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 March 31, 1995
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: 7,817,366 shares of the
Company's Common Stock ($.01-2/3 par value) were outstanding as of March 31,
1995.
PART I
FINANCIAL INFORMATION
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- ----------------------------
1995 1994 1995 1994
---- ---- ---- ----
Net sales $45,559,000 $43,906,000 $138,668,000 $126,829,000
Cost of sales 30,229,000 27,477,000 91,871,000 76,953,000
----------- ----------- ------------ ------------
Gross profit 15,330,000 16,429,000 46,797,000 49,876,000
Selling and administrative
expenses 10,382,000 11,390,000 33,451,000 32,593,000
Research and development
expenses 754,000 911,000 2,452,000 2,540,000
----------- ----------- ------------ ------------
11,136,000 12,301,000 35,903,000 35,133,000
Operating profit 4,194,000 4,128,000 10,894,000 14,743,000
Other income (expenses):
Interest income 64,000 46,000 169,000 149,000
Interest expense (1,327,000) (751,000) (3,124,000) (2,282,000)
Other (175,000) 104,000 (401,000) 359,000
----------- ----------- ------------ ------------
(1,438,000) (601,000) (3,356,000) (1,774,000)
Earnings before income taxes 2,756,000 3,527,000 7,538,000 12,969,000
Provision for income taxes 1,047,000 1,151,000 2,864,000 4,928,000
----------- ----------- ------------ ------------
Net earnings $ 1,709,000 $ 2,376,000 $ 4,674,000 $ 8,041,000
=========== =========== ============ ============
Net earnings per common and common
equivalent share outstanding:
Primary $.21 $.29 $.57 $1.00
==== ==== ==== =====
Fully diluted $.21 $.29 $.59 $.96
==== ==== ==== ====
Cash dividend declared per
common share $.11 $.10
==== ====
<FN>
See Notes to Consolidated Condensed Financial Statements
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
March 31, June 30,
Assets 1995 1994
- -------------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash & cash equivalents $ 1,707,000 $ 1,021,000
Accounts receivable, net of allowances
for doubtful accounts of $3,002,000 at
March 31 and $2,765,000 at June 30 33,386,000 33,771,000
Inventories:
Raw materials 5,786,000 4,117,000
Work in process 1,167,000 1,939,000
Finished goods 1,719,000 2,163,000
------------ ------------
8,672,000 8,219,000
Other current assets 3,720,000 3,314,000
------------ ------------
Total current assets 47,485,000 46,325,000
------------ ------------
Property, plant and equipment, at cost 129,926,000 102,451,000
less accumulated depreciation (50,568,000) (41,505,000)
------------ ------------
79,358,000 60,946,000
Other assets 18,650,000 15,518,000
------------ ------------
$145,493,000 $122,789,000
============ ============
<FN>
See Notes to Consolidated Condensed Financial Statements.
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
March 31, June 30,
Liabilities and Shareholders' Equity 1995 1994
- -----------------------------------------------------------------------------
(Unaudited)
Current liabilities:
Accounts payable 9,349,000 9,564,000
Accrued expenses 18,064,000 15,453,000
Income taxes payable 1,535,000
------------ ------------
Total current liabilities 27,413,000 26,552,000
------------ ------------
Long-term debt, net of current portion 56,850,000 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 28,805,000 28,551,000
Retained earnings 34,563,000 30,749,000
Treasury stock, at cost (5,473,000) (5,373,000)
------------ ------------
58,037,000 54,069,000
------------ ------------
$145,493,000 $122,789,000
============ ============
<FN>
See Notes to Consolidated Condensed Financial Statements.
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended March 31,
---------------------------
1995 1994
----------- -------------
Increase (decrease) in cash and cash equivalents:
Operating activities:
Net earnings $ 4,674,000 $ 8,041,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 9,146,000 7,628,000
Amortization 1,566,000 1,787,000
Provisions for losses on accounts receivable 237,000 (14,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 148,000 (2,158,000)
(Increase) decrease in inventories and other current
assets (859,000) 300,000
Increase in accounts payable and accrued expenses 3,250,000 1,901,000
Decrease in income taxes payable (1,535,000) (1,796,000)
------------ -----------
Net cash provided by operating activities 16,627,000 15,689,000
Investing activities:
Purchase of property, plant and equipment (27,558,000) (6,779,000)
Funds deposited with Industrial Development Board trustee (4,105,000)
Capitalized and purchased systems, design and software
costs (540,000) (773,000)
Net assets of businesses acquired (8,075,000)
Other (53,000) (182,000)
------------ ------------
Net cash used in investing activities (32,256,000) (15,809,000)
Financing activities:
Borrowings under revolving credit agreement 17,875,000 4,975,000
Payment of semi-annual cash dividend (1,714,000) (1,526,000)
Proceeds from exercise of stock options 254,000 414,000
Repurchase of company stock for treasury (100,000)
Principal payments on long-term debt (1,349,000)
----------- -----------
Net cash provided by financing activities 16,315,000 2,514,000
Increase in cash and cash equivalents 686,000 2,394,000
Cash and cash equivalents at beginning of period 1,021,000 4,058,000
----------- -----------
Cash and cash equivalents at end of period $ 1,707,000 $ 6,452,000
=========== ===========
<FN>
Note: During the nine months ended March 31, 1995, the Company made cash payments of $4,526,000 for income taxes and paid
$2,144,000 for interest. During the same period last year the Company made cash payments of $6,779,000 for income taxes and paid
$2,013,000 for interest.
See Notes to Consolidated Condensed Financial Statements.
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. 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.
3. 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.
4. Subsequent Event: On April 3, 1995, the Company acquired a 40% interest
in Quantic Industries, Inc. for $6,700,000. Quantic is a manufacturer of
electronic and pyrotechnic devices with annual revenues of approximately $20
million. This investment will be accounted for under the equity method of
accounting. The purchase price in excess of the Company's pro rata share of the
net assets of Quantic Industries was approximately $4 million.
In connection therewith, the Company also entered into an agreement with
the remaining stockholders of Quantic Industries which grants two of those
stockholders a right, on or before January 6, 1996, to require Quixote
Corporation to purchase all of their individual shares (52.5% of the common
stock) in Quantic Industries for $8.7 million.
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 nine months of fiscal 1995 increased 9% to
$138,668,000 from $126,829,000 in the same period last year due to revenue
growth at each of the Company's business segments. Sales at Energy Absorption
in the current nine month period increased 10% to $32,998,000 from $30,041,000
in the same period last year due principally to the December 1993 acquisition of
Safe-Hit Corporation, a manufacturer of flexible guide posts which contributed
sales of $3,955,000 compared to sales of $1,407,00 last year. Legal
Technologies, Inc. (LTI) sales for the nine months increased 9% to $38,192,000
from $35,090,000 in the same period last year. This was due principally to the
December 1993 acquisition of Litigation Sciences, Inc., a full service
litigation consulting firm. LSI contributed $7,351,000 in sales during the
current nine month period compared to $2,060,000 in sales for the comparable
period. Integrated Information Services, Inc., 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 9% sales decrease at Stenograph Corporation due to a decline in
unit sales of its software and hardware products. Disc Manufacturing, Inc.
(DMI) sales in the current nine month period increased 9% to $67,478,00 from
$61,698,00 in the same period last year due to increased unit sales of its CD-
ROM products. CD-ROM unit sales increased 57% in the current nine month period
from the same period last year. Audio CD unit sales in the current nine month
period increased 9% from the same period last year. These increases in unit
volumes were offset somewhat by declines in the average unit selling prices of
these products, particularly CD-ROM products, resulting in CD-ROM sales dollars
increasing 24% from last year and CD audio sales dollars consistent with the
same period last year.
The gross profit margin in the current nine month period decreased to 33.7% from
39.3% in the same period last year due to margin reductions at each of the
Company's business segments. 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. LTI's gross profit margin decreased due to lower gross
profit margins at Integrated Information Services. Energy Absorption's gross
profit 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 a change in product mix.
Selling and administrative expenses in the current nine month period increased
3% to $33,451,000 from $32,593,000 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,
offset somewhat by a reduction in marketing expenses. Legal Technologies'
selling and administrative expenses decreased slightly due to a reduction in
personnel at Stenograph offset partially by an increase in legal expenses.
Research and development expenses in the current nine month period decreased 3%
to $2,452,000 from $2,540,000 in the same period last year. This was due to
decreased R&D at Energy Absorption as a result of reduced expenditures on its
sewer rehabilitation technology. Offsetting the overall decline somewhat
was an increase in research and development expenditures at Legal Technologies
related to the development of legal software.
Interest income in the current nine month period was $169,000 compared to
$149,000 in the same period last year. Interest expense increased 37% in the
current nine month period to $3,124,000 from $2,282,000 in the same period last
year. This was due to both an increase in interest rates as well as an increase
in debt. Other expenses in the current nine month period increased to $401,000
compared to income of $359,000 in the same period last year as a result of 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 4% to $45,559,000 from
$43,906,000 in the same quarter last year due to revenue growth at each of the
Company's business segments. Legal Technologies, Inc.'s sales for the current
quarter increased 6% to $13,166,000 from $12,450,000 in the same quarter last
year. This was due principally to a 31% increase in revenues at Litigation
Sciences. Also contributing to the increase in sales was Stenograph
Corporation's 3% increase in sales in the current quarter. Offsetting these
sales increases was a sales decrease at Integrated Information Services, Inc. of
5%. DMI's sales in the current quarter increased 3% to $21,605,000 from
$20,950,000 in the same quarter last year due to increased unit sales of CD-ROM
products. CD-ROM unit sales increased 32% in the current quarter from the same
period last year. Audio CD unit sales increased 2% in the current quarter from
the same period last year. These increases in unit volumes were offset by
declines in the average unit selling price of these products, resulting in CD-
ROM sales dollars increasing 13% and CD audio sales dollars decreasing 4% from
the same period last year. Sales at Energy Absorption in the current quarter
increased 3% to $10,788,000 from $10,506,000 in the same quarter last year.
The gross profit margin in the current quarter decreased to 33.6% from 37.4% in
the same quarter last year principally due to margin reductions at DMI. DMI's
gross profit margin decreased as a result of a decrease in the average unit
selling price of its products, principally CD-ROM products, offset somewhat by
volume efficiencies. Energy Absorption's gross profit margin decreased due to a
change in product mix and the temporary outsourcing of component parts until the
completion of its plant expansion. LTI's gross profit margin increased due to
improved gross profit margins at Litigation Sciences due to reductions in fixed
costs and its increase in sales. In addition, the gross profit margin at LTI
also increased as a result of an increase in gross profit margin at Stenograph
Corporation due to a favorable change in product mix. Somewhat offsetting these
gross profit margin increases was a decrease in gross profit margin at
Integrated Information Services due to increased competition.
Selling and administrative expenses in the current quarter decreased 9% to
$10,382,000 from $11,390,000 in the same period last year attributable
principally to LTI and Energy Absorption. Legal Technologies' selling and
administrative expenses decreased as a result of reduced expenditures at
Discovery Products, Court Technologies, and Stenograph subsidiaries. Energy
Absorption's selling and administrative expenses decreased due to a decrease in
marketing salaries and expenses. Offsetting these decreases in selling and
administrative expenses was an increase in these expenses at DMI, principally
due to increases in CD-ROM selling and marketing expenses.
Research and development expenses in the current quarter decreased 17% to
$754,000 from $911,000 in the same quarter last year. This was due to decreased
R&D at Legal Technologies related to the reduction in software development
expenditures at its Discovery Products subsidiary. Energy Absorption also had a
reduction in research and development in the current quarter as a result of
reduced expenditures on its sewer rehabilitation technology and other projects.
Interest income in the current quarter was $64,000 compared to $46,000 in the
same quarter last year. Interest expense increased 77% in the current quarter
to $1,327,000 from $751,000 in the same quarter last year. This was due to both
an increase in interest rates and an increase in debt. Other expenses in the
current quarter increased to $175,000 compared to income of $104,000 in the same
quarter last year as a result of a gain on the sale of a stock investment that
occurred in last year's quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has cash of $1,707,000 and additional funds of $23,125,000 available
under its revolving credit facility at March 31, 1995. Operating activities
were a source of cash for the Company during the current nine month period
providing $16,627,000.
Cash of $32,256,000 was used during the current nine month period for investing
activities. The Company's primary investing activity was the purchase of plant
and equipment, mostly at DMI as part of its expansion program to double capacity
to 200 million discs annually. Among other purchases, DMI purchased a 218,000
square foot building in Anaheim, California as a replacement for its existing
facility located nearby. The Company also invested cash of $4,105,000 with an
industrial development board for use in the expansion of Energy Absorption's
primary manufacturing facility in Alabama.
Financing activities provided cash of $16,315,000 principally from borrowings
under the Company's revolving credit facility of $17,875,000 increasing the note
to $36,875,000 at March 31, 1995.
The Company anticipates approximately $12,000,000 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. The Company may also be required to
purchase an additional 52.5% of Quantic Industries for $8.7 million as disclosed
in Note 4 to the Company's Consolidated Condensed Financial Statements. These
expenditures will be financed either through cash generated from operations or
from borrowings on the Company's revolving credit note. The Company believes
its cash generated from operations and funds available under its existing credit
facility or increases in its credit facility are sufficient for all planned
operating and capital requirements.
PART II
OTHER INFORMATION
ITEM I. LEGAL PROCEEDINGS
A. REPETITIVE STRESS INJURY LITIGATION. During the Company's third quarter,
one additional repetitive stress injury case was filed against Stenograph and
the Company, bringing to twenty-five 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. SHERRELL SEARS v. ENERGY ABSORPTION SYSTEMS. In March, 1995, the
workmen's compensation claims against Energy Absorption Systems, Inc. were
settled for a nominal amount in the action entitled SHERRELL AND ROY SEARS v.
ENERGY ABSORPTION SYSTEMS, INC., QUIXOTE CORPORATION, GERALD HAND, KEN WIMMER,
UPJOHN COMPANY, IPI ISOFOAM SYSTEMS AND RELIANCE INSURANCE COMPANY ET AL.,
Circuit Court of St. Clair County, Alabama, NO:CV-94128. A hearing to consider
motions to dismiss the claims against the individual defendants is scheduled for
May 1995. A trial on the claims pending against the remaining defendants,
including Quixote, is scheduled for August, 1995. See the Company's Form 10-K
Report for the fiscal year ended June 30, 1994, Item 3, for additional
information.
3. ASHBY v. DISC MANUFACTURING, INC. In January, 1995, Disc Manufacturing,
Inc. and one former and two current employees were sued in an action brought
under the Civil Rights Act of 1964, as amended, by three female employees at
DMI's Huntsville plant. The complaint seeks injunctive relief and compensatory
and punitive damages for alleged sex discrimination, sexual harassment,
retaliation and tort claims. The complaint also alleges DMI's failure to pay
equal wages to females and seeks to certify a class on behalf of all similarly
situated women. A motion to dismiss the claims against the individual
defendants has been granted. Discovery is proceeding.
4. THOMSON S.A. v. TIME WARNER ET AL. The Denon and Time Warner defendants
have entered into consent judgments with the plaintiff in the action entitled
THOMSON S.A. v. TIME WARNER INC. ET AL., U.S. District Court for the District of
Delaware, No. 94-83. Discovery is proceeding. See the Company's Form 10-K
Report for the fiscal year ended June 30, 1994, 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 REPORT ON FORM 8-K
(a) Exhibits 10(a) Sixth Amendment to Loan Agreement between Quixote
Corporation, Energy Absorption Systems, Inc., Disc Manufacturing, Inc., Legal
Technologies, Inc., Stenograph Corporation, 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.
10(b) Agreement between Quantic Industries, Inc., Quantic Holdings,
L.L.C., James S. Fetherston, Charles G. Davis, Jr., individually and as
trustee, Robert M. Valenti, William David Fahey, Craig Bambrough, Myles H.
Kitchen, Kenneth E. Willis, Robert P. Coler and Energy Absorption Systems,
Inc.
10(c) Purchase Agreement between Charterhouse Equity Partners, L.P.,
Northern & Midland Nominees Limited, George Sbordone and Energy Absorption
Systems, Inc., filed herewith.
10(d) Surviving Stockholders Agreement between Quantic Industries, Inc.,
James S. Fetherston, Charles G. Davis, Jr., individually and as trustee,
Robert M. Valenti, William David Fahey, Craig Bambrough, Myles H. Kitchen,
Kenneth E. Willis, Robert P. Coler and Energy Absorption Systems, Inc., filed
herewith.
11. Statement regarding Computation of Earnings Per Share.
(b) On January 18, 1995, the Company filed a report on Form 8-K dated January
18, 1995, reporting under "Item 5-Other Events", a California Court of Appeals
decision requiring Quixote to pay a judgment of approximately $918,000, plus
interest, in a case identified as CONVERGENT BUSINESS SYSTEMS v. LINDA CHAVEZ,
ET AL., Superior Court of California for Alameda County, No. H14783-5.
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 March 31, 1995 to be signed on its behalf by the undersigned thereunto
duly authorized.
QUIXOTE CORPORATION
DATE: May 10,1995 /s/Myron R. Shain
------------------------ -----------------------------------------
MYRON R. SHAIN
EXECUTIVE VICE PRESIDENT - FINANCE
(Chief Financial & Accounting Officer)