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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
For the fiscal year ended June 30, 2000
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period to
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Commission file number 0-7903
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Quixote Corporation
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2675371
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE EAST WACKER DRIVE, CHICAGO, ILLINOIS 60601
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (312) 467-6755
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock ($.01-2/3 Par Value)
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(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
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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
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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.
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TABLE OF CONTENTS
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PART I PAGE
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Item 1. Business...................................................... 3-6
Item 2. Properties.................................................... 7
Item 3. Legal Proceedings............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders........... 8
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters........................................... 9
Item 6. Selected Financial Data....................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 10-12
Item 8. Financial Statements and Supplementary Data................... 13-26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant............ 27
Item 11. Executive Compensation........................................ 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................ 28
Item 13. Certain Relationships and Related Transactions................ 28
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K................................................... 29-31
SIGNATURES................................................................ 32
</TABLE>
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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 is highway and transportation safety, concentrating on
safety problems and designing products to provide solutions for the highways.
The Company provides solutions for improving safety on the roads through:
minimizing the severity of crashes that occur and preventing crashes from
occurring by directing or providing information. The Company's products are
sold primarily by a single sales force to similar customers in the highway
construction and safety business.
In the category of reducing the severity of crashes, 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.
To expand the Company's business within the highway and transportation safety
industry, the Company acquired two companies that manufacture intelligent
transportation safety products which provide information to prevent crashes
from occurring, in fiscal 1999 and 1998. 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 include the
Groundhog-Registered Trademark- line of 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
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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 MaxTM, 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 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.
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,
particularly in the sand barrel, QuadGuard, REACT 350 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. 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. 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 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.
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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.
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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.
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ITEM 2. PROPERTIES
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Owned or
Location Available Space Purpose Leased
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One East Wacker Drive 19,000 sq. ft. Executive Offices Leased
Chicago, Illinois
250 Bamberg Drive 160,000 sq. ft. Manufacture of highway Owned
Pell City, Alabama safety devices
3617 Cincinnati Avenue 22,000 sq. ft. Warehouse and research Owned
Rocklin, California and development facility
for highway safety
devices
3300 N. Kenmore Street 81,000 sq. ft. Sale and manufacture of Owned
South Bend, Indiana highway safety devices and
other plastic products
739 College Drive 28,000 sq. ft. Storage facility for Owned
South Bend, Indiana highway safety devices
23785 Cabot Boulevard 2,300 sq. ft. Sales office Leased
Hayward, California
4021 Stirrup Creek Drive 12,500 sq. ft. Sale and manufacture of Leased
Durham, North Carolina highway advisory radio
equipment
Route 119 University Drive 26,000 sq. ft. Sale and manufacture of Owned
Uniontown, Pennsylvania traffic sensing and
distance measuring
devices
200 Corporate Pointe 19,800 sq. ft. Sublet Leased
Culver City, California
</TABLE>
Note: Present facilities are believed to be adequate to support the Company's
current and anticipated requirements.
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ITEM 3. LEGAL PROCEEDINGS
A. ERNEST CHICO v. THE STATE OF INDIANA, ENERGY ABSORPTION SYSTEMS, INC. AND
HOOSIER COMPANY, Lake Superior Court for the State of Indiana, Cause No.
45DO2-9605-CT-391. The Company settled this case in September 2000 for a
nominal amount.
B. DISC MANUFACTURING, INC. v. CD TITLES, INC.; DISC MANUFACTURING, INC. v.
PALOMAR MEDICAL TECHNOLOGIES, INC., Consolidated Action No. 9705328-B,
Superior Court of the Commonwealth of Massachusetts. This is an action
brought by Disc Manufacturing, Inc. to recover approximately $680,000 for
goods and services sold to CD Titles, of which $400,000 was guaranteed by
Palomar Medical Technologies. CD Titles answered the complaint, asserting a
counterclaim for conversion of certain inventory valued by CD Titles at $1.3
million which has been dismissed. Discovery has proceeded, but is presently
stayed in accordance with an automatic stay that was entered upon an
involuntary petition in bankruptcy filed against CD Titles in July 1998 by
DMI and other creditors under Chapter 7 of the Bankruptcy Code. CD Title's
motion to dismiss the involuntary petition has been denied and a Chapter 7
trustee has been appointed to proceed with the bankruptcy.
C. ODIN SYSTEMS INTERNATIONAL, INC. v. ENERGY ABSORPTION SYSTEMS, INC., No.
CV200-082, U.S. District Court for the Southern District of Georgia. The
parties to this action entered into an exclusive license agreement in 1997,
whereby Energy Absorption Systems, Inc. obtained the rights to an anti-icing
system from Odin Systems International. Disputes arose between the parties
which were the subject of an arbitration proceeding. In August 2000, the
arbitrator awarded Energy $2.1 million, primarily for breach of the license
agreement, which Odin is currently contesting and therefore collection is
uncertain. This complaint, filed in June 2000, asserts claims which were not
considered in the arbitration, including defamation, theft of trade secrets,
tortious interference with business relations, unfair trade practices and
breach of the license agreement. Energy has moved to dismiss certain counts
of the complaint and has answered others, asserting numerous defenses
including fraud in the inducement and estoppel.
The Company is involved in other legal actions, believes it has defenses for
all claims, and is vigorously defending the actions. In the opinion of
management, based on the advice of legal counsel, liabilities, if any,
arising from the Company's legal actions should not have a material effect on
the Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is quoted on The Nasdaq Stock Market-Registered
Trademark- under the symbol QUIX. Set forth are the daily high and low last
sales prices for the Company's common stock for the periods indicated, as
reported by the Nasdaq.
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Three Months Ending
9/30 12/31 3/31 6/30
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FISCAL 2000:
High ............... $ 15-1/2 $ 16-1/8 $ 15-1/4 $ 15-1/2
Low ................ 12-1/4 13-1/2 10-1/2 11
FISCAL 1999:
High ............... $ 15-1/2 $ 13-3/4 $ 13-1/4 $ 13-7/8
Low ................ 12-3/8 11-3/8 11-5/16 11-7/16
</TABLE>
The current quoted price of the stock is listed daily in THE WALL STREET
JOURNAL in the Nasdaq National Market System section. As of August 7, 2000,
there were 1,367 shareholders of record.
DIVIDEND POLICY
During 2000, the Company declared semiannual cash dividends of fourteen cents
per share and fifteen cents per share. During 1999, the Company declared
semiannual cash dividends of fourteen cents per share, each.
ITEM 6. SELECTED FINANCIAL DATA
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<CAPTION>
For the years ended June 30,
Dollar amounts in thousands, except share data 2000 1999 1998 1997 1996
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Operating Results:
Net sales ................................... $83,770 $71,987 $55,988 $45,037 $46,750
Gross profit ................................ 41,111 33,633 25,543 22,249 24,291
Selling and administrative expenses ......... 24,208 19,606 15,420 14,264 15,059
Research and development expenses ........... 1,614 1,544 1,570 2,209 1,536
Other income (expense) ...................... (904) (665) 199 (2,112) (488)
Earnings from continuing operations ......... 8,919 7,562 6,147 2,907 4,390
Net earnings (loss) ......................... 8,919 7,802 9 (3,831) (9,892)
Cash dividends per common share ............. .29 .28 .26 .25 .24
Per Share Data:
Basic EPS:
Earnings from continuing operations ......... $ 1.13 $ .95 $ .77 $ .36 $ .56
Net earnings (loss) ......................... $ 1.13 $ .98 $ .00 $ (.48) $ (1.26)
Weighted average common and common equivalent
shares outstanding ....................... 7,868,554 7,986,094 7,943,653 7,966,700 7,875,585
Diluted EPS:
Earnings from continuing operations ......... $ 1.10 $ .92 $ .76 $ .36 $ .52
Net earnings (loss) ......................... $ 1.10 $ .95 $ .00 $ (.48) $ (1.26)
Weighted average common and common equivalent
shares outstanding ....................... 8,124,623 8,227,775 8,088,354 8,008,893 8,951,562
Financial Position:
Total assets ................................ $73,264 $71,774 $59,065 $55,220 $118,888
Working capital ............................. 22,127 18,579 15,146 20,639 4,055
Property, plant and equipment, net .......... 15,001 15,599 13,482 12,903 13,113
Long-term debt, net ......................... 15,596 11,901 7,677 58,000
Shareholders' equity ........................ 43,116 45,982 38,886 41,655 47,619
Book value per common share ................. 5.84 5.70 4.94 5.24 5.99
</TABLE>
NOTE: OPERATING RESULTS AND FINANCIAL POSITION FOR ALL PERIODS PRESENTED
REFLECT THE LEGAL TECHNOLOGIES, INC. AND DISC MANUFACTURING, INC. SEGMENTS AS
DISCONTINUED OPERATIONS.
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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 cushion and truck-mounted attenuator (TMA) products. The
crash cushion and delineation 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. 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 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-Registered Trademark- 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.
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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 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 manufactured by Roadway
Safety Service, Inc., acquired in October 1997, increased $2,606,000 to
$7,160,000 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 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 Company 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.
11
<PAGE>
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 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.
12
<PAGE>
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
accompanying index 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
accompanying index 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.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
August 7, 2000
13
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For each of the three years ended June 30,
Dollar amounts in thousands, except share data 2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
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
------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
14
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of June 30,
Dollar amounts in thousands, except share data 2000 1999
--------- ---------
<S> <C> <C>
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
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
15
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the three years ended June 30, 2000
Capital in
Common Stock Excess of
------------ Par Value
Dollar amounts in thousands, except share data Shares Dollars of Stock
--------- ---------- ----------
<S> <C> <C> <C>
BALANCES, JUNE 30, 1997 ........................................... 8,753,333 $ 146 $ 30,269
Exercise of options and grant of awards ........................... 137,783 2 904
Net earnings - 1998 ...............................................
Declaration of semi-annual cash dividends ($.13 per share) ........
Issuance of shares pursuant to the stock retirement plan .......... 17,824 223
Purchase of shares at $7.75 to $9.25 per share ....................
--------- ---------- ----------
BALANCES, JUNE 30, 1998 ........................................... 8,908,940 148 31,396
Exercise of options and grant of awards ........................... 184,432 3 1,400
Net earnings - 1999 ...............................................
Declaration of semi-annual cash dividends ($.14 per share) ........
Issuance of shares pursuant to the stock retirement plan .......... 10,794 133
--------- ---------- ----------
BALANCES, JUNE 30, 1999 ........................................... 9,104,166 151 32,929
Exercise of options ............................................... 84,234 2 744
Net earnings - 2000 ...............................................
Declaration of semi-annual cash dividends ($.14 and $.15 per share)
Issuance of shares pursuant to the stock retirement plan .......... 10,794 157
Purchase of shares at $12.00 to $15.50 per share ..................
--------- ---------- ----------
BALANCES, JUNE 30, 2000 ........................................... 9,199,194 $ 153 $ 33,830
--------- ---------- ----------
<CAPTION>
For the three years ended June 30, 2000
Treasury Stock
Retained ------------------------
Dollar amounts in thousands, except share data Earnings Shares Dollars
--------- ---------- ----------
<S> <C> <C> <C>
BALANCES, JUNE 30, 1997 ........................................... $ 17,368 807,435 $ (6,128)
Exercise of options and grant of awards ...........................
Net earnings - 1998 ............................................... 9
Declaration of semi-annual cash dividends ($.13 per share) ........ (2,053)
Issuance of shares pursuant to the stock retirement plan ..........
Purchase of shares at $7.75 to $9.25 per share .................... 224,985 (1,854)
--------- ---------- ----------
BALANCES, JUNE 30, 1998 ........................................... 15,324 1,032,420 (7,982)
Exercise of options and grant of awards ...........................
Net earnings - 1999 ............................................... 7,802
Declaration of semi-annual cash dividends ($.14 per share) ........ (2,242)
Issuance of shares pursuant to the stock retirement plan ..........
--------- ---------- ----------
BALANCES, JUNE 30, 1999 ........................................... 20,884 1,032,420 (7,982)
Exercise of options ...............................................
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 ..........
Purchase of shares at $12.00 to $15.50 per share .................. 778,000 (10,450)
--------- ---------- ----------
BALANCES, JUNE 30, 2000 ........................................... $ 27,565 1,810,420 $ (18,432)
--------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
16
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For each of the three years ended June 30,
Dollar amounts in thousands 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
17
<PAGE>
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.
18
<PAGE>
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:
<TABLE>
<S> <C>
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
</TABLE>
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.
19
<PAGE>
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:
<TABLE>
<CAPTION>
Dollar amounts in thousands 2000 1999
------- -------
<S> <C> <C>
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)
------- -------
</TABLE>
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.
20
<PAGE>
5. INVENTORIES
Inventories consist of the following at June 30:
<TABLE>
<CAPTION>
Dollar amounts in thousands 2000 1999
-------- --------
<S> <C> <C>
Finished goods.................................... $ 5,736 $ 3,941
Work-in-process .................................. 1,868 1,527
Raw materials .................................... 2,468 3,069
-------- --------
$ 10,072 $ 8,537
-------- --------
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of the following at June 30:
<TABLE>
<CAPTION>
Dollar amounts in thousands 2000 1999
-------- --------
<S> <C> <C>
Goodwill ......................................... $ 26,138 $ 26,013
Patents and other intangibles..................... 1,193 1,178
Accumulated amortization ......................... (4,705) (3,153)
-------- --------
$ 22,626 $ 24,038
-------- --------
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following at June 30:
<TABLE>
<CAPTION>
Dollar amounts in thousands 2000 1999
-------- --------
<S> <C> <C>
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
-------- --------
</TABLE>
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.
21
<PAGE>
Information with respect to stock option activity under the Company's plans is
as follows:
<TABLE>
<CAPTION>
Number of Option Price Weighted Average
Common Shares per Share Exercise Price
------------- ------------ ----------------
<S> <C> <C> <C>
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
---------
</TABLE>
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:
<TABLE>
<CAPTION>
Weighted
Weighted average
average exercise
Options having a per remaining price per Number of
share exercise price of: life share shares
------------------------ ---------- --------- ---------
<S> <C> <C> <C>
$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
---------
</TABLE>
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
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss),................. $ 8,202 $ 7,048 $ (598)
Net earnings (loss) per diluted share 1.01 .86 (.08)
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
22
<PAGE>
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:
<TABLE>
<CAPTION>
Dollar amounts in thousands 2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
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)
------- ------- -------
</TABLE>
23
<PAGE>
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
Dollar amounts in thousands 2000 1999
------- -------
<S> <C> <C>
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
------- -------
</TABLE>
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:
<TABLE>
<CAPTION>
Dollar amounts in thousands 2000 1999
------- -------
<S> <C> <C>
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
------- -------
</TABLE>
The income tax provision differed from the taxes calculated at the statutory
federal tax rate as follows:
<TABLE>
<CAPTION>
Dollar amounts in thousands 2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
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
------- ------- -------
</TABLE>
24
<PAGE>
12. EARNINGS PER SHARE
The computation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Dollar amounts in thousands, except per share data
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
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
--------- --------- ---------
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Average exercise price per share....... $ 19.21 $ 16.55 $ 14.04
Number of shares....................... 85,000 135,000 288,850
</TABLE>
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.
25
<PAGE>
15. INDUSTRY SEGMENT INFORMATION
During 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.
The Company's operations consist of one industry segment engaged in the
manufacture and sale of highway safety products. Substantially all the sales of
highway safety products are to distributors and contractors which then provide
product and services to federal, state and local governmental units. 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.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data for years 2000 and 1999 follows:
<TABLE>
<CAPTION>
Dollar amounts in thousands, except per share data Three months ended
2000 9/30 12/31 3/31 6/30
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
<CAPTION>
Dollar amounts in thousands, except per share data Three months ended
1999 9/30 12/31 3/31 6/30
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
</TABLE>
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Some of the information required in response to this item regarding Directors
of the Registrant is set forth on pages 2 through 4 and page 21 of the
Registrant's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 15, 2000 to be filed with the Commission
on or about October 4, 2000 and is incorporated herein by reference.
The executive officers of the Company, their ages and offices held by each
during fiscal 2000 are as follows:
<TABLE>
<S> <C> <C>
Philip E. Rollhaus, Jr. 65 Chairman & Director - Quixote Corporation; Chairman -
Energy Absorption Systems, Inc.
Leslie J. Jezuit 54 President, Chief Executive Officer & Director - Quixote Corporation and Energy
Absorption Systems, Inc.; Vice Chairman - Energy Absorption Systems, Inc.
Daniel P. Gorey 49 Chief Financial Officer, Vice President & Treasurer - Quixote Corporation; Vice
President & Treasurer - Energy Absorption Systems, Inc.
Joan R. Riley 47 Vice President, General Counsel & Secretary - Quixote Corporation; Secretary -
Energy Absorption Systems, Inc.
</TABLE>
Mr. Rollhaus has been the Chairman and a Director of the Company since its
formation in July 1969. Mr. Rollhaus also served since 1969 as Chief
Executive Officer of the Company until his retirement from that position on
September 30, 1999. In connection therewith, the Company entered into an
employment agreement with Mr. Rollhaus extending his employment until June
30, 2000. Effective July 1, 2000, the agreement was extended to June 30, 2001.
Mr. Jezuit joined the Company as President and Chief Operating Officer of
Quixote Corporation in 1996. Prior to that time, Mr. Jezuit served as
President and Chief Operating Officer of Robert Shaw Controls Company.
Effective October 1, 1999 Mr. Jezuit assumed the position of Chief Executive
Officer.
Mr. Gorey joined the Company as Manager of Corporate Accounting in July 1985.
He was made Controller of the Company in 1987, elected Vice President in
1994, and was elected Chief Financial Officer and Treasurer in November 1996.
Ms. Riley joined the Company as Assistant General Counsel and Assistant
Secretary in 1991, was elected General Counsel and Secretary in 1997 and a
Vice President in 1999.
There is no family relationship between any of the officers described above.
None of the officers described above are party or otherwise involved in any
legal proceedings adverse to the Company or its subsidiaries.
27
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is set forth under the caption
"Remuneration of Directors and Executive Officers" of the Registrant's
Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
November 15, 2000 to be filed with the Commission on or about October 4, 2000
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is set forth under the caption
"Stock Ownership of Certain Beneficial Owners" of the Registrant's Definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on November
15, 2000 to be filed with the Commission on or about October 4, 2000 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is set forth under the caption
"Certain Transactions and Business Relationships" of the Registrant's Definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on November
15, 2000 to be filed with the Commission on or about October 4, 2000 and is
incorporated herein by reference.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
ITEM PAGE NUMBER IN
NUMBER THIS REPORT
------ -----------
<S> <C> <C>
(a).1. FINANCIAL STATEMENTS
Report of Independent Accountants 13
Consolidated Statements of Operations for the
years ended June 30, 2000, 1999 and 1998 14
Consolidated Balance Sheets as of June 30,
2000 and 1999 15
Consolidated Statements of Shareholders'
Equity for the years ended June 30, 2000,
1999 and 1998 16
Consolidated Statements of Cash Flows for the
years ended June 30, 2000, 1999 and 1998 17
Notes to Consolidated Financial Statements 18-26
(a).2. FINANCIAL STATEMENT SCHEDULE
The financial statement schedule listed under Item 14(d) is filed as part of
this annual report. All other schedules have been omitted because the required
information is included in the consolidated financial statements or notes
thereto or because they are not applicable or not required.
(a).3. The exhibits listed under Item 14(c) are filed as part of
this annual report.
(b). REPORTS ON FORM 8-K
None.
(c). EXHIBITS
*Management contract or compensatory plan or agreement
3.(a) Restated Certificate of Incorporation dated February 4, 1998 filed
as Exhibit 3(a) to the Company's Form 10-Q Report for the quarter
ended December 31, 1997, File No. 0-7903, and incorporated herein by
reference; Certificate of Designation, Preferences and Rights of
Series B Junior Participating Preferred Stock dated July 24, 1998,
filed as Exhibit 1 to the Company's Form 8-A Registration
Statement dated July 23, 1998, File No. 001-08123, and incorporated
herein by reference.
(b) Amended and Restated By-Laws of the Company as amended through
February 24, 2000, filed as Exhibit 3(b) to the Company's Form 10-Q
Report for the quarter ended March 31, 2000, File No. 0-7903, and
incorporated herein by reference.
29
<PAGE>
4.(a) Rights Agreement dated as of July 24, 1998, between the Company and
BankBoston, N.A, as Rights Agent, filed as Exhibit 1 to the
Company's Form 8-A Registration Statement dated July 23, 1998,
File No. 001-08123, and incorporated herein by reference.
10.(a) Amended and Restated Loan Agreement ("Loan Agreement") dated as
of June 30, 1997 among Quixote Corporation and certain
subsidiaries ("Quixote"), The Northern Trust Company
("Northern"), LaSalle National Bank ("LaSalle"), and American
National Bank and Trust Company ("American")and Amended and
Restated Revolving Credit Notes dated June 30, 1997 from the
Company and certain of its subsidiaries to the Northern, LaSalle
and American, filed as Exhibit 10(a) to the Company's Form 10-Q
Report for the quarter ended September 30, 1997, File No. 0-7903,
and incorporated herein by reference; First Amendment to the Loan
Agreement dated May 31, 1998, filed as Exhibit 10(a) to the
Company's Form 10-K Report for the fiscal year ended June 30,
1999, File No. 0-7903, and incorporated herein by reference;
Second Amendment and Waiver to Loan Agreement and Restated
Revolving Credit Notes dated as of March 15, 1999, filed as
Exhibit 10(a) to the Company's Form 10-Q Report for the quarter
ended March 31, 1999, File No. 0-7903, and incorporated herein by
reference; Third Amendment and Waiver to Amended and Restated
Loan Agreement and Amended and Restated Revolving Credit Notes
all dated as of May 17, 2000, filed herewith.
(b)* 1991 Director Stock Option Plan, as amended through August 16, 2000,
filed herewith.
(c)* 1993 Long-Term Stock Ownership Incentive Plan, as amended through
August 16, 2000, filed herewith; Retirement Award Agreement dated
as of June 30, 1997 between the Company and Daniel P. Gorey,
filed as Exhibit 10(d) to the Company's Form 10-K Report for the
fiscal year ended June 30, 1997, File No. 0-7903, and
incorporated herein by reference; Retirement Award Agreement
dated as of February 19, 1998 between the Company and Leslie J.
Jezuit filed as Exhibit 10(a) to the Company's Form 10-Q Report
for the quarter ended March 31, 1998 and incorporated herein by
reference; Retirement Award Agreement dated as of February 19,
1998 between the Company and Joan R. Riley, filed as Exhibit
10(d) to the Company's Form 10-K Report for the fiscal year ended
June 30, 1998, File No. 0-7903, and incorporated herein by
reference.
(d) Lease Agreement between the Company and United Insurance Company
of America ("Company Lease") dated July 2, 1993, filed as Exhibit
10(j) to the Company's Form 10-K Report for the fiscal year ended
June 30, 1993, File No. 0-7903, and incorporated herein by
reference; Lease Amendment to Company Lease dated as of May 17,
1994, filed as Exhibit 10(h) to the Company's Form 10-K Report
for the fiscal year ended June 30, 1994, File No. 0-7903, and
incorporated herein by reference; Second Amendment to Company
Lease dated January 30, 1995 and Third Amendment to Company Lease
dated December 15, 1995, filed as Exhibits 10(b) and 10(c) to the
Company's Form 10-Q Report for the quarter ended December 31,
1995, File No. 0-7903, and incorporated herein by reference;
Fourth Amendment to Company Lease dated as of September 18, 1996
filed as Exhibit 10(b) to the Company's Form 10-Q Report for the
quarter ended December 31, 1996 and incorporated herein by
reference; Office Lease between Amberjack, Ltd. and Litigation
Sciences, Inc. dated July 2, 1990, filed as Exhibit 10(a) to the
Company's Form 10-Q Report for the quarter ended December 31,
1993, File No. 0-7903 and incorporated herein by reference; First
Amendment to Office Lease between Amberjack Ltd. and Stenograph
Corporation dated as of June 23, 1994, filed as Exhibit 10(h) to
the Company's Form 10-K Report for the fiscal year ended June 30,
1994, File No. 0-7903, and incorporated herein by reference;
Lease Agreement between TBC Place Partners, LLC and Highway
Information Systems, Inc. dated August 9, 1999, filed as Exhibit
10(d) to the Company's Form 10-K Report for the fiscal year ended
June 30, 1999, File No. 0-7903, and incorporated herein by
reference.
(e)* Executive Employment Agreement ("Employment Agreement") effective
as of October 1, 1999 between the Company and Philip E. Rollhaus,
Jr., filed as Exhibit 10(c)to the Company's Form 10-K Report for
the fiscal year ended June 30, 1999, File No. 0-7903, and
incorporated herein by reference; Amendment No.1 to Executive
Employment Agreement effective as of July 1, 2000 between the
Company and Philip E. Rollhaus, Jr. filed herewith; Letter
Agreement dated December 15, 1995 between the Company and Leslie
J. Jezuit, filed as Exhibit 10(d) to the Company's Form 10-Q
Report for the quarter ended December 31, 1995, File No. 0-7903,
and incorporated herein by reference; Change of Control
Agreements dated December 1,1997 by and between the Company and
each of Philip E. Rollhaus, Jr., Leslie J. Jezuit and Daniel P.
Gorey, filed as Exhibit 10(f) to the Company's Form 10-Q Report
for the quarter ended December 31, 1997, File No. 0-7903, and
incorporated herein by reference; Change of Control Agreement
dated December 1, 1997 between the Company and Joan R. Riley,
filed as Exhibit 10(f) to the Company's 10-K Report for the
fiscal year ended June 30, 1998, File No. 0-7903, and
incorporated herein by reference.
(f) Summary Plan Description for the Incentive Savings Plan of the
Company Amended to Reflect Provisions Effective January 1, 2000,
filed herewith.
30
<PAGE>
(g) Asset Purchase Agreement made October 10, 1997, and effective
October 1, 1997, by and between Quixote Corporation, TranSafe
Corporation, Roadway Safety Service, Inc., Momentum Management,
Inc., and Fitch Barrier Corporation; Exclusive License Agreement
made October 10, 1997, and effective October 1, 1997, by and
between Robert A. Mileti, Roadway Safety Systems, Inc., Quixote
Corporation and TranSafe Corporation; Consulting Agreement made
October 10, 1997, and effective October 1, 1997, by and between
TranSafe Corporation and E. Scott Walter; Consulting Agreement
made October 10, 1997, and effective October 1, 1997, by and
between Quixote Corporation, Energy Absorption Systems, Inc.,
Roadway Safety Systems, Inc. and Robert A. Mileti, all filed as
Exhibits 2.1, 2.2, 2.3 and 2.4 to the Company's Form 8-K Report
dated October 10, 1997, File No. 0-7903, and incorporated herein
by reference.
(h) Partial Assignment of Lease and Equity in Project dated March 26,
1999 by and between Disc Manufacturing Inc. (n/k/a Quixote Laser
Corporation), Cinram, Inc. and the Industrial Development Board
of the City of Huntsville, and Termination of Sublease dated
March 26, 1999 by and between Disc Manufacturing, Inc. (n/k/a
Quixote Laser Corporation) and Cinram, Inc., filed as Exhibit
10(b) to the Company's Form 10-Q Report for the quarter ended
March 31, 1999, File No. 0-7903, and incorporated herein by
reference.
21. Subsidiaries of the Company
23. Consent of PricewaterhouseCoopers LLP as Independent
Certified Public Accountants
27. Financial Data Schedule
</TABLE>
(d) SCHEDULES:
II - Valuation and Qualifying Accounts and Reserves
31
<PAGE>
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: September 27, 2000 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Philip E. Rollhaus, Jr.
--------------------------- Chairman and Director September 27, 2000
Philip E. Rollhaus, Jr.
/s/ Leslie J. Jezuit
--------------------------- President and Director September 27, 2000
Leslie J. Jezuit (Chief Executive Officer)
/s/ Daniel P. Gorey
--------------------------- Chief Financial Officer, Vice September 27, 2000
Daniel P. Gorey President and Treasurer (Chief
Accounting and Financial Officer)
/s/ Joan R. Riley Vice President, General Counsel September 27, 2000
--------------------------- and Secretary
Joan R. Riley
/s/ James H. DeVries
--------------------------- Director September 27, 2000
James H. DeVries
/s/ William G. Fowler
--------------------------- Director September 27, 2000
William G. Fowler
/s/ Lawrence C. McQuade
--------------------------- Director September 27, 2000
Lawrence C. McQuade
/s/ Robert D. van Roijen, Jr.
--------------------------- Director September 27, 2000
Robert D. van Roijen, Jr.
</TABLE>
32
<PAGE>
QUIXOTE CORPORATION & SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the years ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Column A Column B Column C(b) Column D(a) Column E
-------- -------- ----------- ----------- --------
Additions
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Period
----------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for
Doubtful Accounts:
Year ended
June 30, 2000 $ 480,000 $ 530,000 $ 55,000 $ 955,000
========= ========= ========= =========
Year ended
June 30, 1999 $ 565,000 $ (70,000) $ 15,000 $ 480,000
========= ========= ========= =========
Year ended
June 30, 1998 $ 165,000 $ 405,000 $ 5,000 $ 565,000
========= ========= ========= =========
</TABLE>
NOTES:
(a) Column D represents accounts written off as uncollectible, net of
collections on accounts previously written off.
(b) Column C additions for 1998 include $400,000 related to the acquisition of
Highway Information Systems.
33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBITS
-------------- --------------------------------------------------------
<S> <C>
10(a) THIRD AMENDMENT AND WAIVER TO AMENDED AND RESTATED
LOAN AGREEMENT AND AMENDED AND RESTATED
REVOLVING CREDIT NOTES OF QUIXOTE CORPORATION.
10(b) QUIXOTE CORPORATION 1991 DIRECTOR STOCK OPTION PLAN AS
AMENDED AUGUST 16, 2000.
10(c) QUIXOTE CORPORATION 1993 LONG-TERM STOCK OWNERSHIP
INCENTIVE PLAN AS AMENDED AUGUST 16, 2000.
10(e) AMENDMENT NO. 1 TO EXECUTIVE EMPLOYMENT AGREEMENT EFFECTIVE
AS OF JULY 1, 2000 BETWEEN QUIXOTE CORPORATION AND
PHILIP E. ROLLHAUS, JR.
10(f) SUMMARY PLAN DESCRIPTION FOR INCENTIVE SAVINGS PLAN
AMENDED JANUARY 1, 2000.
21 SUBSIDIARIES OF THE COMPANY.
23 CONSENT OF INDEPENDENT ACCOUNTANTS.
27 FINANCIAL DATA SCHEDULE
</TABLE>
34
