-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WbVTKjVcWiNG4TpEh6Cd7mOodydzF3fYG/OqJi5dKVjo8NBFLtaHH64Icgk8ofZp DlVQrEH4J/WAB07VMvoP0Q== 0000912057-01-007117.txt : 20010307 0000912057-01-007117.hdr.sgml : 20010307 ACCESSION NUMBER: 0000912057-01-007117 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20010302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUIXOTE CORP CENTRAL INDEX KEY: 0000032870 STANDARD INDUSTRIAL CLASSIFICATION: SHEET METAL WORK [3444] IRS NUMBER: 362675371 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-08123 FILM NUMBER: 1559963 BUSINESS ADDRESS: STREET 1: ONE E WACKER DR STREET 2: STE 3000 CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3124676755 MAIL ADDRESS: STREET 1: ONE EAST WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60601 FORMER COMPANY: FORMER CONFORMED NAME: ENERGY ABSORPTION SYSTEMS INC DATE OF NAME CHANGE: 19800815 10-K/A 1 a2040282z10-ka.txt 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 TO FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) For the fiscal year ended June 30, 2000 ---------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ____________ to _____________ Commission file number 0-7903 ----------- Quixote Corporation ------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-2675371 ------------------------------ ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE EAST WACKER DRIVE, CHICAGO, ILLINOIS 60601 ----------------------------------------- ---------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (312) 467-6755 ------------------- Securities Registered Pursuant to Section 12(g) of the Act: Common Stock ($.01-2/3 Par Value) ----------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ( ). State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. $108,774,800 as of September 1, 2000 ------------------------------------ DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 15, 2000 which will be filed with the Commission on or about October 4, 2000 is incorporated by reference at Part III. 1 LIST OF ITEMS AMENDED
PAGE ---- PART I Item 1. Business....................................................... 3-6 PART II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 7-9 Item 8. Financial Statements and Supplementary Data.................... 10-24 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.................................................... 25 SIGNATURES................................................................ 26
EXPLANATORY NOTE: Items 1, 7 and 8 of the Company's Annual Report on Form 10-K for the year ended June 30, 2000 are hereby amended by deleting the Items in their entirety and replacing them with the Items attached hereto and filed herewith. Item 14 is hereby amended by replacing the specified portions indicated herein. The purpose of this amendment is to provide expanded disclosure regarding the Company's business segments in the Industry Segment Information note to the financial statements included in the Financial Statements and Supplementary Data that were included in Item 8 of the subject Form 10-K as originally filed (the "Original Filing") and to make corresponding changes to the Description of Business and Management's Discussion and Analysis of Financial Condition and Results of Operations that were included in Item 1 and 7, respectively, of the Original Filing. The Company recently received a comment letter from the staff of the Securities and Exchange Commission (SEC) on the Company's Original Filing. Based on the staff's comments, the Company revised the Industry Segment Information note to its financial statements and is filing this Form 10-K/A Amendment No. 1 in order to provide this expanded disclosure in the Industry Segment Information note and to make corresponding changes to the Description of Business and Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company's Form 10-K continues to speak as of the date of the Original Filing and the disclosure in that report has not been updated to speak to any later date. Any items in the Original Filing not expressly changed hereby shall be as set forth in the Original Filing. All information contained in this amendment and the Original Filing is subject to updating and supplementing as provided in the Company's periodic reports filed with the SEC subsequent to the date of such reports. 2 PART I THE COMPANY Quixote Corporation was incorporated under the laws of the State of Delaware in 1969 originally as Energy Absorption Systems, Inc. In June, 1980, Energy Absorption Systems, Inc. changed its name to Quixote Corporation. Unless otherwise indicated herein, the terms "Quixote" and the "Company" refer to Quixote Corporation and its subsidiaries. Item 1. Business - ----------------- Quixote Corporation and its subsidiaries develop, manufacture and market energy-absorbing highway crash cushions and other highway safety products for the protection of motorists and highway workers to both domestic and international markets. As of June 30, 2000, Quixote Corporation and its subsidiaries employed approximately 582 people. Description of Business - ----------------------- The Company's business operates within two reportable segments within the highway and transportation safety industry, concentrating on safety problems and designing products to provide solutions for the highways. The Company's two reportable segments are - the manufacture and sale of highway and transportation safety products which "Protect and Direct", and the manufacture and sale of products which "Inform" that are often referred to as Intelligent Transportation Systems (ITS) products. The Company's Protect and Direct segment provides solutions for improving safety on the roads either by minimizing the severity of crashes that occur or by preventing crashes from occurring by directing or guiding. The Company's Inform segment provides solutions for improving safety on the roads through providing information. The Company's products are sold primarily by a single sales force to similar customers in the highway construction and safety business. Protect and Direct Segment - -------------------------- In the category of products which reduce the severity of crashes within the Protect and Direct segment, the Company's patented highway crash cushions were first conceived and developed in 1969 in response to the high number of fatalities and serious injuries suffered by occupants of errant vehicles in collisions with roadside hazards, such as bridge abutments, overpass piers, overhead sign supports, lane dividers, traffic islands and toll booths. Since that time, various types of highway crash cushions have been installed in front of thousands of life-threatening roadside hazards. The Federal Highway Administration (FHWA) endorses the installation of highway crash cushions as an effective safety program. The Company develops, manufactures and markets lines of patented highway crash cushion systems and other barriers which absorb and dissipate the force of impact in collisions between vehicles and fixed roadside objects or slow moving vehicles. The product lines utilize the principles of momentum transfer and kinetic energy to safely decelerate errant vehicles. Energy absorption or energy dissipation is accomplished by using different combinations of water, aluminum, steel, urethane foam systems, cardboard, plastic structures, elastometric cylinders and sand. The Company also manufactures and sells products that prevent crashes and help control the flow of traffic by directing or guiding. The Company manufactures and markets a line of flexible sign and guide post systems (delineators) and a glare screen system. The guide posts are extruded from polyethylene and are used to delineate a travel way, channel vehicles or mark the location of an object. The post features a patented, in-ground anchor system that permits inexpensive repair and replacement techniques. The glare screen system, also made from polyethylene, is installed on top of median barriers to eliminate the distraction of lights from oncoming vehicles on roads where the inside lanes are adjacent to the median barrier. Inform Segment - -------------- To expand the Company's business within the highway and transportation safety industry, the Company acquired two companies in fiscal 1999 and 1998, which comprise the Inform segment, that manufacture intelligent transportation systems products which provide information to improve safety on the roads. Highway Information Systems, Inc. (HIS), acquired in April 1998, manufactures and markets highway advisory radio systems that help control the flow of traffic by informing motorists of accidents and traffic delays. The Company acquired Nu-Metrics, Inc. a leading innovator and manufacturer of electronic wireless measuring and sensing devices in December 1998. Since it was founded in 1970, Nu-Metrics has developed innovative products that employ technology to gather and use information to relieve traffic congestion. It was the first company to market a self-contained, wireless, magnetic traffic counter/classifier. The Company's expanded highway and transportation safety products within the Inform segment include the Groundhog-Registered Trademark- line of 3 permanent traffic monitors, which gathers information on the volume, speed and class of vehicles as well as road surface conditions and transmits this data using the spread spectrum wireless method (RF) to a receiver unit. The data is then relayed on a real-time basis to a base computer or control center for monitoring. The Hi-Star-Registered Trademark- is a portable traffic counter/classifier. The Nitestar-Registered Trademark- is an in-vehicle device that can accurately measure the distance between any two fixed points on the highway. The Company also manufactures and markets remote traffic and weather information networks (RTWIN). Using a tower equipped with weather instruments and special detectors mounted in the road, RTWIN products can detect freezing conditions and provide valuable data to dispatch salt trucks or automatically activate anti-icing systems. The Company is also a leading manufacturer of highway advisory radio (HAR) systems which broadcast traffic information using an AM radio frequency. The Company's two principal HAR products are: a stationary system, the Hiway Max-TM-, and a mobile system, the Solar Max-TM-. The Hiway Max is intended to be used near long-term construction sites, public arenas, or other frequently congested traffic areas. The Solar Max is easily transported and is intended for short-term or emergency uses and allows the transmission of information without an external power source. Both systems use AM radio frequencies to communicate messages to motorists about traffic, road conditions and weather. The messages may be pre-recorded or updated on a real-time basis through a phone line or Local Area Network with reception up to six miles from the unit. Products within both segments can be further broken down into permanent and construction zone applications and, as such, are sold to those markets. Most of the products for permanent and construction zone applications are approved as acceptable highway hardware according to procedures in the National Cooperative Highway Research Program number 230 or 350 which provide various test levels depending on the application. This approval is gained after a formal submission to the FHWA which makes the products eligible for federal funds for highway projects. The Company provides product education, selection and application assistance. The Company, in some cases, performs site preparation and installation for its products. These services are generally performed by the Company's distributor/contractor network. Financial information relating to industry segments appears in Note 15 of the Notes to Consolidated Financial Statements included herein. Competition and Marketing - ------------------------- The Company's products are sold in all 50 U.S. states. Regional managers supervise 42 domestic distributors and make direct sales in areas not covered by distributors. Although the federal government provides matching funds for the purchase of highway safety products made by state and local governmental agencies, it is not a direct purchaser of the Company's domestic products. The Company sells its products principally to either distributors or to contractors (on behalf of state and local governments). For certain products, the Company sells using catalogs and inside sales personnel. Many international governments are now beginning to recognize the need for crash cushions and the Company's other highway safety products as a method of reducing traffic fatalities. The Company's products are sold internationally through a network of 46 distributors who make sales to municipal and national governments and contractors who are responding to bids from their respective governments. The Company experiences competition in specific crash cushion product lines within the Protect and Direct segment, particularly in the sand barrel, QuadGuard-Registered Trademark-, REACT 350-Registered Trademark- and TMA lines. The Company competes in the U.S. market for crash cushions with Syro, Inc., a subsidiary of Trinity Industries, Inc., (NYSE TRN), with TrafFix Devices, Inc. and with other smaller regional companies. No other company presently markets as broad a line of highway crash cushion systems designed to shield as large a variety of fixed roadside hazards as the Company. A number of other companies manufacture flexible sign and guide post systems. Within the Inform segment, there are several companies that manufacture and sell highway advisory radio systems. The Company's traffic counters and sensors compete with many different technologies including inductive loop detectors, microwave and infra red sensors and machine vision (video) that each offer certain advantages. Within each segment, the Company believes it competes effectively through advanced product development and patent protection, strong distribution, product quality and price. Government Policies - ------------------- The domestic market for highway and transportation safety products is directly affected by federal, state and local governmental policies. A large portion of the Company's sales is ultimately financed by funds provided to the states by the federal government. Historically, these funds have covered 75% to 90% of the cost of highway safety projects on roads constructed or maintained with federal assistance. Legislation called the Transportation Equity Act for the 21st Century (TEA 21) was passed in May of 1998 and provides federal funding of approximately $218 billion over a six-year period, an increase of more than 40% over previous spending levels. This legislation also includes a guaranteed amount of funding for highway safety programs. The states must set aside 10% of the federal funds received each year under TEA 21 for safety construction activities such as hazard elimination. In 4 order for highway devices to be eligible for federal funding, such devices must be approved by the FHWA. The Company is obligated to seek such approval for improvements or upgrades to such devices and for any new devices. Internationally, funding and government policies vary by country in regard to highway and transportation safety. In most cases, additional testing of the Company's products may be required in order to obtain certification. Backlog - ------- As of June 30, 2000, 1999 and 1998, the Company had a backlog of unfilled orders for highway safety devices of $10,568,000, $11,069,000 and $12,204,000, respectively. The Company can usually fill an order anywhere from two days to 8 weeks of receipt depending on the type of product. Research and Development; Patents - --------------------------------- Many of the Company's products have patented features and the Company conducts its own research, development and testing of new products before introducing them to the marketplace. The expenditures for research and development activities were $1,614,000, $1,544,000 and $1,570,000, for the years 2000, 1999 and 1998, respectively. The Company develops new products by working with federal and state highway officials to determine highway traffic safety needs, and then designs products to satisfy those needs. The Company is also active in promoting cooperation among state highway agencies, contractors and engineers to encourage comprehensive repair and maintenance of roadside crash attenuating systems. In addition to developing new products within the impact technology area, the Company is seeking to develop or to acquire new products which can be sold through its existing distribution networks to its existing customers. The Company owns a number of U.S. and foreign patents covering its major highway safety products. It actively seeks patent and trademark protection for new developments. Raw Materials - ------------- The principal raw materials used in the production of highway safety devices are plastic and plastic resins, steel, aluminum and electronic components. These raw materials are purchased from various suppliers and have been readily available throughout the last year. The Company believes that adequate supplies of these materials will continue to be available. Major Customers - --------------- No single customer of the Company represents a significant portion of total revenues. Seasonality - ----------- The Company's sales are seasonal. The domestic highway maintenance and construction season tends to reach its peak in the second and third calendar quarters. As a result, the Company's sales and earnings in these quarters are the strongest with weaker quarters occurring in the first and fourth calendar quarters. Foreign and Domestic Operations and Revenues - -------------------------------------------- The Company's operations consist of one industry segment engaged in the manufacture and sale of highway safety products. The Company's business is conducted principally in the United States, with sales outside of the United States as follows: $9,820,000 in 2000, $6,316,000 in 1999 and $4,510,000 in 1998. Other - ----- Investment in Transportation Management Technologies, L.L.C. (TMT) Joint Venture - -------------------------------------------------------------------------------- During fiscal 1999, the Company 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 TMT joint venture is composed of the Company, G.I.E. Technologies Ltd., based in Montreal, Canada, and eight independent distributors of the Company's highway products. The Company has invested $1,111,000 in TMT, of which $750,000 was paid in 1999 and $361,000 in 2000, for a 19% interest in the joint venture. This investment is being accounted for under the equity method of accounting which resulted in charges of $316,000 and $54,000 for the years ended June 30, 2000 and 1999, respectively. 5 Discontinued Operations - ----------------------- In March 1997, the Company sold substantially all of the assets and transferred significant operating liabilities of Disc Manufacturing, Inc. (DMI) to Cinram, Ltd. for $80,283,000 in cash. The transaction excluded DMI's Huntsville, Alabama land and building as well as certain DMI litigation. DMI was one of the largest independent manufacturers of compact discs and CD-Roms in the United States. During 1998, the Company recorded additional losses from discontinued operations of $6,138,000, or $0.76 per diluted share, which was net of income tax benefits of $3,162,000. The losses were recorded to provide for current and anticipated costs associated principally with the Company's legal contingencies related to DMI. In March 1999, the Company assigned all of its rights to certain real property and a building located in Huntsville, Alabama to Cinram, Ltd. upon Cinram, Ltd.'s exercise of its option to purchase for the pre-agreed purchase price of $6,947,000, less certain adjustments of approximately $238,000. Also in March 1999, the Company recorded a gain of $240,000, or $.03 per diluted share, due to the reversal of certain accruals resulting from the favorable outcome of some legal proceedings. 6 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - --------------------------------------------------------- 2000 Compared to 1999 - --------------------- The Company's sales increased 16% to $83,770,000 in 2000 from $71,987,000 in 1999 due to solid internal sales growth as well as growth from one acquisition the Company completed during 1999. Internal sales increased 13% primarily due to domestic and international demand for the Company's lines of permanent crash cushions and truck-mounted attenuator (TMA) products. Sales of the Protect and Direct segment product lines increased 12% for the year to $73,757,000 particularly due to strong unit sales of the newly introduced Safe-Stop-TM- TMA, the REACT 350-Registered Trademark- crash cushion and the QuadGuard-Registered Trademark- family of crash cushion products. Sales of the Energite-Registered Trademark- barrel product line, parts, highway delineators and the Triton Barrier-Registered Trademark- also increased during 2000. These increases in sales were offset somewhat by declining sales of the Universal Module-Registered Trademark- barrels and custom-molded products during the year. International sales increased 56% to $9,820,000 in 2000 from $6,316,000 in 1999 and now comprise 12% of total sales. Sales of the Inform segment product lines were $10,013,000 for 2000. Nu-Metrics, Inc., acquired in December 1998, contributed $7,477,000 in sales of its advanced sensing products for 2000 as compared to $3,677,000 in sales for the seven months as part of the Company in 1999. Nu-Metrics, Inc. is a leading manufacturer of electronic measuring and sensing devices for highway safety and traffic monitoring. Sales of highway advisory radio systems manufactured by Highway Information Systems, Inc. (HIS) were $2,536,000 in 2000, an increase of 3% from $2,473,000 in 1999. The gross profit margin for 2000 increased to 49.1% from 46.7% in 1999. This was due primarily to increased sales of higher margin advanced sensing products and the QuadGuard-Registered Trademark- family of crash cushion products. Volume efficiencies associated with the increased level of sales and sales price increases also contributed to the increase in the gross profit margin for 2000. Somewhat offsetting the overall increase in gross margin was a change in sales mix in the Protect and Direct segment due to increased sales of the lower margin Safe-Stop-TM- TMA and the REACT 350-Registered Trademark- crash cushion. Selling and administrative expenses for 2000 increased 23% to $24,208,000 from $19,606,000 in 1999. This was due principally to the higher level of sales and the December 1998 acquisition of Nu-Metrics, Inc., which added $1,152,000 in selling and administrative expenses compared to 1999. Selling and administrative expenses for 2000 also increased due to increased sales and marketing expenses related to our international sales efforts, increased acquisition and development efforts as well as increased health insurance and employee benefit expenses. Also contributing to the increase was the increase in the equity loss on the investment in the joint venture, Transportation Management Technologies, L.L.C. (TMT) to $316,000 in 2000 compared to $54,000 in 1999. Research and development expenses for 2000 increased 5% to $1,614,000 from $1,544,000 in 1999. During 2000, the Company made expenditures for the development of products relating to the Safe-Stop-TM- TMA, for European qualifying tests of certain QuadGuard(R) crash cushion products as well as for the development of three new products. These new products are the FreezeFree-TM-system, a manual or computer-controlled anti-icing system; the Impact Monitoring System (IMS), which combines advanced sensing devices and wireless technology with our crash cushion products; and a new broadband wireless in-ground sensor for non-U.S. applications. The Company continued with its development and testing of a reflective pavement marker for warm weather climates and a snowplowable pavement marker as well as other developmental projects. Operating profit increased 22% to $15,289,000 for 2000 from $12,483,000 in 1999. Interest income in 2000 was $31,000 as compared to $91,000 in 1999. Interest income declined as a result of a decline in the Company's invested cash balance. Interest expense decreased to $932,000 in 2000 from $1,029,000 in 1999. The decrease in interest expense is related to the higher level of average long-term debt outstanding during 1999 in connection with the acquisition of Nu-Metrics, Inc. in December 1998. The Company's effective income tax rate for 2000 was 38% compared to an effective income tax rate of 36% in 1999 due to the greater realization of certain tax benefits during 1999. The Company believes its effective income tax rate for fiscal year 2001 will be approximately 38%. Earnings from continuing operations increased 18% to $8,919,000, or $1.10 per diluted share, from $7,562,000, or $.92 per diluted share, in 1999. Net earnings for 2000 increased 14% to $8,919,000, or $1.10 per diluted share, compared with net earnings of $7,802,000, or $.95 per diluted share, in 1999. Net earnings in 1999 included a gain from discontinued operations of $240,000, or $.03 per diluted share, due to the reversal of certain accruals resulting from the favorable outcome of some legal proceedings. 7 In 1998, the Financial Accounting Standards Board (FASB) issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 1999, FASB issued FAS No. 137, which deferred the effective date of FAS No. 133. Accordingly, FAS No. 133 is effective for all fiscal quarters beginning after June 15, 2000 (July 1, 2000 for the Company). FAS No. 133 requires that all changes in derivatives be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company anticipates that due to its limited use of derivative instruments, the adoption of FAS No. 133 will not have a significant effect on the Company's results of operations or its financial position. 1999 Compared to 1998 - --------------------- The Company's sales for 1999 increased 29% to $71,987,000 from $55,988,000 in 1998, due to both internal sales growth as well as growth from three acquisitions the Company completed during 1998 and 1999. Internal sales increased 16% resulting from demand for the Company's newer crash cushion products. Sales of the Protect and Direct product lines increased 19% to $65,837,000 for 1999. Sales of the Company's permanent line of crash cushion products increased 33% due to strong unit 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 TMA product line, including the Alpha 100k TMA. Parts sales and sales of highway delineators also increased during 1999. These sales increases were offset somewhat by declining sales of the Energite-Registered Trademark- barrel, the Triton Barrier-Registered Trademark- and custom-molded product sales during 1999. Sales of crash cushion products within the Protect and Direct segment manufactured by Roadway Safety Service, Inc., acquired in October 1997, increased $2,606,000 to $7,160,000 for 1999. Sales of the Inform product lines were $6,150,000 for 1999. Sales of highway advisory radio systems manufactured by HIS, acquired in April 1998, increased $1,832,000 to $2,473,000 for 1999. Nu-Metrics, Inc., acquired in December 1998, contributed $3,677,000 in sales of its advanced sensing products for the seven month period as part of the Company in 1999. The gross profit margin increased to 46.7% in 1999 from 45.6% in 1998. This was due principally to the acquisition of Nu-Metrics as the gross margin on its advanced sensing products is higher than the Company's average gross margin. Volume efficiencies associated with the increased level of sales, sales price increases and lower vendor costs also contributed to the increase in the gross profit margin for 1999. Also contributing slightly to the gross margin increase was a favorable change in sales mix in the Protect and Direct segment due to increased sales of the higher margin QuadGuard-Registered Trademark- family of crash cushions. Selling and administrative expenses in 1999 increased 27% to $19,606,000 from $15,420,000 in 1998. This was due principally to the acquisitions of HIS and Nu-Metrics which added a combined net increase of $2,144,000 in selling and administrative expenses. The remainder of the increase was due primarily to the higher level of sales in 1999 and the result of increased salaries, consulting and investor relations expenses. Research and development expenses in 1999 decreased slightly to $1,544,000 compared to $1,570,000 in 1998. During 1999, the Protect and Direct segment incurred costs in the development of the QuadGuard-Registered Trademark- Elite, a restorable crash cushion, and the Safe-Stop-TM- TMA. The Company also incurred development costs in connection with its testing of a wider version of the Company's REACT 350-Registered Trademark- crash cushion as well as the testing of several reflective pavement markers and other developmental projects. Operating profit increased 46% to $12,483,000 for 1999 from $8,553,000 in 1998. Interest income in 1999 decreased to $91,000 compared to $540,000 in 1998. Interest income declined as a result of a decline in the Company's invested cash in 1999. Interest expense in 1999 was $1,029,000 compared to $357,000 in 1998. Interest expense for 1999 relates both to seller financed debt in connection with the acquisition of Roadway Safety Service, Inc. as well as bank debt incurred in connection with the acquisitions of HIS and Nu-Metrics, Inc. The Company's effective income tax rate for 1999 was 36% compared to an effective income tax rate of 30% in 1998 due to the greater realization of certain tax attributes along with the settlement of certain tax contingencies during 1999. Earnings from continuing operations increased 23% to $7,562,000, or $.92 per diluted share, from $6,147,000, or $.76 per diluted shares, in 1998. Net earnings for 1999 increased to $7,802,000, or $.95 per diluted share, compared with net earnings of $9,000, or $.00 per diluted share, in 1998. Net earnings in 1999 included a gain from discontinued operations of $240,000, or $.03 per diluted share, due to the reversal of certain accruals resulting from the favorable outcome of some legal proceedings. In March 1999, DMI, a discontinued operation, assigned all of its rights to certain real property and a building located in Huntsville, Alabama to Cinram, Ltd. upon Cinram, Ltd.'s exercise of its option to purchase for the pre-agreed purchase price of $6,947,000, less certain adjustments of approximately $238,000. In December 1998, the Company 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 8 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 $12,733,000 is being amortized over a twenty year life. In October 1998, the Company 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 TMT joint venture is composed of the Company, G.I.E. Technologies, Inc., based in Montreal, Canada, and eight independent distributors of the Company's highway products. The Company has invested $1,111,000 in TMT, of which $750,000 was paid in 1999 and $361,000 in 2000, for a 19% interest in the joint venture. This investment is being accounted for under the equity method of accounting. Liquidity and Capital Resources - ------------------------------- The Company had cash and cash equivalents of $1,524,000 and access to additional funds of $27,700,000 under its bank arrangements as of June 30, 2000. Continuing operating activities were a source of cash for the Company for 2000 providing $8,552,000. Discontinued operations, however, used cash of $149,000 primarily for lease commitments. This resulted in net cash provided from operating activities of $8,403,000. Investing activities used cash of $1,845,000 during 2000 including $1,368,000 for the purchase of equipment and $361,000 for the Company's investment in TMT. Financing activities used cash of $7,187,000 during 2000. The payment of the Company's semi-annual cash dividend used cash of $2,249,000. In addition, the Company used cash of $697,000 for the payment of notes payable due in connection with the acquisitions of Roadway Safety Service, Inc. and Nu-Metrics, Inc. and paid $10,450,000 to purchase 778,000 shares of its own common stock for the treasury. The Company borrowed $11,600,000 on its revolving credit facility offset by payments of $7,300,000 and had an increase in bank overdrafts of $1,006,000. In addition, the Company received cash of $903,000 for the exercise of common stock options. For fiscal 2001, 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 additional funds to repurchase its own common 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. Forward Looking Statements - -------------------------- Various statements made within the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report 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 outlook for products and markets of the TMT joint venture and its funding requirements; the successful completion and integration of acquisitions; continued funding from federal highway legislation; and competitive and general economic conditions. 9 Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF QUIXOTE CORPORATION: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of Quixote Corporation and its subsidiaries at June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in the Industry Segment Information note, the accompanying consolidated financial statements have been revised to include expanded disclosure regarding the Company's business segments. /s/ PricewaterhouseCoopers LLP Chicago, Illinois August 7, 2000, except as to the Industry Segment Information note, which is as of February 23, 2001 10 QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the three years ended June 30, Dollar amounts in thousands, except share data 2000 1999 1998 ----------- ----------- ----------- Net sales................................................. $ 83,770 $ 71,987 $ 55,988 Cost of sales............................................. 42,659 38,354 30,445 ----------- ----------- ----------- Gross profit.............................................. 41,111 33,633 25,543 Operating expenses: Selling and administrative.............................. 24,208 19,606 15,420 Research and development................................ 1,614 1,544 1,570 ----------- ----------- ----------- 25,822 21,150 16,990 ----------- ----------- ----------- Operating profit.......................................... 15,289 12,483 8,553 Other income (expense): Interest income......................................... 31 91 540 Interest expense........................................ (932) (1,029) (357) Other................................................... (3) 273 16 ----------- ----------- ----------- (904) (665) 199 ----------- ----------- ----------- Earnings from continuing operations before provision for income taxes....................... 14,385 11,818 8,752 Provision for income taxes................................ 5,466 4,256 2, 605 ----------- ----------- ----------- Earnings from continuing operations....................... 8,919 7,562 6,147 Discontinued operations: Gain (loss) on disposal, net of income taxes........... 240 (6,138) ----------- ----------- ----------- Net earnings.............................................. $ 8,919 $ 7,802 $ 9 ----------- ----------- ----------- Basic earnings per share: Earnings from continuing operations.................... $ 1.13 $ .95 $ .77 ----------- ----------- ----------- Net earnings........................................... $ 1.13 $ .98 $ .00 ----------- ----------- ----------- Weighted average common and common equivalent shares outstanding......................................... 7,868,554 7,986,094 7,943,653 ----------- ----------- ----------- Diluted earnings per share: Earnings from continuing operations.................... $ 1.10 $ .92 $ .76 ----------- ----------- ----------- Net earnings........................................... $ 1.10 $ .95 $ .00 ----------- ----------- ----------- Weighted average common and common equivalent shares outstanding......................................... 8,124,623 8,227,775 8,088,354 ----------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 11 QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of June 30, Dollar amounts in thousands, except share data 2000 1999 ---------- ---------- ASSETS Current assets: Cash and cash equivalents....................................................... $ 1,524 $ 2,153 Accounts receivable, net of allowance for doubtful accounts of $955 in 2000 and $480 in 1999..................................... 20,210 17,078 Inventories, net................................................................ 10,072 8,537 Deferred income tax assets...................................................... 2,254 2,491 Other current assets............................................................ 259 538 ---------- ---------- Total current assets.......................................................... 34,319 30,797 Property, plant and equipment at cost: Land............................................................................ 1,369 1,369 Buildings and improvements...................................................... 10,972 10,710 Machinery and equipment......................................................... 11,301 10,748 Furniture and fixtures.......................................................... 3,653 3,414 Leasehold improvements.......................................................... 635 553 ---------- ---------- 27,930 26,794 Less: accumulated depreciation............................................... (12,929) (11,195) ---------- ---------- 15,001 15,599 Intangible assets, net............................................................ 22,626 24,038 Other assets...................................................................... 1,318 1,340 ---------- ---------- $ 73,264 $ 71,774 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt............................................... $ 630 $ 722 Accounts payable................................................................ 2,613 3,300 Dividends payable............................................................... 1,117 1,128 Income taxes payable............................................................ 727 691 Accrued expenses: Payroll and commissions....................................................... 3,267 1,923 Other......................................................................... 2,640 2,770 Liabilities of discontinued operations.......................................... 1,198 1,684 ---------- ---------- Total current liabilities..................................................... 12,192 12,218 Long-term debt, net of current portion............................................ 15,596 11,901 Deferred income tax liabilities................................................... 1,799 1,449 Liabilities of discontinued operations ........................................... 561 224 Commitments and contingent liabilities............................................ 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 9,199,194 shares - 2000 and issued 9,104,166 shares - 1999............. 153 151 Capital in excess of par value of stock......................................... 33,830 32,929 Retained earnings............................................................... 27,565 20,884 Treasury stock, at cost, 1,810,420 shares - 2000 and 1,032,420 shares - 1999 ... (18,432) (7,982) ---------- ---------- Total shareholders' equity.................................................... 43,116 45,982 ---------- ---------- $ 73,264 $ 71,774 ---------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 12 QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the three years ended June 30, 2000 Capital in Common Stock Excess of Treasury Stock ------------ Par Value Retained -------------- Dollar amounts in thousands, except share data Shares Dollars of Stock Earnings Shares Dollars ------ ------- -------- -------- ------ ------- BALANCES, JUNE 30, 1997.................................... 8,753,333 $ 146 $ 30,269 $ 17,368 807,435 $ (6,128) Exercise of options and grant of awards.................... 137,783 2 904 Net earnings - 1998........................................ 9 Declaration of semi-annual cash dividends ($.13 per share). (2,053) Issuance of shares pursuant to the stock retirement plan... 17,824 223 Purchase of shares at $7.75 to $9.25 per share............. 224,985 (1,854) --------- ------ --------- --------- --------- -------- BALANCES, JUNE 30, 1998.................................... 8,908,940 148 31,396 15,324 1,032,420 (7,982) Exercise of options and grant of awards.................... 184,432 3 1,400 Net earnings - 1999........................................ 7,802 Declaration of semi-annual cash dividends ($.14 per share). (2,242) Issuance of shares pursuant to the stock retirement plan... 10,794 133 --------- ------ --------- --------- --------- -------- BALANCES, JUNE 30, 1999.................................... 9,104,166 151 32,929 20,884 1,032,420 (7,982) Exercise of options........................................ 84,234 2 744 Net earnings - 2000........................................ 8,919 Declaration of semi-annual cash dividends ($.14 and $.15 per share)............................................... (2,238) Issuance of shares pursuant to the stock retirement plan... 10,794 157 Purchase of shares at $12.00 to $15.50 per share........... 778,000 (10,450) --------- ------ --------- --------- --------- -------- BALANCES, JUNE 30, 2000.................................... 9,199,194 $ 153 $ 33,830 $ 27,565 1,810,420 $(18,432) --------- ------ --------- --------- --------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 13 QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three years ended June 30, Dollar amounts in thousands 2000 1999 1998 ---------- ---------- ---------- OPERATING ACTIVITIES: Earnings from continuing operations........................................... $ 8,919 $ 7,562 $ 6,147 Discontinued operations Earnings (loss) on disposal, net of income taxes.............................. 240 (6,138) ---------- ---------- ---------- Net earnings.................................................................. 8,919 7,802 9 ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS: Discontinued operations....................................................... (240) 6,138 Depreciation.................................................................. 1,966 1,773 1,302 Amortization.................................................................. 1,868 1,652 1,034 Deferred income taxes......................................................... 521 89 429 Provisions for losses on accounts receivable.................................. 530 (70) Loss on investment in TMT joint venture....................................... 316 54 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable......................................................... (3,662) (2,375) (4,737) Inventories................................................................. (1,565) (1,909) (1,216) Refundable income taxes..................................................... 1,132 197 Other current assets........................................................ 279 (188) (84) Accounts payable and accrued expenses....................................... (656) 1,202 (718) Income taxes payable........................................................ 36 691 ---------- ---------- ---------- Net cash provided by operating activities of continuing operations.............. 8,552 9,613 2,354 Net cash provided by (used in) discontinued operations.......................... (149) 3,384 (6,849) ---------- ---------- ---------- Net cash provided by (used in) operating activities............................. 8,403 12,997 (4,495) ---------- ---------- ---------- INVESTING ACTIVITIES: Purchase of property, plant and equipment..................................... (1,368) (2,335) (1,436) Cash paid for acquired businesses............................................. (13,701) (7,622) Investment in TMT joint venture............................................... (361) (764) Other......................................................................... (116) (47) (502) ---------- ---------- ---------- Net cash used in investing activities........................................... (1,845) (16,847) (9,560) ---------- ---------- ---------- FINANCING ACTIVITIES: Payments on notes payable..................................................... (697) (1,032) (962) Payments on revolving credit agreement........................................ (7,300) (20,000) (2,300) Proceeds from revolving credit agreement...................................... 11,600 24,500 5,800 Increase in bank overdrafts................................................... 1,006 Payment of semi-annual cash dividend.......................................... (2,249) (2,135) (2,071) Proceeds from exercise of common stock options................................ 903 743 906 Repurchase of common stock for treasury....................................... (10,450) (1,854) ---------- ---------- ---------- Net cash provided by (used in) financing activities............................. (7,187) 2,076 (481) ---------- ---------- ---------- Net change in cash and cash equivalents......................................... (629) (1,774) (14,536) Cash and cash equivalents at beginning of year ................................ 2,153 3,927 18,463 ---------- ---------- ---------- Cash and cash equivalents at end of year ...................................... $ 1,524 $ 2,153 $ 3,927 ---------- ---------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 14 QUIXOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Quixote Corporation and its subsidiaries (the Company) develop, manufacture and market, to both domestic and international markets, energy-absorbing highway crash cushions and other highway safety products for the protection of motorists and highway workers. 2. ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS Cash in excess of operating requirements is invested in income-producing investments generally having initial maturities of three months or less. These investments are stated at cost, which approximates market value. The Company considers these short-term instruments to be cash equivalents. CONSOLIDATION The consolidated financial statements include the accounts of Quixote Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. EARNINGS PER SHARE Basic earnings per share (EPS) is computed by dividing net earnings available to holders of common stock by the weighted average number of shares of common stock outstanding. Diluted EPS is computed assuming the exercising of all stock options that are profitable to the recipients. Under this assumption, the weighted average number of shares is increased accordingly. FINANCIAL INSTRUMENTS The fair value of cash and cash equivalents approximate the carrying value of these assets due to the short-term maturity of these instruments. The fair value of the Company's long-term debt is estimated to approximate the carrying value based upon borrowing rates currently available to the Company for borrowings with similar terms and maturity. INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In addition, the amount of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be fully realized. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. LONG-LIVED ASSETS Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the Company assesses the possibility of obsolescence, demand, new technology, competition, and other pertinent economic factors and trends that may have an impact on the value or remaining lives of these assets. Long-lived assets include such items as goodwill, patents, product rights and equity method investments. Goodwill and patents are amortized on a straight-line basis over lives of 4 to 20 years. Product rights are amortized over the life of the agreement. 15 MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Management's estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PROPERTY, PLANT AND EQUIPMENT The Company capitalizes expenditures for major renewals and betterments and charges current earnings with the cost of maintenance and repairs. Provisions for depreciation and amortization have been computed on the straight-line method based on the expected useful lives of the assets as indicated below: Buildings and improvements 10 to 40 years Machinery and equipment 3 to 12 years Furniture and fixtures 3 to 10 years Leasehold improvements 5 to 10 years
The cost and accumulated depreciation and amortization relating to assets retired or otherwise disposed of are eliminated from the respective accounts at the time of retirement or other disposition with the gain or loss credited or charged to earnings. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In 1998, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard (FAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 1999, FASB issued FAS No. 137, which deferred the effective date of FAS No. 133. Accordingly, FAS No. 133 is effective for all fiscal quarters beginning after June 15, 2000 (July 1, 2000 for the Company). FAS No. 133 requires that all changes in derivatives be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company anticipates that due to its limited use of derivative instruments, the adoption of FAS No. 133 will not have a significant effect on the Company's results of operations or its financial position. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform to current year presentations. REVENUE RECOGNITION Substantially all revenues are recognized when finished products are shipped to unaffiliated customers or services have been rendered, with appropriate provision for uncollectible accounts. STOCK-BASED COMPENSATION The Company follows the provisions of FAS No. 123, Accounting for Stock-Based Compensation, which encourages entities to adopt a fair value based method of accounting for stock-based compensation plans in place of the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), for all arrangements under which employees receive shares of stock or other equity instruments of the employer. As allowed by FAS No. 123, the Company applies the provisions of APB No. 25 in accounting for its stock-based employee compensation arrangements, and discloses the pro forma net earnings and earnings per share information in its footnotes as if the fair value method had been applied. The Company recognizes compensation cost for stock-based compensation arrangements equal to the difference between the quoted market price of the stock option at the date of grant and the price to be paid by the employee upon exercise in accordance with the provisions of APB No. 25. Based upon the terms of the Company's current stock option plans, the stock price on the date of grant and price paid upon exercise are the same, thus no compensation charge is required to be recognized. 16 3. ACQUISITIONS In December 1998, the Company acquired the stock of 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 $12,733,000 is being amortized over a twenty year life. In October 1998, the Company 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, known as Transportation Management Technologies, L.L.C. (TMT), is composed of the Company, G.I.E. Technologies, Inc., based in Montreal, Canada, and eight independent distributors of the Company's highway products. The Company has invested $1,111,000 in TMT, of which $750,000 was paid in 1999 and $361,000 in 2000, for a 19% interest in the joint venture. This investment is being accounted for under the equity method of accounting. In April 1998, the Company acquired the assets and assumed certain liabilities of Highway Information Systems, Inc., a division of Digital Recorders, Inc., for $2,800,000 in cash. The acquisition was accounted for as a purchase and was effective as of April 1, 1998. Goodwill of approximately $1,700,000 is being amortized over a twenty year life. In October 1997, the Company acquired certain assets and assumed certain contracts from Roadway Safety Service, Inc. This transaction was accounted for as a purchase and was effective as of October 1, 1997. The purchase price was $10,258,000, of which $4,822,000 was paid in cash at closing and other payments, the present value of which was $5,436,000, will be paid over 10 years using a discount rate of 8.5%. Goodwill of approximately $9,300,000 is being amortized over a twenty year life. 4. DISPOSITIONS AND DISCONTINUED OPERATIONS In March 1997, the Company sold substantially all of the assets and transferred significant operating liabilities of Disc Manufacturing, Inc. (DMI) to Cinram Ltd. The transaction excluded DMI's Huntsville, Alabama land and building as well as certain litigation related to DMI. During 1998, the Company recorded losses from discontinued operations of $6,138,000, or $0.76 per diluted share, which was net of an income tax benefit of $3,162,000. The losses were recorded to provide for current and anticipated costs associated principally with the Company's legal contingencies related to DMI. In March 1999, the Company assigned all of its rights to certain real property and a building located in Huntsville, Alabama to Cinram, Ltd. upon Cinram, Ltd.'s exercise of its option to purchase for the pre-agreed purchase price of $6,947,000, less certain adjustments of approximately $238,000. Also in March 1999, the Company recorded a gain of $240,000, or $.03 per diluted share, which was net of an income tax provision of $160,000, due to the reversal of certain accruals resulting from the favorable outcome of some legal proceedings. The following assets and (liabilities) relate to discontinued operations at June 30:
Dollar amounts in thousands 2000 1999 ---- ---- Deferred income tax assets................... $ 1,123 $ 1,603 Other assets................................. 300 Accrued legal................................ (401) (500) Lease obligations............................ (1,313) (1,700) Other accruals............................... (1,168) (1,611) -------- -------- Net liabilities of discontinued operations... $ (1,759) $ (1,908) ======== ========
These assets and liabilities are valued based upon management's estimates, utilizing currently available information as of the balance sheet date. It is reasonably possible, however, that these estimates could change materially. 17 5. INVENTORIES Inventories consist of the following at June 30:
Dollar amounts in thousands 2000 1999 --------- -------- Finished goods....................... $ 5,736 $ 3,941 Work-in-process...................... 1,868 1,527 Raw materials........................ 2,468 3,069 --------- -------- $ 10,072 $ 8,537 ========= ========
6. INTANGIBLE ASSETS Intangible assets consist of the following at June 30:
Dollar amounts in thousands 2000 1999 --------- -------- Goodwill............................. $ 26,138 $ 26,013 Patents and other intangibles........ 1,193 1,178 Accumulated amortization............. (4,705) (3,153) --------- -------- $ 22,626 $ 24,038 ========= ========
7. LONG-TERM DEBT Long-term debt consists of the following at June 30:
Dollar amounts in thousands 2000 1999 -------- -------- Revolving credit note due October 31, 2002, interest at variable rates.... $ 12,300 $ 8,000 Notes payable, interest imputed at 8.5% payable quarterly through 2007. 3,416 4,085 Other................................. 510 538 -------- -------- Total long-term debt.................. 16,226 12,623 Less current portion................ 630 722 -------- -------- Long-term debt, net................... $ 15,596 $ 11,901 ======== ========
The Company has a three-year unsecured revolving credit agreement with three banks. The agreement provides for a $40 million credit facility and contains both fixed and floating interest rate options, at the prime rate or lower, and contains affirmative and negative covenants including requirements that the Company maintain certain financial ratios and be profitable each year. The agreement may be renewed one additional year on each anniversary date upon mutual consent of the Company and the banks. At any time during the three years, the Company may elect to convert the loan to a four year term with equal quarterly principal payments due throughout the term to amortize the loan in full. The notes payable were entered into in connection with the acquisition of Roadway Safety Service, Inc. and are payable to several former owners and employees. The notes are payable quarterly over a five or ten year period. The aggregate amount of maturities of long-term debt for the four years subsequent to 2001 assuming renewal of the revolving credit note is as follows: $706,000 in 2002, $461,000 in 2003, $403,000 in 2004 and $435,000 in 2005. 8. STOCK OPTIONS AND STOCK TRANSACTIONS The Company has stock option plans for directors and employees, providing for grants of options as may be determined by the Compensation Committee of the Board of Directors. Options under the Long-Term Stock Ownership Incentive Plan (Incentive Plan) and the Director Stock Option Plan (Director Plan) are to be granted at no less than 100% of the current market price at the date of the grant. Options vest equally over not less than a two year period and have a term of five years under the Incentive Plan and ten years under the Director Plan. No charges are made to earnings in connection with the option plans. 18 Information with respect to stock option activity under the Company's plans is as follows:
Number of Option Price Weighted Average Common Shares per Share Exercise Price ------------- --------- -------------- July 1, 1997.............. 872,274 $ 5.38 to $ 21.00 $ 9.19 Granted................... 308,445 8.00 to 12.15 8.44 Exercised................. (78,000) 5.88 to 6.88 6.27 Cancelled or expired...... (115,424) 10.50 to 12.88 11.98 ---------- June 30, 1998............. 987,295 5.38 to 21.00 9.88 Granted................... 270,000 12.19 to 12.27 12.20 Exercised................. (207,351) 5.38 to 10.50 7.65 Cancelled or expired...... (29,666) 8.00 to 8.95 8.36 ---------- June 30, 1999............. 1,020,278 6.88 to 21.00 10.99 ---------- Granted................... 475,000 13.32 to 14.91 13.47 Exercised................. (116,733) 8.00 to 12.63 9.32 Cancelled or expired...... (12,333) 12.15 to 12.19 12.18 ---------- June 30, 2000............. 1,366,212 $ 6.88 to $ 21.00 $ 11.98 ----------
Options outstanding at June 30, 2000 are exercisable as follows: 709,050 currently, 253,184 in 2001, 237,326 in 2002 and 166,652 thereafter. The weighted average price of options currently exercisable is $10.95. As of June 30, 2000, the Company has 1,681,594 common shares reserved for its option and award plans. The following is the composition of the June 30, 2000 stock option balance:
Weighted Weighted average average exercise Options having a per remaining price per Number of share exercise price of: life share shares - ------------------------ ---------- --------- ---------- $ 6.88 to $ 9.00 3.11 years $ 8.31 378,546 10.00 to 14.91 4.76 years 12.90 927,666 21.00 4.15 years 21.00 60,000 --------- $6.88 to $21.00 4.28 years $11.98 1,366,212 ---------
Had compensation cost for the Company's stock option plans been determined based on the fair value method for awards in 2000, 1999 and 1998 consistent with the provisions of FAS No. 123, the Company's net earnings (loss) and net earnings (loss) per diluted share would have been changed to the pro forma amounts indicated below: Dollar amounts in thousands, except per share data
2000 1999 1998 ---- ---- ---- Net earnings (loss),................... $ 8,202 $ 7,048 $ (598) Net earnings (loss) per diluted share.. 1.01 .86 (.08)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998 ---- ---- ---- Risk free interest rate............... 5.9%-6.6% 4.8%-5.1% 5.5%-6.5% Expected dividend yield............... 2.08% 2.51% 3.04% Weighted average expected volatility.. 38% 47% 48% Weighted-average expected life........ 5.2 years 5.1 years 5.3 years
19 9. SHAREHOLDER RIGHTS PLAN The Company has a Shareholder Rights Plan (the Plan) which was established to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. The Plan calls for stockholders of record as of July 14, 1998 to receive a dividend distribution of one right for each outstanding share of the Company's common stock. Each share issued after that date is also granted a right. Each right entitles the holder, upon the occurrence of certain events, to purchase a unit consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock, no par value, for $40 per unit. In addition, if an acquiring person becomes the beneficial owner of more than 15% of the Company's outstanding common stock, each right will entitle the holder (other than such acquiring person) to receive, upon exercise, common stock of the Company having a value equal to two times the exercise price of the right or $40. If after an acquiring person becomes the beneficial holder of more than 15% of the Company's outstanding common stock and then the Company is acquired in a merger or other business combination in which the Company would not be the surviving corporation or 50% or more of the Company's assets or earning power is sold, each holder shall have the right to receive, upon exercise, common stock of the acquiring corporation having a value equal to two times the exercise price of the right or $40. The Company may redeem the rights, for $.01 per right, under certain circumstances. 10. RETIREMENT PLANS The Company's Long-Term Stock Ownership Incentive Plan contains a provision for a retirement stock award program for certain key executives of the Company. The award consists of shares of the Company's common stock and cash ending with the fiscal year in which the executive attains his or her 62nd birthday. In order to receive each year's stock award, the executive must remain employed with the Company through the end of the fiscal year, unless excused by reason of death or other involuntary termination. Participants are also required to retain the shares awarded for as long as they are employed by the Company or until age 65. The size of each participant's annual award is determined under accepted actuarial principles to provide a retirement income based upon a percentage of the executive's projected compensation and length of service at retirement, but only if the Company's stock price appreciates at a sustained target rate. The Plan resulted in a charge to earnings of $284,000 in 2000, $306,000 in 1999 and $403,000 in 1998. The Company has an incentive savings plan covering substantially all employees of the Company. The plan allows qualified employees to make tax deferred contributions pursuant to Internal Revenue Code Section 401(k). The Company contributes a matching contribution based upon participants' compensation which is invested directly in the common stock of the Company. Additional discretionary company contributions may be made at the option of the Company's Board of Directors. The expense for the plan was $500,000 in 2000, $376,000 in 1999 and $269,000 in 1998. 11. INCOME TAXES The income tax provision (benefit) for continuing and discontinued operations consist of the following:
Dollar amounts in thousands 2000 1999 1998 -------- -------- -------- Current: Federal and international....... $ 3,834 $ 1,674 $ 1,786 State........................... 631 389 390 -------- -------- -------- 4,465 2,063 2,176 -------- -------- -------- Deferred: Federal and international....... 1,094 1,403 360 State........................... (93) 790 69 -------- -------- -------- 1,001 2,193 429 -------- -------- -------- Income tax provision for continuing operations........ 5,466 4,256 2,605 Income tax provision (benefit).. discontinued operations....... 160 (3,162) -------- -------- -------- Total income tax provision (benefit) .................... $ 5,466 $ 4,416 $ (557) -------- -------- --------
20 The components of the net deferred tax asset (liability) are as follows:
Dollar amounts in thousands 2000 1999 ------- ------- Deferred tax assets: Accounts receivable allowance............ $ 382 $ 192 Inventory valuation...................... 418 317 Compensated absences and medical claims.. 112 100 Tax over book basis in affiliates........ 951 1,394 Other liabilities and reserves........... 1,121 892 Net operating loss carryforwards......... 459 230 Various tax credit carryforwards......... 12 802 Provisions for discontinued operations... 1,123 1,603 Valuation allowance...................... (1,053) (1,253) ------- ------- 3,525 4,277 Deferred tax liabilities: Book over tax basis of capital assets.... (1,798) (1,632) ------- ------- Net deferred tax asset................... $ 1,727 $ 2,645 ------- -------
The valuation allowance relates principally to deferred tax assets that the Company estimates may not be realizable, including portions of tax over book basis in affiliates, net operating loss (NOL) carryforwards, capital loss carryforwards, and tax credit carryforwards. The decrease in the valuation allowance is due principally to the utilization of capital loss carryforwards. Based on management's assessment, it is more likely than not that the net deferred tax assets will be realized through future taxable earnings or implementation of tax planning strategies. At June 30, 2000, certain subsidiaries of the Company have approximately $8,824,000 of state net operating loss carryforwards for tax purposes. Certain limitations on utilization are present and realization of a significant portion of the carryforwards is uncertain. These carryforwards expire in years from 2001 through 2015. The net deferred tax asset (liability) consists of the following at June 30:
Dollar amounts in thousands 2000 1999 -------- -------- Continuing operations: Current deferred tax asset.......... $ 2,254 $ 2,491 Noncurrent deferred tax asset....... 149 Noncurrent deferred tax liability... (1,799) (1,449) -------- -------- Total.......................... 604 1,042 -------- -------- Discontinued operations: Current deferred tax asset.......... 578 1,016 Noncurrent deferred tax asset....... 545 587 -------- -------- Total.......................... 1,123 1,603 -------- -------- Total net deferred tax asset............. $ 1,727 $ 2,645 -------- --------
The income tax provision differed from the taxes calculated at the statutory federal tax rate as follows:
Dollar amounts in thousands 2000 1999 1998 -------- -------- -------- Taxes at statutory rate.................. $ 4,914 $ 4,036 $ 2,975 State income taxes....................... 354 778 303 Utilization of NOL carryforwards......... (1,260) Other.................................... 198 702 (673) -------- -------- -------- Income tax provision for continuing operations:................. $ 5,466 $ 4,256 $ 2,605 -------- -------- --------
21 12. EARNINGS PER SHARE The computation of basic and diluted earnings per share is as follows: Dollar amounts in thousands, except per share data
2000 1999 1998 ---- ---- ---- Net earnings per share of common stock: Basic................................. $ 1.13 $ .98 $ .00 ------ ------ ------ Diluted............................... $ 1.10 $ .95 $ .00 ------ ------ ------ Numerator: - ---------- Net earnings available to common shareholders..................... $ 8,919 $ 7,802 $ 9 ------ ------ ------ Denominator: - ------------ Weighted average shares outstanding-basic...................... 7,868,554 7,986,094 7,943,653 Effect of dilutive securities - common stock options................... 256,069 241,681 144,701 --------- --------- --------- Weighted average shares outstanding-diluted.................... 8,124,623 8,227,775 8,088,354 --------- --------- ---------
There were outstanding options to purchase common stock at prices that exceeded the average market price for the income statement period. These options have been excluded from the computation of diluted earnings per share and are as follows:
2000 1999 1998 ------- ------- ------- Average exercise price per share...... $ 19.21 $ 16.55 $ 14.04 Number of shares...................... 85,000 135,000 288,850
13. COMMITMENTS AND CONTINGENT LIABILITIES Aggregate rental expense under operating leases, principally for office and manufacturing facilities used in continuing operations, was $531,000 in 2000, $528,000 in 1999 and $477,000 in 1998. These operating leases include options for renewal. Annual minimum future rentals for lease commitments related to continuing operations range from approximately $628,000 in 2001 to $90,000 in 2005, an aggregate of $2,140,000 through 2005. The Company has agreements with certain executives which are designed to retain the services of key employees and to provide for continuity of management in the event of an actual or threatened change in control of the Company. Upon occurrence of a triggering event after a change in control, as defined, the Company would be liable for payment of benefits under these agreements. The Company is subject to legal actions of a routine manner and common to its businesses. The Company records loss contingencies where appropriate within the guidelines established by Statement of FAS No. 5, Accounting for Contingencies. In the opinion of management, based on the advice of legal counsel, the amount of liability, if any, arising from legal actions should not have a material effect on the Company's results of operations or financial condition. 14. SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES Cash paid for interest was $929,000 in 2000, $974,000 in 1999 and $300,000 in 1998. Cash paid for income taxes was $4,250,000 in 2000 and $143,000 in 1999. The Company received refunds from income taxes of $1,388,000 in 1998. The Company declared dividends that were payable at year end of $1,117,000 in 2000, $1,128,000 in 1999 and $1,021,000 in 1998. In connection with the purchase of Nu-Metrics, Inc., the Company assumed long-term debt of $981,000 in 1999. 22 15. INDUSTRY SEGMENT INFORMATION During fiscal 1999, the Company adopted FAS No. 131, Disclosures about Segments of an Enterprise and Related Information about Capital Structure. This accounting pronouncement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the same basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. During fiscal 2001, the Company revised its approach to reporting information about its business segments to include expanded disclosures. The Company's operations are being classified as two principal reportable segments within the highway and transportation safety industry. The segment financial data presented herein have been restated to reflect the Company's two reportable segments - the manufacture and sale of highway and transportation safety products which Protect and Direct, and the manufacture and sale of products which Inform that are often referred to as Intelligent Transportation Systems (ITS) products. The primary product lines within the Protect and Direct segment include energy-absorbing products such as crash cushions, truck-mounted attenuators, barrels and barriers as well as highway delineators. The products within this segment absorb and dissipate the force of impact in collisions between vehicles and fixed roadside objects as well as products that prevent collisions and help to control the flow of traffic by directing or guiding. The primary product lines within the Inform segment include advanced sensing products which measure distance, count and classify vehicles, and sense weather conditions, as well as highway advisory radio systems. The products within this segment provide information to improve safety on the roads. Substantially all of the Company's sales of its highway and transportation safety products are to distributors and contractors who then provide product and services to federal, state and local governmental units. The Company's business is conducted principally in the United States, its country of domicile, with sales outside the United States as follows: $9,820,000 in 2000, $6,316,000 in 1999 and $4,510,000 in 1998. Inter-company sales between segments represented less than one percent of consolidated net sales in fiscal 2000, 1999 and 1998. The Company's reportable segments are based on similarities in products and represent the aggregation of operating units for which financial information is regularly evaluated in determining resource allocation and assessing performance. The Company evaluates the performance of its segments and allocates resources to them based primarily on net sales and operating income as well as other factors. Operating income is determined by deducting operating expenses from all revenues. In computing operating income, none of the following has been added or deducted: unallocated corporate expenses, interest income or expense, other income or loss or income tax provisions or benefits. Corporate assets consist primarily of cash and cash equivalents, depreciable assets and income tax assets. Accounting policies for the segments are the same as those for the Company. The following table presents financial information about reported segments as of June 30, 2000 and 1999 and for the years ended June 30, 2000, 1999 and 1998 comprising the totals reported in the consolidated financial statements.
(Dollar amounts in thousands) Protect and Unallocated Direct Inform Corporate Total 2000 Net sales from external customers $ 73,757 $ 10,013 $ 0 $ 83,770 Depreciation and amortization 2,867 927 40 3,834 Operating profit 19,407 2,377 (6,495) 15,289 Identifiable assets 49,907 18,521 4,836 73,264 Capital expenditures 1,237 112 19 1,368 1999 Net sales from external customers $ 65,837 $ 6,150 $ 0 $ 71,987 Depreciation and amortization 2,845 535 45 3,425 Operating profit 16,527 1,281 (5,325) 12,483 Identifiable assets 46,552 19,554 5,668 71,774 Capital expenditures 2,186 145 4 2,335 1998 Net sales from external customers $ 55,347 $ 641 $ 0 $ 55,988 Depreciation and amortization 2,302 34 2,336 Operating profit 12,870 210 (4,527) 8,553 Capital expenditures 1,327 109 1,436
23 16. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized unaudited quarterly financial data for years 2000 and 1999 follows:
Dollar amounts in thousands, except per share data Three months ended 2000 9/30 12/31 3/31 6/30 --------- --------- --------- --------- Net sales.................................................... $ 19,303 $ 16,228 $ 20,053 $ 28,186 Gross profit................................................. 9,273 7,167 9,744 14,927 Net earnings................................................. 1,912 1,072 1,484 4,451 Basic earnings per share..................................... .24 .13 .19 .59 Diluted earnings per share................................... .23 .13 .18 .58
Dollar amounts in thousands, except per share data Three months ended 1999 9/30 12/31 3/31 6/30 --------- --------- --------- --------- Net sales.................................................... $ 16,063 $ 14,802 $ 18,347 $ 22,775 Gross profit................................................. 7,236 6,327 8,249 11,821 Earnings from continuing operations.......................... 1,642 918 1,133 3,869 Net earnings................................................. 1,642 918 1,373 3,869 Basic earnings per share: Continuing operations....................................... .21 .11 .14 .48 Net earnings................................................ .21 .11 .17 .48 Diluted earnings per share: Continuing operations...................................... .20 .11 .14 .47 Net earnings............................................... .20 .11 .17 .47
24 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------
Item Page Number in Number This Report - ------ -------------- (a).1. Financial Statements -------------------- Report of Independent Accountants 10 Consolidated Statements of Operations for the years ended June 30, 2000, 1999 and 1998 11 Consolidated Balance Sheets as of June 30, 2000 and 1999 12 Consolidated Statements of Shareholders' Equity for the years ended June 30, 2000, 1999 and 1998 13 Consolidated Statements of Cash Flows for the years ended June 30, 2000, 1999 and 1998 14 Notes to Consolidated Financial Statements 15-24 (a).3. The list of exhibits is amended by substituting Exhibit 23, as listed in the Exhibit Index attached hereto, for the previous Exhibit 23. All other information pertaining to this subsection is as set forth in the Original Filing.
25 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunder duly authorized QUIXOTE CORPORATION (Registrant) Dated: March 1, 2001 By: /s/ Leslie J. Jezuit ---------------- ----------------------------------------- Leslie J. Jezuit, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ Philip E. Rollhaus, Jr. - --------------------------- Chairman and Director March 1, 2001 Philip E. Rollhaus, Jr. /s/ Leslie J. Jezuit - --------------------------- President and Director March 1, 2001 Leslie J. Jezuit (Chief Executive Officer) /s/ Daniel P. Gorey - --------------------------- Chief Financial Officer, March 1, 2001 Daniel P. Gorey Vice President and Treasurer (Chief Accounting and Financial Officer) /s/ Joan R. Riley Vice President, General Counsel March 1, 2001 - --------------------------- and Secretary Joan R. Riley /s/ James H. DeVries - --------------------------- Director March 1, 2001 James H. DeVries /s/ William G. Fowler - --------------------------- Director March 1, 2001 William G. Fowler /s/ Lawrence C. McQuade - --------------------------- Director March 1, 2001 Lawrence C. McQuade /s/ Robert D. van Roijen, Jr. - --------------------------- Director March 1, 2001 Robert D. van Roijen, Jr.
26 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBITS -------------- -------- 23 CONSENT OF INDEPENDENT ACCOUNTANTS.
27 EX-23 2 a2040282zex-23.txt EX-23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-76697, 33-1805, 33-22289, 33-50248, 33-74488, 333-62933, 333-81955, 333-32872 and 333-56120) of Quixote Corporation and the Registration Statements on Form S-3 (Nos. 2-96502 and 33-14873) of Quixote Corporation of our report dated August 7, 2000, except as to the Industry Segment Information note, which is as of February 23, 2001, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Chicago, Illinois March 1, 2001 28 -----END PRIVACY-ENHANCED MESSAGE-----