QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-------------------------------------------------------
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the transition period from
----------- To ------------
----------------------------------------
Commission file number 0-7903
I.R.S. Employer Identification Number 36-2675371
QUIXOTE CORPORATION
(a Delaware Corporation)
One East Wacker Drive
Chicago, Illinois 60601
Telephone: (312) 467-6755
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 XX NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 8,102,916 shares of the
Company's Common Stock ($.01-2/3 par value) were outstanding as of September
30, 1999.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30,
-------------------------------
1999 1998
---- ----
Net sales .................................. $ 19,303,000 $ 16,063,000
Cost of sales .............................. 10,030,000 8,827,000
------------ ------------
Gross profit ............................... 9,273,000 7,236,000
------------ ------------
Operating expenses:
Selling & administrative ................. 5,533,000 4,288,000
Research & development ................... 327,000 293,000
------------ ------------
5,860,000 4,581,000
Operating profit ........................... 3,413,000 2,655,000
------------ ------------
Other income (expense):
Interest income .......................... 8,000 39,000
Interest expense ......................... (208,000) (168,000)
Other .................................... (26,000)
------------ ------------
(226,000) (129,000)
------------ ------------
Earnings before income taxes ............... 3,187,000 2,526,000
Provision for income taxes ................. 1,275,000 884,000
------------ ------------
Net earnings ............................... $ 1,912,000 $ 1,642,000
============ ============
Basic earnings per share:
Net earnings.............................. $ .24 $ .21
============ ============
Weighted average common shares
outstanding............................. 8,083,580 7,920,690
============ ============
Diluted earnings per share:
Net earnings.............................. $ .23 $ .20
=========== ============
Weighted average common shares
outstanding............................. 8,341,381 8,217,267
<FN> =========== ============
See Notes to Consolidated Financial Statements.
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, June 30,
-------------------------------
1999 1999
ASSETS
- --------------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash and cash equivalents ...................... $ 472,000 $ 2,153,000
Accounts receivable, net of allowances
for doubtful accounts of $456,000 at
September 30 and $480,000 at June 30 ......... 15,146,000 17,078,000
Inventories:
Raw materials ................................ 3,731,000 3,069,000
Work in process .............................. 1,448,000 1,527,000
Finished goods ............................... 2,747,000 3,941,000
---------- ----------
7,926,000 8,537,000
---------- ----------
Deferred income tax assets .................... 2,491,000 2,491,000
Other current assets .......................... 794,000 538,000
---------- ----------
Total current assets ............................ 26,829,000 30,797,000
---------- ----------
Property, plant and equipment, at cost .......... 27,077,000 26,794,000
Less accumulated depreciation ................... (11,634,000) (11,195,000)
---------- ----------
15,443,000 15,599,000
---------- ----------
Intangible assets .............................. 23,643,000 24,038,000
Other assets.................................... 1,503,000 1,340,000
---------- ----------
$67,418,000 $71,774,000
========== ===========
<FN>
See Notes to Consolidated Financial Statements.
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, June 30,
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1999
- ----------------------------------------------------------------------------------
(Unaudited)
Current liabilities:
Current portion of long-term debt ................ $ 722,000 $ 722,000
Accounts payable ................................. 1,240,000 3,300,000
Dividends payable ................................ 1,128,000
Accrued expenses ................................. 4,061,000 4,693,000
Income tax payable................................ 1,963,000 691,000
Liabilities of discontinued operations ........... 956,000 1,684,000
---------- ----------
Total current liabilities .......................... 8,942,000 12,218,000
---------- ----------
Long-term debt, net of current portion.............. 8,629,000 11,901,000
Deferred income tax liabilities .................... 1,449,000 1,449,000
Liabilities of discontinued operations.............. 378,000 224,000
---------- ----------
10,456,000 13,574,000
---------- ----------
Shareholders' equity:
Preferred stock, no par value; authorized 100,000
shares; none issued.............................
Common stock, par value $.01-2/3; authorized
15,000,000 shares; issued 9,135,336 shares at
September 30 and 9,104,166 shares at June 30.... 152,000 151,000
Capital in excess of par value of stock .......... 33,054,000 32,929,000
Retained earnings ................................ 22,796,000 20,884,000
Treasury stock, at cost, 1,032,420 shares......... (7,982,000) (7,982,000)
---------- ----------
Total shareholders' equity ......................... 48,020,000 45,982,000
---------- ----------
$67,418,000 $71,774,000
========== ===========
<FN>
See Notes to Consolidated Financial Statements.
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended September 30,
-----------------------------
1999 1998
---- ----
Operating activities:
Net earnings ................................... $ 1,912,000 $ 1,642,000
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities of
continuing operations:
Depreciation ................................. 588,000 439,000
Amortization.................................. 395,000 323,000
Equity loss on investment in TMT joint venture 25,000
Changes in operating assets and liabilities:
Accounts receivable ........................ 1,932,000 2,324,000
Refundable income taxes .................... 1,132,000
Inventories and other current assets........ 355,000 (1,512,000)
Accounts payable and accrued expenses ...... (2,692,000) (997,000)
Income taxes payable ....................... 1,272,000 167,000
---------- ----------
Net cash provided by operating activities of
continuing operations........................... 3,787,000 3,518,000
Net cash used in discontinued operations.......... (574,000) (4,727,000)
---------- ----------
Net cash provided by (used in) operating activities 3,213,000 (1,209,000)
---------- ----------
Investing activities:
Purchase of property, plant and equipment ...... (432,000) (230,000)
Investment in TMT joint venture ................ (250,000)
Other .......................................... 62,000 (10,000)
---------- ----------
Net cash used in investing activities ............ (620,000) (240,000)
---------- ----------
Financing activities:
Payments on revolving credit agreement.......... (3,000,000)
Payments on notes payable....................... (272,000) (120,000)
Payment of semi-annual cash dividend ........... (1,128,000) (1,021,000)
Proceeds from exercise of stock options ........ 126,000 218,000
---------- ----------
Net cash used in financing activities ............ (4,274,000) (923,000)
---------- ----------
Decrease in cash and cash equivalents ............ (1,681,000) (2,372,000)
Cash and cash equivalents at beginning of period.. 2,153,000 3,927,000
---------- ----------
Cash and cash equivalents at end of period ....... $ 472,000 $ 1,555,000
========== ==========
<FN>
Note: During the three months ended September 30, 1999, the Company paid $2,000 for
income taxes and paid $214,000 for interest. During the same period last year the
Company had net cash refunds of $415,000 for income taxes and paid $241,000 for
interest.
See Notes to Consolidated Financial Statements.
QUIXOTE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. The accompanying unaudited consolidated financial statements present
information in accordance with generally accepted accounting principles for
interim financial information and applicable rules of Regulation S-X.
Accordingly, they do not include all information or footnotes required by
generally accepted accounting principles for complete financial statements.
The June 30, 1999 consolidated balance sheet was derived from audited
financial statements. The interim financial statements and notes should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended June 30, 1999. Management believes the financial statements include all
normal recurring adjustments necessary for a fair presentation of the results
for the interim periods.
2. The provision for income taxes is based upon the estimated effective tax
rate for the year.
3. Operating results for the first three months of fiscal 2000 are not
necessarily indicative of performance for the entire year. The Company's
business is seasonal with a higher level of sales of highway safety products
in the Company's first and fourth fiscal quarters.
4. The computation of basic and diluted earnings per share, as prescribed by
Statement of Financial Accounting Standards ("SFAS") No. 128, is as follows:
Three Months Ended
September 30,
1999 1998
---- ----
Net earnings per share of common stock:
Basic .............................. $ .24 $ .21
Diluted ............................ $ .23 $ .20
Numerator:
----------
Net earnings available to
common shareholders-basic
and diluted: ......................... $ 1,912,000 $ 1,642,000
=========== ===========
Denominator:
------------
Weighted average shares
outstanding-basic: ................... 8,083,580 7,920,690
Effect of dilutive securities:
Stock options ........................ 257,801 296,577
---------- ---------
Weighted average of shares
outstanding-diluted .................. 8,341,381 8,217,267
========== =========
Options to purchase 60,000 shares of common stock at $21 per share were
outstanding during the first quarter of fiscal 2000 and fiscal 1999 but were
not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
common shares or anti-dilutive.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CURRENT YEAR-TO-DATE VERSUS PRIOR YEAR-TO-DATE
- ----------------------------------------------
The Company's sales for the first quarter of fiscal 2000 increased 20% to
$19,303,000 from $16,063,000 in the first quarter last year due to both
internal sales growth as well as growth from one acquisition the Company
completed during fiscal 1999. Internal sales increased 9% resulting
primarily from demand for the Company's newer crash cushion products. Sales
of Energy Absorption Systems, Inc. and its subsidiaries' permanent line of
crash cushion products increased due to strong unit sales of its QuadGuard -
registered trademark- family of crash cushions and other permanent system
products. Part sales and sales of glare screen products also increased
during the quarter. Energy Absorption and its subsidiaries' sales increase
was offset in part by a decrease in its truck-mounted attenuator ("TMA")
product line sales as well as sales of Triton Barrier -registered trademark-
and custom-molded products. The Company attributes part of the decline in
its TMA sales to a postponement of customer orders in anticipation of the
release of the Company's new Safe-Stop -trademark- TMA. However, the Company
made its first sizable shipment of 30 units of the Safe-Stop -trademark- TMA
during the quarter. Nu-Metrics, Inc., acquired in December 1998, contributed
sales of $1,761,000 for the quarter. Sales of Highway Information System,
Inc.'s ("HIS") highway advisory radio systems also increased during the
quarter.
The gross profit margin in the first quarter of the current year increased to
48.0% from 45.0% in the first quarter of fiscal 1999. This was due
principally to a change in sales mix at Energy Absorption and its
subsidiaries related to increased sales of the higher margin QuadGuard -
registered trademark- family of products along with decreased sales in the
current year of the lower margin TMA product line. The Energy Absorption
group of companies also benefited from lower vendor costs obtained for
certain products along with price increases occurring on selected products.
Nu-Metrics, Inc. contributed to the increase in gross margin as its gross
margin is higher than the Company's historical gross margin. Offsetting this
somewhat, the gross profit margin on sales at HIS decreased during the
quarter but on much lower sales.
Selling and administrative expenses in the first quarter of the current year
increased 29% to $5,533,000 from $4,288,000 in the first quarter last year.
This was due principally to the December 1998 acquisition of Nu-Metrics, Inc.
which added $556,000 in selling and administrative expenses and has a higher
percentage of selling and administrative expenses than the Company's
historical average. Energy Absorption and its subsidiaries had a $445,000
increase in selling and administrative expenses related to the increased
level of their sales. Corporate level administrative expenses increased
$243,000 as a result of increased salaries, bonuses and insurance expense.
Research and development expenses in the first quarter of the current year
increased 12% to $327,000 compared to $293,000 in the first quarter last
year. During the first quarter of the current year, the increase in research
and development expenses was due to the development of products relating to
the Safe-Stop -trademark- TMA and the performance of European qualifying
tests of certain QuadGuard -registered trademark- crash cushion products.
The Company also continued with its testing of a snowplowable road marker as
well as a reflective pavement marker for warm weather climates and other
developmental products.
Interest income in the first quarter of the current year was $8,000 compared
to $39,000 in the first quarter last year. Interest income declined as a
result of a decline in the Company's invested cash from $1,555,000 at
September 30, 1998 to $472,000 at the end of the current quarter. Interest
expense in the first quarter of the current year was $208,000 compared to
$168,000 in the first quarter last year. The increase in interest expense
related to debt incurred in connection with the acquisition of Nu-Metrics,
Inc. Other expenses of $26,000 in the first quarter of the current year were
primarily due to the equity loss on the investment in the joint venture,
Transportation Management Technologies, L.L.C. ("TMT").
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's effective income tax rate for the current quarter was 40%
compared to an effective income tax rate of 35% in the same quarter last year
due to last year's realization of certain tax benefits. The Company believes
its effective income tax rate for the current year will be approximately 40%.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash and cash equivalents of $472,000 and access to
additional funds of $35,000,000 under its bank arrangements as of September
30, 1999. Continuing operating activities were a source of cash for the
Company for the first quarter of fiscal 2000 providing $3,787,000.
Discontinued operations, however, used cash of $574,000 primarily for lease
commitments as well as accounting and legal expenses. This resulted in net
cash provided from operating activities of $3,213,000.
Investing activities used cash of $620,000 during the current quarter
including $432,000 for the purchase of equipment and $250,000 for the
Company's investment in TMT.
Financing activities used cash of $4,274,000 during the current quarter. The
payment of the Company's semi-annual cash dividend used cash of $1,128,000.
The Company also reduced its outstanding revolving credit facility by
$3,000,000. In addition, the Company used cash of $272,000 for payment of
notes payable due in connection with the acquisitions of Roadway Safety
Services and Nu-Metrics, Inc. Offsetting these cash payments somewhat, the
Company received cash of $126,000 for the exercise of common stock options.
For fiscal 2000, the Company anticipates needing less than $3,000,000 in cash
for capital expenditures. The Company may also need additional cash as it
considers acquiring businesses that complement its existing operations.
Also, the Company will require additional investments in working capital to
maintain growth. The Company may also need funds to repurchase its own stock
from time to time. These expenditures will be financed either through the
Company's invested cash, cash generated from its operations, or from
borrowings available under the Company's revolving credit facility. The
Company believes its existing cash, cash generated from operations and funds
available under its existing credit facility are sufficient for all planned
operating and capital requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 ISSUE
- ---------------
During fiscal year 1999, the Company made an assessment of its Year 2000
(Y2K) issue relative to its own information technology and non-information
technology as well as assessing the state of Y2K readiness of its vendors and
customers. The Company's Y2K task force, consisting of certain members of
senior management, assessed the Company's state of readiness and implemented
an action plan to correct Y2K deficiencies. The Company determined that its
principal software programs for financial order entry and manufacturing
planning were not Y2K compliant and has upgraded those programs to more
advanced versions that are Y2K compliant.
In addition, the Company evaluated the impact of the Y2K issue on its non-
information technology systems, such as manufacturing machinery, equipment,
computer-aided design and test equipment as well as products with date
sensitive software and embedded microprocessors. The Company completed the
assessment phase of its non-information technology systems during 1999 and
began taking remedial action where needed.
The Company initiated communications with significant suppliers, customers
and other relevant third parties to identify and minimize disruptions to the
Company's operations related to Y2K issues. However, there can be no
certainty that the systems and products of other companies on which the
Company relies will not have a material adverse effect on the Company's
operations. In addition, much of the Company's revenues are derived from
various federal and state agencies which may not be Y2K compliant.
In the event the Company falls short of its milestones, additional internal
resources will be focused on completing these projects and on developing
contingency plans. The estimated cost to correct the Company's Y2K
deficiencies is approximately $275,000. This estimate includes $200,000 in
costs to upgrade its information technology systems with the balance of the
estimate for any changes or modifications needed for non-information
technology systems. The Company has incurred approximately $260,000 to date.
While the Company believes that its non-information technology and vendor and
customer issues are of a lower risk, there can be no assurance that these
issues will not have a material effect on the Company's operations.
The Company's ultimate contingency plan is to outsource critical computer
applications where feasible, and in addition, create manual systems until
such corrective measures are taken. Please refer to the Company's disclosure
in its Form 10-K for the period ended June 30, 1999 for additional
information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
- --------------------------
Various statements made within the Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Quarterly
Report on Form 10-Q constitute "forward looking statements" for purposes of
the Securities and Exchange Commission's "safe harbor" provisions under the
Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the
Securities Exchange Act of 1934, as amended. Investors are cautioned that
all forward looking statements involve risks and uncertainties, including
those detailed in the Company's filings with the Securities and Exchange
Commission. There can be no assurance that actual results will not differ
from the Company's expectations. Factors which could cause materially
different results include, among others, uncertainties related to the
introduction of the Company's products and services; uncertainties regarding
the Company's litigation and claims resulting from its discontinued
operations and settlements thereof; the successful completion and integration
of acquisitions; continued funding from the passage of new federal highway
legislation; and competitive and general economic conditions.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
- --------------------------
ERNEST CHICO v. THE STATE OF INDIANA, ENERGY ABSORPTION SYSTEMS, INC. AND
HOOSIER COMPANY IN LAKE SUPERIOR COURT FOR THE STATE OF INDIANA, CAUSE NO.
45D02-9605-CT-391. The plaintiff has settled with the State of Indiana.
Mediation with the remaining parties was not successful. See the Company's
Form 10-K for the period ended June 30, 1999, Item 3, for additional
information.
ITEM 2. Changes in Securities
- ------------------------------
None.
ITEM 3. Default upon Senior Securities
- ---------------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
ITEM 5. Other Information
- --------------------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit 27.
(b) Reports on Form 8-K
None.
SIGNATURE
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 to be signed on its behalf by the undersigned
thereunto duly authorized.
QUIXOTE CORPORATION
DATED: November 12, 1999 /s/ Daniel P. Gorey
------------------ -------------------
DANIEL P. GOREY
Chief Financial Officer,
Vice President and
Treasurer (Chief
Financial & Accounting
Officer)