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 December 31, 1994
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: 7,814,466 shares of the
Company's Common Stock ($.01-2/3 par value) were outstanding as of December 31,
1994.
PART I
FINANCIAL INFORMATION
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
Net sales $46,959,000 $42,835,000 $93,109,000 $82,923,000
Cost of sales 31,435,000 25,440,000 61,642,000 49,476,000
----------- ----------- ----------- -----------
Gross profit 15,524,000 17,395,000 31,467,000 33,447,000
Selling and administrative
expenses 12,169,000 10,840,000 23,069,000 21,203,000
Research and development
expenses 945,000 854,000 1,698,000 1,629,000
----------- ----------- ----------- -----------
13,114,000 11,694,000 24,767,000 22,832,000
Operating profit 2,410,000 5,701,000 6,700,000 10,615,000
Other income (expenses):
Interest income 58,000 54,000 105,000 103,000
Interest expense (934,000) (765,000) (1,797,000) (1,531,000)
Other (119,000) 387,000 (226,000) 255,000
------------ ------------ ------------ ------------
(995,000) (324,000) (1,918,000) (1,173,000)
Earnings before income taxes 1,415,000 5,377,000 4,782,000 9,442,000
Provisions for income taxes 538,000 2,151,000 1,817,000 3,777,000
----------- ----------- ----------- -----------
Net earnings $ 877,000 $ 3,226,000 $ 2,965,000 $ 5,665,000
=========== =========== =========== ===========
Net earnings per common and
common equivalent share
outstanding:
Primary $.11 $.40 $.36 $.71
==== ==== ==== ====
Fully diluted $.11 $.38 $.36 $.67
==== ==== ==== ====
Cash dividend declared per
common share $.11 $.10 $.11 $.10
==== ==== ==== ====
See Notes to Consolidated Condensed Financial Statements
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QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
December 31, June 30,
------------ ------------
Assets 1994 1994
- - - - ----------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash & cash equivalents $ 2,590,000 $ 1,021,000
Accounts receivable, net of allowance
for doubtful accounts of $2,783,000 at
December 31 and $2,765,000 at June 30 31,563,000 33,771,000
Inventories:
Raw materials 5,617,000 4,117,000
Work in process 1,552,000 1,939,000
Finished goods 1,718,000 2,163,000
------------ ------------
8,887,000 8,219,000
Other current assets 4,234,000 3,314,000
------------ ------------
Total current assets 47,274,000 46,325,000
------------ ------------
Property, plant and equipment, at cost 118,997,000 102,451,000
less accumulated depreciation (47,436,000) (41,505,000)
------------- -------------
71,561,000 60,946,000
Other assets 15,010,000 15,518,000
------------ ------------
$133,845,000 $122,789,000
============ ============
See Notes to Consolidated Condensed Financial Statements.
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QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
December 31, June 30,
------------- ------------
Liabilities and Shareholders' Equity 1994 1994
- - - - -----------------------------------------------------------------------------
(Unaudited)
Current liabilities:
Accounts payable $ 7,282,000 $ 9,564,000
Accrued expenses 17,723,000 15,453,000
Income taxes payable 337,000 1,535,000
------------ ------------
Total current liabilities 25,342,000 26,552,000
------------ ------------
Long-term debt 49,000,000 38,975,000
Deferred income taxes 3,193,000 3,193,000
Shareholders' equity:
Common stock 142,000 142,000
Capital in excess of par value of stock 28,788,000 28,551,000
Retained earnings 32,853,000 30,749,000
Treasury stock, at cost (5,473,000) (5,373,000)
------------- -------------
56,310,000 54,069,000
------------ ------------
$133,845,000 $122,789,000
============ ============
See Notes to Consolidated Condensed Financial Statements.
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QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended December 31,
-----------------------------
1994 1993
----------- -----------
Increase (decrease) in cash and cash equivalents:
Operating activities:
Net earnings $ 2,965,000 $ 5,665,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 6,014,000 5,088,000
Amortization 1,086,000 1,151,000
Provision for losses on accounts receivable 18,000 68,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 2,190,000 (1,381,000)
(Increase) decrease in inventories and other
current assets (1,588,000) 112,000
Decrease in accounts payable and accrued expenses (20,000) (1,528,000)
Decrease in income taxes payable (1,198,000) (1,300,000)
------------ ------------
Net cash provided by operating activities 9,467,000 7,875,000
Investing activities:
Purchase of property, plant and equipment (16,629,000) (4,920,000)
Capitalized and purchased systems, design and software
costs (495,000) (566,000)
Net assets of businesses acquired (8,075,000)
Other (83,000) 16,000
------------ ------------
Net cash used in investing activities (17,207,000) (13,545,000)
Financing activities:
Borrowings under revolving credit agreement 10,025,000 8,300,000
Payment of semi-annual cash dividend (853,000) (758,000)
Proceeds from exercise of stock options 237,000 126,000
Repurchase of company stock for treasury (100,000)
Principal payments on long-term debt (1,197,000)
----------- -----------
Net cash provided by financing activities 9,309,000 6,471,000
Increase in cash and cash equivalents 1,569,000 801,000
Cash and cash equivalents at beginning of period 1,021,000 4,058,000
----------- -----------
Cash and cash equivalents at end of period $ 2,590,000 $ 4,859,000
=========== ===========
<FN>
Note: During the six months ended December 31, 1994, the Company made cash
payments of $3,015,000 for income taxes and paid $1,466,000 for interest.
During the same period last year the Company made cash payments of $5,116,000
for income taxes and paid $1,602,000 for interest.
See Notes to Consolidated Condensed Financial Statements.
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QUIXOTE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. The interim financial statements are prepared pursuant to the
requirements for reporting on Form 10-Q. The June 30, 1994 balance sheet data
was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The interim
financial statements and notes thereto should be read in conjunction with the
financial statements and notes included in the Company's latest annual report on
Form 10-K. In the opinion of management, the interim financial statements
reflect all adjustments of a normal recurring nature necessary for a fair
statement of the results for interim periods. The current period results of
operations are not necessarily indicative of results which ultimately will be
reported for the full fiscal year ending June 30, 1995.
2. Subsequent events:
On January 10, 1995, the California Court of Appeals sustained an earlier trial
judgment against Convergent Business Systems, Inc. and its BaronData division
(which division was acquired in 1990 by Stenograph Corporation, a wholly-owned
subsidiary of the Company). The Appeals Court decision requires the Company to
pay a judgment of $918,000 plus interest. The Court's decision exceeded the
Company's previously estimated loss for this matter and $685,000 was recorded as
an expense in the Company's Consolidated Condensed Statement of Operations for
the quarter ended December 31, 1994.
Also in January, 1995, Disc Manufacturing, Inc. (DMI), a wholly-owned subsidiary
of the Company, was sued by DiscoVision Associates alleging patent infringement.
The complaint seeks injunctive relief and unspecified damages, including
punitive damages against DMI. The Company believes that under the circumstances
of this case that DiscoVision should not be entitled to injunctive relief. In
the unlikely event that injunctive relief were to be granted against DMI, it
could have a material adverse effect on the Company's operations.
In a related matter, DMI filed a complaint against Pioneer Electronics Corp.,
DiscoVision Associates, and other related parties alleging violations of the
antitrust laws and acts of unfair competition based on unlawful activities and
anticompetitive tactics involving patents related to optical disc technology.
DMI's complaint seeks damages, including punitive damages and injunctive relief.
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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 in the first six months of fiscal 1995 increased 12% to
$93,109,000 from $82,923,000 in the same period last year due principally to
Disc Manufacturing, Inc. Disc Manufacturing, Inc. (DMI) sales in the current
six month period increased 13% to $45,873,000 from $40,748,000 in the same
period last year due principally to increased unit sales of both CD and CD-ROM
products. CD-ROM unit sales increased 70% in the current six month period from
the same period last year. Audio CD unit sales in the current six month period
increased 13% from the same period last year. These increases in unit volumes
were offset somewhat by declines in the average unit selling price of these
products, resulting in CD-ROM sales dollars increasing 29% and CD audio sales
dollars increasing 2% from the same period last year. Sales at Energy
Absorption Systems in the current six month period increased 14% to $22,210,000
from $19,535,000 in the same period last year due to the December 1993
acquisition of Safe-Hit Corporation, a manufacturer of flexible guide posts
which contributed sales of $2,674,000 compared to sales of $367,000 last year.
Legal Technologies, Inc. (LTI) sales for the six months increased 11% to
$25,026,000 from $22,640,000 in the same period last year. This was due
principally to the December 1993 acquisition of Litigation Sciences, Inc. (LSI),
a full service litigation consulting firm. LSI contributed $4,652,000 in sales
during the current six month period. Integrated Information Services, Inc.
(IIS), a document imaging company that assists businesses in the electronic
storage and retrieval of information, also contributed to the increase in sales
at LTI. Offsetting these sales increases at LTI was a sales decrease at
Stenograph due to a decline in unit sales of its software and hardware products.
The gross profit margin in the current six month period decreased to 33.8% from
40.3% in the same period last year due principally to margin reductions at Legal
Technologies, Inc. LTI's gross profit margin decreased due to the lower gross
profit margins at Litigation Sciences than the historical gross profit margins
at Legal Technologies. To a lesser extent, the gross profit margin at LTI also
declined as a result of declines in margin at Integrated Information Services
and Stenograph Corporation. DMI's gross profit margin decreased as a result of
a decrease in the average unit selling price of its products offset somewhat by
volume efficiencies. Energy Absorption's gross profit decreased as a result of
lower gross profit margins at Safe-Hit Corporation and also due to a change in
product mix.
Selling and administrative expenses in the current six month period increased 9%
to $23,069,000 from $21,203,000 in the same period last year attributable
principally to DMI and Energy Absorption. DMI's selling and administrative
expenses increased principally due to increases in CD-ROM selling and marketing
expenses. Energy Absorption's selling and administrative expenses increased due
to the inclusion of selling and administrative expenses at Safe-Hit Corporation.
Legal Technologies' and corporate level selling and administrative expenses
remained at a level consistent with the same period last year.
Research and development expenses in the current six month period increased 4%
to $1,698,000 from $1,629,000 in the same period last year. This was due to
increased research and development at Legal Technologies related to the
development of legal software offset somewhat by a reduction in research and
development at Energy Absorption as a result of reduced expenditures on its
sewer rehabilitation technology.
Interest income in the current six month period was $105,000 compared to
$103,000 in the same period last year. Interest expense increased 17% in the
current six month period to $1,797,000 from $1,531,000 in the same period last
year. This was due to an
-7-
increase in interest rates. Other expenses in the current six month period
increased to $226,000 compared to income of $255,000 in the same period last
year principally due to a gain on the sale of a stock investment that occurred
last year.
Current Year Quarter Versus Prior Year Quarter
- - - - ----------------------------------------------
The Company's sales in the current quarter increased 10% to $46,959,000 from
$42,835,000 in the same quarter last year due principally to Disc Manufacturing,
Inc. DMI's sales in the current quarter increased 17% to $25,032,000 from
$21,315,000 in the same quarter last year due principally to increased unit
sales of both CD and CD-ROM products. CD-ROM unit sales increased 73% in the
current quarter from the same period last year. Audio CD unit sales in the
current quarter increased 17% from the same period last year. These increases
in unit volumes were offset somewhat by declines in the average unit selling
price of these products, resulting in CD-ROM sales dollars increasing 31% and CD
audio sales dollars increasing 7% from the same period last year. Legal
Technologies, Inc. sales for the current quarter increased 9% to $12,644,000
from $11,650,000 in the same quarter last year. This was due principally to the
December 1993 acquisition of Litigation Sciences, Inc. which contributed
$2,278,000 in sales during the current quarter. Offsetting this sales increase
was a sales decrease at Stenograph due to a decline in unit sales of its
software and hardware. Integrated Information Services, Inc. also experienced a
decline in sales. Sales at Energy Absorption in the current quarter decreased
6% to $9,283,000 from $9,870,000 in the same quarter last year despite the
contribution from the December acquisition of Safe-Hit Corporation, which
contributed a net sales increase of $796,000 for the current quarter. Energy's
sales decreased throughout its product lines after a general decline in sales
orders following the November elections.
The gross profit margin in the current quarter decreased to 33.1% from 40.6% in
the same quarter last year. Legal Technologies, Inc.'s gross profit margin
decreased due to the lower gross profit margins at Litigation Sciences than the
historical gross profit margins at Legal Technologies. In addition, the gross
profit margin at LTI also declined as a result of a decline in margin at
Integrated Information Services. Slightly offsetting these gross profit margin
decreases was an increase in margin at Stenograph. DMI's gross profit margin
decreased as a result of a decrease in the average unit selling price of its
products offset somewhat by volume efficiencies. Energy Absorption's gross
profit margin decreased as a result of lower gross profit margins at Safe-Hit
Corporation than Energy Absorption's historical gross profit margins and also
due to the lower sales volume than in the same quarter last year.
Selling and administrative expenses in the current quarter increased 12% to
$12,169,000 from $10,840,000 in the same quarter last year attributable
principally to DMI and Energy Absorption. DMI's selling and administrative
expenses increased principally due to an increase in CD-ROM selling and
marketing expenses. Energy Absorption's selling and administrative expenses
increased due to the inclusion of selling and administrative expenses of Safe-
Hit Corporation. Legal Technologies' selling and administrative expenses
increased due to the inclusion of expenses from Litigation Sciences offset
somewhat by a decrease in selling and administrative expenses at Stenograph and
Discovery Products.
Research and development expenses in the current quarter increased 11% to
$945,000 from $854,000 in the same quarter last year. This was due to increased
research and development at Legal Technologies related to the development of
legal software offset somewhat by a reduction in research and development at
Energy Absorption as a result of reduced expenditures on its sewer
rehabilitation technology.
-8-
Interest income in the current quarter was $58,000 compared to $54,000 in the
same quarter last year. Interest expense increased 22% in the current quarter
to $934,000 from $765,000 in the same quarter last year. This was due to an
increase in interest rates on the Company's revolving credit facility. Other
expenses in the current quarter increased to $119,000 compared to income of
$387,000 in the same quarter last year principally due to a gain on the sale of
a stock investment that occurred last year.
Liquidity and Capital Resources
- - - - -------------------------------
The Company had cash of $2,590,000 and additional funds of $30,975,000 available
under its revolving credit facility at December 31, 1994. Operating activities
were a source of cash for the Company during the six month period providing
$9,467,000.
Cash of $17,207,000 was used during the current six month period for investing
activities. The Company's primary investing activity was the purchase of
assets, mostly at DMI as part of its three year expansion program to double
capacity to 200 million discs annually. Among other purchases during the
current six month period, DMI acquired a 218,000 square foot building in
Anaheim, California as a replacement for its existing facility located nearby.
Financing activities provided cash of $9,309,000 principally from borrowings
under the Company's revolving credit facility of $10,025,000 increasing the note
to $29 million at December 31, 1994.
The Company anticipates approximately $20,000,000 in additional capital
expenditures will be made during fiscal 1995 related principally to the DMI
expansion as described above. In addition, the Company may consider acquiring
additional businesses that complement its existing operating segments. Also,
each of the Company's operating segments will require additional investments in
working capital to maintain growth. These expenditures will be financed either
through cash generated from operations or from borrowings on the Company's
revolving credit facility. The Company believes its cash generated from
operations and funds available under its existing credit facility are sufficient
for all planned operating and capital requirements.
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PART II
OTHER INFORMATION
Item I. Legal Proceedings
- - - - --------------------------
1. REPETITIVE STRESS INJURY LITIGATION. During the Company's second quarter,
three additional repetitive stress injury cases were filed against Stenograph
and the Company, bringing to twenty-four the total number of such cases filed to
date. See the Company's Form 10-K Report for the fiscal year ended June 30,
1994, Item 3, for additional information.
2. CONVERGENT BUSINESS SYSTEMS v. LINDA CHAVEZ. On January 10, 1995, the
California Court of Appeals sustained an earlier trial judgment against
Convergent Business Systems, Inc., a division of which was acquired by a Quixote
subsidiary in 1990, in a case identified as CONVERGENT BUSINESS SYSTEMS v. LINDA
CHAVEZ, ET AL., Superior Court of California for Alameda County, No. H14783-5.
At the time of the acquisition, Quixote agreed to assume the possible liability,
if any, for the lawsuit, which was then in litigation. The Appeals Court
decision requires Quixote to pay a judgment of approximately $918,000, plus
interest. To account for the unaccrued portion of the expense of the judgment,
$685,000, representing $0.05 per share after tax, has been recorded as an
expense in the Company's fiscal quarter ended December 31, 1994. See the
Company's Form 10-K Report for the fiscal year ended June 30, 1994, Item 3, for
additional information relating to this litigation.
3. DISCOVISION ASSOCIATES v. DISC MANUFACTURING, INC. In January, 1995, Disc
Manufacturing, Inc. ("DMI") was served in an action entitled DISCOVISION
ASSOCIATES v. DISC MANUFACTURING, INC., Case No. 95-21, U.S. District Court for
the District of Delaware. The complaint alleges that DMI is infringing six
DiscoVision patents and seeks injunctive relief and unspecified damages,
including punitive damages, against DMI. The case has been referred to the
Company's patent counsel.
4. DISC MANUFACTURING, INC. v. PIONEER AND DISCOVISION. In January, 1995 DMI
filed a complaint against Pioneer Electronic Corp., Pioneer Electronics (USA)
Inc., Pioneer Capital Inc., and DiscoVision Associates in the U.S. District
Court for the Central District of California, Case No. 95-0306, alleging
violations of the antitrust laws and acts of unfair competition based on
unlawful activities and anticompetitive tactics involving patents related to
optical disc technology. DMI's complaint seeks damages, including punitive
damages, and injunctive relief.
5. ESTATE OF THIEL v. ENERGY ABSORPTION SYSTEMS, INC. In December, 1994,
Energy Absorption Systems, Inc. ("Energy") was served in an action entitled
FREDERICK W. THIEL AND MAUREEN THIEL v. SLATTERY ASSOCIATES ET AL., Superior
Court of New Jersey, Docket No. MRS-L-1431-94. The complaint arises from a
March, 1992 accident in which the decedent lost control of his car and allegedly
struck one of Energy's crash cushions. The complaint seeks unspecified damages
from Energy and numerous defendants, including the State of New Jersey, the U.S.
Federal Highway Administration and various other governmental entities. The
Company has referred the case to its insurance carrier.
-10-
Item 2. Changes in Securities
- - - - ------------------------------
None.
Item 3. Default upon Senior Securities
- - - - ---------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- - - - ------------------------------------------------------------
The Company's Annual Meeting of Shareholders was held on November 8, 1994.
The matters voted on at the Annual Meeting were as follows:
(i) The election of James H. DeVries and Lawrence C. McQuade to serve as
directors.
(ii) The approval of Coopers & Lybrand, L.L.P. as independent auditors for the
Company.
Messrs. DeVries and McQuade were elected and all other matters were approved as
follows:
VOTES
For Against Abstain No Vote
--------- ------- ------- ---------
Election of Directors
James H. DeVries 6,677,518 114,019
Lawrence C. McQuade 6,749,276 42,261
Approval of Coopers and 6,753,254 11,277 27,056
Lybrand, L.L.P.
Item 5. Other Information
- - - - --------------------------
None.
Item 6. Exhibits and Report on Form 8-K
- - - - ----------------------------------------
(a) Exhibits
10(a) Fifth Amendment to Loan Agreement dated as of December 1, 1994 by
and among the Company, Energy Absorption Systems, Inc., Disc Manufacturing,
Inc., Stenograph Corporation, Legal Technologies, Inc., Discovery Products,
Inc., Spin-Cast Plastics, Inc., Court Technologies, Inc., Composite Components,
Inc., Integrated Information Services, Inc., Litigation Sciences, Inc., Safe-Hit
Corporation and The Northern Trust Company in its own right and as agent for NBD
Bank and LaSalle National Bank, filed herewith. (Doc 2, pp 1-9)
-11-
10(b) Fifth Amendment to Letter Agreement dated as of August 1, 1994 to
Letter Agreement by and between Stenograph Corporation and Sanwa Business Credit
Corporation ("Sanwa"); Rider to Letter Agreement dated October 28, 1994 by and
between Stenograph and Sanwa, all filed herewith. (Doc 3, pp 1-6)
11. Statement regarding computation of earnings per share.
27. Financial data schedules.
(b) On January 17, 1995, the Company filed a report on Form 8-K dated January
10, 1995 reporting in Item 5 "Other Events" a California Court of Appeals
decision in a case entitled CONVERGENT BUSINESS SYSTEMS v. CHAVEZ ET AL.,
Superior Court of California for Alameda County, No. H14783-5. No financial
statements were filed. See Item 1 of this Form 10-Q for additional information
relating to this litigation.
-12-
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 December 31, 1994 to be signed on its behalf by the undersigned thereunto
duly authorized.
QUIXOTE CORPORATION
DATE: February 8, 1995 /s/Myron R. Shain
--------------------------- ---------------------------------
MYRON R. SHAIN
EXECUTIVE VICE PRESIDENT - FINANCE
(Chief Financial & Accounting Officer)
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