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, 1999
-----------------
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
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Quipp, Inc.
--------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2306191
------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 per 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). Yes No X
----- -----
The aggregate market value of voting stock held by non-affiliates of the
Registrant on February 4, 2000 was approximately $30,194,944. The number of
shares of the Registrant's common stock, $.01 par value, outstanding at February
4, 2000 was 1,887,184.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated
---------------------
Portions of the Quipp, Inc. Proxy Statement relating to the 2000 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 person are "affiliates" of Registrant
for purposes of the federal securities laws.
<PAGE>
PART I
ITEM I - BUSINESS
- -----------------
Through our wholly owned subsidiary, Quipp Systems, Inc., we design,
manufacture, 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 and transferred to the shipping docks. Conveyor systems transport
newspapers from the press to stacking machines. The stacks of newspapers are
wrapped and tied, conveyed to the shipping docks, loaded into carts or stored on
pallets for further processing.
The Company's 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
(Quipp Sport), 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 stack to protect against product
damage. The Viper can be equipped with an inkjet printing device that enables
the newspaper publisher to provide delivery location and copy count information
on the wrapping paper.
Automatic Cart Loading System - This system accumulates and 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 and 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-Track
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-Track 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 Palletizing System -The palletizing 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 a variety of 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 various OEM products
to compliment our product line and provide our customers a single source
solution 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 360 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 machine
parts could be manufactured in our in-house machine shop, which is used
primarily for custom engineering and development of prototype parts.
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 1999 and 1998, spare parts sales accounted for approximately 7% of
our net sales revenue.
2
<PAGE>
We sell most of our products to newspaper publishers in the United States. Our
foreign sales accounted for 6%, 12% and 18% of total sales in 1999, 1998 and
1997, respectively. The following table indicates the amount of sales by
geographic area during the past three years:
SALES BY GEOGRAPHIC AREA
1999 1998 1997
-----------------------------------------------------------------------
United States $29,835,263 $23,969,296 $22,281,825
Far East 441,194 413,883 2,214,009
Canada 354,246 408,728 1,187,003
Latin America 849,239 1,827,103 611,787
Other 151,889 502,386 723,658
---------------------------------------------
$31,631,831 $27,121,396 $27,018,282
-----------------------------------------------------------------------
As of December 31, 1999, our backlog of orders was approximately $10,150,000, as
compared to $10,566,840 on December 31, 1998. The backlog consists of some OEM
products, which generally have lower margins than products we manufacture. We
believe that we will satisfy all orders included in the backlog by the end of
2000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - General" in Item 7.
For the years ended December 31, 1999, 1998 and 1997, no single customer
accounted for 10% or more of our net sales. Since our equipment is designed to
have an extended life, our largest customers in a given year are usually
different from the largest customers in any other year.
OEM sales accounted for approximately 9.6%, 3.0% and 2.0% of our total sales in
1999, 1998, and 1997, 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 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 17 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 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 23 U.S. patents, which expire during the period from 2000 to 2015. 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
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development costs totaled $742,865, $760,256 and $582,839 in 1999,
1998 and 1997 respectively. The majority of Quipp's 1999 research and
development costs represented expenditures for development of the Quipp-Gripp II
and our automatic palletizing system. We introduced these products to the market
at the annual newspaper exposition (NEXPO) held in June 1999, and we expect to
begin shipment of these products in 2000.
EMPLOYEES
As of December 31, 1999, we had 142 full-time employees. None of our employees
are represented by a union and we consider our employee relations to be good.
RISK FACTORS
We are exposed to various types of market risk, including changes in interest
rates. Market risk is the potential loss arising from adverse changes in market
rates and prices such as interest rates. We do not enter into derivatives or
other financial instruments for trading or speculative purposes. Because our
cash and investments exceed short and long-term debt, the exposure to interest
rates relates primarily to our investment portfolio. Due to the short term
maturities of our investments, we believe there is no significant risk arising
from interest rate fluctuations. We are actively managing our investment
portfolios to increase return on investments, but, in order to ensure safety and
liquidity, will only invest in instruments with credit quality where a secondary
market exists. The counterparties are major financial institutions and
government agencies.
4
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, business experience and ages of the executive officers of Quipp are
listed below:
<TABLE>
<CAPTION>
Name Business Experience During the Past Five Years Age
---- ---------------------------------------------- ---
<S> <C> <C>
Anthony P. Peri Mr. Peri has been President and Chief 57
Executive 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 57
Quipp Systems, Inc. since 1994, has served
Quipp Systems in various capacities since
1983. He is responsible for engineering
functions. Mr. Sjogren has been a director
of Quipp Systems, Inc. since 1996.
Jeffrey S. Barocas Mr. Barocas has been Chief Financial Officer 52
of Quipp, Inc. since July 1996 and a
director of Quipp Systems, Inc. since 1998.
From 1990 until July 1996, Mr. Barocas was
Chief Financial Officer of a US subsidiary
of London International Group.
</TABLE>
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. We are
considering an expansion of our facility in 2000 to increase future
manufacturing capacity to accommodate sales growth and broader product line
offerings.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable
5
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT 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 1999 and 1998:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
1999 1998
High Low High Low
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $24.00 $16.25 $17.00 $14.75
Second Quarter 21.75 12.50 19.13 15.50
Third Quarter 16.13 12.93 20.38 15.50
Fourth Quarter 16.50 14.50 19.00 14.50
-----------------------------------------------------------------------------
</TABLE>
We paid a special dividend of $7.00 per share totaling $13,196,008 to
shareholders on May 10, 1999.
As of February 4, 2000 we had approximately 270 record holders of the Common
Stock, including brokers and other nominees.
6
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
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, 1999 has been
derived from our audited balance sheets and related statements of income.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Information:
Net sales $31,632 $27,121 $27,018 $21,568 $23,197
Gross profit 11,483 10,166 9,769 7,864 7,631
Research and development 743 760 583 580 219
Selling, general and administrative expenses 5,693 4,925 4,690 4,205 4,295
Operating profit 5,047 4,481 4,517 3,224 3,117
Net income 3,673 3,348 3,081 2,220 2,096
- --------------------------------------------------------------------------------------------------------------------------------
Per Share Amounts:
Net income per share (basic) 2.02 2.05 1.95 1.42 1.34
Net income per share (diluted) 1.97 1.96 1.89 1.42 1.34
Book value per share 8.55 13.67 11.58 9.63 8.21
Market price per share - high 24.00 20.38 17.50 13.50 16.25
- low 12.50 14.50 8.25 8.38 6.75
- --------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Information
Current assets $21,972 $28,954 $22,882 $19,496 $18,383
Total assets 24,435 31,278 25,303 22,074 21,267
Current liabilities 7,454 7,834 5,693 5,842 6,855
Long-term liabilities 850 950 1,050 1,150 1,550
Shareholders' equity 16,131 22,494 18,560 15,082 12,863
Weighted average number of equivalent
shares outstanding 1,862,116 1,707,366 1,630,213 1,565,765 1,565,765
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
- -------------------------------------------------------------------------
RESULTS OPERATIONS
- ------------------
Results of Operations
(Note: All dollar amounts are in thousands)
1999 vs. 1998
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 31,632 $ 27,121
- ----------------------------------------------------------------------------------------------
Increase (decrease) $ 4,511
% 17
</TABLE>
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 equipment manufacturers (OEM)
equipment. We sell OEM products to compliment our product line and provide our
customers a single source solution for integrated post-press material handling
systems.
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Gross Profit $ 11,483 $ 10,166
- ----------------------------------------------------------------------------------------------
Increase (decrease) $ 1,317
% 13
Percentage of Net Sales 36% 37%
</TABLE>
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.
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Selling, General and Administrative Expense $ 5,693 $ 4,925
- -----------------------------------------------------------------------------------------------
Increase (decrease) $ 768
% 16
Percentage of Net Sales 18% 18%
</TABLE>
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.
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Research and Development $ 743 $ 760
- --------------------------------------------------------------------------------------------------
Increase (decrease) $ (17)
% (2)
Percentage of Net Sales 2% 3%
</TABLE>
Research and development costs in 1999 and 1998 were incurred primarily to
develop two new products, the palletizer and the Quipp Gripp II. We expect to
begin shipment of these products in 2000.
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Income $ 5,047 $ 4,481
- --------------------------------------------------------------------------------------------------
Increase (decrease) $ 566
% 13
Percentage of Net Sales 16% 17%
</TABLE>
8
<PAGE>
The increase in the 1999 operating income, as compared to 1998, was principally
a result of the increases in sales volume. The decrease in operating income as a
percentage of net sales is primarily due to the decrease in gross profit as a
percentage of net sales.
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Income and Expense (Net) $ 531 $ 601
- ----------------------------------------------------------------------------------------------------
Increase (decrease) $ (70)
% (12)
Percentage of Net Sales 2% 2%
</TABLE>
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 the payment of a $13,196,008 special dividend
in May 1999.
Results of Operations
(Note: All dollar amounts are in thousands)
1998 vs. 1997
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 27,121 $ 27,018
- ----------------------------------------------------------------------------------------------------
Increase (decrease) $ 103
% 0
</TABLE>
In 1998 we experienced record sales of our core products, stackers and
bottomwrappers.
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross Profit $ 10,166 $ 9,769
- ----------------------------------------------------------------------------------------------------
Increase (decrease) $ 397
% 4
Percentage of Net Sales 37% 36%
</TABLE>
The increase in gross profit was principally the result of an improved sales mix
and continued manufacturing cost control programs. Our core products have a
higher gross profit margin than ancillary products such as conveyors, floor
equipment or OEM equipment. The improved gross profit margin was partially
offset by a reclassification of bad debt allowances of $474,186 to product cost
contingencies (contract reserves). Cost contingencies are anticipated future
additional costs that may be incurred after equipment is shipped and installed,
the customer has been invoiced and revenue is recorded. We record cost
contingencies to match possible future expenses with related revenue.
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Selling, General and Administrative Expenses $ 4,925 $ 4,670
- ----------------------------------------------------------------------------------------------------
Increase (decrease) $ 255
% 5
Percentage of Net Sales 18% 17%
</TABLE>
The increase in selling, general and administrative expense was principally due
to legal and accounting fees incurred in connection with an aborted business
combination and patent infringement litigation that we brought against another
company, which was settled during 1998. The increase was offset in part by a
reclassification of bad debt expense to product cost contingencies, which is
included in cost of goods sold.
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Research and Development $ 760 $ 583
- ----------------------------------------------------------------------------------------------------
Increase (decrease) $ 177
% 30
Percentage of Net Sales 3% 2%
</TABLE>
The increase in research and development expenditures from 1997 to 1998
principally related to development of an improved gripper conveyor and the
development of a palletizer.
9
<PAGE>
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Income $ 4,481 $ 4,517
- ---------------------------------------------------------------------------------------------------
Increase (decrease) $ (36)
% ( 1)
Percentage of Net Sales 17% 17%
</TABLE>
The decrease in the 1998 operating income, as compared to 1997, was principally
a result of increases in research and development and selling, general and
administrative costs, offset by the increase in gross profit. As a percentage of
net sales, operating income remained relatively stable.
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Income and Expense (Net) $ 601 $ 415
- ---------------------------------------------------------------------------------------------------
Increase (decrease) $ 186
% 45
Percentage of Net Sales 2% 2%
</TABLE>
The increase in other income and expense (net) was a result of increases in
interest income resulting from higher interest rates and higher balances of
cash, cash equivalents and securities available for sale.
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, 1999 and December 31, 1998, was $10,150,000 and
$10,566,840, respectively. The backlog includes some OEM products, which
generally have lower margins than products we manufacture. Management believes
all orders in the December 31, 1999 backlog will be satisfied by the end of
2000.
Liquidity and Capital Resources
On December 31, 1999, cash, cash equivalents and securities available for sale
totaled $13,339,318, as compared to $20,281,287 at December 31, 1998, a decrease
of $6,941,969. This decrease was primarily due to the payment of a $13,196,008
special cash dividend to shareholders on May 10, 1999. The decrease was
partially offset by cash provided by operations and $2,805,500 received upon the
exercise of stock options. Working capital at December 31, 1999 was $14,518,483,
a decrease of $6,601,998 from $21,120,481 at December 31, 1998. 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.
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 shipment of backlog orders, shipment of automatic
palletizing systems and Quipp Gripp II, the possible expansion of our facilities
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.
10
<PAGE>
ITEM 7A - QUALITATIVE AND QUANTATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
See "Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Risk Factors."
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for each of the Years in the three-
year period Ended December 31, 1999
Consolidated Statements of Shareholders' Equity for Each of the Years
in the three-year Period Ended December 31,1999
Consolidated Statements of Cash Flows for each of the Years in the
three-year period Ended December 31, 1999
Notes to Consolidated Financial Statements
11
<PAGE>
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, 1999 and 1998, 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, 1999. 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 generally accepted auditing
standards. 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, 1999 and 1998 and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.
/ s / KPMG LLP
Miami, Florida
February 4, 2000
12
<PAGE>
<TABLE>
<CAPTION>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets :
Cash and cash equivalents $ 2,868,262 $ 1,820,956
Securities available for sale 10,471,056 18,460,331
Accounts receivable, net 4,586,990 4,388,385
Inventories 2,617,641 2,989,950
Deferred tax assets-current 888,719 814,899
Prepaid expenses and other receivables 539,488 479,761
---------------------------------
Total current assets 21,972,156 28,954,282
Property, plant and equipment, net 2,014,148 1,837,161
Goodwill 374,641 405,861
Other assets 74,061 80,782
---------------------------------
Total Assets $24,435,006 $31,278,086
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 100,000 $ 100,000
Accounts payable 1,112,944 1,425,757
Accrued salaries and wages 850,110 697,136
Deferred revenues 3,105,344 3,439,314
Income taxes payable 7,482 167,704
Contract contingencies 898,192 596,397
Other accrued liabilities 1,379,601 1,407,493
---------------------------------
Total current liabilities 7,453,673 7,833,801
Long-term debt 850,000 950,000
Contingencies (Note 12) -- --
---------------------------------
Total liabilities 8,303,673 8,783,801
Shareholders' Equity:
Common stock - par value $.01 per share, authorized 8,000,000
shares, issued and outstanding 1,885,144 shares in 1999 and
1,644,994 shares in 1998 18,851 16,450
Additional paid-in capital 8,958,547 5,800,581
Retained earnings 7,153,935 16,677,254
---------------------------------
Total shareholders' equity 16,131,333 22,494,285
Total Liabilities and Shareholders' Equity $24,435,006 $31,278,086
=================================
</TABLE>
See accompanying notes to the consolidated financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $31,631,832 $27,121,396 $27,018,282
Cost of sales (20,148,851) (16,955,430) (17,248,863)
-----------------------------------------------------
Gross profit 11,482,981 10,165,966 9,769,419
-----------------------------------------------------
Other operating income and (expense) items:
Selling, general and administrative expenses (5,693,523) (4,924,902) (4,669,692)
Research and development (742,865) (760,256) (582,839)
-----------------------------------------------------
Operating profit 5,046,593 4,480,808 4,516,888
-------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 566,489 646,947 476,430
Interest expense (35,745) (45,473) (61,704)
-----------------------------------------------------
530,744 601,474 414,726
-------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,577,337 5,082,282 4,931,614
Income taxes (1,904,648) (1,734,637) (1,850,310)
-----------------------------------------------------
Net income $3,672,689 $3,347,645 $3,081,304
-------------------------------------------------------------------------------------------------------------------
Per share amounts:
Basic income per common share $2.02 $2.05 $1.95
Diluted income per common share $1.97 $1.96 $1.89
-----------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding 1,862,116 1,707,366 1,630,213
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Additional Total
Common Stock Paid-In Retained Treasury Stock Shareholders'
Shares Amount Capital Earnings Shares Amount Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances on
January 1,1997 1,634,465 $16,345 $5,113,190 $10,248,305 68,700 ($295,400) $15,082,440
Net Income 3,081,304 3,081,304
Issuance of shares for
directors fees 1,979 20 21,518 21,538
Exercise of stock options
(includes tax benefit of $61,963) 225,137 (34,750) 149,425 374,562
- ------------------------------------------------------------------------------------------------------------------------------------
Balances
December 31, 1997 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
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
December 31, 1999 1,885,144 $18,851 $8,958,547 $7,153,935 - - $16,131,333
====================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDING DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by operations:
Net Income $3,672,689 $3,347,645 $3,081,304
----------------------------------------------------
Reconciliation of net income to net cash
Provided by (used in) operations:
Deferred income taxes (73,820) 401,654 (81,500)
Depreciation and amortization 235,318 337,237 342,845
Issuance of shares to employees 28,676 - -
Other noncash items - bad debt expense 88,635 - 21,538
Changes in operational assets and liabilities:
Accounts receivable, net (287,240) (6,850) 1,693,757
Inventories 372,309 540,659 64,590
Other assets and prepaid expenses and other receivables (53,006) (417,920) 1,616
Accounts payables and other accrued liabilities (187,731) (212,339) 690,046
Contract contingencies 301,795 272,906 104,006
Deferred revenues (333,970) 2,096,352 (481,935)
Income tax payable 165,969 65,243 201,221
----------------------------------------------------
Net cash provided by operations 3,929,624 6,424,587 5,637,488
----------------------------------------------------
Cash flows from investing activities:
Securities purchased (25,184,169) (46,948,510) (54,766,876)
Securities sold 33,173,444 41,334,062 50,384,823
Capital expenditures (381,085) (216,969) (193,890)
----------------------------------------------------
Net cash provided by (used in) investing activities 7,608,190 (5,831,417) (4,575,943)
----------------------------------------------------
Cash flows from financing activities:
Repayment of debt (100,000) (100,000) (700,000)
Exercise of stock options 2,805,500 505,213 312,599
Special dividend (13,196,008) - -
----------------------------------------------------
Net cash provided by (used in) financing activities (10,490,508) 405,213 (387,401)
----------------------------------------------------
Increase in cash and cash equivalents 1,047,306 998,383 674,144
Cash and cash equivalents at beginning of year 1,820,956 822,573 148,429
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,868,262 $ 1,820,956 $ 822,573
---------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash Information:
Tax benefit for exercised stock options $ 326,191 $ 81,583 $ 61,963
Supplemental disclosure of cash payments:
Interest $ 35,745 $ 45,473 $ 61,704
Income taxes $1,812,500 $1,587,566 $1,375,000
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
16
<PAGE>
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, 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 and transferred to the shipping
docks. Conveyor systems transport newspapers from the press to stacking
machines. The stacks of newspapers are wrapped and tied, conveyed to the
shipping docks, loaded into carts or stored on pallets for further processing.
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 $306,424 for 1999 and
$217,789 for 1998.
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 affected 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 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 and warrants, calculated under
the treasury stock method, using the average stock market prices during the
periods.
17
<PAGE>
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 where a secondary
market exists.
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
generally accepted accounting principles 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 cost 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 estimate
is based on the Company's past experience.
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.
Impairment of long-lived assets - The Company assesses impairment of long-lived
assets and intangible assets whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable.
Recoverability of assets is evaluated by comparing the net book value of the
asset to the forecasted undiscounted future cash flows of the asset. If such
assets are considered to be impaired, the impairment to be recognized is the
amount by which the net book value of the assets exceeds the fair value of the
assets. Fair value is calculated using discounted future operating cash flows
with a discount rate that reflects the Company's average cost of funds. There
was no impairment of long-lived assets in 1999 and 1998.
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 it stock option plan. 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 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 at December 31, 1999, 1998, and 1997.
18
<PAGE>
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, 1999 and 1998, the carrying value of securities
available for sale approximates fair value. Securities available for sale at
December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
Securities Available For Sale
- -----------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities:
Bankers Acceptance $ 500,000 $ 1,190,309
Commercial Paper - 1,000,000
Municipal Securities 6,670,000 7,700,000
Federal Government Agency 3,218,000 6,750,000
Money Market Investments - 1,719,527
Premiums on Investments 83,056 100,495
-----------------------------------------------------
Total $ 10,471,056 $ 18,460,331
=====================================================
</TABLE>
Note 3 - INVENTORIES
Components of inventory as of December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw Materials $ 2,152,647 $ 2,616,640
Work in Process 403,689 179,388
Finished Goods 61,305 193,922
- -----------------------------------------------------------------------------------------------------
Total $ 2,617,641 $ 2,989,950
=====================================================================================================
</TABLE>
Note 4 - INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1999, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
Current Deferred Total
<S> <C> <C> <C>
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
----------------- ------------------ -----------------
1997
U.S. Federal $1,771,939 ($74,220) $1,697,719
State and local 159,871 (7,280) $152,591
----------------- ------------------ -----------------
$1,931,810 ($81,500) $1,850,310
----------------- ------------------ -----------------
</TABLE>
19
<PAGE>
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Warranty reserve $ 95,846 $ 91,914
Inventory obsolescence 107,997 132,041
Allowance for bad debts 104,397 78,401
Contract reserves 287,515 144,121
Vacation Accrual 48,618 72,034
Unicap 55,055 42,970
Other taxes 125,491 162,380
Other 81,284 120,051
------------------------------------------------------------------
Total gross deferred tax assets $ 906,203 $ 843,912
Less valuation allowance - -
------------------------------------------------------------------
Net deferred tax assets $ 906,203 $ 843,912
Deferred Tax Liability:
Depreciation (17,484) (29,013)
------------------------------------------------------------------
Net current deferred assets $ 888,719 $ 814,899
==================================================================
</TABLE>
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 which 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, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase resulting from:
State and Local taxes, net of
Federal income tax benefit 2.0 2.0 2.1
Other (1.9) (1.9) 1.4
-------------------------------------------------
34.1% 34.1% 37.5%
=================================================
</TABLE>
20
<PAGE>
Note 5 - PROPERTY, PLANT AND EQUIPMENT, NET
The property, plant and equipment at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Estimated
Useful
life
1999 1998 (Years)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $500,500 $500,500
Building 1,431,771 1,431,771 31
Building Improvements 415,827 385,720 10
Machinery 798,641 720,050 5
Furniture and Fixtures 209,326 201,102 5
Computer Equipment 927,553 660,096 5
Automobiles 88,845 109,433 5
---------------- ----------------
4,372,463 4,008,672
Less: Accumulated depreciation (2,358,315) (2,171,511)
---------------- ----------------
$2,014,148 $1,837,161
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation expense charged to income was $204,098, $213,847 and $196,651 in
1999, 1998, and 1997, 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 $950,000 and
$1,050,000 at December 31, 1999 and 1998, 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 3.5% and 3.6% during 1999 and 1998, 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.
21
<PAGE>
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, 1999 and 1998, there were 36,000 and 165,500 shares,
respectively, available for grant under the Equity Compensation Plan. Stock
option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Incentive Stock
Options Nonqualified Options
------------------ -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------ -----------------------
<S> <C> <C> <C> <C>
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
------------------ -----------------------
</TABLE>
Using the Black Scholes option-pricing model, the per share average fair value
of stock options granted during 1999, 1998 and 1997 ranged from approximately
$7.40 to $10.25, $5.50 to $8.60 and $11.00 to $11.10, 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, 1998 and 1997, and a risk-free interest rate of 5.80%, 4.65% and
6.30% for 1999, 1998 and 1997, 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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income As reported $3,672,689 $3,347,645 $3,081,304
Pro forma $2,419,832 $2,747,582 $2,681,076
Net Income per Common and As reported $1.97 $1.96 $1.89
Common Equivalent Shares Pro forma $1.30 $1.61 $1.64
- --------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
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, 1999 the range of exercise prices and
remaining contractual life of outstanding options was $9.00 to $17.50, and 1.5
to 9.5 years, respectively. At December 31, 1999, the number of options
exercisable was 79,625, and the weighted-average exercise price of those options
was $15.01 as follows:
<TABLE>
<CAPTION>
Remaining
Range of Options Options Contractual
Exercise Prices Outstanding Exercisable Life
--------------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
$9.00-11.875 12,500 12,500 1.5 to 2.25 years
$14.00-17.50 235,500 67,125 4.5 to 9.5 years
-------------------- --------------------
248,000 79,625
==================== ====================
</TABLE>
Note 8 - EARNINGS PER SHARE
- ---------------------------
A reconciliation of the number of shares used in computing basic and diluted EPS
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $3,672,689 $3,347,645 $3,081,304
Shares
Basic Shares 1,822,783 1,630,706 1,576,556
Common stock
Equivalents from option plan 39,333 76,660 53,657
----------------------------------------------------------------------
Diluted 1,862,116 1,707,366 1,630,213
----------------------------------------------------------------------
EPS
Basic $ 2.02 $ 2.05 $ 1.95
Diluted $ 1.97 $ 1.96 $ 1.89
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note 9 - MAJOR CUSTOMERS
For the years ended December 31, 1999, 1998, and 1997, no single customer
accounted for 10% or more of the Company's net sales. The Company sells a
substantial portion of its products to the domestic newspaper industry; foreign
sales accounted for 6%, 12%, and 18% of total net sales in 1999, 1998 and 1997,
respectively.
Note 10 - EMPLOYEE BENEFIT PLAN
The Quipp Systems, Inc. Employee Savings and Investment Plan (the Savings Plan),
is a defined contribution plan which 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 1999, the Board of
Directors approved an increase in the matching contribution to the Savings Plan
of 50%, up to 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 of 50%, up to the first 6% of compensation deferred by each
participant, up from 4% in prior years. The amount contributed by the Company in
1999, 1998, and 1997, was $118,755, $66,588 and $62,889, respectively. The
Company, as sponsor, pays the administrative expenses of the Savings Plan.
23
<PAGE>
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,
including 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.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
24
<PAGE>
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, 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, 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, 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
25
<PAGE>
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
10K for the fiscal year ended December 31, 1998).
10.1.1 Loan Agreement between Dade County Industrial
Development Authority and Quipp, Inc. dated as of
October 1, 1988 (Incorporated by reference to Exhibit
10.4.2 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988).
10.1.2 Indenture of Trust between Dade County
Industrial Development Authority and Mellon Bank,
N.A. dated as of October 31, 1988 (Incorporated by
reference to Exhibit 10.4.3 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.1.3 Specimen Bond - Dade County Industrial
Development Authority (Incorporated by reference to
Exhibit 10.4.4 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1988).
10.1.4 Copy of Promissory Note, dated as of October
4, 1988, from Quipp, Inc. to Dade County Industrial
Development Authority (Incorporated by reference to
Exhibit 10.4.5 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1988).
10.1.5 Reimbursement Agreement among NCNB National
Bank of North Carolina, Quipp Systems, Inc. and
Quipp, Inc. dated as of October 4, 1988 (Incorporated
by reference to Exhibit 10.4.6 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.1.6 Mortgage and Security Agreement from Quipp,
Inc. to NCNB National Bank of North Carolina and Dade
County Industrial Development Authority dated as of
October 1, 1988 (Incorporated by reference to Exhibit
10.4.7 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988).
10.1.7 Guaranty Agreement among Quipp Systems, Inc.,
Quipp Inc., and Dade County Industrial Development
Authority dated as of October 1, 1988 (Incorporated
by reference to Exhibit 10.4.8 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.1.8 Guaranty Agreement among Quipp Systems, Inc.,
Quipp Inc., and NCNB NationsBank of North Carolina
dated as of October 1, 1988 (Incorporated by
reference to Exhibit 10.4.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.1.9 Letter Agreement dated March 26, 1992 between
NCNB National Bank of North Carolina and the
Registrant dated March 27, 1991 (Incorporated by
reference to Exhibit 10.3.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
26
<PAGE>
10.1.10 Amendment to Reimbursement Agreement among
NationsBank of North Carolina N.A., Quipp Systems,
Inc. and Quipp, Inc. dated as of March 31, 1994
(Incorporated by reference to Exhibit 10.2.10 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
*10.2 Quipp, Inc. 1996 Equity Compensation Plan
(Incorporated by Reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998).
*10.3 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).
*10.4 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).
*10.5 Restated Employment Agreement, dated as of
January 25, 1999, among Quipp, Inc, Quipp Systems,
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
27 Financial Data Schedule
* 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.
27
<PAGE>
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 24, 2000 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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/ s / Anthony P. Peri
- ---------------------
ANTHONY P. PERI Chief Executive March 24, 2000
Officer and Director
/ s / Richard H. Campbell
- -------------------------
RICHARD H. CAMPBELL Director March 24, 2000
/ s / Cristina H. Kepner
- ------------------------
CRISTINA H. KEPNER Director March 24, 2000
/ s / William L. Rose
- ---------------------
WILLIAM L. ROSE Director March 24, 2000
/ s / Ralph M. Branca
- ---------------------
RALPH M. BRANCA Director March 24, 2000
/ s / Louis D. Kipp
- -------------------
LOUIS D. KIPP Director March 24, 2000
/ s / Jeffrey S. Barocas
- ------------------------
JEFFREY S. BAROCAS Principal Financial and March 24, 2000
Accounting Officer
</TABLE>
28
<PAGE>
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
10K for the fiscal year ended December 31, 1998).
10.1.1 Loan Agreement between Dade County Industrial
Development Authority and Quipp, Inc. dated as of
October 1, 1988 (Incorporated by reference to Exhibit
10.4.2 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988).
10.1.2 Indenture of Trust between Dade County
Industrial Development Authority and Mellon Bank,
N.A. dated as of October 31, 1988 (Incorporated by
reference to Exhibit 10.4.3 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.1.3 Specimen Bond - Dade County Industrial
Development Authority (Incorporated by reference to
Exhibit 10.4.4 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1988).
10.1.4 Copy of Promissory Note, dated as of October
4, 1988, from Quipp, Inc. to Dade County Industrial
Development Authority (Incorporated by reference to
Exhibit 10.4.5 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1988).
10.1.5 Reimbursement Agreement among NCNB National
Bank of North Carolina, Quipp Systems, Inc. and
Quipp, Inc. dated as of October 4, 1988 (Incorporated
by reference to Exhibit 10.4.6 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.1.6 Mortgage and Security Agreement from Quipp,
Inc. to NCNB National Bank of North Carolina and Dade
County Industrial Development Authority dated as of
October 1, 1988 (Incorporated by reference to Exhibit
10.4.7 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988).
10.1.7 Guaranty Agreement among Quipp Systems, Inc.,
Quipp Inc., and Dade County Industrial Development
Authority dated as of October 1, 1988 (Incorporated
by reference to Exhibit 10.4.8 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.1.8 Guaranty Agreement among Quipp Systems, Inc.,
Quipp Inc., and NCNB NationsBank of North Carolina
dated as of October 1, 1988 (Incorporated by
reference to Exhibit 10.4.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.1.9 Letter Agreement dated March 26, 1992 between
NCNB National Bank of North Carolina and the
Registrant dated March 27, 1991 (Incorporated by
reference to Exhibit 10.3.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
<PAGE>
10.1.10 Amendment to Reimbursement Agreement among
NationsBank of North Carolina N.A., Quipp Systems,
Inc. and Quipp, Inc. dated as of March 31, 1994
(Incorporated by reference to Exhibit 10.2.10 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
*10.2 Quipp, Inc. 1996 Equity Compensation Plan
(Incorporated by Reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998).
*10.3 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).
*10.4 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).
*10.5 Restated Employment Agreement, dated as of
January 25, 1999, among Quipp, Inc, Quipp Systems,
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
27 Financial Data Schedule
* Constitutes management contract or compensatory
plan or arrangement required to be filed as an
exhibit to this form.
<TABLE>
<CAPTION>
QUIPP, INC. AND SUBSIDIARY
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Diluted 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $3,672,689 $3,347,645 $3,081,304
----------------------------------------------------
Basic weighted average number of common
shares outstanding during the year 1,822,783 1,630,706 1,576,556
Add-common equivalent shares (determined using the
"treasury stock" method) representing shares
issuable upon exercise of employee stock options 39,333 76,660 53,657
----------------------------------------------------
Diluted Weighted average number of shares used
in calculation of net income per share 1,862,116 1,707,366 1,630,213
----------------------------------------------------
Diluted income per common and common
equivalent share 1.97 1.96 1.89
===================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUIPP, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998, 1997
Balance, Charged Reclass Balance,
beginning to to Cost end
of year Expenses Contingencies Write-offs of year
------- -------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C>
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
Year ended December 31, 1997:
Allowance for doubtful
accounts 715,275 - - - 715,275
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Quipp, Inc.,
Annual Report on Form 10-K for the year ended December 31, 1999 and is qualified
in its entirety by reference to such Form 10-K
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,868,262
<SECURITIES> 10,471,056
<RECEIVABLES> 4,893,414
<ALLOWANCES> 306,424
<INVENTORY> 2,617,641
<CURRENT-ASSETS> 21,972,156
<PP&E> 2,014,148
<DEPRECIATION> 2,358,315
<TOTAL-ASSETS> 24,435,006
<CURRENT-LIABILITIES> 7,453,673
<BONDS> 850,000
0
0
<COMMON> 18,851
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,435,006
<SALES> 31,631,832
<TOTAL-REVENUES> 31,631,832
<CGS> 20,148,851
<TOTAL-COSTS> 26,585,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,745
<INCOME-PRETAX> 5,577,337
<INCOME-TAX> 1,904,648
<INCOME-CONTINUING> 3,672,689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,672,689
<EPS-BASIC> 2.02
<EPS-DILUTED> 1.97
</TABLE>
