Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
-----------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
-------- THE SECURITIES 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 (IRS Employer Identification No.)
incorporation or organization)
4800 NW 157th Street, Miami, Florida 33014
------------------------------------- ------
Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (305) 623-8700
--------------
Securities registered pursuant to Section 12(g) of the Act;
Common Stock, $.01 par value
----------------------------
(Title of Class)
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
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K).
------
The aggregate market value of voting stock held by non-affiliates of the
Registrant on February 16, 2001 was approximately $43,828,775*. The number of
shares of the Registrant's common stock, $.01 par value, outstanding at February
16, 2001 was 1,895,751.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated
---------------------
Portions of the Quipp, Inc. Proxy Statement relating to the 2001 Annual Meeting
of Shareholders (to be filed not later than 120 days after the close of the
fiscal year covered by this report on Form 10-K).
Where Incorporated
------------------
Part III
*Calculated by excluding all shares held by executive officers and directors of
Registrant without conceding that all such persons are "affiliates" of
Registrant for purposes of the federal securities laws.
PART I
ITEM I - BUSINESS
- -----------------
Through our wholly owned subsidiary, Quipp Systems, Inc., we design,
manufacture, install, service and market post-press material handling equipment
to newspaper publishers. In the post-press stage of newspaper operations,
newspapers move from the pressroom in a continuous stream and are stacked,
bundled, transferred to the shipping docks and loaded into carts or stored on
pallets for further distribution. Our equipment and computerized control systems
facilitate the automated movement of newspapers from the printing press to the
delivery trucks.
Our product line includes the following:
Newspaper Stacker - The Series 400 Stacker counts and batches stacks of
newspapers at maximum speeds of 85,000 copies per hour. The Quipp Sport Stacker,
marketed to smaller volume newspapers, counts and batches stacks of newspapers
at maximum speeds of 60,000 copies per hour.
Bottomwrapper - The Quipp Viper, our bottomwrapper, applies wrapping paper to
the bottom or three sides of a newspaper bundle to protect against product
damage. The Viper can be equipped with an inkjet printing device that provides
delivery location and copy count information on the wrapping paper.
Automatic Cart Loading System - This system loads strapped bundles of newspapers
into carts for transportation to remote distribution centers. Quipp's Automatic
Cart Loading System handles bundles of various shapes and sizes. Upon completion
of loading, the cart is discharged from the cart loader, loaded in a truck and
is ready for delivery to the distribution site.
Newspaper Gripper and Conveyor Systems - Our gripper and conveyor systems, which
include the newly developed Quipp-Gripp II (TM), as well as the Quipp Twin-Trak
and the Quipp Rollerslat, transport newspapers from pressrooms to various
locations throughout the post-press operation. The conveyor systems include both
horizontal and vertical conveyor modules, which can be integrated with
directional switches and special purpose components to accommodate the layout of
the newspaper plant. The Quipp-Gripp II uses a series of grippers mounted on an
articulating chain to pick up and transport newspapers and other printed
products. Each Quipp-Gripp II gripper carries a single copy of the product. The
Quipp Twin-Trak is a twin-belt newspaper conveyor that transports newspapers in
an overlapping stream with maximum surface speeds of approximately 80,000
newspapers per hour. The Quipp rollerslat conveyor employs an array of
independently rotating rollers and is used in the processing of newspaper stacks
prior to bundling.
Automatic Palletizer System -The palletizer system receives newspaper bundles
from conveyors, stacks the bundles onto a pallet and places stretch wrap film
around the pallet and newspapers to prevent movement during transportation to a
distribution site.
Other Products - We manufacture other products for post-press operations,
including stream aligners, centering pacers, fold compressors, newspaper
sensors, press production monitors and other equipment.
Original Equipment Manufacturers (OEM) Equipment - We sell OEM products to
compliment our product line and provide our customers a single source for
integrated post-press material handling systems.
Our manufacturing activities consist primarily of the assembly of purchased
components, the fabrication of mechanical parts and the testing of completed
products. We use approximately 350 vendors to supply parts, materials and
components for our various products. We believe that alternative sources of
supply are available for all required components. If necessary, certain parts
could be manufactured in our in-house machine shop, which is used primarily for
custom engineering and development of prototype equipment.
We market, install and service our products both domestically and
internationally. All of the products have a minimum one-year warranty, and we
have a staff of technicians that provide installation and repair services. In
addition to the manufacture and sale of products, we sell spare parts for our
equipment. In 2000 and 1999, spare parts sales accounted for approximately 7% of
our net sales revenue.
2
We sell most of our products to newspaper publishers in the United States. Our
foreign sales accounted for 13%, 6% and 12% of total sales in 2000, 1999, and
1998, respectively. The following table indicates the amount of sales by
geographic area during the past three years:
SALES BY GEOGRAPHIC AREA
2000 1999 1998
-----------------------------------------------------------------------------------------------------
United States $30,905,022 $29,835,263 $23,969,296
Far East 785,934 441,194 413,883
Canada 1,360,731 354,246 408,728
Latin America 2,125,993 849,239 1,827,103
Other 174,067 151,889 502,386
--------------------------------------------------
$35,351,747 $31,631,831 $27,121,396
======================================================================================================
As of December 31, 2000, our backlog of orders was approximately $11,457,000, as
compared to $10,150,000 on December 31, 1999. While our 2000 year-end backlog
exceeded the level of the previous year-end, we are currently experiencing a
decrease in incoming orders. This decrease could adversely affect our financial
results for 2001. We expect to ship all orders included in our backlog within
the next 15 months. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - General" in Item 7.
For the years ended December 31, 2000, 1999 and 1998, no single newspaper
accounted for ten percent or more of our net sales. A number of our newspaper
customers are part of large newspaper chains, but management believes that
purchase decisions are made by the individual newspapers. Newspapers owned by
Gannett Co, Inc. and Knight-Ridder, Inc. accounted for 18% and 12% of our net
sales in 2000. Newspapers owned by Gannett Co, Inc. accounted for 32% of our
sales in 1998. Since our equipment is designed to have an extended life, our
largest individual newspaper customers in a given year are usually different
from the largest customers in any other year.
OEM sales accounted for approximately 12.6%, 9.6% and 3.0% of our total sales in
2000, 1999, and 1998, respectively.
COMPETITION
The newspaper industry has experienced a decrease in size in recent years, as
the number of newspapers in the country has declined. Moreover, in recent years,
there has been consolidation among manufacturers of newspaper material handling
equipment. These developments have increased competition in the industry, and
some of our competitors have much greater financial resources than ours.
Nevertheless, we believe we have been able to compete successfully in this
environment by emphasizing our customer service, engineering expertise and the
quality and reliability of our products.
We believe we have two principal competitors for the newspaper post-press
equipment business in the United States, Heidelberg Finishing Systems, a
domestic subsidiary of Heidelberger Druckmaschinen AG, a German company and,
GMA, a domestic subsidiary of Muller-Martini Versand-Systeme AG, a Swiss
company. In addition, there are several companies that compete with respect to
certain of our products. We have experienced competition on the basis of price
with respect to most of our products and anticipate that price competition will
continue.
MARKETING
We have 18 employees on our sales support and direct sales staff. In North
America, we sell our products through five direct sales representatives. In
Latin America, we have one sales representative that works closely with
international dealers to sell our products. We use international dealers to
market and sell our products in the rest of the world. Domestically, we market
products by direct solicitation, trade shows and national and regional trade
journal advertising. International marketing efforts are coordinated through the
foreign dealers. Some of the international dealers are commissioned, while
others purchase our products for resale.
PATENTS AND TRADEMARKS
We hold 30 U.S. patents, which expire during the period from 2001 to 2017. We
have three patents pending and continue to apply for patent protection when
deemed advisable; however, we believe that the success of our products
ultimately is dependent upon performance, reliability and engineering, and that
our patents are not material to our business. "Quipp" and "Quipp Gripp" are
registered trademarks of Quipp, Inc.
3
RESEARCH AND DEVELOPMENT
Research and development costs totaled $669,855, $742,865 and $760,256 in 2000,
1999 and 1998 respectively. The majority of Quipp's 2000 research and
development costs represented expenditures for development of the automatic
palletizer system and Quipp-Gripp II.
EMPLOYEES
As of December 31, 2000, we had 146 full-time employees. None of our employees
are represented by a union and we consider our employee relations to be good.
RECENT DEVELOPMENTS
In August 2000, the Company's Board of Directors formed a Special Committee to
evaluate strategic alternatives for Quipp, including a possible sale of the
company. The Committee retained Lazard Freres & Co. LLC to act as its exclusive
investment banker. The Committee's evaluation is continuing.
4
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, business experience and ages of the executive officers of Quipp are
listed below:
Name Business Experience During the Past Five Years Age
---- ---------------------------------------------- ---
Anthony P. Peri Mr. Peri has been President and Chief Executive 58
Officer of Quipp, Inc. and Quipp Systems,
Inc., and a director of both companies since
April 1998. From May 1997 to March 1998, he
was President and Chief Operating Officer of
Ctext, Inc. From August 1986 to May 1997, Mr.
Peri served in various capacities at Harris
Publishing Systems Corporation, the most
recent of which was Vice President and General
Manager.
Christer A. Sjogren Mr. Sjogren, Executive Vice President of Quipp 58
Systems, Inc. since 1994, has served Quipp or Quipp Systems
in various capacities since 1983. He is
responsible for our research, development and
engineering functions. Mr. Sjogren has been a
director of Quipp Systems, Inc. since May
1998.
Jeffrey S. Barocas Mr. Barocas has been Chief Financial Officer of 53
Quipp, Inc. since July 1996 and a director of
Quipp Systems, Inc. since May 1998. From 1990
until July 1996, Mr. Barocas was Chief
Financial Officer of a US subsidiary of London
International Group.
ITEM 2 - PROPERTIES
- -------------------
We operate our business from one facility, located in Miami, Florida. We own the
property, and our facility contains approximately 63,170 square feet, of which
approximately 48,300 square feet are utilized for manufacturing operations, and
14,870 square feet are used for administrative functions. We own all of the
equipment used in our manufacturing operations. In the opinion of management,
our properties are adequate and suitable for current operations.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable
5
PART II
ITEM 5 - MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
- -------------------------------------------------------------------------
MATTERS
- --------
Our Common Stock, $.01 par value, is traded on the NASDAQ National Market under
the symbol, "QUIP". The following table sets forth the high and low sales prices
of our Common Stock as reported on the NASDAQ National Market for each calendar
quarter in 2000 and 1999:
----------------------------------------------------------------------------------------------------
2000 1999
High Low High Low
----------------------------------------------------------------------------------------------------
First Quarter $16.00 $14.50 $24.00 $16.25
Second Quarter 19.63 15.06 21.75 12.50
Third Quarter 26.00 18.63 16.13 12.93
Fourth Quarter 26.06 22.25 16.50 14.50
----------------------------------------------------------------------------------------------------
We paid a special dividend of $7.00 per share to our shareholders on May 10,
1999.
As of February 16, 2001, we had approximately 300 record holders of the Common
Stock.
6
ITEM 6 - SELECTED FINANCIAL DATA AND QUARTERLY SUMMARY
- ------------------------------------------------------
The selected financial data should be read in conjunction with the financial
statements and related notes and also with Management's Discussion and Analysis
of Financial Condition and Results of Operations, which are included elsewhere
in this Annual Report on Form 10-K. The following selected financial data for
each of the years in the five-year period ended December 31, 2000 has been
derived from our audited balance sheets and related statements of income.
Selected Financial Data
(In thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
Income Statement Information:
Net sales $35,352 $31,632 $27,121 $27,018 $21,568
Gross profit 13,219 11,483 10,166 9,769 7,864
Selling, general and administrative expenses 5,623 5,693 4,925 4,690 4,205
Research and development 670 743 760 583 580
Operating profit 6,926 5,047 4,481 4,517 3,224
Other income (expense), net 793 531 601 415 284
- --------------------------------------------------------------------------------------------------------------------------------
Net income 5,013 3,673 3,348 3,081 2,220
- --------------------------------------------------------------------------------------------------------------------------------
Per Share Amounts:
Net income per share (basic) 2.65 2.02 2.05 1.95 1.42
Net income per share (diluted) 2.57 1.97 1.96 1.89 1.42
Book value per share 11.28 8.55 13.67 11.58 9.63
Market price per share (unaudited) - high 26.06 24.00 20.38 17.50 13.50
- low 14.50 12.50 14.50 8.25 8.38
- --------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Information
Current assets $28,970 $21,972 $28,954 $22,882 $19,496
Total assets 31,477 24,435 31,278 25,303 22,074
Current liabilities 9,381 7,454 7,834 5,693 5,842
Long-term liabilities 750 850 950 1,050 1,150
Shareholders' equity 21,345 16,131 22,494 18,560 15,082
Weighted average number of equivalent
shares outstanding 1,948,956 1,862,116 1,707,366 1,630,213 1,565,765
- --------------------------------------------------------------------------------------------------------------------------------
We paid a special dividend of $7.00 per share totaling $13,196,008 to
shareholders on May 10, 1999; the reduction in shareholders' equity in 1999
reflects this dividend.
7
Quarterly Summary (unaudited)
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------
Quarter Ended March 31, June 30, September 30, December 31,
- ----------------------------------------------------------------------------------------------------------------------------
2000
- -----
Net Sales $ 7,496 $ 9,168 $ 9,109 $ 9,579
Operating Profit 1,109 2,089 1,528 2,200
Net Income 803 1,480 1,158 1,572
Basic income per common share $ 0.43 $ 0.78 $ 0.61 $ 0.83
Diluted income per common share $ 0.42 $ 0.77 $ 0.59 $ 0.79
1999
- ----
Net Sales $ 6,509 $ 8,931 $ 7,915 $ 8,277
Operating Profit 543 1,491 1,487 1,526
Net Income 490 1,033 1,088 1,062
Basic income per common share $ 0.30 $ 0.55 $ 0.58 $ 0.59
Diluted income per common share $ 0.28 $ 0.55 $ 0.57 $ 0.57
8
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Results of Operations
(Note: All dollar amounts are in thousands)
2000 vs. 1999
2000 1999
- --------------------------------------------------------------------------------
Net Sales $ 35,352 $ 31,632
- --------------------------------------------------------------------------------
Increase (decrease) $ 3,720
% 12
Our sales growth was primarily due to improved international sales. The increase
in international sales reflects our increased sales efforts, including the
hiring of a sales representative and additional sales support staff in 1999.
Sales for our core product lines, stackers and bottomwrappers, remain strong.
The 2000 sales growth also included increased sales of original equipment
manufacturers (OEM) equipment as well as increased installation and service
fees. We sell OEM products to offer our customers a single source solution for
integrated post-press material handling systems.
2000 1999
- --------------------------------------------------------------------------------
Gross Profit $ 13,219 $ 11,483
- --------------------------------------------------------------------------------
Increase (decrease) $ 1,736
% 15
Percentage of Net Sales 37% 36%
The increase in gross profit as a percentage of net sales is due in part to
improved gross profit on OEM equipment sales. Additionally, our gross profit
percentage improved due to lower fixed overhead costs as a percentage of net
sales. Our fixed overhead costs remained stable in 2000 compared to 1999 while
sales increased by 12%.
2000 1999
- --------------------------------------------------------------------------------
Selling, General and Administrative Expense $ 5,623 $ 5,693
- --------------------------------------------------------------------------------
Increase (decrease) $ (70)
% (1)
Percentage of Net Sales 16% 18%
The decrease in selling, general and administrative expenses is
primarily attributable to lower marketing expenses offset in part by
higher direct sales costs and professional fees. The decreased marketing
expenses reflect reduced spending on trade show and advertising. In
1999, we incurred higher trade show and advertising costs related to the
introduction and promotion of two new product lines. Direct selling
costs, such as travel and commission expense, increased in 2000
principally due to our increased international sales efforts.
Professional fees increased in 2000 primarily due to costs associated
with evaluating strategic alternatives to maximize shareholder value
with Lazard Freres & Co.
2000 1999
- --------------------------------------------------------------------------------
Research and Development $ 670 $ 743
- --------------------------------------------------------------------------------
Increase (decrease) $ (73)
% (10)
Percentage of Net Sales 2% 2%
Research and development decreased primarily due to the substantial completion
of our automatic palletizer product line offset in part by additional costs
incurred in the development of our Quipp-Gripp II gripper conveyor system.
9
2000 1999
- --------------------------------------------------------------------------------
Other Income and Expense (Net) $ 793 $ 531
- --------------------------------------------------------------------------------
Increase (decrease) $ 262
% 49
Percentage of Net Sales 2% 2%
The increase in other income and expense (net) is primarily due to the increase
in interest income. This increase 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.
10
Results of Operations
(Note: All dollar amounts are in thousands)
1999 vs. 1998
1999 1998
- --------------------------------------------------------------------------------
Net Sales $ 31,632 $ 27,121
- --------------------------------------------------------------------------------
Increase (decrease) $ 4,511
% 17
Our sales growth was primarily in the domestic market. Sales for our core
product lines, stackers and bottomwrappers, continue to be strong. The 1999
sales growth included increased sales of original OEM equipment.
1999 1998
- --------------------------------------------------------------------------------
Gross Profit $ 11,483 $ 10,166
- --------------------------------------------------------------------------------
Increase (decrease) $ 1,317
% 13
Percentage of Net Sales 36% 37%
The decrease in gross profit as a percentage of net sales is primarily due to
the sale of a higher percentage of OEM equipment, which generally has lower
margins than products we manufacture.
1999 1998
- --------------------------------------------------------------------------------
Selling, General and Administrative Expense $ 5,693 $ 4,925
- --------------------------------------------------------------------------------
Increase (decrease) $ 768
% 16
Percentage of Net Sales 18% 18%
The increase in selling, general and administrative expenses was principally due
to higher sales and marketing costs, offset in part by a decrease in
professional fees. The higher sales and marketing costs were due in part to
increased sales. Additionally, we increased spending on trade shows and
advertising in trade journals in order to introduce our two new products, the
automatic palletizer system and the Quipp-Gripp II gripper conveyer. We also
hired a salesperson and sales support staff to improve our sales efforts in
international markets.
The decrease in professional fees reflects reduced spending for legal and
accounting fees. In 1998, the Company incurred professional fees in connection
with an aborted business combination transaction and patent infringement
litigation that we brought against another company. The litigation was settled
in 1998.
1999 1998
- --------------------------------------------------------------------------------
Research and Development $ 743 $ 760
- --------------------------------------------------------------------------------
Increase (decrease) $ (17)
% (2)
Percentage of Net Sales 2% 3%
Research and development costs in 1999 and 1998 were incurred primarily to
develop two new products, the automatic palletizer system and the Quipp Gripp
II.
1999 1998
- --------------------------------------------------------------------------------
Other Income and Expense (Net) $ 531 $ 601
- --------------------------------------------------------------------------------
Increase (decrease) $ (70)
% (12)
Percentage of Net Sales 2% 2%
The decrease in other income and expense (net) was due to the decrease in
interest income. This decrease reflected lower cash and cash equivalents and
securities available for sale due to the payment of a $13,196,008 special
dividend in May 1999.
11
General
The majority of our sales are made on a contract basis. Typically, we receive a
deposit upon the execution of the sales contract. Prior to shipment, we receive
additional installment payments. We normally receive larger orders several
months in advance of delivery. Therefore, backlog can be an important, though by
no means conclusive, indication of our short-term revenue stream. The timing of
revenues can be affected by pending orders, the amount of custom engineering
required, the timetable for delivery, and the receipt and nature of new orders.
Our backlog, as of December 31, 2000 and December 31, 1999, was $11,457,000 and
$10,150,000 respectively. While our 2000 year-end backlog exceeded the level of
the previous year-end, we are currently experiencing a decrease in incoming
orders. This decrease could adversely affect our financial results for year-end
2001. We expect to ship all orders included in our December 31, 2000 backlog
within the next 15 months.
Liquidity and Capital Resources
On December 31, 2000, cash, cash equivalents and securities available for sale
totaled $16,988,495, as compared to $13,339,318 at December 31, 1999, an
increase of $3,649,177. The increase was due primarily to cash provided by
operations, offset in part by $374,560 in capital expenditures. Working capital
at December 31, 2000 was $19,588,283, an increase of $5,069,800 from $14,518,483
at December 31, 1999. The increase in working capital was due primarily to
increases in cash, cash equivalents and securities available for sale, accounts
receivable and inventories offset in part by an increase in accounts payable. We
believe that our cash, cash equivalents and securities available for sale
together with cash generated from operations will be sufficient to fund
operations at the current level.
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 and which are
traded in a secondary market. The counterparties are major financial
institutions and government agencies.
Inflation
The rate of inflation has not had a material impact on operations.
Forward Looking Statements
The statements contained in this Annual Report on Form 10-K, including
statements concerning the effect of the decrease in incoming orders, 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, reductions in sales or increases in sales, 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 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors."
12
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for each of the years in the
three-year period ended December 31, 2000
Consolidated Statements of Shareholders' Equity for each of the years
in the three-year period ended December 31,2000
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2000
Notes to Consolidated Financial Statements.
13
Independent Auditors' Report
The Board of Directors
Quipp, Inc.:
We have audited the accompanying consolidated balance sheets of Quipp,
Inc. and subsidiary (the "Company") as of December 31, 2000 and 1999, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 2000 and 1999 and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
Ft. Lauderdale, Florida
February 16, 2001
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,086,101 $ 2,868,262
Securities available for sale 15,902,394 10,471,056
Accounts receivable, net 6,818,124 5,000,653
Inventories 3,772,806 2,617,641
Deferred tax assets-current 804,649 888,719
Prepaid expenses and other receivables 585,442 539,488
-----------------------------
Total current assets 28,969,516 22,385,819
Property, plant and equipment, net 2,096,228 2,014,148
Goodwill 343,421 374,641
Other assets 67,340 74,061
-----------------------------
Total Assets $31,476,505 $24,848,669
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 100,000 $ 100,000
Accounts payable 1,773,107 1,112,946
Accrued salaries and wages 1,235,524 944,445
Deferred revenues 3,900,545 3,519,007
Income taxes payable 241,808 7,482
Contract contingencies 390,273 898,192
Other accrued liabilities 1,739,976 1,285,264
-----------------------------
Total current liabilities 9,381,233 7,867,336
-----------------------------
Long-term debt 750,000 850,000
-----------------------------
Total liabilities 10,131,233 8,717,336
Contingencies (Note 12)
Shareholders' Equity:
Common stock - par value $.01 per share, authorized 8,000,000
shares, issued 1,898,251 shares in 2000 and 1,855,144 18,982 18,851
shares in 1999
Additional paid-in capital 9,197,806 8,958,547
Treasury Stock, at cost (2,500 shares in 2000) (38,125) --
Retained earnings 12,166,609 7,153,935
-----------------------------
Total shareholders' equity 21,345,272 16,131,333
-----------------------------
Total Liabilities and Shareholders' Equity $31,476,505 $24,848,669
=============================
See accompanying notes to the consolidated financial statements.
15
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---------------------------------------------------------------------------------------------------------
Net sales $35,351,747 $31,631,832 $27,121,396
Cost of sales (22,132,564) (20,148,851) (16,955,430)
----------------------------------------------------
Gross profit 13,219,183 11,482,981 10,165,966
----------------------------------------------------
Operating expenses:
Selling, general and administrative expenses (5,623,178) (5,693,523) (4,924,902)
Research and development (669,855) (742,865) (760,256)
----------------------------------------------------
Operating profit 6,926,150 5,046,593 4,480,808
- ------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 800,516 566,489 646,947
Interest expense (40,957) (35,745) (45,473)
Other income 33,417 -- --
----------------------------------------------------
792,976 530,744 601,474
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,719,126 5,577,337 5,082,282
Income taxes (2,706,452) (1,904,648) (1,734,637)
----------------------------------------------------
Net income $5,012,674 $3,672,689 $3,347,645
- ------------------------------------------------------------------------------------------------------------------
Per share amounts:
Basic income per common share $2.65 $2.02 $2.05
Diluted income per common share $2.57 $1.97 $1.96
====================================================
Weighted average number of common and
common equivalent shares outstanding 1,948,956 1,862,116 1,707,366
===================================================================================================================
See accompanying notes to the consolidated financial statements.
16
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Additional Total
Common Stock Paid-In Retained Treasury Stock Shareholders'
Shares Amount Capital Earnings Shares Amount Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balances on
January 1, 1998 1,636,444 $16,365 $5,359,845 $13,329,609 33,950 (145,975) $18,559,844
Net Income 3,347,645 3,347,645
Exercise of stock options
(includes tax benefit of $81,583) 8,550 85 440,736 (33,950) 145,975 586,796
- -----------------------------------------------------------------------------------------------------------------------------------
Balances on
December 31, 1998 1,644,994 16,450 5,800,581 16,677,254 -- -- 22,494,285
Net Income 3,672,689 3,672,689
Issuance of shares to employees 1,400 14 28,662 28,676
Special dividend (13,196,008) (13,196,008)
Exercise of stock options
(includes tax benefit of $326,191) 238,750 2,387 3,129,304 3,131,691
- ----------------------------------------------------------------------------------------------------------------------------------
Balances on
December 31, 1999 1,885,144 18,851 8,958,547 7,153,935 -- -- 16,131,333
Net Income 5,012,674 5,012,674
Issuance of shares to employees 8,357 83 152,580 152,663
Purchase Treasury Stock 2,500 (38,125) (38,125)
Exercise of stock options
(includes tax benefit of $11,851) 4,750 48 86,679 86,727
- -----------------------------------------------------------------------------------------------------------------------------------
Balances on
December 31, 2000 1,898,251 $18,982 $9,197,806 $12,166,609 2,500 (38,125) $21,345,272
===========================================================================================
See accompanying notes to the consolidated financial statements.
17
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDING DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by operations:
Net Income $ 5,012,674 $3,672,689 $3,347,645
----------------------------------------------------
Reconciliation of net income to net cash
provided by (used in) operations:
Deferred income taxes 84,070 (73,820) 401,654
Depreciation and amortization 270,732 235,318 337,237
Issuance of shares to employees 152,663 28,676 --
Write-off of fixed assets 52,970 -- --
Other non-cash items - bad debt expense 63,576 88,635 --
Changes in operational assets and liabilities:
Accounts receivable, net (1,881,047) (287,240) (6,850)
Inventories (1,155,165) 372,309 540,659
Other assets, prepaid expenses, other receivables (39,233) (53,006) (417,920)
Accounts payables and other accrued liabilities 1,405,952 (187,731) (212,339)
Contract contingencies (507,919) 301,795 272,906
Deferred revenues 381,538 (333,970) 2,096,352
Income taxes payable 246,177 165,969 65,243
----------------------------------------------------
Net cash provided by operations 4,086,988 3,929,624 6,424,587
----------------------------------------------------
Cash flows from investing activities:
Securities purchased (22,165,717) (25,184,169) (46,948,510)
Securities sold 16,734,377 33,173,444 41,334,062
Capital expenditures (374,560) (381,085) (216,969)
----------------------------------------------------
Net cash (used in) provided by investing activities (5,805,900) 7,608,190 (5,831,417)
----------------------------------------------------
Cash flows from financing activities:
Repayment of debt (100,000) (100,000) (100,000)
Exercise of stock options 74,876 2,805,500 505,213
Purchase treasury stock (38,125) -- --
Special dividend -- (13,196,008) --
----------------------------------------------------
Net cash (used in) provided by financing activities (63,249) (10,490,508) 405,213
----------------------------------------------------
(Decrease) increase in cash and cash equivalents (1,782,161) 1,047,306 998,383
Cash and cash equivalents at beginning of year 2,868,262 1,820,956 822,573
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,086,101 $ 2,868,262 $ 1,820,956
=====================================================================================================================
Supplemental disclosure of noncash Information:
Tax benefit for exercised stock options $ 11,851 $ 326,191 $ 81,583
Supplemental disclosure of cash payments:
Interest $ 40,957 $ 35,745 $ 45,473
Income taxes $ 2,276,205 $ 1,812,500 $ 1,587,566
=====================================================================================================================
See accompanying notes to the consolidated financial statements.
18
QUIPP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The accompanying consolidated financial statements
include the accounts of Quipp, Inc. and Quipp Systems, Inc., a wholly owned
subsidiary (collectively, the Company). All material intercompany balances and
transactions have been eliminated in consolidation.
Nature of business - The Company designs, manufactures, installs, services and
markets post-press material handling equipment to newspaper publishers. In the
post-press stage of newspaper operations, newspapers move from the pressroom in
a continuous stream and are stacked, bundled, conveyed to the shipping docks and
loaded into carts or stored on pallets for further distribution.
Inventories - Inventories include material, labor and factory overhead, and are
stated at the lower of cost or market. Costs are determined using the first-in,
first-out (FIFO) method.
Accounts Receivable/Deferred Revenue - Most of the Company's sales are made on a
contract basis and require customers to make progress payments. Progress
payments are recorded as deferred revenue when received. Revenue is recognized
upon shipment of the equipment. Installation revenue is recognized upon
completion of installation at the customer's site. Accounts receivable is
presented net of an allowance for doubtful accounts of $370,000 for 2000 and
$306,424 for 1999.
Goodwill - The excess of cost over the fair value of net assets of a purchased
business is recorded as goodwill and amortized using the straight-line method
over 17 years. The Company reviews the carrying value of goodwill for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Goodwill impairment, if
any, is measured based on projected discounted future operating cash flows using
a discount rate reflecting the Company's average cost of funds. The assessment
of the recoverability of goodwill will be reevaluated if estimated future
operating cash flows are not achieved.
Research and development costs - Research and development costs include
expenditures for the development of new products, significant enhancements of
existing products or production processes, and the design, testing and
construction of prototypes. The Company expenses research and development costs
as they are incurred.
Property, plant and equipment, net - Property, plant and equipment is recorded
at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Repairs and maintenance are expensed as
incurred; alterations and major overhauls that improve an asset or extend the
useful lives are capitalized.
Income taxes - Income taxes are accounted for using the asset and liability
method under the provisions of Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting For Income Taxes." Deferred tax assets and
liabilities are identified based on temporary differences between the financial
statements and the tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using tax rates that are expected to apply to taxable
income in the year the temporary difference is expected to recover or settle.
Tax rate changes are recognized in the period in which the change occurs.
Cash and cash equivalents - Cash and cash equivalents include all the Company's
operating cash balances, demand deposits and short-term investments with
original maturities of three months or less. The Company classifies investments
with an original maturity of more than three months as securities available for
sale.
Income per share - Basic income per share is based on the weighted average
number of common shares outstanding during the periods presented. Diluted income
per share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding in the periods presented. Dilutive common
equivalent shares assume the exercise of options, calculated under the treasury
stock method, using the average stock market prices during the periods.
Warranty reserve - Warranty reserves are calculated based on the Company's
previous experience with customers' claims arising from the sale of merchandise.
The reserve is computed at 1 1/2% of contract revenue. Additions to this reserve
are charged to selling expense. Warranty reserve is included in other accrued
liabilities.
19
Securities available for sale - Securities available for sale include
investments that are not held for trading or not intended to be held to
maturity. These instruments are recorded at their fair value. Unrealized holding
gains or losses, net of the related tax effect, are included as a separate
component of shareholders' equity. Realized gains and losses, arising from the
sale of securities, are computed using the specific identification method and
included in net income. Fair value of the securities is determined based upon
market prices or discounted cash flow. A decrease in the market value below
cost, determined to be other than temporary, would result in a reduction in
carrying amount to fair value. This reduction would be charged to income.
Premiums and discounts are amortized or accreted using a method that
approximates the effective yield over the life of the security. Dividend and
interest income is recognized when earned. The Company invests in short term and
variable rate long-term securities and believes there is no significant risk
arising from interest rate fluctuations. The Company actively manages its
investment portfolios to increase return on investments, but, in order to ensure
liquidity, will only invest in instruments with credit quality and which are
traded in a secondary market.
Deferred bond-financing cost - Deferred bond financing costs were incurred upon
the issuance of industrial revenue bonds (see note 6) and are included in other
assets. These costs are amortized using a method that approximates the effective
yield over the term of the bonds.
Use of estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements. These estimates could
affect the reported amounts of revenues and expenses. Significant items subject
to estimates include the allowance for doubtful accounts, warranty reserves,
provision for contract contingencies on completed contracts and inventory
reserves. Actual results could differ from those estimates.
Contract contingencies - Contract contingencies are estimates of additional
expenses that may be incurred by the Company after a system is installed and
revenue has been recognized. These costs occur when additional efforts are
required to assure compliance with the customers' specifications. The estimated
cost to comply with the customers' specifications is based on the Company's past
experience.
Impairment of long-lived assets - The Company accounts for long-lived assets in
accordance with the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. There was no impairment of
long-lived assets in 2000 and 1999.
Stock-Based compensation -The Company uses the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its stock option grants. Under APB 25, compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeds the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation, " established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has provided the
disclosures required by SFAS No. 123. (see note 7)
Comprehensive income - In June 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 130, "Reporting Comprehensive Income". SFAS 130 is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The adoption of SFAS 130
has had no significant impact on the Company's financial statements. There were
no items of other comprehensive income for the year ended December 31, 2000,
1999, and 1998.
Segment Reporting - In 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS
No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 applies a "management approach" in which the internal
reporting that is used by management for making operational decisions and
evaluating performance is the source for the Company's segment reporting. The
adoption of SFAS No. 131 did not affect the results of operations or financial
position. The Company currently operates in one segment for management reporting
purposes.
20
Note 2 - SECURITIES AVAILABLE FOR SALE
Securities available for sale are recorded at fair value and consist primarily
of federal, state and local government obligations and other short-term
investments. As of December 31, 2000 and 1999, the amortized cost of securities
available for sale approximates fair value. Securities available for sale at
December 31, 2000 and 1999 consisted of the following:
Securities Available For Sale
- ---------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------
Securities:
Bankers Acceptance $ -- $ 500,000
Municipal Securities 10,925,000 6,670,000
Federal Government Agency Securities 4,910,000 3,218,000
Money Market Investments 12,375 --
Premiums on Investments 55,019 83,056
----------------------------------
Total $15,902,394 $ 10,471,056
----------------------------------
Note 3 - INVENTORIES
Components of inventory as of December 31, 2000 and 1999 were as follows:
2000 1999
- ---------------------------------------------------------------------------
Raw Materials $ 2,648,884 $ 2,152,647
Work in Process 1,052,018 403,689
Finished Goods 71,904 61,305
- ---------------------------------------------------------------------------
Total $ 3,772,806 $ 2,617,641
===========================================================================
Note 4 - INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 2000, 1999 and
1998 is as follows:
Current Deferred Total
2000
U.S. Federal $2,186,588 $ 90,455 $2,277,043
State and local 435,794 (6,385) $ 429,409
---------- --------- ----------
$2,622,382 $ 84,070 $2,706,452
---------- --------- ----------
1999
U.S. Federal $1,801,560 $ (67,609) $1,733,951
State and local 176,908 (6,211) $ 170,697
---------- --------- ----------
$1,978,468 $(73,820) $1,904,648
---------- --------- ----------
1998
U.S. Federal $1,321,958 $ 361,461 $1,683,419
State and local 11,025 40,193 $ 51,218
---------- --------- ----------
$1,332,983 $ 401,654 $1,734,637
---------- --------- ----------
21
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 2000 and
1999 are as follows:
- ---------------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------
Deferred Tax Assets:
Warranty reserve $ 111,137 $ 95,846
Inventory obsolescence 105,632 107,997
Allowance for bad debts 134,771 104,397
Contract reserves 225,933 287,515
Vacation Accrual 169,226 48,618
Unicap 58,113 55,055
Other taxes 12,033 125,491
Other 50,994 81,284
---------------------------------------
Total gross deferred tax assets $ 867,839 $ 906,203
Less valuation allowance -- --
---------------------------------------
Net deferred tax assets $ 867,839 $ 906,203
Deferred Tax Liability:
Depreciation (51,018) (17,484)
Other (12,172) --
--------------------------------------
Total gross deferred tax liabilities (63,190) (17,484)
Net current deferred tax assets $ 804,649 $ 888,719
=======================================
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods that the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.
The following table summarizes the differences between the Company's effective
income tax rate and the statutory federal tax rate for the years ended December
31, 2000, 1999, and 1998:
Year Ended December 31,
-----------------------------------------------
2000 1999 1998
-----------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase resulting from:
State and Local taxes, net of
Federal income tax benefit 3.7 2.0 2.0
Other (2.7) (1.9) (1.9)
-----------------------------------------------
35.0% 34.1% 34.1%
===============================================
22
Note 5 - PROPERTY, PLANT AND EQUIPMENT, NET
The property, plant and equipment at December 31, 2000 and 1999 consist of the
following:
- ----------------------------------------------------------------------------------------------------------
Estimated
2000 1999 Useful life
(Years)
- ----------------------------------------------------------------------------------------------------------
Land $500,500 $500,500
Building 1,431,771 1,431,771 31
Building Improvements 510,554 415,827 10
Machinery 795,681 798,641 5
Furniture and Fixtures 211,525 209,326 5
Computer Equipment 1,110,995 927,553 5
Automobiles 90,957 88,845 5
--------------- ---------------
4,651,983 4,372,463
Less: Accumulated depreciation (2,555,755) (2,358,315)
--------------- ---------------
$2,096,228 $2,014,148
==========================================================================================================
Depreciation expense charged to income was $239,512, $204,098 and $213,847 in
2000, 1999 and 1998, respectively.
Note 6 - LONG-TERM DEBT
Industrial Revenue Bonds - On October 4, 1988, the Company borrowed $2,340,000
by issuing, through Dade County Industrial Development Authority, Variable Rate
Industrial Revenue Bonds. The remaining balances of the bonds were $850,000 and
$950,000 at December 31, 2000 and 1999, respectively, of which $100,000 is
classified as current. The bonds are secured by a letter of credit from a bank,
and bore interest at an average rate of 4.4% and 3.5% during 2000 and 1999,
respectively. The bonds are payable in annual installments of $100,000 in years
2000 through 2007 and $150,000 in 2008. The letter of credit securing the
Company's obligation expires on September 16, 2003.
23
Note 7 - STOCK OPTION PLANS
1996 Equity Compensation Plan - The Quipp, Inc. 1996 Equity Compensation Plan
(Equity Compensation Plan) provides for grants of stock options and stock-based
awards to employees, certain consultants and advisors of the Company. It also
provides for the grant of stock options to non-employee members of the Company's
Board of Directors. Stock options issued in connection with the Equity
Compensation Plan are granted with an exercise price per share equal to the fair
market value of a share of Company common stock at the date of grant. All stock
options have five to ten-year maximum terms and vest, either immediately, or
within four years of grant date. The total number of shares of common stock
issuable under the Equity Compensation Plan is 600,000. At December 31, 2000 and
1999, there were 36,000 shares available for grant under the Equity Compensation
Plan.
Stock option activity during the periods indicated is as follows:
Incentive Stock
Options Nonqualified Options
------------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------------- ---------------------
Balance at December 31, 1997 212,250 $ 10.84 53,000 $ 10.60
Granted 98,500 17.50 35,000 17.13
Exercised (34,500) 10.08 (8,000) 11.80
Cancellations (1,500) 9.00 --
---------------------------- ----------------------
Balance at December 31, 1998 274,750 $ 13.20 80,000 $ 13.44
Granted 98,000 14.00 35,000 14.00
Exercised (176,750) 11.20 (62,000) 13.32
Cancellations (1,000) 14.00 --
---------------------------- ----------------------
Balance at December 31, 1999 195,000 15.26 53,000 14.80
Granted -- --
Exercised (4,750) 15.76 --
Cancellations -- -- -- --
---------------------------- ----------------------
Balance at December 31, 2000 190,250 $ 15.25 53,000 $ 14.80
============================ ======================
Using the Black Scholes option-pricing model, the per share average fair value
of stock options granted during 1999 and 1998 ranged from approximately $7.40 to
$10.25 and $5.50 to $8.60, respectively. The following weighted-average
assumptions were used in calculating fair value: an expected dividend yield of
zero and expected lives ranging from five to ten years for 1999 and 1998, and a
risk-free interest rate of 5.80% and 4.65% for 1999 and 1998, respectively.
The Company applies APB 25 in accounting for its stock options and, accordingly,
no compensation expense has been recognized for its stock options in the
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS 123, the Company's
net income and net income per common and common equivalent shares would have
been reduced to the pro forma amounts indicated as follows:
- ---------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Net Income As reported $5,012,674 $3,672,689 $3,347,645
Pro forma $4,844,305 $2,419,832 $2,747,582
Basic Income per Common As reported $2.65 $2.02 $2.05
Share Pro forma $2.56 $1.33 $1.68
Diluted Income per Common and As reported $2.57 $1.97 $1.96
Common Equivalent Shares Pro forma $2.49 $1.30 $1.61
- ---------------------------------------------------------------------------------------------------------------------------
24
The full impact of calculating compensation expense for stock options under SFAS
123 is not reflected in the pro forma net income amounts presented above because
compensation expense is reflected over the options' vesting period, which could
be up to four years. At December 31, 2000 the range of exercise prices and
remaining contractual life of outstanding options was $9.00 to $17.50, and .5 to
8.5 years, respectively. At December 31, 2000, the number of options exercisable
was 116,250, and the weighted-average exercise price of those options was $15.14
as follows:
Remaining
Range of Options Options Contractual
Exercise Prices Outstanding Exercisable Life
- ------------------------- --------------------- --------------------- ------------------
$9.00-11.875 11,500 11,500 .5 to 1.25 years
$14.00-17.50 231,750 104,750 3.5 to 8.5 years
-------------- --------------
243,250 116,250
===================== ==============
Note 8 - EARNINGS PER SHARE
A reconciliation of the number of shares used in computing basic and diluted EPS
follows:
2000 1999 1998
----------------------------------------------------------------------
Net Income $5,012,674 $3,672,689 $3,347,645
Shares
Basic Shares 1,891,928 1,822,783 1,630,706
Common stock
Equivalents from option plan 57,028 39,333 76,660
----------------------------------------------------------------------
Diluted 1,948,956 1,862,116 1,707,366
----------------------------------------------------------------------
EPS
Basic $ 2.65 $ 2.02 $ 2.05
Diluted $ 2.57 $ 1.97 $ 1.96
- -------------------------------------------------------------------------------------------------------------
Note 9 - MAJOR CUSTOMERS
For the years ended December 31, 2000, 1999 and 1998, no single newspaper
accounted for ten percent or more of our net sales. A number of our newspaper
customers are part of large newspaper chains, but management believes that
purchase decisions are made by the individual newspapers. Newspapers owned by
Gannett Co, Inc. and Knight-Ridder, Inc. accounted for 18% and 12% of our net
sales in 2000. Newspapers owned by Gannett Co, Inc. accounted for 32% of our
sales in 1998. The Company sells a substantial portion of its products to the
domestic newspaper industry; foreign sales accounted for 13%, 6%, and 12% of
total net sales in 2000, 1999 and 1998, respectively.
Note 10 - EMPLOYEE BENEFIT PLAN
The Quipp Systems, Inc. Employee Savings and Investment Plan (the Savings Plan),
is a defined contribution plan that covers substantially all full-time
employees. The Savings Plan permits eligible employees to contribute up to 20%
of annual compensation, subject to the maximum allowable contribution limits of
Sections 415, 401(k) and 404 of the Internal Revenue Code. In 2000, the Board of
Directors approved an increase in the matching contribution to the Savings Plan
to 60% of the first 8% of compensation deferred by each participant. In 1999,
the Board of Directors approved an increase in the matching contribution to the
Savings Plan to 50% of the first 8% of compensation deferred by each
participant. In 1998, the Board of Directors approved an increase in the
matching contribution to the Savings Plan to 50% of the first 6% of compensation
deferred by each participant. In prior years, the matching contribution applied
to a maximum of the first 4% of compensation deferred by each participant. The
amount contributed by the Company in 2000, 1999, and 1998, was $137,117,
$118,755 and $66,588, respectively. The Company, as sponsor, pays the
administrative expenses of the Savings Plan.
25
Note 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, securities available for sale, accounts receivable, other
assets, prepaid expenses and other receivables, long-term debt, accounts
payable, accrued salaries and wages and other accrued liabilities approximate
fair value.
Note 12 - CONTINGENCIES
In the normal course of business, the Company is exposed to litigation, and
other asserted and unasserted claims. In the opinion of management, the
resolution of these matters would not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
Note 13 - RECENT PRONOUNCEMENTS
In June 1999, the FASB issued Statement of Financial Accounting Standards (SFAS)
Nos. 137 and 138, which amends the effective date of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities and requires the Company to recognize all derivatives as
either assets or liabilities on the balance sheet and measure them at fair
value. Gains and losses resulting from changes in fair value would be accounted
for based on the use of the derivative and whether it is designated and
qualifies for hedge accounting. SFAS Nos. 133 and 138 are effective for all
fiscal quarters of the fiscal years beginning after June 15, 2000. The Company's
adoption of SFAS Nos. 133 and 138 on January 1, 2001 is not expected to have an
impact on its consolidated financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB101"),
"Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the
SEC's views in applying accounting principles generally accepted in the United
States of America to revenue recognition in financial statements. The Company
adopted SAB 101 beginning October 1, 2000. The adoption of SAB 101 did not have
a material impact on the Company's financial position or results of operations.
26
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
27
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
This information (other than the information relating to executive officers
included in Part I) will be included in our Proxy Statement relating to our
Annual Meeting of Shareholders or in an amendment to our form 10-K, which will
be filed within 120 days after the close of our fiscal year covered by this
report, and is hereby incorporated by reference to such Proxy Statement.
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
This information will be included in our Proxy Statement relating to our Annual
Meeting of Shareholders or in an amendment to our form 10-K, which will be filed
within 120 days after the close of our fiscal year covered by this report, and
is hereby incorporated by reference to such Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
This information will be included in our Proxy Statement relating to our Annual
Meeting of Shareholders or in an amendment to our form 10-K, which will be filed
within 120 days after the close of the Company's fiscal year covered by this
report, and is hereby incorporated by reference to such Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Not applicable
28
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) 1 Financial Statements - See "Index to Financial Statements"
in Item 8
2 All schedules are omitted because they are inapplicable except
for:
Schedule II - Valuation and Qualifying Accounts
3 Exhibits (Note: The file number of all referenced Annual and
Quarterly Reports on Forms 10-K and forms 10-Q, respectively,
is 0-14870.)
Exhibit
No.
3.1 Articles of Incorporation, as amended (Incorporated
by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
3.2 By-Laws, as amended (Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1998).
*10.1 Quipp, Inc. 1996 Equity Compensation Plan, as amended
*10.2 Quipp Systems, Inc. Employee Savings and Investment
Plan (Incorporated by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
*10.3 Quipp Inc. Management Incentive Plan (Incorporated by
reference to Exhibit 10.8 to the Registrant's Annual
Report on Form 10K for the fiscal year ended December
31, 1998).
*10.4 Restated Employment Agreement, dated as of January
25, 1999, among Quipp, Inc, Quipp Systems, Inc. and
Christer Sjogren.
*10.5 Change of control agreements, dated as of December
23, 2000, between Quipp, Inc. and Anthony Peri.
*10.6 Change of control agreements, dated as of December
23, 2000, between Quipp, Inc. and Jeff Barocas.
*10.7 Change of control agreements, dated as of December
23, 2000, between Quipp, Inc. and Christer Sjogren.
11 Computation of Net Income Per Share.
22 Subsidiary of the Registrant (Incorporated by
reference to Exhibit 22 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1987).
23 Consent of KPMG LLP
* Constitutes management contract or compensatory
plan or arrangement required to be filed as an
exhibit to this form.
(b) The Registrant filed no reports on Form 8-K during the last quarter of
the period covered by this report.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 23, 2001 By: / s / Anthony P. Peri
--------------------------
Anthony P. Peri,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
ANTHONY P. PERI Chief Executive March 23, 2001
Officer and Director
/ s / Richard H. Campbell
- --------------------------------
RICHARD H. CAMPBELL Director March 23, 2001
/ s / Cristina H. Kepner
- --------------------------------
CRISTINA H. KEPNER Director March 23, 2001
/s/ William L. Rose
- ---------------------------------
WILLIAM L. ROSE Director March 23, 2001
/s/ Ralph M. Branca
- --------------------------------
RALPH M. BRANCA Director March 23, 2001
/s/ Louis D. Kipp
- -----------------------------------
LOUIS D. KIPP Director March 23, 2001
/s/ Jeffrey S. Barocas
- --------------------------------
JEFFREY S. BAROCAS Principal Financial and March 23, 2001
Accounting Officer
30
QUIPP, INC.
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
Exhibit No.
3.1 Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
3.2 By-Laws, as amended (Incorporated by reference to Exhibit 3.2
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998).
*10.1 Quipp, Inc. 1996 Equity Compensation Plan, as amended
*10.2 Quipp Systems, Inc. Employee Savings and Investment Plan
(Incorporated by reference to Exhibit 10.7 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993).
*10.3 Quipp Inc. Management Incentive Plan (Incorporated by
reference to Exhibit 10.8 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
*10.4 Restated Employment Agreement, dated as of January 25, 1999,
among Quipp, Inc, Quipp Systems, Inc. and Christer Sjogren.
*10.5 Change of control agreements, dated as of December 23, 2000,
between Quipp, Inc. and Anthony Peri.
*10.6 Change of control agreements, dated as of December 23, 2000,
between Quipp, Inc. and Jeff Barocas.
*10.7 Change of control agreements, dated as of December 23, 2000,
between Quipp, Inc. and Christer Sjogren.
11 Computation of Net Income Per Share.
22 Subsidiary of the Registrant (Incorporated by reference to
Exhibit 22 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987).
23 Consent of KPMG LLP
* Constitutes management contract or compensatory plan or
arrangement required to be filed as an exhibit to this form.
31
QUIPP, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
Balance, Charged Reclass Balance,
beginning to to Contract end
of year Expenses Contingencies Write-offs of year
------------- ------------ ------------------ -------------- -------------
Year ended December 31, 2000:
Allowance for doubtful
accounts 306,424 63,576 -- -- 370,000
Year ended December 31, 1999:
Allowance for doubtful
accounts 217,789 88,635 -- -- 306,424
Year ended December 31, 1998:
Allowance for doubtful
accounts 715,275 - (474,186) (23,300) 217,789