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, 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: 8,039,501 shares of the
Company's Common Stock ($.01-2/3 par value) were outstanding as of March 31,
1999.
1
PART I
FINANCIAL INFORMATION
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
Nine Months Ended March 31,
----------------------------
1999 1998
---- ----
Net sales .................................. $ 49,212,000 $ 37,273,000
Cost of sales .............................. 27,400,000 21,135,000
------------ ------------
Gross profit ............................... 21,812,000 16,138,000
Operating expenses:
Selling & administrative ................. 14,327,000 10,959,000
Research & development ................... 1,186,000 1,119,000
------------ ------------
15,513,000 12,078,000
Operating profit ........................... 6,299,000 4,060,000
Other income (expense):
Interest income .......................... 76,000 484,000
Interest expense ......................... (723,000) (203,000)
Other .................................... 29,000 16,000
------------ ------------
(618,000) 297,000
------------ ------------
Earnings from continuing operations before
income taxes ............................. 5,681,000 4,357,000
Provision for income taxes ................. 1,988,000 1,307,000
------------ ------------
Earnings from continuing operations ........ 3,693,000 3,050,000
------------ ------------
Earnings (loss) from discontinued operations
(net of income taxes)..................... 240,000 (1,980,000)
------------ ------------
Net earnings ............................... $ 3,933,000 $ 1,070,000
------------ ------------
Per share data - basic:
Earnings from continuing operations ...... $ .46 $ .38
Earnings (loss) from discontinued
operations.............................. .03 (.25)
------------ ------------
Net earnings ............................. $ .49 $ .13
------------ ------------
See Notes to Consolidated Condensed Financial Statements.
2
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations-Continued
(Unaudited)
Nine Months Ended March 31,
----------------------------
1999 1998
---- ----
Per share data - diluted:
Earnings from continuing operations ........... $ .45 $ .38
Earnings (loss) from discontinued operations .. .03 (.25)
---------- ----------
Net earnings .................................. $ .48 $ .13
---------- ----------
Shares used to compute earnings per share:
Basic ........................................ 7,962,584 7,971,514
---------- ---------
Diluted ...................................... 8,216,341 8,065,789
---------- ---------
See Notes to Consolidated Condensed Financial Statements.
3
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended March 31,
-------------------------------
1999 1998
---- ----
Net sales .................................. $18,347,000 $12,821,000
Cost of sales .............................. 10,098,000 7,436,000
------------ -----------
Gross profit ............................... 8,249,000 5,385,000
Operating expenses:
Selling & administrative ................. 5,746,000 3,824,000
Research & development ................... 456,000 389,000
------------ -----------
6,202,000 4,213,000
Operating profit ........................... 2,047,000 1,172,000
Other income (expense):
Interest income .......................... 10,000 84,000
Interest expense ......................... (343,000) (100,000)
Other .................................... 29,000 15,000
------------ -----------
(304,000) (1,000)
------------ -----------
Earnings from continuing operations
before income taxes ..................... 1,743,000 1,171,000
Provision for income taxes ................ 610,000 351,000
------------ -----------
Earnings from continuing operations ....... 1,133,000 820,000
------------ -----------
Earnings from discontinued operations
(net of income taxes).................... 240,000
------------ -----------
Net earnings .............................. $ 1,373,000 $ 820,000
------------ -----------
Per share data - basic:
Earnings from continuing operations $ .14 $ .10
Earnings from discontinued operations .03
------------ -----------
Net earnings............................. $ .17 $ .10
------------ -----------
See Notes to Consolidated Condensed Financial Statements.
4
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations-Continued
(Unaudited)
Three Months Ended March 31,
-------------------------------
1999 1998
---- ----
Per share data - diluted:
Earnings from continuing operations .......... $ .14 $ .10
Earnings from discontinued operations ........ .03
----------- ------------
Net earnings ...... .......................... $ .17 $ .10
----------- ------------
Shares used to compute earnings per share:
Basic ........................................ 8,018,193 7,904,556
----------- -----------
Diluted ...................................... 8,238,973 7,998,831
----------- -----------
See Notes to Consolidated Condensed Financial Statements.
5
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
March 31, June 30,
----------------------------
ASSETS 1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash and cash equivalents ...................... $ 1,340,000 $ 3,927,000
Accounts receivable, net of allowances for
doubtful accounts of $475,000 at
March 31 and $565,000 at June 30 ............. 15,593,000 13,976,000
Refundable income taxes ........................ 1,132,000
Inventories:
Raw materials ................................ 4,726,000 3,046,000
Work in process .............................. 1,220,000 696,000
Finished goods ............................... 3,186,000 2,084,000
---------- ----------
9,132,000 5,826,000
---------- ----------
Deferred income tax assets ..................... 2,077,000 1,642,000
Assets of discontinued operations............... 1,181,000
Other current assets ........................... 481,000 350,000
---------- ----------
Total current assets ........................... 29,804,000 26,853,000
---------- ----------
Property, plant and equipment, at cost ........... 26,375,000 23,236,000
Less accumulated depreciation .................... (10,777,000) (9,754,000)
---------- ----------
15,598,000 13,482,000
---------- ----------
Intangible assets................................. 24,231,000 12,553,000
Other assets ..................................... 1,229,000 987,000
Assets of discontinued operations ................ 5,190,000
---------- ----------
$ 70,862,000 $ 59,065,000
========== ==========
See Notes to Consolidated Condensed Financial Statements.
6
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
March 31, June 30,
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
- ----------------------------------------------------------------------------------
(Unaudited)
Current liabilities:
Current portion of long-term debt ................ $ 550,000 $ 497,000
Accounts payable ................................. 1,872,000 1,681,000
Dividends payable ................................ 1,021,000
Accrued expenses ................................. 6,103,000 3,894,000
Income taxes payable.............................. 2,410,000
Liabilities of discontinued operations ........... 4,614,000
---------- ----------
Total current liabilities ........................ 10,935,000 11,707,000
---------- ----------
Deferred income tax liabilities .................... 795,000 795,000
Long-term debt, net of current portion.............. 14,908,000 7,677,000
Liabilities of discontinued operations.............. 1,247,000
Shareholders' equity:
Common stock ..................................... 151,000 148,000
Capital in excess of par value of stock .......... 32,665,000 31,396,000
Retained earnings ................................ 18,143,000 15,324,000
Treasury stock, at cost .......................... (7,982,000) (7,982,000)
---------- ----------
Total shareholders' equity ....................... 42,977,000 38,886,000
---------- ----------
$70,862,000 $59,065,000
=========== ===========
See Notes to Consolidated Condensed Financial Statements.
7
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended March 31,
-----------------------------
1999 1998
---- ----
Cash from operating activities:
Earnings from continuing operations............... $ 3,693,000 $ 3,050,000
Adjustments to reconcile earnings from continuing
operations to net cash provided by operating
activities:
Depreciation .................................... 1,320,000 1,140,000
Amortization..................................... 1,210,000 595,000
Provision for losses on accounts receivable...... (94,000) 4,000
Changes in operating assets and liabilities
(net of the effect of acquisitions):
Accounts receivable .......................... (865,000) (279,000)
Refundable income taxes ...................... 1,132,000 1,329,000
Inventories and other current assets.......... (2,635,000) (914,000)
Accounts payable and accrued expenses ......... 1,051,000 (1,409,000)
Income taxes payable ........................ 2,410,000 196,000
---------- ----------
Net cash provided by operating activities of
continuing operations........................... 7,222,000 3,712,000
Net cash provided by (used in) discontinued
operations ..................................... 1,542,000 (6,712,000)
---------- ----------
Net cash provided by (used in) operating
activities....................................... 8,764,000 (3,000,000)
---------- ----------
Investing activities:
Cash paid for acquired business (net of cash on
books)........................................ (13,701,000) (4,822,000)
Purchase of property, plant and equipment ...... (1,881,000) (1,114,000)
Investment in Transportation Management
Technologies, LLC............................. (500,000)
Other .......................................... (49,000) (457,000)
---------- ----------
Net cash used in investing activities............. (16,131,000) (6,393,000)
----------- ----------
Financing activities:
Borrowing on revolving line of credit............ 7,100,000
Payments on notes payable ...................... (797,000) (729,000)
Payment of semi-annual cash dividend ........... (2,135,000) (2,070,000)
Proceeds from exercise of common stock options . 612,000 245,000
Repurchase of common stock for the treasury .... (1,855,000)
---------- ----------
Net cash provided by (used in) financing
activities ..................................... 4,780,000 (4,409,000)
---------- ----------
Decrease in cash and cash equivalents............. (2,587,000) (13,802,000)
Cash and cash equivalents at beginning of period.. 3,927,000 18,463,000
--------- ----------
Cash and cash equivalents at end of period ....... $ 1,340,000 $ 4,661,000
--------- ----------
Note: During the nine months ended March 31, 1999, the Company had net cash
refunds of $1,554,000 for income taxes and paid $742,000 for interest. During
the same period in the prior year, the Company had net cash refunds of
$217,000 for income taxes and paid $203,000 for interest.
See Notes to Consolidated Condensed Financial Statements.
8
QUIXOTE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. The accompanying unaudited consolidated condensed 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. Management believes the financial statements include all normal
recurring adjustments necessary for a fair presentation. Operating results
for the three and nine months ended March 31, 1999 do not necessarily reflect
the results that may be expected for the full year. For further information,
refer to the consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended June 30, 1998.
2. The computation of basic and diluted earnings per share, as prescribed by
FASB 128, is as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
Net earnings per share of common stock:
Basic ...................... $ .17 $ .10 $ .49 $ .13
Diluted .................... $ .17 $ .10 $ .48 $ .13
Numerator:
- ----------
Net earnings available to
common shareholders-basic
and diluted: ................. $ 1,373,000 $ 820,000 $3,933,000 $1,070,000
========== ========== ========= =========
Denominator:
- ------------
Weighted average shares
outstanding-basic: ........... 8,018,193 7,904,556 7,962,584 7,971,514
Effect of dilutive securities
options ...................... 220,780 94,275 253,757 94,275
---------- ---------- --------- ---------
Weighted average shares
outstanding-diluted .......... 8,238,973 7,998,831 8,216,341 8,065,789
========== ========== ========= =========
9
QUIXOTE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited), continued
3. During the second quarter, the Company settled certain litigation
involving its formerly owned subsidiary, Disc Manufacturing, Inc. (DMI),
which it sold in April 1997. The litigation, initiated in 1995, includes a
lawsuit brought by Discovision Associates against DMI for infringement of
certain patents related to optical disc technology as well as a lawsuit
brought by DMI against Discovision Associates, Pioneer Electronic
Corporation, Pioneer Electronics (USA) Inc. and Pioneer Electronics Capital
Inc. for violations of the antitrust laws and acts of unfair competition. The
settlement involves a payment previously accrued in the financial statements
and, therefore, there will be no additional charge to the Company's earnings
related to this matter. In a separate patent infringement lawsuit brought
against DMI by Thomson S.A., the U.S. Court of Appeals, on January 25, 1999,
affirmed the District Court's decision to sustain the jury verdict in favor
of DMI.
4. On December 9, 1998, the Company and its wholly-owned subsidiary, TranSafe
Corporation, acquired Nu-Metrics, Inc., a Uniontown, Pennsylvania based
developer and manufacturer of traffic sensing and distance measuring devices.
This transaction was accounted for as a purchase and was effective as of
December 1, 1998. The purchase price was $13,701,000 which was paid in cash.
When acquired, Nu-Metrics had long-term debt of approximately $981,000.
Goodwill recorded in the transaction of approximately $12,500,000 will be
amortized over a 20 year life.
The following unaudited proforma summary presents the consolidated results of
operations as if the acquisition of Nu-Metrics had occurred at the beginning
of the period presented below:
Nine Months Ended March 31,
-------------------------------
1999 1998
---- ----
Net sales ...................................... $ 51,509,000 $ 41,550,000
------------ ----------
Net earnings.................................... $ 3,666,000 $ 1,126,000
------------ ----------
Net earnings per diluted share.................. $ .45 $ .14
------------ ----------
5. During the second quarter the Company and its wholly-owned subsidiary,
TranSafe Corporation, entered into a joint venture agreement to market
pavement inspection and management systems and other high technology products
and services in the United States. The joint venture is with G.I.E.
Technologies, Inc., based in Montreal, Canada, and eight independent
distributors of the Company's highway products. TranSafe is required to
invest up to $1,000,000 in $250,000 quarterly installments for an 18%
interest in Transportation Management Technologies, L.L.C., the company
formed to market the products and services. This investment is being
accounted for under the equity method of accounting.
6. On March 26, 1999, DMI assigned all of its rights to certain real property
and a building, located in Huntsville, Alabama to Cinram, Inc. upon Cinram's
exercise of its option to purchase for the pre-agreed purchase price of
$6,947,000, less approximately $238,000 for roof repairs agreed to by both
parties.
10
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 nine months of fiscal 1999 increased 32% to
$49,212,000 from $37,273,000 for the first nine months of fiscal 1998 due to
both internal sales growth as well as growth from three acquisitions the
Company completed during fiscal 1998 and 1999. Internal sales increased 18%
resulting from demand for Energy Absorption System, Inc.'s newer crash
cushion products. Energy Absorption's permanent line of crash cushion
products increased 36% due to strong sales of the QuadGuard -Registered
Trademark- family of crash cushions including the newer wide and low
maintenance versions of this product line. The Company also experienced sales
increases in its truck-mounted attenuator (TMA) product line, including the
Alpha 100k TMA -TM-. Parts sales and sales of Safe-Hit Corporation's highway
delineators also increased during the period. Roadway Safety Service, Inc.,
acquired in October 1997, increased sales $2,317,000 to $4,917,000 for the
nine month period. Highway Information Systems, Inc., acquired April 1, 1998,
contributed sales of $1,696,000 for the period. Nu-Metrics, Inc., acquired
December 1, 1998, contributed sales of $1,801,000 for the four month period
as part of the Company. Nu-Metrics is a leading manufacturer of electronic
measuring and sensing devices for highway safety and traffic monitoring.
Somewhat offsetting these sales increases, sales of the Energite-Registered
Trademark- barrel product line and Triton Barrier-Registered Trademark-
declined during the period. Spin-Cast Plastics, Inc.'s custom molded products
also declined during the period.
The gross profit margin in the first nine months of the current year
increased to 44.3% from 43.3% in the same period last year. Energy Absorption
and its subsidiaries had an increase in gross profit margin due principally
to efficiencies related to the increase in sales. Roadway Safety Service also
had an increase in its gross margin for the nine month period due to both
lower vendor costs as well as the increase in sales volume. Highway
Information Systems and Nu-Metrics, acquisitions not part of the Company in
last year's nine month period, contributed to the increase in gross margin as
their gross margins are higher than the Company's historical gross profit
margin.
Selling and administrative expenses in the first nine months of the current
year increased 31% to $14,327,000 from $10,959,000 in the first nine months
last year. This was due principally to the fiscal 1998 and 1999 acquisitions
of Roadway Safety Service, Highway Information Systems and Nu-Metrics which
added a combined $1,756,000 in selling and administrative expenses for the
nine month period. Corporate level administrative expenses increased $867,000
due principally to increased salaries and benefits, investor relations and
professional services expenses. Energy Absorption and its subsidiaries had a
$745,000 increase in selling and administrative expenses which was due to their
increased level of sales.
Research and development expenses in the first nine months of the current
year increased slightly to $1,186,000 compared to $1,119,000 in the same
period last year. During the current year, the Company continued with its
testing of a wider version of the Company's REACT 350-Registered Trademark-
crash cushion as well as a snowplowable reflective road marker and other
developmental crash cushion products.
Interest income in the first nine months of the current year was $76,000
compared to $484,000 in the same period last year. Interest income declined
as a result of a decline in the Company's cash as it has been deployed for
the acquisition of several business's during the past year. Interest expense
in the first nine months of the current year was $723,000 compared to
$203,000 in the same period last year. Current period interest expense
relates to seller financing in connection with the acquisition of Roadway
Safety Service and bank debt incurred in connection with the acquisitions of
Highway Information Systems and Nu-Metrics.
The Company's effective income tax rate for the first nine months of the
current year was 35% compared to an effective income tax rate of 30% in the
same period last year due to last year's realization of certain tax benefits
along with the settlement of certain tax contingencies. The Company believes
its effective income tax rate for the current year will be approximately 35%.
11
CURRENT YEAR QUARTER VERSUS PRIOR YEAR QUARTER
- ----------------------------------------------
The Company's sales for the third quarter of fiscal 1999 increased 43% to
$18,347,000 from $12,821,000 in the third quarter of fiscal 1998 due to both
internal sales growth as well as growth from acquisitions the Company
completed during fiscal 1998 and 1999. Internal sales increased 29% resulting
from demand for Energy Absorption's newer crash cushion products. Energy
Absorption's permanent line of crash cushion products increased principally
due to strong unit sales of the QuadGuard family of crash cushions including
the newer wide and low maintenance versions of this product line. The Company
also experienced sales increases in its TMA and Energite barrel product line.
Parts sales and sales of Safe-Hit's highway delineators also increased during
the quarter. Highway Information Systems contributed sales of $440,000 for
the quarter. Nu-Metrics contributed sales of $1,314,000 for the quarter.
Roadway Safety Service's sales for the current quarter increased 39% to
$1,753,000 from $1,261,000 in the same quarter last year. Somewhat offsetting
these sales increases, sales of the Triton Barrier-Registered Trademark-
declined during the quarter. Spin-Cast Plastics' custom molded products also
declined during the quarter.
The gross profit margin in the third quarter of fiscal 1999 increased to
45.0% from 42.0% in the third quarter last year. Energy Absorption Systems
and its subsidiaries had an increase in its gross profit margin due
principally to efficiencies related to the increase in sales. Roadway Safety
Service also had an increase in its gross margin for the quarter due to both
lower vendor costs as well as the increase in sales volume. Highway
Information Systems and Nu-Metrics, acquisitions not part of the Company
in last year's third quarter, contributed to the increase in gross margin as
their gross margins are higher than the Company's historical gross profit
margin.
Selling and administrative expenses in the third quarter of the current year
increased 50% to $5,746,000 from $3,824,000 in the third quarter last year.
This was due principally to the acquisitions of Highway Information Systems
and Nu-Metrics which added a combined increase of $786,000 in selling and
administrative expenses. Energy Absorption and its subsidiaries had a
$468,000 increase in selling and administrative expenses which was due
principally to the increased level of sales. Roadway Safety Service had
increased selling and administrative expenses of $66,000 also due to
increased sales. Corporate level administrative expenses increased $602,000
due principally to increased salaries and benefits, investor relations and
professional services expenses.
Research and development expenses in the third quarter of the current year
increased 17% to $456,000 from $389,000 in the same quarter last year. During
the current quarter, the Company continued with the development and testing of
advanced new crash cushion products as well as a snowplowable road marker and
other developmental projects.
Interest income in the third quarter of the current year was $10,000 compared
to $84,000 in the third quarter last year. Interest income declined as a
result of a decline in the Company's cash as it has been deployed through the
Company's acquisitions. Interest expense in the third quarter of the current
year was $343,000 compared to $100,000 in the third quarter last year
resulting from additional bank debt incurred in connection with the
acquisitions of Highway Information Systems and Nu-Metrics.
LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------------
The Company had cash and cash equivalents of $1,340,000 and access to
additional funds of $29,400,000 under its bank arrangements as of March 31,
1999. Continuing operating activities were a source of cash for the Company
for the first nine months of fiscal 1999 providing $7,222,000. Discontinued
operations were also a source of cash generating $1,542,000 as a result of
the sale of a building for $6,709,000 related to a business previously sold.
Cash was used by discontinued operations for payments for a legal settlement
related to the Company's dispute with the Recording Industry Association of
America and for legal expenses and lease commitments. This resulted in net
cash provided by all operating activities of $8,764,000.
Investing activities used cash of $16,131,000 during the current nine month
period of which $13,701,000 was used for the purchase of Nu-Metrics. In
addition, the Company used cash of $1,881,000 for the purchase of equipment
and used additional
12
cash of $500,000 for an equity investment in Transportation Management
Technologies, L.L.C. as discussed in the notes to the financial statements.
Financing activities provided cash of $4,780,000 during the current nine
month period. The Company received cash of $7,100,000 from borrowings under
its revolving credit facility to fund, in part, the purchase of Nu-Metrics.
The payment of the Company's semi-annual cash dividend used cash of
$2,135,000. The Company also used cash of $797,000 for the payment of notes
due in connection with the acquisition of Roadway Safety Service and for
payments on long-term debt at Nu-Metrics. Offsetting these cash payments
somewhat, the Company received cash of $612,000 for the exercise of common
stock options.
For fiscal 1999, the Company anticipates needing less than $2,500,000 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. In addition, 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.
YEAR 2000 ISSUE
- ---------------------
During the current year, the Company continued making an assessment of its
Year 2000 (Y2K) issues 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 senior
management, continued to assess the Company's state of readiness and to
implement 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 these programs
to more advanced versions that are Y2K compliant. The Company has begun
assessing the state of Y2K readiness for Nu-Metrics, Inc., its recent
acquisition, during the Company's third fiscal quarter.
In addition, the Company continued to evaluate 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 its
second fiscal quarter and has begun taking remedial action in the Company's
third fiscal quarter.
The Company has 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. The
Company expects to complete this assessment phase during fiscal 1999.
The Company anticipates completing substantially all of its Y2K projects
during fiscal 1999. In the event the Company falls short of these milestones,
additional internal resources will be focused on completing these projects or
developing contingency plans. The estimated cost to correct the Company's Y2K
deficiencies is approximately $300,000. 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 estimates it has spent approximately $250,000
to date. While the Company believes that its non-information technology and
vendor and customer issues are of a lower risk, until the Company's
assessment of these risks is complete there can be no assurance that these
issues will not have a material effect on the Company's operations. All
estimates of Y2K related costs are based on numerous assumptions and there is
no certainty that estimates will be achieved and actual costs could be
materially greater than anticipated.
In the event the Company is unable to take corrective measures related to its
Y2K issues, the Company's ultimate contingency plan is to outsource critical
computer applications where feasible, and in addition, create manual systems
until such
13
corrective measures are taken. Please refer to the Company's disclosure in
its Form 10-K for the period ended June 30, 1998 for additional information.
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; the successful
completion and integration of acquisitions; any adverse effects due to the
Y2K issue; and competitive and general economic conditions.
14
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
- --------------------------
1. Thomson S.A. v. Time Warner et al., Case No. 94-83, U.S. District Court for
the District of Delaware. On April 26, 1999, Thomson S.A. filed with the U.S.
Supreme Court a petition for a Writ of Certiorari. No decision to hear this
case has been made by the Supreme Court as of this time. See the Company's
Form 10-K for the period ended June 30, 1998, Item 3, for additional
information about this litigation.
2. Repetitive Stress Injury Litigation. The Company has agreed to settle for a
nominal amount ten of the remaining eleven repetitive stress injury cases and
has been advised that the remaining case will be dismissed. See the Company's
Form 10-K for the period ended June 30, 1998, 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) None
(b) Exhibits
10 (a) Second Amendment and Waiver to Amended and Restated Loan
Agreement dated as of March 15, 1999 among Quixote Corporation and
certain subsidiaries, the Northern Trust Company, LaSalle National
Bank and American National Bank and Trust Company, and Amended and
Restated Revolving Credit Notes, filed herewith.
10 (b) Partial Assignment of Lease and Equity in Project dated
March 26, 1999 by and between Disc Manufacturing Inc. (n/k/a Quixote
Laser Corporation), Cinram, Inc. and the Industrial Development Board
of the City of Huntsville, and Termination of Sublease dated March 26,
1999 by and between Disc Manufacturing, Inc. (n/k/a Quixote Laser
Corporation) and Cinram, Inc., filed herewith.
15
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 March 31, 1999 to be signed on its behalf by the undersigned thereunto
duly authorized.
QUIXOTE CORPORATION
DATED: May 12, 1999 /s/ Daniel P. Gorey
------------ -------------------
DANIEL P. GOREY
Chief Financial Officer
Vice President and Treasurer
(Chief Financial & Accounting
Officer)
16