was $3,627,765, an
increase of $499,177 (16.0%) as compared to $3,128,588 for the corresponding
period in 1999. The increase in gross profit as a percentage of sales was
primarily due to improved gross profit on OEM equipment sales and an improved
sales mix.
Selling, general and administrative expenses for the three months ended June 30,
2000 were $1,379,313, a decrease of $108,047 (7.3%) as compared to $1,487,361
for the corresponding period in 1999. Our marketing costs were lower due to
reduced trade show and advertising expenses. In 1999 we increased spending on
trade shows and advertising in trade journals in order to introduce two products
under development, the automatic palletizer and Quipp-Gripp II (TM), our single
gripper conveyor.
Research and development expenses for the three months ended June 30, 2000 were
$159,643, an increase of $9,556 (6.4%) as compared to $150,087 for the same
period in 1999. These costs were incurred primarily to develop additional
features and optional equipment for our new automatic palletizer and Quipp-Gripp
II product lines.
Interest income for the three months ended June 30, 2000 was $199,652 as
compared to $135,784 for the same period in 1999. The increase in interest
income resulted from higher interest rates on our securities available for sale
and higher average balances of cash and cash equivalents and securities
available for sale.
7
<PAGE>
Six Months ending June 30, 2000
-------------------------------
Sales for the six months ended June 30, 2000 were $16,664,058, an increase of
$1,224,439 (7.9%) over net sales of $15,439,619 in the same period in 1999. Our
sales growth was primarily due to improved Latin American sales and increased
sales of integrated post press material handling systems which include OEM
equipment. Our Latin American sales increased from approximately $15,000 for the
three months ended June 30, 1999 to approximately $1,452,000 for the three
months ended June 30, 2000.
Gross profit for the six months ended June 30, 2000 was $6,276,201, an increase
of $898,384 (16.7%) as compared to $5,377,817 for the corresponding period in
1999. The increase in gross profit as a percentage of sales are primarily due to
improved gross profit on OEM equipment sales and an improved sales mix.
Selling, general and administrative expenses for the six months ended June 30,
2000 were $2,821,093, a decrease of $11,455 (.4%) as compared to $2,832,548 for
the same period in 1999. The reduction was due in part to lower marketing costs
partially offset by higher direct selling costs. The decreased marketing costs
are attributable to reduced trade show and advertising expenses. In 1999 we
increased spending on trade shows and advertising in trade journals in order to
introduce two new products under development, the automatic palletizer and
Quipp-Gripp II. Higher direct selling costs, such as travel and commission
expense, resulted from improved sales and increased order backlog compared to
the same period in 1999.
Research and development expenses for the six months ended June 30, 2000 were
$257,730, a decrease of $253,748 (49.6%) as compared to $511,478 for the same
period in 1999. The decrease in spending reflects a reduction in research and
development efforts in the first quarter of 2000 due to the substantial
completion of our two new products, the automatic palletizer and Quipp-Gripp II.
However, research and development efforts increased in the second quarter of
2000 as we focused on developing additional features and optional equipment for
these products.
Interest income for the six months ended June 30, 2000 was $336,302 as compared
to $341,320 for the same period in 1999. The decrease in interest income was due
to lower average balances, offset in part by higher interest rates on our
securities available for sale compared to the same period in 1999.
General
The Company's backlog as of June 30, 2000 was $14,695,482 compared to
$13,096,738 at June 30, 1999. The Company expects to ship all backlog items
within the next eighteen months.
Liquidity
On June 30, 2000, cash and cash equivalents and securities available for sale
totaled $17,718,951 as compared to $13,339,318 at December 31, 1999, an increase
of $4,379,633 or 32.8%. This increase was primarily due to cash provided by
operations. Working capital on June 30, 2000 was $16,982,089, an increase of
$2,463,606 from $14,518,483 at December 31, 1999. The Company believes that its
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". SAB 101 discusses the SEC Staff's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 as supplemented by SAB 101B requires that companies whose fiscal year
begin between December 16, 1999 and March 15, 2000 adopt this bulletin no later
than their fourth quarter of fiscal years beginning after December 15, 1999. We
are currently evaluating the impact of SAB 101 on our financial statements. If a
change in accounting policy is necessary, it will be made effective October 1,
2000 and will most likely result in a cumulative adjustment to net income as of
October 1, 2000. The adjustment will reflect the deferral of certain revenues
and related costs that will be recognized 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.
8
<PAGE>
Forward Looking Statements
The statements contained in this quarterly report on Form 10-Q, including
statements concerning shipment of backlog orders, shipment of automatic
palletizing systems and Quipp Gripp II 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 there is no significant risk arising
from interest rate fluctuations. We are actively 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 Company's investment portfolios did not materially
change from December 31, 1999 to June 30, 2000.
9
<PAGE>
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Shareholders
On May 2, 2000, we held our Annual Meeting of Shareholders (the "Meeting"). At
the Meeting, the shareholders voted on the election of two directors to serve
until the 2003 Annual Meeting of Shareholders and a proposal to ratify the
appointment of KPMG LLP as our independent public accountants for 2000.
The voting results were as follows:
1. Election of Directors.
Name of Nominee For Withheld
--------------- ----------- --------
Ralph M. Branca 1,551,786 104,400
Louis D. Kipp 1,551,786 104,400
2. Ratification of the appointment of KPMG LLP as our independent public
accountants for 2000.
For Against Abstain Broker Non-votes
----------- ------- ------- ----------------
1,656,186 0 0 0
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit No. Description of Exhibit
----------- ----------------------
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed
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: August 9, 2000 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
