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 September 30, 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
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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
incorporation or organization) Identification No.)
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
---------------
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
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The number of shares of the registrant's common stock, $.01 par value,
outstanding at September 30, 2000 was 1,895,751.
<PAGE>
QUIPP, INC.
<TABLE>
<CAPTION>
INDEX
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets - 3
September 30, 2000 and December 31, 1999
Consolidated Statements of Income - 4
Three and nine months ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows - 5
Nine months ended September 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 6 - Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
QUIPP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 150,243 $ 2,868,262
Securities 16,939,480 10,471,056
Accounts receivable, net 4,906,859 4,586,990
Inventories 3,671,333 2,617,641
Deferred tax asset-current 888,719 888,719
Prepaid expenses and other receivables 660,694 539,488
----------- -----------
Total current assets 27,217,328 21,972,156
Other assets:
Property, plant and equipment, net 1,961,438 2,014,148
Goodwill 351,226 374,641
Other assets 69,021 74,061
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$29,599,013 $24,435,006
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 100,000 $ 100,000
Accounts payable and accrued expenses 4,206,447 3,342,655
Deferred revenues 3,860,043 3,105,344
Income taxes payable 319 7,482
Contract contingencies 819,595 898,192
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Total current liabilities 8,986,404 7,453,673
Long-term debt 850,000 850,000
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Total liabilities 9,836,404 8,303,673
Shareholders' equity:
Common stock - par value $.01 per share, 8,000,000
shares authorized, 1,895,751 and 1,885,144 shares
issued and outstanding, respectively in 2000 and 1999 18,957 18,851
Additional paid-in capital 9,147,854 8,958,547
Retained earnings 10,595,798 7,153,935
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Total shareholders' equity 19,762,609 16,131,333
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Total liabilities and shareholders' equity $29,599,013 $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 nine months ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
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<S> <C> <C> <C> <C>
Net sales $ 9,109,325 $ 7,914,975 $ 25,773,383 $ 23,354,594
Cost of sales 5,869,722 4,993,952 16,257,579 15,055,754
------------------------------------------------------------------------
Gross profit 3,239,603 2,921,023 9,515,804 8,298,840
Other operating income and expense items:
Selling , general and
administrative expenses 1,416,379 1,333,503 4,237,472 4,166,051
Research and development 294,795 100,950 552,525 612,428
------------------------------------------------------------------------
Operating profit 1,528,429 1,486,570 4,725,807 3,520,361
Other income (expense):
Interest income 249,606 113,645 585,908 454,965
Interest expense (10,425) (8,990) (30,667) (26,165)
------------------------------------------------------------------------
239,181 104,655 555,241 428,800
Income before income taxes 1,767,610 1,591,225 5,281,048 3,949,161
Income tax 609,466 502,380 1,839,185 1,337,018
------------------------------------------------------------------------
Net income $ 1,158,144 $ 1,088,845 $ 3,441,863 $ 2,612,143
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Per share amounts:
Basic income per common share 0.61 0.58 1.82 1.45
Diluted income per common share 0.59 0.57 1.78 1.41
Basic average number of common 1,895,327 1,885,144 1,890,644 1,801,613
shares outstanding
Diluted average number of common and
common equivalent shares outstanding 1,981,414 1,898,389 1,938,489 1,849,487
===================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
QUIPP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash provided by operations:
Net income $ 3,441,863 $ 2,612,143
Reconciliation of net income to net cash
provided by operations:
Depreciation and amortization 200,959 168,982
Provision for bad debt 50,000 --
Issuance of shares to employees 152,663 28,676
Changes in operational assets and liabilities:
Accounts receivable, net (369,869) (1,596,172)
Inventories (1,053,692) (547,030)
Other assets, prepaid expenses and
other receivables (116,165) (283,225)
Accounts payable and other accrued liabilities 863,791 (245,935)
Contract contingencies (78,597) 233,248
Deferred revenues 754,699 (254,942)
Income taxes payable (7,163) 111,518
----------------------------
Net cash provided by operations 3,838,489 227,263
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Cash flow from investing activities:
Securities purchased (19,622,266) (17,609,022)
Securities sold 13,153,842 26,597,826
Capital expenditures (124,834) (240,487)
----------------------------
Net cash (used in) provided by investing activities (6,593,258) 8,748,317
----------------------------
Cash flow from financing activities:
Special dividend paid on common stock -- (13,196,008)
Exercise of stock options 36,750 2,805,501
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Net cash provided by (used in) financing activities 36,750 (10,390,507)
----------------------------
Decrease in cash and cash equivalents (2,718,019) (1,414,927)
Cash and cash equivalents at the beginning of the year 2,868,262 1,820,956
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Cash and cash equivalents at end of the quarter $ 150,243 $ 406,029
=====================================================================================
Supplemental disclosure of cash payments made for:
Interest $ 30,667 $ 23,357
----------------------------
Income Taxes $ 1,851,500 $ 1,225,000
=====================================================================================
</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 September 30, 2000 and the results of its
operations and cash flows for the nine months ended September 30, 2000. The
results of operations for the nine months ended September 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 September 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 September
30, 2000 and December 31, 1999 is as follows:
September 30, 2000 December 31, 1999
------------------------------------------------------------------------------
Raw materials $1,739,335 $2,152,647
Work in process 1,821,506 403,689
Finished goods 110,492 61,305
--------------------------------------------
$3,671,333 $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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 35.6% 36.9% 36.9% 35.5%
Selling, general and administrative
expenses 15.5% 16.8% 16.4% 17.8%
Research and development 3.2% 1.3% 2.1% 2.6%
Interest income 2.7% 1.4% 2.3% 1.9%
Net income 12.7% 13.8% 13.4% 11.2%
</TABLE>
Three Months ending September 30, 2000
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Net sales for the three months ended September 30, 2000 were $9,109,325, an
increase of $1,194,350 (15.1%) over net sales of $7,914,975 for the
corresponding period in 1999. Our sales growth was primarily due to increased
domestic sales.
Gross profit for the three months ended September 30, 2000 was $3,239,603, an
increase of $318,580 (10.9%) as compared to $2,921,023 for the corresponding
period in 1999. The decrease in gross profit as a percentage of sales was
primarily due to sales mix.
Selling, general and administrative expenses for the three months ended
September 30, 2000 were $1,416,379, an increase of $82,876 (6.2%) as compared to
$1,333,503 for the corresponding period in 1999. The increase is attributable to
higher direct selling costs partially offset by reduced trade show and
advertising expenses. Higher direct selling costs, such as travel and commission
expense, resulted from improved sales compared to the same period in 1999. In
1999, we increased spending on trade shows and advertising in trade journals in
order to promote two new products.
Research and development expenses for the three months ended September 30, 2000
were $294,795, an increase of $193,845 (192.0%) as compared to $100,950 for the
same period in 1999. These costs were incurred in connection with the
development of our new Quipp-Gripp II(TM) gripper conveyor system.
Interest income for the three months ended September 30, 2000 was $249,606 as
compared to $113,645 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 compared to the same period in 1999.
7
<PAGE>
Nine Months ending September 30, 2000
-------------------------------------
Sales for the nine months ended September 30, 2000 were $25,773,383, an increase
of $2,418,789 (10.4%) over net sales of $23,354,594 for the same period in 1999.
Our sales growth was primarily due to improved Latin American sales and
increased sales of original equipment manufacturer (OEM) equipment. Our Latin
American sales increased from approximately $345,000 for the nine months ended
September 30, 1999 to approximately $1,510,000 for the nine months ended
September 30, 2000. We sell OEM equipment to compliment our product line and
provide our customers a single source for integrated post press material
handling systems.
Gross profit for the nine months ended September 30, 2000 was $9,515,804, an
increase of $1,216,964 (14.7%) as compared to $8,298,840 for the corresponding
period in 1999. The increase in gross profit as a percentage of sales is
primarily due to improved gross profit on OEM equipment sales and changes in
sales mix to product lines that generate greater gross profits.
Selling, general and administrative expenses for the nine months ended September
30, 2000 were $4,237,472, an increase of $71,421 (1.7%) as compared to
$4,166,051 for the same period in 1999. The increase is attributable to higher
direct selling costs partially offset by reduced trade show and advertising
expenses. 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. In 1999 we increased spending on trade shows and advertising in
trade journals in order to promote two new products.
Research and development expenses for the nine months ended September 30, 2000
were $552,525, a decrease of $59,903 (9.8%) as compared to $612,428 for the same
period in 1999. The reduced spending is due to the substantial completion of our
automatic palletizer partially offset by additional costs incurred in the
development of our new Quipp-Gripp II gripper conveyor system.
Interest income for the nine months ended September 30, 2000 was $585,908 as
compared to $454,965 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 compared to the same period in 1999.
General
The Company's backlog as of September 30, 2000 was $12,115,586 compared to
$10,119,131 at September 30, 1999. The Company expects to ship all backlog items
within the next twelve months.
Liquidity
On September 30, 2000, cash and cash equivalents and securities available for
sale totaled $17,089,723 as compared to $13,339,318 at December 31, 1999, an
increase of $3,750,405 or 28.1%. This increase was primarily due to cash
provided by operations. Working capital on September 30, 2000 was $18,230,925,
an increase of $3,712,442 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.
8
<PAGE>
Recent Accounting Pronouncements
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
begins 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 would most likely result in a cumulative adjustment to net income as of
October 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 affect the results for the periods in
which we recognize revenue in the future. Prior financial results would not be
restated.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments embedded in other contracts and
for hedging activities. SFAS No. 133, as amended, is effective for all quarters
beginning after June 15, 2000. The Company does not expect SFAS No. 133 to have
a material affect on its consolidated financial position or its consolidated
statements of income.
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 for items 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, our exposure
to interest rate fluctuations 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 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, 1999 to September 30,
2000.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6 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
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: November 1, 2000 By: /s/ Anthony P. Peri
-------------------------------------
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
