<PAGE>
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
________________________________________
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the transition period from
_________ to_________
_____________________________________________
Commission file number 0-7903
I.R.S. Employer Identification Number 36-2675371
QUIXOTE CORPORATION
(a Delaware Corporation)
One East Wacker Drive
Chicago, Illinois 60601
Telephone: (312) 467-6755
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES XX NO
----- -----
Indicate the number of shares outstanding of each of the issuer s classes of
common stock, as of the latest practicable date 7,955,391 shares of the
Company's Common Stock ($.01-2/3 par value) were outstanding as of December
31, 1998.
<PAGE>
PART I
FINANCIAL INFORMATION
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales .................................. $ 30,865,000 $ 24,452,000
Cost of sales .............................. 17,302,000 13,699,000
------------ ------------
Gross profit ............................... 13,563,000 10,753,000
Operating expenses:
Selling & administrative ................. 8,581,000 7,135,000
Research & development ................... 730,000 730,000
------------ ------------
9,311,000 7,865,000
Operating profit ........................... 4,252,000 2,888,000
------------ ------------
Other income (expense):
Interest income .......................... 66,000 400,000
Interest expense ......................... (380,000) (103,000)
Other .................................... 1,000
------------ ------------
(314,000) 298,000
------------ ------------
Earnings from continuing operations before
income taxes ............................. 3,938,000 3,186,000
Provisions for income taxes ................ 1,378,000 956,000
------------ ------------
Earnings from continuing operations ........ 2,560,000 2,230,000
Loss from discontinued operations
(net of tax) ............................ (1,980,000)
------------ ------------
Net earnings ............................... $ 2,560,000 $ 250,000
============ ============
Per share data - basic:
Earnings from continuing operations ...... $ .32 $ .28
Loss from discontinued operations......... (.25)
------------ ------------
Net earnings ............................. $ .32 $ .03
============ ============
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations-Continued
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Per share data - diluted:
Earnings from continuing operations ........... $ .31 $ .28
Loss from discontinued operations.............. (.25)
---------- ----------
Net earnings .................................. $ .31 $ .03
========== ==========
Shares used to compute net earnings:
Basic ........................................ 7,934,780 8,004,994
========== ==========
Diluted ...................................... 8,215,303 8,065,569
========== ==========
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales .................................. $ 14,802,000 $12,118,000
Cost of sales .............................. 8,475,000 7,161,000
------------ -----------
Gross profit ............................... 6,327,000 4,957,000
Operating expenses:
Selling & administrative ................. 4,293,000 3,716,000
Research & development ................... 437,000 387,000
------------ -----------
4,730,000 4,103,000
Operating profit ........................... 1,597,000 854,000
------------ -----------
Other income (expense):
Interest income .......................... 27,000 165,000
Interest expense ......................... (212,000) (102,000)
------------ -----------
(185,000) 63,000
------------ -----------
Earnings from continuing operations
before income taxes ..................... 1,412,000 917,000
Provision for income taxes ................ 494,000 275,000
------------ -----------
Earnings from continuing operations........ 918,000 642,000
Loss from discontinued operations
(net of tax) ............................ (1,980,000)
------------ -----------
Net earnings (loss) ....................... $ 918,000 $(1,338,000)
============ ===========
Per share data - basic:
Earnings from continuing operations...... $ .11 $ .08
Loss from discontinued operations........ (.25)
------------ -----------
Net earnings (loss) ..................... $ .11 $ (.17)
============ ===========
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations-Continued
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Per share data-diluted:
Earnings from continuing operations .......... $ .11 $ .08
Loss from discontinued operations ............ (.25)
----------- -----------
Net earnings (loss) .......................... $ .11 $ (.17)
=========== ============
Shares used to compute net earnings (loss):
Basic ........................................ 7,948,870 8,013,746
=========== ============
Diluted ...................................... 8,198,459 8,074,321
=========== ============
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
----------------------------
ASSETS 1998 1998
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 2,752,000 $ 3,927,000
Accounts receivable, net of allowances for
doubtful accounts of $476,000 at
December 31 and $565,000 at June 30 .......... 11,830,000 13,976,000
Refundable income taxes ........................ 1,132,000
Inventories:
Raw materials ................................ 4,204,000 3,046,000
Work in process .............................. 1,145,000 696,000
Finished goods ............................... 3,045,000 2,084,000
---------- ----------
8,394,000 5,826,000
---------- ----------
Deferred income tax assets ..................... 1,642,000 1,642,000
Assets of discontinued operations............... 7,236,000
Other current assets ........................... 750,000 350,000
---------- ----------
Total current assets ........................... 32,604,000 26,853,000
---------- ----------
Property, plant and equipment, at cost ........... 26,073,000 23,236,000
Less accumulated depreciation .................... (10,793,000) (9,754,000)
---------- ----------
15,280,000 13,482,000
---------- ----------
Intangible assets................................. 25,241,000 12,553,000
Other assets ..................................... 1,084,000 987,000
Assets of discontinued operations ................ 5,190,000
---------- ----------
$ 74,209,000 $ 59,065,000
========== ==========
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1998
- ---------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt ................ $ 550,000 $ 497,000
Accounts payable ................................. 1,602,000 1,681,000
Dividends payable ................................ 1,114,000 1,021,000
Accrued expenses ................................. 4,890,000 3,894,000
Income tax payable................................ 616,000
Liabilities of discontinued operations ........... 4,614,000
---------- ----------
Total current liabilities ........................ 8,772,000 11,707,000
---------- ----------
Deferred income tax liabilities .................... 795,000 795,000
Long-term debt, net of current portion.............. 22,068,000 7,677,000
Liabilities of discontinued operations.............. 1,546,000
Shareholders' equity:
Common stock ..................................... 150,000 148,000
Capital in excess of par value of stock .......... 32,090,000 31,396,000
Retained earnings ................................ 16,770,000 15,324,000
Treasury stock, at cost .......................... (7,982,000) (7,982,000)
---------- ----------
Total shareholders equity ....................... 41,028,000 38,886,000
---------- ----------
$74,209,000 $59,065,000
========== ==========
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash from operating activities:
Net earnings........................................$ 2,560,000 $ 250,000
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation...................................... 866,000 813,000
Amortization...................................... 709,000 359,000
Provisions for losses on accounts receivable...... (94,000) 6,000
Changes in operating assets and liabilities:
Accounts receivable............................. 2,897,000 (267,000)
Refundable income taxes......................... 1,132,000 1,241,000
Inventories and other current assets............ (2,166,000) (169,000)
Accounts payable and accrued expenses........... (1,270,000) (890,000)
Income taxes payable............................ 616,000
---------- -----------
Net cash provided by operating activities of
continuing operations............................. 5,250,000 1,343,000
Net cash used in discontinued operations............ (4,760,000) (2,939,000)
---------- -----------
Net cash provided by (used in) operating
activities........................................ 490,000 (1,596,000)
---------- -----------
Investing activities:
Cash paid for acquired business (net of cash on
books)..........................................(13,040,000) (4,822,000)
Purchase of property, plant and equipment......... (1,109,000) (519,000)
Investment in Transportation Management
Technologies, LLC............................... (250,000)
Other............................................. (50,000) (183,000)
---------- -----------
Net cash used in investing activities...............(14,449,000) (5,524,000)
---------- -----------
Financing activities:
Borrowing on revolving line of credit............. 14,000,000
Payments on notes payable......................... (537,000) (59,000)
Payment of semi-annual cash dividend.............. (1,021,000) (1,039,000)
Proceeds from exercise of stock options........... 342,000 68,000
Repurchase of common stock for the treasury....... (274,000)
----------- -----------
Net cash provided by (used in) financing
activities........................................ 12,784,000 (1,304,000)
----------- -----------
Decrease in cash and cash equivalents............... (1,175,000) (8,424,000)
Cash and cash equivalents at beginning of period.... 3,927,000 18,463,000
---------- -----------
Cash and cash equivalents at end of period..........$ 2,752,000 $10,039,000
========== ===========
<FN>
Note: During the six months ended December 31, 1998, the Company had net cash
refunds of $370,000 for income taxes and paid $374,000 for interest. During the
same period last year the Company made cash payments of $285,000 for income taxes
and paid $103,000 for interest.
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
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 six months ended December 31, 1998 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) per share of
common stock:
Basic ...................... $ .11 $ (.17) $ .32 $ .03
Diluted .................... $ .11 $ (.17) $ .31 $ .03
Numerator:
- ----------
Net earnings (loss) available to
common shareholders-basic
and diluted: ................. $ 918,000 $(1,338,000) $2,560,000 $ 250,000
========== ========== ========== =========
Denominator:
- ------------
Weighted average shares
outstanding-basic: ........... 7,948,870 8,013,746 7,934,780 8,004,994
Effect of dilutive securities
options ...................... 249,589 60,575 280,523 60,575
---------- ---------- --------- --------
Weighted average shares
outstanding-diluted .......... 8,198,459 8,074,321 8,215,303 8,065,569
========== ========== ========= =========
</TABLE>
<PAGE>
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 preliminary purchase price of $13,880,000 was paid in
cash. A final determination of the purchase price based upon the value of the
net assets as of November 30, 1998 will be made in February 1999. When
acquired, Nu-Metrics had long-term debt of approximately $981,000. Goodwill
recorded in the transaction of approximately $13,000,000 will be amortized
over a 20 year life.
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. This investment will be accounted for under the equity method of
accounting.
<PAGE>
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 six months of fiscal 1999 increased 26% to
$30,865,000 from $24,452,000 from the first six months of fiscal 1998 due to
both internal sales growth as well as growth from two acquisitions the Company
completed during fiscal 1998 and 1999. Internal sales increased 12% resulting
from demand for Energy Absorption's newer crash cushion products. Energy
Absorption's permanent line of crash cushion products increased 27% 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. Sales dollars of the QuadGuard products increased at a lesser
rate due to the lower selling price of some of these products. The Company
also experienced sales increases in its truck-mounted attenuator (TMA)
product line, including the Alpha 100k TMA -Trademark-. Parts sales and
sales of Safe-Hit's highway delineators also increased during the period.
Roadway Safety Service, Inc., acquired in October 1997, increased sales
$1,825,000 to $3,164,000 for the six month period. Highway Information
Systems, Inc., acquired effective April 1, 1998, contributed sales of
$1,256,000 for the period. Nu-Metrics, Inc., acquired effective December 1,
1998, contributed sales of $487,000 for the one 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' custom molded products also declined
during the period.
The gross profit margin in the first six months of the current year declined
slightly to 43.9% from 44.0% in the same period last year. This was due
principally to a change in sales mix from the GREAT -Registered Trademark-
crash cushion product line to the lower margin QuadGuard crash cushion
product line. The QuadGuard family of products is priced lower than the
GREAT crash cushions. Roadway Safety Service also contributed to the decline
in gross margin as its gross margin is lower than the Company's historical
gross margin. Offsetting this somewhat, the Highway Information Systems gross
margin contributed a higher gross margin than the Company's historical gross
margin. Nu-Metrics, although having higher gross margins than the Company's
historical gross margin, did not have a material effect on gross margins due
to the short time it has been part of the Company.
Selling and administrative expenses in the first six months of the current
year increased 20% to $8,581,000 from $7,135,000 in the first six months last
year. This was due principally to the fiscal 1998 acquisitions of Roadway
Safety Service and Highway Information Systems which added a combined increase
of $720,000 in selling and administrative expenses. Nu-Metrics added $184,000
in selling and administrative expenses for the one month as part of the
Company. Corporate level administrative expenses increased $265,000 as a
result of increased salaries and bonuses. Energy Absorption and its
subsidiaries had a $277,000 increase in selling and administrative expenses
which was due to the increased level of sales.
Research and development expenses in the first six months of the current year
remained consistent at $730,000 compared to $730,000 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 road marker and other developmental
products.
<PAGE>
Interest income in the first six months of the current year was $66,000
compared to $400,000 in the same period last year. Interest income declined
as a result of a decline in the Company's cash from $10,039,000 at December
31, 1997 compared to $2,752,000 at the end of the current period. Interest
expense in the first six months of the current year was $380,000 compared to
$103,000 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 six 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%.
CURRENT YEAR QUARTER VERSUS PRIOR YEAR QUARTER
- ----------------------------------------------
The Company's sales for the second quarter of fiscal 1999 increased 22% to
$14,802,000 from $12,118,000 in the second 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 13% 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. Sales
dollars of the QuadGuard products increased at a lesser rate due to the lower
selling price of some of these products. The Company also experienced sales
increases in its TMA product line, including the Alpha 100k TMA. Parts sales
and sales of Safe-Hit's highway delineators also increased during the quarter.
Highway Information Systems contributed sales of $660,000 for the period. Nu-
Metrics, Inc. contributed sales of $487,000 for the one month period as part
of the Company. Roadway Safety Service sales for the current quarter remained
consistent at $1,334,000 compared to $1,339,000 in the same quarter last year.
Somewhat offsetting these sales increases, sales of the Energite barrel
product line and Triton Barrier declined during the quarter. Spin-Cast
Plastics' custom molded products also declined during the quarter.
The gross profit margin in the second quarter of fiscal 1999 increased to
42.7% from 40.9% in the second quarter last year. This was due principally to
the higher gross margins at Highway Information Systems and Nu-Metrics than
the Company's historical gross margins. Energy Absorption and its
subsidiaries had a decline in gross margin in the current quarter compared to
the same quarter last year due to a change in sales mix from the GREAT crash
cushion to the lower margin QuadGuard crash cushion product line.
Selling and administrative expenses in the second quarter of the current year
increased 16% to $4,293,000 from $3,716,000 in the second quarter last year.
This was due principally to the fiscal 1998 acquisitions of Roadway Safety
Service and Highway Information Systems which added a combined increase of
$307,000 in selling and administrative expenses. Nu-Metrics added $184,000 in
selling and administrative expenses for the one month as part of the Company.
Energy Absorption and its subsidiaries had a $162,000 increase in selling and
administrative expenses which was due to their increased level of sales.
Corporate level administrative expenses declined slightly in the quarter from
the same quarter last year.
<PAGE>
Research and development expenses in the second quarter of the current year
increased 13% to $437,000 from $387,000 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 crash cushion as well as a snowplowable road marker
and other developmental products.
Interest income in the second quarter of the current year was $27,000 compared
to $165,000 in the second quarter last year. Interest income declined as a
result of a decline in the Company's cash from $10,039,000 at December 31,
1997 to $2,752,000 at the end of the current quarter. Interest expense in the
second quarter of the current year was $212,000 compared to $102,000 in the
second 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 $2,752,000 and access to
additional funds of $22,500,000 under its bank arrangements as of December 31,
1998. Continuing operating activities were a source of cash for the Company
for the first six months of fiscal 1999 providing $5,250,000. Discontinued
operations, however, used cash of $4,760,000 primarily 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 $490,000.
Investing activities used cash of $14,449,000 during the current six month
period of which $13,040,000 was used for the purchase of Nu-Metrics. In
addition, the Company used cash of $1,109,000 for the purchase of equipment.
Financing activities provided cash of $12,784,000 during the current six month
period. The Company received cash of $14,000,000 from borrowings under its
revolving credit facility principally to fund the purchase of Nu-Metrics. The
payment of the Company's semi-annual cash dividend used cash of $1,021,000.
The Company also used cash of $537,000 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 $342,000 for the exercise of common stock options.
For fiscal 1999, the Company anticipates needing less than $2,000,000 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. 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.
<PAGE>
Year 2000 Issue
- ---------------------
During the current quarter, 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 is not Y2K compliant and has upgraded these programs to
more advanced versions that are Y2K compliant. The Company will begin
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 plans to initiate 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 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 $200,000
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 Year
2000 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 corrective measurers are taken. Please refer to the Company's
disclosure in its Form 10-K for the period ended June 30, 1998 for additional
information.
<PAGE>
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.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
- --------------------------
1. DISCOVISION ASSOCIATES V. DISC MANUFACTURING, INC. Case No. 95-21,
Consolidated with Disc Manufacturing, Inc. v. Pioneer and Discovision, Case
No. 95-345, U.S. District Court for the District of Delaware. In December
1998, all litigation between the parties was settled on terms mutually
satisfactory to the parties. See the Company's Form 10-K for the period ended
June 30, 1998, Item 3, for additional information about this litigation.
2. Thomson S.A. v. Time Warner et al., Case No. 94-83, U.S. District Court
for the District of Delaware. On January 25, 1999, the U.S. Court of Appeals
for the Federal Circuit affirmed the District Court's decision to sustain the
jury verdict in favor of Disc Manufacturing, Inc. See the Company's Form 10-K
for the period ended June 30, 1998, Item 3, for additional information about
this litigation.
ITEM 2. Changes in Securities
- ------------------------------
None.
ITEM 3. Default upon Senior Securities
- ---------------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company's Annual Meeting of Shareholders was held on November 18,
1998. The matters voted on at the Annual Meeting were as follows:
(i) The election of William G. Fowler and Robert D. van Roijen, Jr. to serve
as directors.
(ii) The approval of the amendment to the Company's 1993 Long-Term Stock
Ownership Inventive Plan.
(iii) The approval of the amendment to the Company's 1991 Director Stock
Option Plan.
(iv) The approval of PricewaterhouseCoopers LLP as independent auditors for
the Company.
<PAGE>
Messrs. Fowler and van Roijen were elected and all other matters were approved
as follows:
VOTES
======
ABSTAIN OR NO
FOR AGAINST WITHHELD VOTE
=============================================================================
ELECTION OF DIRECTORS
William G. Fowler 6,492,441 680,212
Robert D. van Roijen, Jr. 6,497,003 675,650
APPROVAL OF AMENDMENT OF
1993 LONG-TERM STOCK
OWNERSHIP INCENTIVE PLAN 5,288,830 1,826,527 57,296
APPROVAL OF AMENDMENT OF
1991 DIRECTOR STOCK
OPTION PLAN 5,765,208 1,341,648 65,797
APPROVAL OF
PRICEWATERHOUSECOOPERS LLP 7,138,951 11,776 21,926
ITEM 5. Other Information
- --------------------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) On December 16, 1998, the Company filed a report on Form 8-K dated
December 9, 1998 reporting under Item 2 "Acquisition or Disposition of
Assets" , that the Company had purchased all of the outstanding stock of Nu-
Metrics, Inc. and had transferred all of the stock to its wholly-owned
subsidiary, the TranSafe Corporation. The Company also reported under Item 5
"Other Events" that the Company had settled litigation between its formerly
owned subsidiary, Disc Manufacturing, Inc., and Discovision Associates and
certain of its related entities. A Form 8-K/A was filed on February 8, 1999
with respect to the Nu-Metrics, Inc. acquisition, containing Nu-Metrics, Inc.
financial statements and pro forma financial information.
(b) Exhibits
None.
<PAGE>
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 December 31, 1998 to be signed on its behalf by the undersigned
thereunto duly authorized.
QUIXOTE CORPORATION
DATED: February 12, 1999 /s/ Daniel P. Gorey
----------------- -------------------
DANIEL P. GOREY
Chief Financial Officer,
Vice President and Treasurer
(Chief Financial & Accounting
Officer)
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