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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, 1995
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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 (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.
$ 94,369,210 as of August 31, 1995
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of August 31, 1995 there were 7,862,495 shares of common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the Registrant's Annual Meeting of
Stockholders, to be held November 16, 1995, is incorporated by reference in Part
III to the extent described therein.
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TABLE OF CONTENTS
PART I
PAGE
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Item 1. Business...................................................... 4-16
Item 2. Properties.................................................... 17-18
Item 3. Legal Proceedings............................................. 19-23
Item 4. Submission of Matters to a Vote of Security Holders........... 23
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 24
Item 6. Selected Financial Data....................................... 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 25-28
Item 8. Financial Statements and Supplementary Data................... 29-44
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 44
PART III
Item 10. Directors and Executive Officers of the Registrant............ 45
Item 11. Executive Compensation........................................ 45
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................. 45
Item 13. Certain Relationships and Related Transactions................ 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................. 47
SIGNATURES................................................................ 53
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PART I
THE COMPANY
Quixote Corporation was originally incorporated under the laws of the State of
Delaware in 1969 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
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Quixote Corporation is a diversified technology company which develops,
manufactures and markets specialized products through three principal
subsidiaries. Energy Absorption Systems, Inc. develops, manufactures and
markets energy-absorbing highway crash cushions and related highway safety
products for the protection of motorists and highway workers. Legal
Technologies, Inc., created in July 1993 to hold the Company's investments in
Stenograph Corporation and its subsidiaries, is a designer and supplier of
hardware and software for the legal, judicial and court reporting markets. Disc
Manufacturing, Inc. manufactures music compact discs (CD's) and CD-ROM discs.
As of June 30, 1995, Quixote Corporation and its subsidiaries employed 1,599
people.
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HIGHWAY SAFETY DEVICES
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Description of Business
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The patented highway crash cushions manufactured by Energy Absorption Systems,
Inc. 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 Energy's 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; crash cushions have saved over 21,000 lives since
1969.
Energy develops, manufactures and markets a line 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, a line of
crash-worthy guardrail end treatments, a line of energy absorbing products for
use in construction zones, and a line of crash-worthy longitudinal barriers.
The product lines utilize the principles of momentum transfer and kinetic energy
to safely decelerate errant vehicles.
The Hi-Dro(R) system consists of a specialized grouping of reusable water-filled
vinyl tubes with orifices in the tube tops. In a collision, the system is
compressed, the water is ejected from the tubes in a controlled manner and the
force of the impact is absorbed and dissipated. The unit can be used again by
repositioning the unit and refilling the tubes. The Hi-Dro Cushion system is
favored for wide hazards at sites where a high frequency of impacts and low
maintenance costs after an impact is a major consideration.
The Hex-Foam(R) Sandwich system utilizes replaceable cartridges containing dry
energy absorbing materials. The unit compresses when struck by a vehicle and
the force of impact is dissipated by the crushing of the energy absorbing
materials. The unit can be used again by repositioning the unit and replacing
the spent cartridges. The Hex-Foam Sandwich system is favored for wide hazards
where quick maintenance after an impact is a major consideration.
The Guardrail Energy Absorbing Terminal (G-R-E-A-T)(R) system consists of
cartridges containing dry energy absorbing materials surrounded by a framework
of triple corrugated steel guardrail panels. When hit head on, the cartridges
crush to absorb the force of impact while the guardrail panels telescope
inwards. The guardrail panels are generally reusable, but after impact some or
all of the cartridges must be replaced. This system is suited for sites having
a relatively low frequency of impact or insufficient space available for a Hi-
Dro Cushion system or a Hex-Foam Sandwich system. The G-R-E-A-T CZ
(construction zone) system is a portable crash cushion system designed to shield
construction zone barriers and to be moved and reused when construction is
completed.
The Energite(R) crash cushion system is an inertial barrier system consisting of
a grouping of sand-filled plastic modules. When struck by a vehicle, the system
dissipates the force of impact as the modules break up and the sand is thrown
free. Although this crash cushion system has the lowest initial cost of all the
crash cushion systems, it has the highest repair cost since the entire system
may be destroyed during an impact.
The BRAKEMASTER(R) System offers a cost-effective alternative for shielding
narrow hazards in low frequency impact areas. The BRAKEMASTER System consists
of a framework of W-beam steel guardrail panels and diaphragms which move
rearward when hit head-on. A patented braking mechanism provides frictional
resistance, which brings an impacting
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vehicle to a controlled stop. When hit from the side, the overlapping W-beam
panels and tensioned guidance cable assist in safely redirecting vehicles.
The LMA(TM) (Low Maintenance Attenuator) System provides protection for narrow
hazards in high-frequency impact areas. The LMA System consists of specially
formulated elastomeric cylinders surrounded by a framework of triple-corrugated
steel guardrail panels. When hit head-on, the elastomeric cylinders compress
and the overlapping thrie-beam panels telescope rearward, absorbing the kinetic
energy of the impact. The reusable components make the LMA System the ideal
crash cushion for narrow hazards in high-frequency impact areas.
Energy has also developed and markets safety end terminals called the TREND(TM)
and the Sentre(TM) that have been designed to reduce the spearing or ramping
which often occurs when lightweight vehicles impact the end of many existing
guardrails. The TREND provides a level of crash protection equal to that of the
Sentre, but in areas unsuited for the installation of the Sentre.
The TMA (Truck Mounted Attenuator) system is a crash cushion designed for
mounting on the back of slow moving or parked highway maintenance vehicles to
protect against damage and injury resulting from rear end collisions. The
system also shields personnel working in front of the construction vehicles. In
1993, Energy introduced the first TMA with capacity to safely decelerate a
pickup truck impacting a crash cushion at 60 m.p.h. The system has a unique
patented secondary absorbing system that when added to Energy's three stage
cartridge provides its high capacity.
In 1989, Energy acquired the world-wide patents and licensing agreements
covering the movable traffic barrier system of Quick-Steel Engineering Pty. Ltd.
of Botany, Australia. The patents and agreements cover a movable traffic
barrier system used in construction zones to protect workers and in reversible
lanes to increase the flow of high-density traffic. The system is currently
marketed by two licensees; one covering the U.S. and Canada; the other covering
Europe. Energy assists the licensees in the promotion and sale of the movable
barrier system in other parts of the world. Energy receives an 8% royalty on
the sales of such products by its licensees.
Energy has also developed and markets the Triton Barrier(TM), a plastic water
filled traffic barrier that can be easily moved into construction zones to
protect workers. This barrier is the first of its type to meet the new FHWA
specifications NCHRP 350, and was approved by FHWA as eligible for federal-aid
funding.
In 1993, Energy introduced the BarrierGate(TM), a patented, automatic, sliding
gate for insertion in highway median barriers, permitting U-turns only by
authorized vehicles. The unit meets all NCHRP 350 performance specifications
and was approved by FHWA for use on federal-aid road projects. This product
provides toll roads and states additional options to improve the safety of roads
divided with concrete median barriers but have breaks for emergency vehicles.
Energy generally does not perform site preparation or installation for any of
its products. Such services must be obtained from others.
Spin-Cast Plastics, Inc., a wholly-owned subsidiary of Energy Absorption
Systems, manufacturers rotational molded plastic products including the
Energite(R) system, plastic components used in Energy's other product lines, as
well as custom designed plastic components for industrial products.
In July 1992, Energy purchased the stock of Composite Components, Inc. CCI is a
development-stage company organized to develop an Electro-Cured(TM) system for
the repair and rehabilitation of underground sewer pipes. The CCI system uses
existing manholes to pull a resin-soaked liner through the sewer pipe, and
inflate the liner to the pipes full inner diameter with air pressure. An
electrical circuit connected to the liner cures the liner into a strong,
durable, corrosion-resistant pipe within a pipe. CCI continues to conduct
research and development on the process.
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In December of 1993, Energy purchased the stock of the Safe-Hit Corporation.
Safe-Hit manufactures and markets a line of flexible sign and guide post systems
and a glare screen system. The guide posts, extruded from polypropylene, are
used to delineate a travel way, channelize vehicles or mark the location of an
object. The post features an in-ground anchor system that permits rapid and
inexpensive replacement techniques. The glare screen system, also made from
polypropylene, is installed on top of median barriers to eliminate the
distraction of lights from an oncoming vehicle on roads where the inside lanes
are adjacent to the median barrier. Both products are covered by patents.
Competition and Marketing
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Energy's products have been sold in all 50 U.S. states. Six regional managers
supervise Energy's 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 Energy's products.
Energy sells its products principally to its distributors and contractors with
less than 5% sold directly to state and local government agencies.
Many international governments are now beginning to recognize the need for crash
cushions as a method to reduce traffic fatalities. Energy's products have been
sold in 34 foreign countries. Energy's two international consultants and 38
foreign agents make sales to municipal and national governments and contractors
who are responding to bids from the respective governments.
Although Energy does experience some competition in specific product lines,
particularly in the Energite, G-R-E-A-T and TMA lines, 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.
Safe-Hit products are sold by regional managers who supervise a large number of
distributors and make sales calls on certain state department of transportation
offices and contracting firms. A number of other companies manufacturer
flexible guide posts.
Government Policies
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The market for crash cushions is directly affected by Federal, state and local
governmental policies. A substantial portion of Energy'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. The
Intermodal Surface Transportation Efficiency Act of 1991, signed into law on
December 18, 1991, provides authorization for highways and highway safety.
Total funding of approximately $150 billion could be available over a six year
period. Once the funds are distributed to the states, each state must set aside
10 percent 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 Federal Highway Administration. All stationary crash cushion
systems that Energy currently markets have been so approved, and Energy is
obligated to seek such approval for improvements or upgrades to those systems
and for any new systems.
Energy 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. Energy 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, Energy is seeking to develop or
to acquire new products which can be sold through its existing distribution
networks to its existing customers.
-7-
Backlog
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As of June 30, 1995, 1994, and 1993, Energy had a backlog of unfilled orders for
highway safety devices of $10,200,000, $8,057,000 and $5,626,000 respectively.
The Company can usually fill an order within 6 to 8 weeks of receipt.
Research and Development; Patents
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Energy conducts its own research, development and testing of new products before
introducing them to the marketplace. The expenditures for research and
development activities were $1,545,000, $1,972,000 and $1,864,000 in the years
1995, 1994, and 1993, respectively.
Energy 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
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The principal raw materials used in the production of highway safety devices are
plastic and plastic resins, steel, and plywood components. These raw materials
are purchased from various suppliers and have been readily available throughout
the last year. Energy believes that adequate supplies of these materials will
continue to be available.
Major Customers
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No single customer represents a significant portion of Energy Absorption's
highway safety business.
Other
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In April 1995 Energy Absorption acquired a 40% interest in Quantic Industries,
Inc. for $6.7 million. Quantic is a manufacturer of electronic and pyrotechnic
devices for the aerospace and defense industries and has also developed a low-
cost proprietary initiator for automobile airbag systems.
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LEGAL TECHNOLOGIES
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Description of Business
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Legal Technologies, Inc. was formed in July, 1993, to serve as the umbrella for
several related legal companies: Stenograph Corporation, Discovery Products,
Inc. (formerly Stenograph Legal Services, Inc.), Litigation Sciences, Inc.,
Integrated Information Services, Inc. and Court Technologies, Inc. These
companies within Legal Technologies each specialize in particular areas of the
legal market and work together to develop and market technologically advanced
products and services for the legal market.
Stenograph Corporation
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Stenograph Corporation was the pioneer in the development of the shorthand
machine. It is now the leading manufacturer of manual, electric and electronic
shorthand machines. These shorthand machines are used primarily by court
reporters and students studying to be court reporters. During the fifty years
of Stenograph's business, machine shorthand has been widely accepted in the
United States as the most accurate and efficient method for the verbatim
reporting of court proceedings, depositions, hearings and meetings.
The Stenograph family of shorthand machines are used by most of the court
reporters in the United States. The machines use a unique keyboard which
enables the reporter to "type" a machine shorthand phonetic code at speeds in
excess of 225 words per minutes, approximately as fast as a person talks.
Stenograph has automated the process by which the notes produced by a shorthand
machine operator are transcribed into a final transcript. This innovation,
known as computer-aided transcription or "CAT", has greatly increased the
productivity of the court reporter and the speed within which a final transcript
can be produced and delivered.
Until the development of CAT systems, the standard practice had been for the
machine shorthand reporter to translate the shorthand symbols imprinted on the
manual shorthand machine's paper tape and to dictate this text into a tape
recorder. A rough transcript was then prepared by a typist listening to the
recording of the dictation. This rough transcript was next edited by the
reporter and a final transcript was then prepared by the typist. Using this
method, substantially more time was spent by the court reporter in dictating his
or her notes and in editing the draft transcript than was spent in taking the
shorthand notes.
The principal components of a CAT system are an electronic shorthand machine,
CAT software, computer and a printer. The primary input to a CAT system is an
electronic shorthand machine, such as the Stentura(R) by Stenograph which can
operate in two modes. The Stentura 8000 has the ability to translate the steno
into text as it is written. The translated text may then enter the computer
directly or on a 3-1/2 inch floppy disk. The Stentura 6000 performs all the
functions of the 8000 but does not translate. The computer, after translation,
displays the text on a screen where the necessary editing is done by the
reporter. After editing, the final transcript is automatically produced on a
letter-quality printer at speeds of up to 1,000 pages per hour.
Stenograph introduced a new CAT software product called Premier Power(R) in
1993. It is a translation and advanced editing software system designed to
replace Stenograph's three prior CAT software systems, Cimarron, OZ PC and
OmniCat(R), as well as to introduced numerous advanced functions.
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Stenograph's education and supplies division markets diskettes, cassettes,
paper, tripods, video supplies, carrying cases, printer supplies, ink, ribbons
and other supplies for shorthand machines and computer-aided transcription
systems. Textbooks on machine shorthand, cassettes and other teaching materials
are sold by Stenograph to schools which train users of shorthand machines and
systems. Stenograph also sells the Stentura series of writers to court
reporters for use with CAT systems manufactured by competitors.
Competition and Marketing
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Free-lance and official court reporters are the primary market for CAT systems
and electronic shorthand machines. Stenograph also sells manual shorthand
machines, supplies, textbooks and other teaching materials on machine shorthand
to over 500 dealers and schools. CAT systems and electronic shorthand machines
are sold by both a direct and indirect sales force. Stenograph also sells
electronic shorthand machines to its competitors for use with their CAT systems.
Stenograph offers a complete turnkey system that includes the CAT software,
computer, printer and electronic shorthand machine. Stenograph continually
evaluates current hardware technology, and offers hardware that provides the
highest quality with the best service at affordable prices. Stenograph offers
24 hour-7 days a week software support along with training, electronic bulletin
board, customer installations, and advanced seminars. The shorthand machine
warranty is maintained by Stenograph. Other hardware sold is serviced under the
manufacturer's warranty.
Stenograph believes that there are some 36,000 court reporters in the United
States. The vast majority of these court reporters learned their machine
shorthand on a machine manufactured by Stenograph and currently own one or more
manual or electronic Stenograph shorthand machines. Stenograph estimates that
some 10,000 people enroll as new students in court reporting schools each year
and that approximately 1,500 people enter the court reporting profession as
certified court reporters each year.
Stenograph has no significant competition in the manual shorthand machine
market. In the electronic shorthand machine market Stenograph has several
competitors in the U.S. and a number of additional competitors in the
international markets. In the CAT software market, a number of companies sell
computer-aided transcription systems.
Stenograph believes that revenues from domestic CAT system sales industry-wide
have remained relatively flat over the last several years and moreover does not
expect revenues in the industry to increase significantly. The market for these
products will increasingly depend on new reporters entering the court reporting
profession and the replacement market. In its sale to courts and court
reporters, Stenograph also faces competition from video taping and audio taping
systems which are being used to provide the permanent record of court
proceedings and depositions. These systems are marketed as being a lower cost
method than the CAT systems. Competition and market saturation has had a
limiting effect on gross profit margins. Stenograph believes it can continue to
successfully compete in the CAT market by providing a high level of service to
the market through continual development of software enhancements and system
support.
Stenograph also markets its products in foreign countries, particularly England
and Australia, through distributors and Stenograph's own sales force.
Stenograph has developed and is introducing shorthand theories in French,
German, Spanish and Russian in an effort to expand foreign sales.
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Discovery Products, Inc.
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Discovery Products, Inc. was founded in 1990 to develop, market and sell
software and other technology based products to the legal market. Since its
formation, the company has developed a variety of litigation support products
including Discovery ZX(R), Discovery Pro(TM) and Discovery Video ZX(R). These
products provide legal professionals with tools to increase productivity by
allowing lawyers and legal assistants the ability to rapidly search and retrieve
audio, video and text of a court proceeding or deposition.
Competition and Marketing
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Discovery's products are sold by telemarketers to a dealer base of 930 court
reporting firms who remarket the products directly to law firms. There are a
number of competitors offering products similar to those of Discovery, including
off-the-shelf software programs that offer many of the same features as
Discovery's products.
Litigation Sciences, Inc.
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In December, 1993, Stenograph Corporation acquired the net assets of Litigation
Sciences, Inc. (LSI), a firm specializing in three primary areas of the
litigation process: jury research and trial consulting, communications training
and preparation of demonstrative exhibits.
The jury research and trial consulting group has a team of experienced social
scientists that help trial lawyers understand the biases, prejudices and
perceptions that people bring with them into the courtroom. This knowledge
permits them to predict how people are likely to react to what a lawyer intends
to do and say. Based upon these empirical findings, they are able to recommend
strategies and tactics which will be maximally persuasive and effective.
The LSI communications training practice was established to counsel lawyers and
key witnesses on the most effective structure, language and style of
communicating to the trier-of-fact.
The graphic evidence group of LSI has a staff of experienced producers and
directors that work closely with the client in the preparation of demonstrative
exhibits. These exhibits may be as simple as a posterboard representation of
facts to as complex as multi-dimensional computer animation.
Competition and Marketing
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LSI's services are sold by its consultants who are located within the major
metropolitan areas across the country. There is significant competition in this
business segment from a number of competitors offering consulting services and
products similar to those of LSI. LSI competes on the basis of price and
service.
Integrated Information Services, Inc.
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In July, 1993, Stenograph Corporation acquired the net assets of CompuLitS,
Inc., an imaging services company specializing in computerized litigation
support. The company was renamed Integrated Information Services, Inc. (IIS).
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IIS is an electronic imaging service company specializing in the conversion of
documents and data to a secure, accessible electronic format. The company
provides flexible, customized solutions based on a proven methodology for
handling millions of documents in an organized and efficient manner. IIS is an
expert in high volume, fast turnaround image conversion.
The company provides the following services:
a. Conversion of microfilm, microfiche, paper, video and existing image
documents to optical or CD-ROM media.
b. The creation of searchable text for full-text database applications. IIS
performs high quality OCR/ICR (Optical and Intelligent Character
Recognition), including zone recognition and OCR clean-up services.
c. Indexing, or the process of extracting critical descriptive information
about each document and entering it into a client database for the
retrieval of imaged documents. IIS provides high level objective and
subjective indexing services to meet the requirements of their clients.
Competition and Marketing
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IIS has a direct sales force, which is supported by its telesales group, located
at its corporate headquarters in Carmel, Indiana. The primary sales effort is
concentrated within the legal market on a national basis, focusing on law firms,
corporate legal departments and governmental groups. There are approximately 25
competitors offering services similar to those of IIS. This segment experiences
significant competition that has had a limiting effect on profit margins. IIS
competes on the basis of price and service.
Court Technologies, Inc.
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Court Technologies, Inc. (CTI) has developed an advanced integrated technology
solution for the courtroom. This solution combines real time translation and
multi-media to provide a multi-dimensional audio, video and text based approach
to court proceedings. CTI's Visual Due Process(TM) product is a courtroom video
system which combines video, audio and personal computer technology utilizing a
unique six-way screen to allow for remote arraignment of a defendant or remote
testimony of vulnerable witnesses.
The Company believes that the market for courtroom systems is growing slower
than it expected and in addition, the Company is involved in litigation related
to this technology as discussed in Item 3.F. As a result, the Company has
discontinued its sales and marketing effort at Court Technologies.
Backlog
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As of June 30, 1995, 1994 and 1993, the Legal Technologies companies had a
backlog of unfilled orders and contracts in progress of $1,412,000, $1,850,000
and $385,000, respectively.
Research and Development; Patents
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Legal Technologies incurred research and development costs of approximately
$1,889,000, $1,453,000 and $1,220,000 in the years 1995, 1994 and 1993
respectively.
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Legal Technologies owns a number of U.S. and foreign patents, which protect
portions of some of its products, as well as trademarks on its name and the
names of some of its products and copyrights on its instructional materials and
computer programs.
Raw Materials
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The principal raw materials used in the production of Legal Technologies'
products are plastic, steel, aluminum and paper. Legal Technologies believes
that adequate supplies of all materials will continue to be available.
Major Customers
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No single customer represents a significant portion of Legal Technologies
business.
Other
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The Legal Technologies segment continued to incur significant losses during
fiscal 1995. The Company realizes that significant operating improvements must
be made if Legal Technologies is to continue to operate under its existing
structure. The Company is considering various alternatives to reduce the losses
at Legal Technologies.
-13-
COMPACT DISC MANUFACTURING
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Description of Business
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Quixote established a venture in 1975 in Anaheim, California to research optical
disc technology. In 1983, the venture, which was named LaserVideo, Inc.,
manufactured the first audio CD in the United States. LaserVideo opened its
second, a significantly larger, CD manufacturing facility in Huntsville, Alabama
in 1986. In December, 1987 Quixote sold LaserVideo to LaserVideo Acquisition
Corporation (LVAC), a wholly owned subsidiary of Disctronics Australia Limited
for $55,500,000, consisting of $29,000,000 in cash and $26,500,000 in a note.
As a result of LVAC's failure to pay the note when due and after various legal
actions and agreements between the parties, LaserVideo was reacquired on May 1,
1990 and renamed Disc Manufacturing, Inc. (DMI). The Company is involved in
litigation related to this reacquisition of DMI which is discussed in
Item 3 Legal Proceedings in this Form 10-K.
DMI's principal activity is the manufacturing of optical discs. The optical
disc is a medium for storing audio, video, text or graphics information and
includes compact music discs (CD's) and CD-ROM, as well as other types of
optical discs. DMI converts information, generally either music or data,
supplied by its customers, to optical disc format and then manufactures these
optical discs for its customers. In many cases, DMI may also package these
discs such that they would be ready for retail distribution. The advantage of
optical discs is that they provide superior sound quality to that of competing
audio media and can store vast amounts of information. One CD-ROM can contain
up to 650 megabytes of data, or the equivalent of 250,000 pages of text.
During 1994, DMI began a three year expansion plan that upon completion will
increase its annual capacity to approximately 200 million discs. In August
1994, DMI acquired a 218,000 square foot building in Anaheim, California to
replace its smaller existing facility located nearby. DMI expects the total
expansion to cost about $65 million. During May 1995, DMI began producing CD's
at the new Anaheim facility.
Approximately 58% of DMI's revenues during 1995 were from the manufacturing of
CD's, 37% of revenues from CD-ROM manufacturing and the remainder from services
such as special mastering and other contract research and development type
activities.
DMI is one of the ten largest compact disc manufacturers in the United States.
DMI's plant in Huntsville, Alabama has a current annualized capacity of
approximately 135 million discs.
DMI's Anaheim facility has an annual production capacity of 52 million discs.
While the plant continues to produce CD's to meet West Coast-based CD-ROM and
music companies' requirements, the facility also is used for contract research
and development of non-audio optical storage products.
-14-
Competition and Marketing
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CD's
- ----
Six large international music companies, known as the "majors," have
historically accounted for nearly 90 percent of the industry's U.S. music sales.
Each of these companies is vertically integrated to varying degrees. The majors
are as follows:
*WEA (Warner Elektra Atlantic, part of Time Warner);
*Sony Music (previously CBS Records)
*MCA (a subsidiary of Seagrams);
*Capitol/EMI (a subsidiary of Thorn/EMI of the United Kingdom);
*PolyGram (partially owned by NV Philips of Holland); and
*BMG/RCA (part of the Bertelsmann Group of West Germany).
Most of the majors use outside sources, as a complement to their own facilities,
to manufacture their music. While the majors account for about 90 percent of
the U.S. music market, the remainder of the market is comprised of a large group
of small record companies. DMI sells CD's through a direct sales force to both
the majors and independent record labels.
Presently there are more than forty CD manufacturers in the United States.
Although production capacity exceeds the anticipated calendar year 1995
shipments of CD's, this excess capacity is utilized to meet the seasonal demands
and short turnaround times in the CD industry. DMI competes for CD business on
price and service. As CD volumes have increased, selling prices for CD's have
declined. This has adversely affected profit margins at DMI. The Company
expects selling prices to continue to decline within the foreseeable future.
The audio market may also be affected by new competing music formats.
CD-ROM
- ------
The market for CD-ROM's is much more widely dispersed than music CD's and
includes publishers, consumer and commercial software distributors and other
companies that need a cost effective way to disseminate large amounts of data
with easy search and retrieval capabilities. There are more than 40
manufacturers of CD-ROM's in the United States. These manufacturers include
many of those that make music CD's and in addition include some companies that
manufacture CD-ROM's exclusively. DMI sells CD-ROM's through a direct sales
force and value-added resellers. DMI competes on the basis of quality, price
and customer service. While selling prices are greater for CD-ROM's than for
music CD's, selling prices are declining as this market develops. The Company
expects a continued decline in selling prices which will adversely affect profit
margins at DMI.
Backlog
- -------
As of June 30, 1995, 1994 and 1993 DMI had a backlog of unfilled orders totaling
$3,552,000, $2,033,000 and $2,170,000 respectively. Typically, music and CD-ROM
companies demand manufacturing turnaround times (the time from which a sales
order is received until that order is shipped) of ten days or less. Because of
this, DMI believes the size of the backlog is not an effective indicator of its
operating status.
-15-
Research and Development; Patents
- ---------------------------------
No significant research and development is conducted on DMI's own behalf.
DMI has entered into licensing arrangements with certain companies holding
patents with respect to optical disc technology. These arrangements require DMI
to pay royalties on each disc produced. Other companies have sued DMI for
infringement related to their patents on optical disc technology. This
litigation is discussed more fully in Item 3 Legal Proceedings in this Form 10-
K.
Raw Materials
- -------------
The principal raw materials in the manufacture of compact discs are
polycarbonate, aluminum, UV curable protective coating and ink. All items
are available from multiple sources and competitively priced. DMI
understands there may be a short term shortage of polycarbonate and has
purchased additional quantities of this material to ensure an adequate
supply. DMI believes that adequate supplies of all materials will continue
to be available in the long term.
Major Customers
- ---------------
DMI has manufactured CD's for all six of the major U.S. music companies. The
Bertelsmann Music Group, which includes the RCA label, has historically been the
largest single customer of DMI, accounting for 38%, 41% and 50% of its annual
revenue during the years ended June 30, 1995, 1994, and 1993 respectively. No
other customer accounts for 10% or more of total DMI revenues.
-16-
Item 2. Properties
- -------------------
Owned or
Location Available Space Purpose Leased
- -------- --------------- ------- --------
One East Wacker Drive 13,000 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
632 Wheeling Road 2,000 sq. ft. Research and development Leased
Wheeling, Illinois for sewer repair
3300 N. Kenmore Street 81,000 sq. ft. Sale and manufacture of Owned
South Bend, Indiana highway safety devices
739 College Drive 28,000 sq. ft. Storage facility for Owned
South Bend, Indiana highway safety devices
1930 West Winton Avenue 20,000 sq. ft. Manufacture of highway Leased
Hayward, California safety devices
1500 Bishop Court 75,000 sq. ft. Sale and manufacture of Leased
Mount Prospect, Illinois Stenograph machines and
systems
431 Lakeview Court 4,300 sq. ft. Sale of legal and Leased
Mt. Prospect, Illinois judicial software
1420 Harbor Bay Parkway 10,900 sq. ft. Software development Leased
Alameda, California
3000 Executive Parkway 5,000 sq. ft. Sublet Leased
San Ramon, California
1120 Ave. of the Americas 230 sq. ft. Trial consulting office Leased
New York, New York
11911 North Meridian Court 27,000 sq. ft. Provider of document Leased
Carmel, Indiana imaging and litigation
support services
200 Corporate Pointe 19,800 sq. ft. Trial consulting office Leased
Culver City, California and graphics studio
110 Sutter Street 2,400 sq. ft. Trial consulting office Leased
San Francisco, California
-17-
Owned or
Location Available Space Purpose Leased
- -------- --------------- ------- --------
8214 Westchester 175 sq. ft. Trial consulting office Leased
Dallas, Texas
999 Peachtree Street, N.E. 2,500 sq. ft. Trial consulting office Leased
Atlanta, Georgia
225 West Washington 5,291 sq. ft. Trial consulting office Leased
Chicago, Illinois and graphics studio
101 West Ohio 3,000 sq. ft. Sublet Leased
Indianapolis, Indiana
10 Post Office Square 320 sq. ft. Trial consulting office Leased
Boston, Massachusetts
111 Bagby Street 8,100 sq. ft. Trial consulting office Leased
Houston, Texas and graphics studio
4905 Moores Mill Road 332,000 sq. ft. Manufacture of compact Owned
Huntsville, Alabama discs and CD-ROM's
1120 Cosby Way 31,000 sq. ft. Manufacture of compact Owned
Anaheim, California discs and CD-ROM's
3400 E. LaPalma Avenue 218,000 sq. ft. Manufacture of compact Owned
Anaheim, California discs and CD-ROM's
3500 West Olive Street 1,500 sq. ft. Sale of compact discs Leased
Burbank, California
1409 Foulk Road 3,000 sq. ft. Sale of CD-ROM's Leased
Wilmington, Delaware
441 Lexington Avenue 1,000 sq. ft. Sale of compact discs Leased
New York, New York
Note: Present facilities are believed to be adequate to support the Company's
current and anticipated requirements.
-18-
Item 3. Legal Proceedings
- --------------------------
A. DMI - REACQUISITION RELATED LITIGATION. On January 17, 1989, in a case
entitled QUIXOTE CORPORATION v. LASERVIDEO ACQUISITION CORPORATION a/k/a LV
ACQUISITION CORP., DISCTRONICS AUSTRALIA LIMITED, AND QUATRO LIMITED, No.
89 CH 370, the Company filed suit in the Circuit Court of Cook County,
Illinois, County Department, Chancery Division after LaserVideo Acquisition
Corp. ("LVAC") defaulted on a $26.5 million note guaranteed by Quatro
Limited ("Quatro") and Disctronics Australia Limited. The note was part of
the payment due to Quixote in connection with the sale of its former
LaserVideo, Inc. (now known as "Disc Manufacturing, Inc." or "DMI")
subsidiary to the "Disctronics Group" (including Disctronics Limited,
Disctronics Australia Limited, Quatro, LVAC, and their affiliates).
On March 7, 1989, the Court entered a judgment in favor of the Company
against LVAC, Disctronics and Quatro in the amount of $26,500,000,
following the failure by the Disctronics Group to pay the amount due under
a February 3, 1989 agreed settlement order. The judgment additionally
entitled the Company to post-judgment interest of 10.5% per annum
compounded quarterly until the judgment was satisfied.
On March 17, 1989, the parties entered into an agreement pursuant to which,
among other things, the parties entered into agreed orders staying the
proceedings in the Illinois litigation and in a companion case filed in the
Court of Chancery of the State of Delaware, New Castle County, on March 8,
1989 and entitled Civil Action No. 10668, QUIXOTE CORPORATION v. LASERVIDEO
ACQUISITION CORPORATION, DISCTRONICS MANUFACTURING, INC., DISCTRONICS
LIMITED, DISCTRONICS AUSTRALIA LIMITED AND QUATRO LIMITED.
The Cook County and Delaware lawsuits were finally settled in December,
1989, when the parties entered into a comprehensive Work-Out Agreement
pursuant to which Quixote became a DMI shareholder. On April 30, 1990,
through the mechanisms established in the Work-Out Agreement, and as a
result of the failure of the Disctronics Group to exercise an option to
purchase Quixote's rights under the Work-Out Agreement, Quixote again
became the sole shareholder of DMI.
Since then, the following lawsuits have been filed and remain pending.
1. DISC MANUFACTURING, INC. ET AL. v. MASSEY ET AL., CV-90-H-01029-NE
(U.S. District Court for the Northern District of Alabama). On May 21,
1990, Quixote and DMI filed this lawsuit against Disctronics Limited,
Disctronics (US) Inc., Disctronics, Inc., Moray Investments Limited
("Moray"), Memory-Tech, Inc. ("Memory-Tech") and individuals Peter Massey,
Kevin Donovan, David Mackie, and Douglas Adams. This lawsuit alleges that
the individual defendants, each a DMI director until April 30, 1990, had in
concert with Disctronics Limited and its affiliated companies,
misappropriated DMI's corporate opportunity to acquire Memory-Tech, a
competing compact disc manufacturer located in Plano, Texas. Rather than
present this opportunity to DMI, the Disctronics Group and the individual
directors caused Disctronics Limited to acquire Memory-Tech through a new
subsidiary, Moray. While DMI and Memory-Tech were operated as an
integrated company between March 2, 1990 (the acquisition date of Memory-
Tech) and April 30, 1990, Memory-Tech competed with DMI after April 30,
when Quixote gained control of DMI pursuant to the Work-Out Agreement. In
this lawsuit, Quixote and DMI sought a constructive trust over Memory-Tech
in favor of DMI, along with unspecified damages.
The lawsuit also alleges that the defendants had violated DMI's federal
trademark rights in the name "Disctronics", by operating Memory-Tech under
the "Disctronics" name in competition with DMI. DMI was known as
Disctronics Manufacturing, Inc. and used the trade name Disctronics, Inc.
from approximately
-19-
June, 1988 until May 18, 1990. The complaint seeks both money damages and
equitable relief.
On June 11, 1990, the Court dismissed the claims against the individual
defendants because of a lack of federal jurisdiction, and declined to
exercise pendant jurisdiction over the state law corporate opportunity
claims. Currently, Quixote and DMI's federal trademark claims are their
only claims now pending in the federal district court action.
On December 31, 1991 the remaining corporate defendants filed affirmative
defenses to DMI's claims and certain of the defendants filed counterclaims
alleging breach of contract, economic duress, tortious interference with
contract and business relations, unjust enrichment, fraud, unfair
competition and seizure of corporate opportunity among other claims. On
January 17, 1992 DMI filed an answer and affirmative defenses to the
counterclaim and also moved to dismiss the counterclaim and affirmative
defenses, which motion was denied on February 10, 1992. On September 25,
1992, the Court dismissed all of the defendants' state law counterclaims,
in order to allow those claims to be resolved in the parallel state court
action. This left only the parties' federal trademark claims, which were
stayed, pending resolution of the state court action.
2. DISC MANUFACTURING, INC. ET AL. v. MASSEY ET AL., CV90-1214L (Madison
County Circuit Court, Alabama). On June 13, 1990, DMI and Quixote refiled
their state law corporate opportunity claims, along with a claim under the
Alabama trademark law, in the Circuit Court for Madison County, Alabama
(Huntsville), the jurisdiction in which DMI is located. Quixote and DMI
asked the Court to impose a constructive trust on Memory-Tech in addition
to an unspecified amount of damages. The Court initially granted a
temporary restraining order precluding defendants from transferring any
interest in Memory-Tech pending the Court's determination following a
preliminary injunction hearing. Following the preliminary injunction
hearing, on July 30, 1990, the Court granted the motion for preliminary
injunction. In connection with the preliminary injunction and pending the
final outcome of the action, Quixote and DMI were required to post a $6
million bond with the Alabama Circuit Court on August 27, 1990. The
defendants appealed the entry of the preliminary injunction and on May 15,
1992 the Alabama Supreme Court reversed the trial court's issuance of the
injunction, remanding the case for further proceedings. Quixote's motion
for a rehearing was denied on July 10, 1992. On May 21, 1992 defendants
filed a Motion for Partial Summary Judgment on all counts of the complaint
asserting breaches of fiduciary duty and using as its basis the Alabama
Supreme Court decision.
In addition, on March 4, 1991, the corporate defendants filed a
counterclaim against Quixote, DMI and James H. DeVries. The counterclaim
was made in twelve counts, including breach of the covenant of good faith
and fair dealing, economic duress (as to the validity of the Work-Out
Agreement), tortious interference with contract and business relations,
unjust enrichment (also a claim with respect to the validity of the Work-
Out Agreement), fraud, breach of contract (not under the Work-Out
Agreement), account stated, claim for money had and received, unfair
competition (with respect to the "Disctronics" trademark), state dilution
claim, breach of fiduciary duty by Mr. DeVries and seizure of corporate
opportunity by Quixote, and a claim for wrongfully seeking injunctive
relief.
The counterclaim sought damages of $73.8 million, to invalidate the Work-
Out Agreement, punitive damages and other relief. The Company and DMI
filed motions to dismiss the counterclaim.
On September 9, 1992, Quixote and DMI filed three additional counts to
specifically enforce a Settlement Agreement reached in June, 1991. On June
21, 1993, the Court entered judgment against Quixote and DMI on those
settlement counts, in response to defendants' Motion for Summary Judgment.
Quixote and DMI filed a motion for reconsideration of that ruling.
-20-
In April 1993, the Company and DMI filed a First Amended Complaint which
added claims for unjust enrichment, fraud and tortious interference.
Defendants moved to dismiss the First Amended Complaint.
In May 1995, the Circuit Court ruled on various outstanding motions. The
Court dismissed all of the Defendants' claims except the following claims:
tortious interference with contract and business relations; fraud; breach
of contract regarding a $300,000 escrow; a state dilution claim; and a
claim for wrongfully seeking injunctive relief.
In its May 1995 Order, the Court also dismissed all of the Company's and
DMI's corporate opportunity claims based on breaches of fiduciary duties,
along with the claims for unjust enrichment. The Court also denied the
Company's and DMI's motion for a new trial with respect to the Court's
prior summary judgment on the Company's and DMI's settlement-related
counts. This left two counts of the Company's and DMI's First Amended
Complaint in the case: a count for tortious interference with contract and
business relations and a count for fraud. Both parties have appealed the
Court's May 1995 ruling.
The Court has referred the case for mediation. A mediator has been
appointed and the mediation process is to be completed by December 1995.
B. REPETITIVE STRESS INJURY LITIGATION. Stenograph is one of a number of
manufacturers of keyboard and other equipment that have been sued by
individuals for arm, wrist and hand injuries, including carpal tunnel
syndrome. All twenty-nine cases filed to date against Stenograph, and in
some cases the Company, contend that the Stenograph machine (or other
keyboard equipment) was defectively designed and that Stenograph failed to
provide adequate warnings about how the equipment should be used to avoid
injury. The cases request actual damages, in some cases specified as
ranging from $500,000 to $1,000,000, and, in most of the cases, punitive
damages, with some cases specifying an amount of $10,000,000. All of the
cases have been referred to the Company's insurance carriers and, at this
time, the Company believes that liability resulting from these cases, if
any, (excluding punitive damages) will be covered by its insurance
policies. All cases are in the early stages of litigation, including the
discovery stage.
C. RESORT VIDEO LTD. v. LASERVIDEO, INC. In September, 1990, DMI was sued by
Resort Video, Ltd. in the Superior Court of the State of California for the
County of Los Angeles in an action entitled RESORT VIDEO, LTD. v.
LASERVIDEO, INC., No. 74659. Resort Video, a former start-up company,
claimed DMI failed to produce certain video discs on schedule, thereby
injuring its business. After a trial, on August 25, 1992, the jury awarded
Resort Video $975,000 in damages. DMI moved for a new trial which was
granted in October, 1992. Plaintiff appealed that decision and DMI cross-
appealed the jury's decision. In June 1995 the California Court of Appeals
affirmed the trial court's order granting a new trial based on excessive
damages. Resort Video's petition for a rehearing was denied and the case
is expected to be returned to the trial court for a new trial by the end of
December, 1995.
D. THOMSON S.A. v TIME WARNER, ET AL. In February, 1994, Disc Manufacturing,
Inc., Quixote Corporation and a number of other companies were sued by
Thomson S.A. of France in the United States District Court for the District
of Delaware in an action entitled THOMSON S.A. v. TIME WARNER, INC., ET
AL., No 94-83. The complaint charges that the defendants have infringed
four Thomson patents by making and selling audio compact discs and requests
an order prohibiting defendants from making or selling compact discs which
infringe on the patents. No specified damages have been asked for although
the complaint asks that damages be trebled because it alleges the
infringement is willful. In the fall of 1994, the Denon and Time Warner
defendants entered into consent judgments with the plaintiff. A trial date
in February 1996 has been assigned.
-21-
E. SHERRELL SEARS v. ENERGY ABSORPTION SYSTEMS. In June, 1994, the
Company, Energy Absorption Systems, and two employees or former employees
were sued in an action entitled SHERRELL AND ROY SEARS v. ENERGY ABSORPTION
SYSTEMS, INC., QUIXOTE CORPORATION, GERALD HAND, KEN WIMMER, UPJOHN
COMPANY, IPI ISOFOAM SYSTEMS AND RELIANCE INSURANCE COMPANY ET AL., in the
Circuit Court of St. Clair County, Alabama, No:CV94-128. Plaintiff claims
that she suffered a miscarriage caused by her exposure to fumes while
working for Energy Absorption. The complaint contains alternating theories
of workmen's compensation, tort, product liability, co-employee liability
and/or negligent safety inspections. No monetary award is specified. In
March 1995, the workmen's compensation claims against Energy Absorption
were settled for a nominal amount. The claims against the Company remain
pending. In August 1995 the Court granted Energy Absorption's motion for
summary judgment, dismissing the claims against the Energy employees.
Also, in August 1995, two of the defendants, UpJohn Company and IPI
Isofoam, settled the claims against them. The case has been referred to the
Company's insurance carriers and is in the early stages of discovery. At
this time, the Company believes that liability resulting from this case, if
any, will be covered by its insurance policies.
F. JEFFREY SMITH v. ENERGY ABSORPTION SYSTEMS. In February, 1994 Energy
Absorption Systems was sued in an action entitled JEFFREY AND JODY SMITH v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF TRANSPORTATION AND ENERGY
ABSORPTION SYSTEMS, INC., in the Court of Common Pleas of Allegheny County,
Pennsylvania, No. GD941220. The complaint alleges that leaking fluid from
a crash cushion manufactured by Energy Absorption Systems caused plaintiff
to lose control of his motorcycle and incur injuries. No monetary award is
specified. The case has been referred to the Company's insurance carriers
and discovery is proceeding. At this time, the Company believes that
liability resulting from this case, if any, will be covered by its
insurance policies.
G. ASHBY v. DISC MANUFACTURING, INC. In January, 1995, Disc Manufacturing,
Inc. and one former and two current employees wre sued in an action brought
under the Civil Rights Act of 1964, as amended, by three female employees
at DMI's Huntsville plant. The complaint seeks injunctive relief and
compensatory and punitive damages for alleged sex discrimination, sexual
harassment, retaliation and tort claims. The complaint also alleged DMI's
failure to pay equal wages to females and seeks to certify a class on
behalf of all similarly situated women. DMI's motion to dismiss the claims
against the two DMI employees has been granted. Discovery is proceeding.
H. DISCOVISION ASSOCIATES v. DISC MANUFACTURING, INC. In January, 1995, Disc
Manufacturing, Inc. ("DMI") was served in an action entitled DISCOVISION
ASSOCIATES v. DISC MANUFACTURING, INC., Case No. 95-21, U.S. District
Court for the District of Delaware. The complaint alleged that DMI is
infringing six DiscoVision patents and seeks injunctive relief and
unspecified damages, including punitive damages, against DMI. In August,
1995, DiscoVision filed a motion for leave to amend its complaint to allege
infringement by DMI of four additional patents which DMI is opposing.
Discovery is proceeding.
I. DISC MANUFACTURING, INC. v. PIONEER AND DISCOVISION. In January, 1995 DMI
filed a complaint against Pioneer Electronic Corp., Pioneer Electronics
(USA) Inc., Pioneer Capital Inc., and DiscoVision Associates in the U.S.
District Court for the Central District of California, Case No. 95-0306,
alleging violations of the antitrust laws and acts of unfair competition
based on unlawful activities and anticompetitive tactics involving patents
related to optical disc technology. DMI's complaint seeks damages,
including punitive damages, and injunctive relief. This case has been
transferred to the District Court in Delaware and consolidated with
DiscoVision Associates' case against DMI pending in that jurisdiction
(described in H. above).
-22-
J. ESTATE OF THIEL v. ENERGY ABSORPTION SYSTEMS, INC. In December, 1994,
Energy Absorption Systems, Inc. ("Energy") was served in an action
entitled FREDERICK W. THIEL AND MAUREEN THIEL v. SLATTERY ASSOCIATES ET
AL., Superior Court of New Jersey, Docket No. MRS-L-1431-94. The complaint
arises from a March, 1992 accident in which the decendent lost control of
his car and allegedly struck one of Energy's crash cusions. The complaint
seeks unspecified damages from Energy and numerous defendants, including
the State of New Jersey, the U.S. Federal Highway Administration and
various other governmental entities. The Company has referred the case to
its insurance carrier and discovery is proceeding. At this time, the
Company believes that liability resulting from this case, if any, will be
covered by its insurance policies.
K. TEKLICON, INC. v. QUIXOTE CORPORATION. In September 1994, the Company was
served in an action entitled TEKLICON, INC. v. QUIXOTE CORPORATION, Santa
Clara, California Superior Court, Docket No. CV743993. The complaint
alleges that the Company owes plaintiff $140,000 for consulting services or
broker fees arising out of the Company's acquisition of Litigation
Sciences, Inc. In March 1995, the plaintiff filed an amended complaint,
adding a claim of fraudulent misrepresentation and claiming $3,000,000 in
additional damages. The Company has filed a general denial and discovery
is proceeding. The parties have stipulated to non-binding arbitration.
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 are not expected to, but could
have a material effect on the Company's financial statements.
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 1995.
-23-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
Matters
The Company's common stock is quoted on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) 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 National Quotations Bureau,
Inc. These prices represent quotations between dealers in securities, do not
include retail markdowns or commissions, and do not necessarily represent actual
transactions.
Quarter Ending 9/30 12/31 3/31 6/30
- -------------- ------- ------- -------- -------
FISCAL 1995
High $22-1/4 $19-1/8 $12-1/2 $12-3/4
Low 17-1/2 10-15/16 9-1/4 9-1/4
FISCAL 1994
High $15-1/4 $17-3/4 $ 21 $ 22
Low 12-1/4 15-1/2 16 16-1/2
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, 1995, there were
2,040 shareholders of record.
DIVIDEND POLICY
During 1995, the Company declared semiannual cash dividends of eleven cents per
share. During 1994 the Company declared semiannual cash dividends of ten cents
and eleven cents per share.
-24-
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
Dollar amounts in thousands, except per share data
For the years ended June 30, 1995 1994 1993 1992 1991
- ---------------------------- -------- -------- -------- -------- --------
Operating results:
Net sales........................$ 185,411 $ 176,938 $ 145,111 $ 129,433 $ 111,811
Gross profit..................... 61,609 65,610 59,657 52,110 42,772
Selling and administrative expenses 44,715 41,787 36,727 29,757 29,607
Research and development expenses 3,434 3,426 3,084 3,335 4,764
Other income (expense)........... (4,285) (2,558) (2,587) (3,497) (4,868)
Earnings from continuing operations 5,950 11,644 9,441 7,967 1,915
Net earnings (loss).............. 5,950 11,644 9,441 7,967 (3,131)
Cash dividends per common share.. .22 .21 .20
Per share data:
Earnings from continuing
operations.....................$ 0.73 $ 1.44 $ 1.20 $ 1.03 $ .26
Net earnings (loss).............. 0.73 1.44 1.20 1.03 (.43)
Book value per common share...... 7.49 6.94 5.53 4.51 3.40
Weighted average common and common
equivalent shares outstanding 8,100,385 8,066,192 7,867,658 7,742,825 7,322,784
Financial position:
Total assets.....................$ 169,946 $ 122,789 $ 109,816 $ 100,983 $ 104,477
Working capital.................. 10,574 19,773 14,526 18,207 3,738
Net property, plant and equipment 95,277 60,946 57,534 50,539 57,616
Long-term debt, net.............. 68,000 38,975 40,000 47,289 43,277
Shareholders' equity............. 58,915 54,069 41,898 33,583 24,802
Note: Operating results and financial position reflect Source Scientific
Systems, Inc. as a discontinued operation for 1991.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
The Company's sales for 1995 increased 5% to $185,411,000 from $176,938,000 in
1994 due to revenue growth at each of the Company's business segments. Sales at
Energy Absorption for 1995 increased 7% to $46,522,000 from $43,433,000 in 1994
due principally to the inclusion of a full year of sales at Safe-Hit
Corporation, a manufacturer of flexible guide posts, acquired in December 1993.
Safe-Hit contributed sales of $5,304,000 in 1995 compared to sales of $2,799,000
in 1994. Disc Manufacturing, Inc. (DMI) sales for 1995 increased 5% to
$87,296,000 from $83,185,000 in 1994 due to increased unit sales of its CD-ROM
discs. CD-ROM unit sales in 1995 increased 53% from 1994 while audio CD unit
sales in 1995 increased 2% from 1994. These increases in unit volumes were
offset somewhat by declines in the average unit selling prices of these products
resulting in CD-ROM sales dollars increasing 21% from 1994 and CD audio sales
dollars decreasing 5%. Legal Technologies, Inc. (LTI) sales for 1995 increased
3% to $51,593,000 from $50,320,000 in 1994. This was due principally to the
inclusion of a full year of sales at Litigation Sciences, Inc.
-25-
(LSI), acquired in December 1993. LSI contributed $9,544,000 in sales in 1995
compared to $5,030,000 in sales for 1994. Offsetting this sales increase at LTI
was a 9% sales decrease at Stenograph Corporation due to a decline in computer-
aided transcription revenue. The major component of that decline was sales of
low margin third party computer hardware.
The gross profit margin in 1995 decreased to 33.2% from 37.1% in 1994 due to
margin reductions at DMI and Energy Absorption. DMI's gross profit margin
decreased as a result of a decrease in the average unit selling price of its
products, particularly CD-ROM products due to competition. This was offset
somewhat by volume efficiencies. The Company expects continued declines in
selling prices of discs which may have a limiting effect on gross margins at
DMI. Energy Absorption's gross profit margin decreased as a result of an
unfavorable change in product mix and to the outsourcing of several manufactured
component parts. The outsourcing of these component parts will continue until
Energy Absorption's plant expansion is completed during the first half of fiscal
1996. Energy Absorption's gross profit margin was also reduced due to lower
gross profit margins at Safe-Hit Corporation. LTI's gross profit margin in 1995
remained consistent with 1994.
Selling and administrative expenses in 1995 increased 7% to $44,715,000 from
$41,787,000 in 1994 attributable principally to DMI and Energy Absorption.
DMI's selling and administrative expenses increased mainly due to increases in
CD-ROM selling and marketing expenses and additional legal expenses. Energy
Absorption's selling and administrative expenses increased due to the inclusion
of selling and administrative expenses at Safe-Hit Corporation. Legal
Technologies selling and administrative expenses remained at a level consistent
with the same period last year.
Research and development expenses in 1995 were $3,434,000 compared to $3,426,000
in 1994. This was due to an increase in research and expenditures at Legal
Technologies related to the development of legal software. Offsetting this
increase at LTI was a decrease in R&D at Energy Absorption as a result of
reduced expenditures on its sewer rehabilitation technology.
Interest income in 1995 was $396,000 compared to $302,000 in 1994 reflecting an
increase in interest rates. Interest expense increased 31% in 1995 to
$4,093,000 from $3,129,000 in 1994. This was due principally to the increase in
long-term debt but also to an increase in interest rates. Other expenses in
1995 increased to $588,000 as a result of a legal settlement compared to income
of $296,000 in 1994 as a result of a gain on the sale of a stock investment.
1994 COMPARED TO 1993
The Company's sales for 1994 increased 22% to $176,938,000 from $145,111,000 in
1993 due principally to growth at Disc Manufacturing, Inc. as well as from the
Company's acquisition of several businesses during 1994. DMI's sales for 1994
increased 18% to $83,185,000 from $70,413,000 in 1993 due principally to
increased unit sales of CD-ROM products. CD-ROM unit sales increased 155% in
1994 from 1993. Audio CD unit sales for 1994 increased 12% from 1993. These
increases in unit volumes were offset somewhat by declines in the average unit
selling price, resulting in CD-ROM and CD audio sales dollars increasing 89% and
1% respectively. Legal Technologies, Inc.'s (LTI) sales for 1994 increased 29%
to $50,320,000 from $39,050,000 in 1993. This was due principally to the
acquisition of Integrated Information Services, Inc. in July 1993 which
contributed $9,254,000 in sales during 1994. Also contributing to the increase
in sales at Legal Technologies was the December 1993 acquisition of Litigation
Sciences, Inc. LSI had sales of $5,030,000 for 1994. Offsetting somewhat the
increase in sales at Legal Technologies was a decrease in sales at Stenograph
due principally to a decline in both the number of units and selling price of
its Premier Power(TM) CAT software. Sales at Energy Absorption for 1994
increased 22% to $43,433,000 from $35,648,000 in 1993. Energy Absorption
experienced increased sales principally from
-26-
sales of its newer products including the ALPHA 60 MD(TM) TMA (truck-mounted
attenuator). Also contributing to the increase in sales at Energy Absorption
was the December 1993 acquisition of Safe-Hit Corporation, which had sales of
$2,799,000 for 1994.
The gross profit margin in 1994 decreased to 37.1% from 41.1% in 1993
principally due to margin reductions at Legal Technologies, Inc. LTI's gross
profit margin decreased due to decreased margins on Stenograph's CAT products as
well as from lower gross profit margins at Integrated Information Services and
Litigation Sciences than the historical gross profit margins at LTI. DMI's
gross profit margin increased slightly as a result of volume efficiencies and a
shift in product mix, both attributable to the growth in the CD-ROM segment of
DMI's business. Energy Absorption's gross profit margin decreased as a result
of lower gross profit margins at its recently acquired Safe-Hit Corporation than
Energy Absorption's historical gross profit margins. Energy Absorption's gross
profit margin also decreased due to a change in its product mix as a result of
increased lower margin TMA sales.
Selling and administrative expenses in 1994 increased 14% to $41,787,000 from
$36,727,000 in 1993 attributable primarily to increased costs at Legal
Technologies, Inc. Legal Technologies' selling and administrative expenses
increased due to the acquisition of Integrated Information Services, Inc. and
Litigation Sciences, Inc. Legal Technologies' selling and administrative
expenses also increased due to increases in selling and marketing expenses
related to its Court Technologies, Inc. subsidiary. This increase in selling
and administrative expenses at Legal Technologies was offset somewhat by a
decrease in selling and administrative expenses at Stenograph Corporation as a
result of decreased salaries, legal expenses and bad debts. Energy Absorption's
selling and administrative expenses increased due to the inclusion of selling
and administrative expenses at Safe-Hit Corporation. Selling and administrative
costs at DMI increased modestly in connection with its increase in sales.
Research and development expenses increased 11% to $3,426,000 in 1994 from
$3,084,000 in 1993. This was due principally to increases in R&D at Legal
Technologies' Discovery Products subsidiary. Energy Absorption's research and
development also increased due to expenditures on its sewer rehabilitation
technology.
Interest income decreased in 1994 to $302,000 from $428,000 in 1993 due to a
decline in the rate of interest earned on invested funds. Interest expense for
1994 decreased modestly to $3,129,000 from $3,166,000 in 1993. Other income in
1994 increased due to a gain of $610,000 on the sale of a stock investment,
offset somewhat by a decline in royalty income related to Energy Absorption's
moveable barrier patent.
The Company's effective tax rate, as computed pursuant to Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes", decreased from 45.3%
in 1993 to 34.7% in 1994. This was in connection with a change in management's
estimate associated with certain tax contingencies.
-27-
Liquidity and Capital Resources
- -------------------------------
The Company has cash of $2,188,000 and additional funds of $11,000,000 available
under its revolving credit facility at June 30, 1995. Operating activities were
a source of cash for the Company during 1995 providing $21,305,000 as a result
of strong cash flows generated by DMI and Energy Absorption. These cash flows
were offset somewhat by the funding of significant losses at Legal Technologies.
The Company is considering various alternatives to reduce the future losses at
LTI.
Cash of $48,609,000 was used during 1995 for investing activities. The
Company's primary investing activity was the purchase of $38,415,000 in plant
and equipment. These capital expenditures were made mostly at DMI ($31,890,000)
as part of its expansion program to increase its capacity to 200 million discs
annually. Among other purchases, DMI purchased a 218,000 square foot building
in Anaheim, California as a replacement for its existing facility located
nearby. Additional investing activities include the purchase of an equity
investment in Quantic Industries, Inc., and the funding of an Industrial
Development Bond for future capital expenditures at Energy Absorption.
Financing activities provided cash of $28,471,000 principally from borrowings
under the Company's revolving credit facility of $30,000,000 offset slightly by,
among other things, the payment of two semiannual cash dividends. This cash
along with cash generated from operating activities was used principally to fund
the investment activities discussed above. In August 1995 the Company issued a
$10,000,000 short-term note payable, due November 30, 1995 to its bank group.
This arrangement was put in place to continue the funding of the expansion at
DMI. The Company expects to replace this short-term arrangement with an
increase in its revolving credit facility upon its renewal in October 1995.
During fiscal 1996 the Company anticipates the need for approximately $28
million in cash for capital expenditures, $9 million of which relates to fiscal
1995 purchases unpaid as of June 30, 1995. In addition, the Company may have a
need for $8.7 million in the event that certain shareholders of Quantic
Industries, Inc. exercise their right to put their Quantic shares to the
Company. In addition, the Company may consider acquiring additional businesses
that complement its existing operating segments. Also, each of the Company's
operating segments will require additional investments in working capital to
maintain growth. These expenditures will be financed either through cash
generated from operations or from borrowings under the Company's revolving
credit facility. The Company believes its cash generated from operations and
funds available under its existing credit facility or increases in its credit
facility are sufficient for all planned operating and capital requirements.
-28-
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Report of Independent Accountants
To the Shareholders and the Board of Directors
Quixote Corporation
We have audited the accompanying consolidated balance sheets of Quixote
Corporation and Subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1995. We have also audited
the financial statement schedules listed in Part IV of Form 10-K, Item 14(d)
for each of the three years in the period ended June 30, 1995. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and signficant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Quixote
Corporation and Subsidiaries as of June 30, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the years in the
three year period ended June 30, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
/s/Coopers & Lybrand L.L.P.
Chicago, Illinois
August 12, 1995, except for
Note 4, as to which the date is
September 6, 1995
-29-
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollar amounts in thousands, except per share data
For the years ended June 30, 1995 1994 1993
- ---------------------------------- ---------- ---------- ----------
Net sales..............................$ 185,411 $ 176,938 $ 145,111
Cost of sales.......................... 123,802 111,328 85,454
---------- ---------- ----------
Gross profit........................... 61,609 65,610 59,657
Operating expenses:
Selling and adminsitrative........... 44,715 41,787 36,727
Research and development............. 3,434 3,426 3,084
---------- ---------- ----------
48,149 45,213 39,811
---------- ---------- ----------
Operating profit....................... 13,460 20,397 19,846
---------- ---------- ----------
Other income (expense):
Interest income...................... 396 302 428
Interest expense..................... (4,093) (3,129) (3,166)
Other................................ (588) 269 151
---------- ---------- ----------
(4,285) (2,558) (2,587)
---------- ---------- ----------
Earnings before provision for income
taxes................................ 9,175 17,839 17,259
Provison for income taxes.............. 3,225 6,195 7,818
---------- ---------- ----------
Net earnings...........................$ 5,950 $ 11,644 $ 9,441
========== ========== ==========
Earnings per share data:
Primary:
Net earnings.......................$ 0.73 $ 1.44 $ 1.20
========== ========== ==========
Average shares outstanding......... 8,100,385 8,066,192 7,867,658
========== ========== ==========
Fully diluted:
Net earnings.......................$ 0.73 $ 1.37 $ 1.17
========== ========== ==========
Average shares outstanding......... 9,151,701 9,203,492 8,920,290
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
-30-
CONSOLIDATED BALANCE SHEETS
Dollar amounts in thousands, except per share data As of June 30,
1995 1994
---------- ----------
Assets
Current assets:
Cash and cash equivalents.........................$ 2,188 $ 1,021
Accounts receivable, net of allowances
for doubtful accounts of $2,738 in 1995
and $2,765 in 1994.............................. 33,866 33,771
Inventories....................................... 10,473 8,219
Other current assets.............................. 4,104 3,314
---------- ----------
Total current assets........................... 50,631 46,325
Property, plant and equipment, at cost:
Land.............................................. 6,325 2,534
Buildings and improvements........................ 24,354 13,210
Machinery and equipment........................... 104,927 74,654
Furniture and fixtures............................ 11,679 10,468
Leasehold improvements............................ 1,768 1,585
---------- ----------
149,053 102,451
Less accumulated depreciation and amortization.. (53,776) (41,505)
---------- ----------
95,277 60,946
Other assets, including restricted
certfificate of $6,000............................ 24,038 15,518
---------- ----------
$ 169,946 $ 122,789
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt.................$ 975 $
Accounts payable.................................. 19,546 9,564
Accrued expenses:
Payroll and commissions......................... 4,118 4,293
Income taxes payable............................ 1,723 1,535
Other........................................... 13,695 11,160
---------- ----------
Total current liabilities..................... 40,057 26,552
Long-term debt, net of current portion.............. 68,000 38,975
Deferred income taxes............................... 2,974 3,193
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 8,581,416 shares-1995
and 8,504,815 shares-1994....................... 143 142
Capital in excess of par value of stock........... 29,268 28,551
Retained earnings................................. 34,977 30,749
Treasury stock, at cost, 718,921 shares-1995
and 712,260 shares-1994......................... (5,473) (5,373)
---------- ----------
58,915 54,069
---------- ----------
$ 169,946 $ 122,789
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
-31-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years
ended June 30, 1995
Capital in
Dollar amounts in thousands, Excess of Par Retained Treasury
except per share data Common Stock Value of Stock Earnings Stock
- ------------------------------------------------- ------------ -------------- -------- --------
Balances, July 1, 1992:
Shares........................................... 8,194,083 741,769
============ ========
Amounts..........................................$ 137 $ 26,251 $ 12,791 $ (5,596)
Exercise of options for 123,963 common shares...... 2 378
Net earnings - 1993................................ 9,441
Declaration of semiannual cash dividends
($.10 per share each)............................ (1,506)
------------ -------------- -------- --------
Balances, June 30, 1993:........................... 139 26,629 20,726 (5,596)
Exercise of options for 116,096 common shares...... 2 481
Net earnings - 1994................................ 11,644
Declaration of semiannual cash dividends
($0.10 per share and $0.11 per share)............ (1,621)
Issuance of 29,509 treasury shares pursuant to the
acquisition of Safe-Hit Corporation.............. 221 223
Issuance of 69,358 common shares pursuant to the
stock retirement plan............................ 1 1,195
Conversion of debentures into 1,315 common shares.. 25
------------ -------------- -------- --------
Balances, June 30,1994:............................ 142 28,551 30,749 (5,373)
Exercise of options for 41,922 common shares....... 285
Net earnings - 1995................................ 5,950
Declaration of semiannual cash dividends
($0.11 per share each)........................... (1,722)
Issuance of 34,679 shares pursuant to the stock
retirement plan.................................. 1 432
Purchase of 6,661 common shares at $15.01 per share (100)
------------ -------------- -------- --------
Balances, June 30, 1995:
Amounts..........................................$ 143 $ 29,268 $ 34,977 $ (5,473)
============ ============== ======== ========
Shares........................................... 8,581,416 718,921
============ ========
The accompanying notes are an integral part of the consolated financial
statements.
-32-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollar amounts in thousands For the years ended June 30,
1995 1994 1993
-------- -------- --------
Cash Flows from Operating Activities:
Net earnings.....................................$ 5,950 $ 11,644 $ 9,441
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation of property, plant and equipment... 13,308 11,540 9,178
Amortization of capitalized software and other
assets........................................ 2,275 2,497 1,721
Provision for losses on accounts receivable..... (27) (423) 19
Deferred income taxes........................... (1,081) 4 (73)
Changes in operating assets and liabilities:
Accounts receivable............................. (68) (4,619) 1,343
Inventories..................................... (2,254) 370 (980)
Other current assets............................ (528) 875 (159)
Accounts payable and accrued expenses........... 3,542 1,104 1,790
Income taxes payable............................ 188 (1,993) 2,909
-------- -------- --------
Net cash provided by operating activities......... 21,305 20,999 25,189
-------- -------- --------
Cash Flows Provided (Required) by Investing
Activites:
Purchase of property, plant and equipment........ (38,415) (10,994) (16,173)
Cash paid for acquired businesses and equity
investments.................................... (6,746) (8,075)
Funds deposited with IDB Trustee................. (2,719)
Capitalized and purchased systems, design
and software costs............................. (308) (1,529) (776)
Purchase of patent............................... (778)
Other............................................ (421) (302)
-------- -------- --------
Net cash required by investing activities........ (48,609) (20,598) (18,029)
-------- -------- --------
Cash Flows Provided (Required) by Financing
Activities:
Net proceeds (payments) under revolving
credit agreement............................... 30,000 (1,000) (7,187)
Payment of cash dividends........................ (1,714) (1,621) (748)
Principal payments on long-term debt............. (1,300) (175)
Proceeds from exercise of stock options.......... 285 483 380
Repurchase of company stock for treasury......... (100)
-------- -------- --------
Net cash provided (required) by financing
activities..................................... 28,471 (3,438) (7,730)
-------- -------- --------
Net change in cash and cash equivalents............ 1,167 (3,037) (570)
Cash and cash equivalents at beginning of year..... 1,021 4,058 4,628
-------- -------- --------
Cash and cash equivalents at end of year...........$ 2,188 $ 1,021 $ 4,058
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
-33-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: ACCOUNTING POLICIES:
The principal accounting policies of Quixote Corporation (the Company) and its
subsidiaries are as follows:
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaires, all of which are wholly owned, as of June 30, 1995.
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.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
The Company capitalizes expenditures for major renewals and betterments and
charges current operations with the cost of maintenance and repairs. Provisions
for depreciation and amortization have been computed on the straight-line method
based on the expected useful lives of the assets as indicated below:
Buildings and improvements 20 to 40 years
Machinery and equipment 3 to 10 years
Furniture and fixtures 3 to 10 years
Leasehold improvements 5 to 10 years
The cost and accumulated depreciation and amortization relating to assets
retired or otherwise disposed of are eliminated from the respective accounts at
the time of retirement or other disposition and the resultant gain or loss is
credited or charged to earnings.
GOODWILL AND PATENTS
Goodwill and patents, included in other assets, are amortized on a stright-line
basis over lives of 7 to 15 years. The Company assesses at each balance sheet
date whether there has been a permanent impairment in the value of these assets.
This assessment includes such factors as 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.
CAPITALIZED SOFTWARE
Capitalized software development costs and purchased software included in other
assets, net of amortization, in the consolidated balance sheets are $890,000 and
$1,782,000 at June 30, 1995 and 1994, respectively. Amortization is provided on
a product-by-product basis based upon the greater of the ratio of current gross
revenue to a product's current and anticipated revenue or on the straight-line
method over the product's remaining estimated economic life. Amortization
commences when the product is available for general release to customers.
Unamortized capitalized costs determined to be in excess of the net realizable
value of the product are expensed at the date of such detemination.
-34-
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases 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.
NOTE 2: ACQUISITIONS AND DISPOSITION:
In April 1995, the Company acquired a 40% interest in Quantic Industries, Inc.
(Quantic) for $6.7 million. Quantic is a manufacturer of electronic and
pyrotechnic devices. This investment has been accounted for under the equity
method of accounting. The cost in excess of the Company's pro rata share of the
net assets of Quantic (approximately $4 million) is included in other assets and
is being amortized over a 10 year life.
The Company also entered into an agreement with certain stockholders of Quantic
which grants those stockholders a right, on or before January 6, 1996, to
require Quixote Corporation to purchase all of their shares (52.5% of the common
stock) of Quantic for $8.7 million.
In July 1993, the Company acquired the net assets of CompuLitS, Inc., a full
service provider of document imaging and conversion services and computerized
litigation support. CompuLitS's name was subsequently changed to Intergrated
Information Services, Inc. In December 1993, the Company acquired the stock of
Safe-Hit Corporation, a manufacturer of flexible guide post systems and portable
sign systems for highway and parking lot applications. Also in December 1993,
the Company acquired the net assets of Litigation Sciences, Inc., a company that
specializes in trial consulting including jury research, courtroom
communications training, and preparation of courtroom exhibits. The cost to
acquire these three businesses was approximately $8 million. These acqusitions
have been accounted for by the purchase method of accounting. The operating
results of each acquisition have been included in the Company's consolidated
results of operations since the date of acquisition. In connection with the
above purchases, liabilities of $4,576,000 were assumed.
NOTE 3: INVENTORIES:
Inventories consist of the following at June 30:
Dollar amounts in thousands 1995 1994
- ---------------------------------------- ---------- ----------
Finished goods.......................... $ 2,140 $ 2,163
Work in process......................... 1,950 1,939
Raw materials........................... 6,383 4,117
---------- ----------
$ 10,473 $ 8,219
---------- ----------
-35-
NOTE 4: LONG-TERM DEBT:
Long-term debt consists of the following at June 30:
Dollar amounts in thousands 1995 1994
- ---------------------------------------- ---------- ----------
Revolving credit facility due October 31,
1997, interest at variable rates...... $ 49,000 $ 19,000
8% Convertible subordinated debentures
due April 15, 2011, interest due
semiannually with principal payable in
annual sinking fund installments of
$1,000,000, commencing in April 1996.. 19,975 19,975
---------- ----------
Total long-term debt.................. 68,975 38,975
Less current portion.................. (975)
---------- ----------
Long-term debt, net................... $ 68,000 $ 38,975
---------- ----------
The Company has a three-year unsecured revolving credit facility with its three
primary banks. The agreement provides a $60 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 extended one additional year on each anniversary date
(October 31) upon mutual consent of the Company and lenders. The Company may,
at any time during the three years, 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. In September 1995, the Company received a waiver of the
capital expenditures covenant from the bank group which enabled the Company to
comply with the revolving credit facility covenants at June 30, 1995.
On August 4, 1995, the Company obtrained from its bank group, a $10,000,000
short-term loan which expires on November 30, 1995. The Company intends to
replace the short-term loan with an increase in its revolving credit facility
upon its renewal.
The 8% debentures are convertible at any time prior to maturity into shares of
common stock of the Company at a conversion price of $19.00 per share. They are
redeemable at the option of the Company at par plus accrued interest and are
subordinate to all senior indebedness of the Company and all obligations under
various leases.
Unamortized costs incurred in issuing the 8% convertible subordinated debentures
and the revolving credit note wre $552,000 and $650,000 at June 30, 1995 and
1994, respectively, and are included in other assets. These costs are being
amortized over the term of the related agreements.
The aggregate amount of maturities of long-term debt for the four years
subsequent to 1996 assuming renewal of the revolving credit note is as follows:
$1,000,000 in 1997, $1,000,000 in 1998, $1,000,000 in 1999 and $1,000,000 in
2000.
NOTE 5: 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 Audit/Compensation Committee of
the Board of Directors. Options under the long-Term Stock Ownership Incentive
Plan and the Director Stock Option Plan are to be granted at no less than 100%
of the current market price at the date of the grant. No charges are made to
earnings in connection with the options.
-36-
Information for the year ended June 30, 1995 with respect to options under the
Company's plan is as follows:
Number Option Price
of Shares per Share
--------- ------------------
Shares under option:
July 1, 1994...................... 929,773 $ 4.25 to $20.50
Granted........................... 286,510 10.00 to 21.00
Exercised......................... (46,090) 4.25 to 12.88
Canceled or expired............... (223,051) 4.25 to 21.00
---------
June 30, 1995..................... 947,142 $ 4.25 to 21.00
On February 28, 1995, the Audit/Compensation Committee of the Company's Board
of Directors repriced those employee stock options with an exercise price
equal to or greater than $13.00 per share. Under the repricing arrangement and
included in the above table, employees received new options to purchase
175,010 shares of common stock in exchange for options originally granted to
purchase 181,368 shares. The expiration dates and vesting provisions of the
new options remained the same as the original options, but each new option
may not be exercised until March 1, 1996.
The options outstanding at June 30, 1995 are exercisable to the extent of
842,155 shares in 1996, 69,966 shares in 1997 and 35,021 shares in 1998. As of
June 30, 1995, the Company has 2,259,875 common shares reserved for various
conversion privileges and options.
NOTE 6: 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 on July 25, 1988 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 $25 per unit. In
addition, if an acquiring person becomes the beneficial owner of more than 20
percent 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 $50.
If 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 $50.
The Company may redeem the rights in whole, for $.01 per right, under certain
circumstances.
NOTE 7: STOCK RETIREMENT PLAN:
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 (with a
minimum of five years for each executive). In order to receive each year's
stock award, the executive must
-37-
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 particpant's annual award was
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 $766,000
for 1995 and $1,239,000 for 1994.
NOTE 8: INCOME TAXES:
The income tax provisions are comprised of the following for the three years
ended June 30:
Dollar amounts in thousands 1995 1994 1993
-------- -------- --------
Current:
Federal..........................$ 3,549 $ 4,248 $ 4,995
State............................ 757 1,638 1,074
-------- -------- --------
4,306 5,886 6,069
Deferred........................... (1,081) 309 1,749
-------- -------- --------
Total..............................$ 3,225 $ 6,195 $ 7,818
======== ======== ========
The components of the net deferred tax liability are as follows at June 30:
Dollar amounts in thousands 1995 1994
-------- --------
Deferred tax assets:
Accounts receivable allowance.....................$ 1,054 $ 1,002
Inventory valuation............................... 946 822
Compensated absences and medical claims........... 699 694
Tax over book basis in affiliates................. 1,496 1,496
Capital loss carryforward......................... 1,589 1,589
Other liabilities and reserves.................... 2,559 1,978
Net operating loss carryforwards.................. 3,238 4,424
Various tax credit carryforwards.................. 30 38
Valuation allowance.................................(5,321) (5,784)
-------- --------
Total.............................................$ 6,290 $ 6,259
======== ========
Deferred tax liabilities:
Book over tax basis of capital assets.............$ 6,659 $ 7,044
Miscellaneous..................................... 65
-------- --------
Total.............................................$ 6,659 $ 7,109
======== ========
Net deferred tax liability........................$ 369 $ 850
======== ========
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, capital loss carryforwards, net operating loss
carryforwards, and tax credit carryforwards. At June 30, 1995, certain
subsidiaries of the Company have approximately $8,000,000 of net operating loss
carryforwards for tax purposes which arose in periods prior to acquisition by
the Company. Certain limitations on utilization are present and realization of
a significant portion of the carryforwards is uncertain. These carryforwards
expire in years from 1996 through 2005. In
-38-
addition, the Company has approximately $4,000,000 in capital loss carryforward
that will expire in 1997 and 1998.
The net deferred tax liability is presented on the balance sheet as follows at
June 30:
Dollar amounts in thousands 1995 1994
-------- --------
Current deferred tax asset........................$ 2,605 $ 2,343
Noncurrent deferred tax liability................. 2,974 3,193
-------- --------
Net deferred tax liability........................$ 369 $ 850
======== ========
The current deferred tax asset is included in other current assets in the
consolidated balance sheet.
Income tax provisions differed from the taxes calculated at the statutory
federal tax rate as follows at June 30:
Dollar amounts in thousands 1995 1994 1993
-------- -------- --------
Taxes at statutory rate...........................$ 3,119 $ 6,065 $ 5,868
State income taxes................................ 340 1,127 669
Gain on equity investment......................... (207)
(Income) loss of foreign subsidiary............... (32) 159 114
Other............................................. (202) (949) 1,167
-------- -------- -------
Income tax provision..............................$ 3,225 $ 6,195 $ 7,818
======== ======== ========
NOTE 9: EARNINGS PER SHARE:
Primary earnings per share is computed by dividing the net earnings for each
period by the weighted average number of common and common equivalent shares
outstanding.
Fully diluted earnings per share is computed based on the assumption that all of
the convertible debentures are converted into common shares. Under this
assumption, the weighted average number of shares is increased accordingly and
net earnings is increased by the amount of interest expense and amortization of
deferred debenture costs relating to the convertible debentures, less income tax
benefits. Since the effect is anti-dilutive in 1995, the amount reported is the
same as primary earnings per share.
-39-
NOTE 10: COMMITMENTS AND CONTINGENCIES:
Aggregate rental expense under operating leases, principally for office and
manufacturing facilities, was $2,794,000 in 1995, $2,716,000 in 1994 and
$1,681,000 in 1993. These operating leases include options for renewal or
purchase of the leased property. Annual minimum future rentals for lease
commitments are as follows:
Year ending June 30, Total
---------
1996...............................$ 2,705
1997............................... 2,575
1998............................... 2,224
1999............................... 1,669
2000............................... 1,355
---------
$ 10,528
The Company has employment 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.
Stenograph Corporation sells customer receivables to a financial institution,
with limited recourse. The proceeds of such sales were $4,609,000 in 1995,
$7,009,000 in 1994 and $10,329,000 in 1993. The aggregate amounts of
transferred receivables which remain uncollected at June 30, 1995 and 1994 are
approximately
$16,073,000 and $21,900,000, respectively.
In 1990, Disc Manufacturing, Inc. (DMI) and the Company filed lawsuits in the
federal and state courts in Alabama against the Distronics Group, the former
owners of DMI, relating to DMI's misappropriated corporate opportunity to
acquire Memory Tech, a competing compact disc manufacturer located in Plano,
Texas, and certain trademark infringement claims. In response to two Alabama
suits, the Distronics Group filed counterclaims alleging breach of contract,
economic duress, fraud, unfair competition and seizure of corporate opportunity,
among others. The Distronics Group also filed an action in Dallas, Texas which
was subsequently dismissed. In 1990, the Alabama state court issued a
preliminary injunction in favor of the Company and DMI, precluding the
Distronics Group from transferring any interest in Memory Tech and other
restrictions. As a condition for issuance of the preliminary injunction, the
Company and DMI were required to post $6,100,000 as injunction security with the
Clerk of the Circuit Court, of which $6,000,000 is included in the Company's
consolidated balance sheets as of June 30, 1995 and 1994 as other assets. The
certificate of deposit is restricted from use by the Commpany pending the final
outcome of this litigation. The remaining $100,000 injunction security was
posted as an injunction bond. In May 1992, the Alabama Supreme Court reversed
the judge's order granting preliminary injunction. In September 1992, Quixote
filed additional counts seeking to enforce a settlement agreement reached in
June 1991. The court ruled against the Company and DMI on those counts, in
response to the Distronics Group's motion for summary judgment. The Company and
DMI sought reconsideration of that ruling, which the court denied in May, 1995.
The Company also amended its complaint to add claims for unjust enrichment,
fraud and tortious interference, which defendants moved to dismiss.
In May 1995, the court dismissed all of the defendants' claims except the
following: tortious interference with contract and business relations; fraud;
breach of contract regarding a $300,000 escrow; a state dilution claim; and a
claim for wrongfully seeking injunctive relief. The court dismissed all of the
Company's and DMI's claims except their claims for tortious interference with
contract and business relations and for fraud. Subsequent to the May 1995
order, defendants filed a notice of appeal and the Company and DMI have cross-
appealed. After referring the case for mediation, the court
-40-
appointed a mediator in June 1995 and ordered the mediation process be completed
by December 31, 1995.
Several companies holding patents with respect to optical disc technology have
contacted the Company to request that DMI enter into licensing arrangements with
them, and two companies have filed suits against DMI for patent infringement in
Delaware federal court. Royalties requested by the patent holders could result
in a significant cost to DMI for past sales and in reduced future margins at DMI
if licensing arrangements were entered into on the terms proposed by the patent
holders. DMI has filed a lawsuit against the plaintiff in one of the cases and
its controlling companies for antitrust violations and DMI's lawsuit has been
consolidated with the plaintiff's patent case for all purposes. In the other
lawsuit, DMI is one of several manufacturers of compact discs which have been
sued. Discovery has been completed in the case and a trial date in February
1996 has been assigned.
In September, 1990 DMI was sued by Resort Video, Ltd., a former start-up
business that claimed DMI failed to produce certain videodiscs on schedule,
thereby injuring its business. After a trial, on August 25, 1992 the jury
awarded Resort Video $975,000 in damages. In October 1992 the court granted
DMI's motion for a new trial. Resort Video appealed that decision and DMI
cross-appealed the jury's decision. The appellate court has affirmed the trial
court's decision and the case is expected to return to the trial court for a new
trial bay the end of December 1995.
In 1990 Convergent Business Systems, Inc. (CBSI) and its BaronData division
(which division assets and certain liabilities, including this litigation,
Stenograph Corporation subsequently acquired) filed a collection matter against
a customer who in turn counterclaimed for breach of contract, misrepresentation
and unfair business practices, among others. The action was tried and resulted
in ajudgment on behalf of the Company for a nominal amount and a judgment
against the Company for $514,616. In June 1993 the court denied the Company's
motion for a new trial but reduced the customer's claimed legal fees from
$523,061 to $369,087 for a total award of $937,655, including interest. The
Company's appeal was denied in fiscal 1995 and the Company paid a total amount
of $1,197,883 to satisfy the judgment and related legal costs awarded.
Stenograph and a number of manufacturers of keyboards and other equipment have
been sued by individuals for repetitive stress injuries. The 29 cases filed to
date against Stenograph, and in some cases the Company, request actual damages,
in some instances specified as ranging from $500,000 to $1,000,000 and in most
cases, punitive damages, with some plaintiffs claiming an amount of $10,000,000.
All cases have been referred to the Company's insurance carriers and the Company
believes that liability resulting from these cases, if any, (excluding punitive
damages) will be covered under its insurance policies. The Company does not
believe there are grounds for the imposition of punitive damages and intends to
vigorously defend all claims.
The Company is involved in other legal actions common to its businesses. The
Company believes it has defenses for all such claims and is vigorously defending
the actions. In the opinion of management, based on the advice of legal
counsel, liabilities, if any, arising from these legal actions are not expected
to have, but could have a material effect on the Company's results of operations
or financial condition.
NOTE 11: SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES:
Cash paid for interest was $4,015,000, $3,360,000 and $2,941,000 in 1995, 1994
and 1993, respectively. Cash paid for income taxes was $4,116,000, $7,878,000
and $5,184,000 in 1995, 1994 and 1993, respectively.
Purchases of property, plant and equipment of $9,225,000 which are included in
accounts payable at June 30, 1995, are noncash in nature and therefore not
reflected in the Consolidated Statements of Cash Flows.
-41-
NOTE 12: LINES OF BUSINESS:
The Company's operations are comprised of three industry segments: the
manufacture and sale of energy absorbing highway safety devices, the
development, manufacture and sale of products and systems for the legal
community and the manufacture and sale of compact discs.
Earnings from continuing operations before income taxes are net sales less
operating expenses. Interest income on corporate investments, interest expense,
and certain unallocated corporate expenses have not been added or deducted from
earnings before income taxes. Identifiable assets by segment are those assets
that are used in the Company's operations by each industry segment. Corporate
assets are principally cash and cash equivalents, and equipment.
Substantially all the sales of highway safety devices are to contractors on
behalf of federal, state and local government units. Substantially all of the
sales of legal technologies are to the legal and court reporting professions.
Approximately 58% of the compact disc segment sales are to the recording
industry. The Company derived approximately 18%, 21% and 24% of consolidated
net sales in 1995, 1994 and 1993 from a single customer in the compact disc
segment.
-42-
Dollar amounts in thousands 1995 1994 1993
-------- -------- --------
Net Sales:
Highway Safety Devices..................$ 46,522 $ 43,433 $ 35,648
Legal Technolgies....................... 51,593 50,320 39,050
Compact Discs........................... 87,296 83,185 70,413
-------- -------- --------
Total.................................$185,411 $176,938 $145,111
======== ======== ========
Earnings (Loss) from Operations
Before Income Taxes:
Highway Safety Devices..................$ 11,797 $ 11,906 $ 11,374
Legal Technologies...................... (7,580) (7,357) (2,833)
Compact Discs........................... 8,655 15,508 11,456
-------- -------- --------
Subtotal.............................. 12,872 20,057 19,997
Unallocated Corporate.................. 610
Interest expense, net................... (3,697) (2,828) (2,738)
-------- -------- --------
Total.................................$ 9,175 $ 17,839 $ 17,259
======== ======== ========
Identifable Assets at Year-End:
Highway Safety Devices..................$ 35,809 $ 26,971 $ 23,664
Legal Technologies...................... 23,989 23,486 15,343
Compact Discs........................... 97,888 62,719 60,709
Corporate............................... 12,260 9,613 10,100
-------- -------- --------
Total.................................$169,946 $122,789 $109,816
======== ======== ========
Depreciation and Amortization Expenses:
Highway Safety Devices..................$ 1,676 $ 1,421 $ 1,249
Legal Technologies...................... 4,051 4,190 2,878
Compact Discs........................... 9,732 8,300 6,645
Corporate............................... 124 126 127
-------- -------- --------
Total.................................$ 15,583 $ 14,037 $ 10,899
======== ======== ========
Capital Expenditures:
Highway Safety Devices..................$ 3,107 $ 1,433 $ 2,038
Legal Technologies...................... 3,385 5,480 1,951
Compact Discs........................... 41,115 8,033 12,170
Corporate............................... 33 6 14
-------- -------- --------
Total.................................$ 47,640 $ 14,952 $ 16,173
======== ======== ========
-43-
NOTE 13: QUARTERLY AND FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial date for years 1995 and 1994 follows:
Dollar amounts in thousands,
except per share data. 9/30 12/31 3/31 6/30
-------- -------- -------- --------
1995
Net sales............................$ 46,150 $ 46,959 $ 45,559 $ 46,743
Gross profit......................... 15,943 15,524 15,330 14,812
Net earnings.........................$ 2,088 $ 877 $ 1,709 $ 1,276
Earnings per share:
Primary............................$ .25 $ .11 $ .21 $ .16
Fully diluted......................$ .25 $ .11 $ .21 $ .16
Dollar amounts in thousands,
except per share data 9/30 12/31 3/31 6/30
-------- -------- -------- --------
1994
Net sales............................$ 40,088 $ 42,835 $ 43,906 $ 50,109
Gross profit......................... 16,052 17,395 16,429 15,734
Net earnings.........................$ 2,439 $ 3,226 $ 2,376 $ 3,603
Earnings per share:
Primary............................$ .31 $ .40 $ .29 $ .44
Fully diluted......................$ .30 $ .38 $ .29 $ .41
Item 9. Changes in and Disagreement with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosures
- ---------------------
None.
-44-
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 under "Election of Directors" on pages 2 and 3 of
the Registrant's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 16, 1995 to be filed with the Commission on
or about September 30, 1995 and is incorporated herein by reference.
The executive officers of the Company, their ages and offices held by each
during fiscal 1994 are as follows:
Philip E. Rollhaus Jr. 60 Chairman, President & Director - Quixote
Corporation Chairman, Stenograph Corporation,
Energy Absorption Systems, Inc., Disc
Manufacturing, Inc.
James H. DeVries 63 Executive Vice President and Secretary;
Director
President, Legal Technologies, Inc.
Myron R. Shain 55 Executive Vice President - Finance
President, Disc Manufacturing, Inc.
George D. Ebersole 59 President, Energy Absorption Systems, Inc.
Michael J. La Forte 49 President, Stenograph Corporation
Mr. Rollhaus has been the President and Chief Executive Officer and a Director
of the Company since its formation in July, 1969.
Mr. DeVries joined the Company as Vice President in 1982. Mr. DeVries has been
a Director of the Company since its formation.
Mr. Shain joined the Company as Controller in April, 1972, was elected Treasurer
in 1975, Vice President in 1981 and Executive Vice President - Finance in 1986.
Mr. Shain was elected President of Disc Manufacturing, Inc. in May, 1990.
Mr. Ebersole joined the Company as President of Energy Absorption Systems, Inc.
in 1980.
Mr. La Forte joined the Company as President of Stenograph Corporation in 1994.
Prior to that time, Mr. La Forte was Executive Vice President of XL/Datacomp.
Mr. Fitzgibbons, age 66, who was Vice Chairman of Stenograph Corporation,
resigned in June 1995.
There is no family relationship between any of the officers described above.
Except as set forth in Item 3, none of the officers described above are party or
otherwise involved in any legal proceedings adverse to the Company or its
subsidiaries.
Item 11. Executive Compensation
- --------------------------------
The information required in response to this item is set forth under the caption
"Renumeration of Directors and Executive Officers" of the Registrant's
Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
November 16, 1995 to be filed with the Commission on or about September 30, 1995
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 by Certain Beneficial Owners" of the Registrant's Definitive
Proxy Statement
-45-
for the Annual Meeting of Stockholders to be held on November 16, 1995 to be
filed with the Commission on or about September 30, 1995 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
16, 1995 to be filed with the Commission on or about September 30, 1995 and is
incorporated herein by reference.
-46-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
Item Page Number in
Number This Report
- ------ --------------
(a).1. Financial Statements
--------------------
Report of Independent Accountants 29
Consolidated Statements of Operations for the
years ended June 30, 1995, 1994, and 1993 30
Consolidated Balance Sheets as of June 30,
1995 and 1994 31
Consolidated Statements of Shareholders'
Equity for the years ended June 30, 1995,
1994, and 1993 32
Consolidated Statements of Cash Flows for the
years ended June 30, 1995, 1994, and 1993 33
Notes to Consolidated Financial Statements 34-44
(a).2. Financial Statement Schedules
-----------------------------
The financial statement schedules listed under Item 14(d) are 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
-------------------
On May 11, 1995, the Company filed a report on Form 8-K dated April
27, 1995 reporting under "Item 5--Other Events," the acquisition by
Energy Absorption Systems, Inc. of a 40% interest in Quantic
Industries, Inc. for approximately $6.7 million and in connection
therewith, also entering into an agreement with the remaining
stockholders of Quantic as described therein.
(c). Exhibits
--------
*Management contract or compensatory plan or agreement
3.(a) Restated Certificate of Incorporation dated June 27, 1980;
Certificate of Amendment to Certificate of Incorporation dated
November 17, 1981; Certificate of Amendment to Certificate of
Incorporation dated February 15, 1985; Certificate of Amendment to
Certificate of Incorporation dated
-47-
February 25, 1986; and Certificate of Designations, Preferences and
Rights of Series A Junior Participating Preferred Stock dated July
27, 1988, filed as Exhibit 3(a) to the Company's Form 10-K Report
for the fiscal year ended June 30, 1991, File No. 0-7903, and
incorporated herein by reference.
(b) Restated By-Laws of the Company as amended through August
11, 1986, filed as Exhibit 3(b) to the Company's Form 10-K Report
for the fiscal year ended June 30, 1986, File No. 0-7903, and
incorporated herein by reference.
4.(a) Indenture under the Trust Indenture Act of 1939 between
the Company and LaSalle National Bank dated April 15, 1986, filed as
Exhibit 4(b) to the Company's Form 10-Q Report for the quarter
ended March 31, 1986, File No. 0-7903, and incorporated herein by
reference.
(b) Rights Agreement dated as of July 15, 1988, between the
Company and First National Bank of Boston, as Rights Agent, filed as
Exhibit 1 to the Company's Form 8-A Registration Statement dated
July 25, 1988, File No. 0-7903, and incorporated herein by
reference.
10.(a) Loan Agreement ("Loan Agreement") dated as of June 26,
1992 among the Company, Energy Absorption Systems, Inc. ("Energy"),
Disc Manufacturing, Inc. ("DMI"), Stenograph Corporation
("Stenograph"), The Northern Trust Company ("Northern"), NBD Bank,
N.A. ("NBD") and LaSalle National Bank ("LaSalle"); First Amendment
to Loan Agreement dated as of June 30, 1992 among the Company,
Energy, DMI, Discovery Products, Inc. ("Discovery") f/n/a/
Stenograph Legal Services, Inc., Spin-Cast Plastics, Inc. ("Spin-
Cast") and Northern in its own right and as agent for NBD and
LaSalle, filed as Exhibit 10(a) to the Company's Form 10-K Report
for the fiscal year ended June 30, 1992, File No. 0-7903, and
incorporated herein by reference; Second Amendment to Loan Agreement
dated as of May 28, 1993 among the Company, Energy, DMI, Stenograph,
Discovery, Spin-Cast, and Northern in its own right and as agent for
NBD and LaSalle, filed as Exhibit 10(a) 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; Third Amendment to Loan Agreement
dated as of June 26, 1993 among the Company, Energy, DMI,
Stenograph, Discovery, Spin-Cast, Composite Components, Inc.
("CCI"), Court Technologies, Inc. ("CTI") and Northern in its own
right and as agent for NBD and LaSalle, filed as Exhibit 10(a) 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; Fourth
Amendment to Loan Agreement dated as of May 31, 1994 among the
Company, Energy, DMI, Legal Technologies, Inc. ("LTI"), Stenograph,
Discovery, Spin-Cast, CTI, CCI, Integrated Information Services,
Inc. ("IIS"), Litigation Sciences, Inc. ("LSI"), Safe-Hit
Corporation ("Safe-Hit") and Northern in its own right and as agent
for NBD and LaSalle, filed as Exhibit 10(a) 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; Fifth Amendment to Loan
Agreement dated as of December 1, 1994 by and among the Company,
Energy, DMI, Stenograph, LTI, Discovery, Spin-Cast, CTI, CCI, IIS,
LSI, Safe-Hit and Northern in its own right and as agent for NBD and
LaSalle, filed as Exhibit 10(a) to the Company's Form 10-Q Report
for the quarter ended December 31, 1994, File No. 0-7903, and
incorporated herein by reference; Sixth Amendment to Loan Agreement
dated as of April 3, 1995 by and among the Company, Energy, DMI,
LTI, Stenograph, Discovery, Spin-Cast, CTI, CCI, IIS, LSI, Safe-Hit
and Northern in its own right and as agent for NBD and LaSalle,
filed as Exhibit 10(a) to the Company's Form 10-Q Report for the
quarter ended March 31, 1995, File No. 0-7903, and incorporated
herein by reference; Revolving Credit Note dated May 31, 1994, from
the Company, Energy, DMI, LTI, Stenograph, Discovery, Spin-Cast,
CCI, CTI, IIS, LSI and Safe-Hit to The Northern; Revolving Credit
Note dated May 31, 1994 from the Company, Energy, DMI, LTI,
Stenograph, Discovery, Spin-Cast, CCI, CTI, IIS, LSI and Safe-Hit to
-48-
LaSalle; Revolving Credit Note dated May 31, 1994 from the Company,
Energy, DMI, LTI, Stenograph, Discovery, Spin-Cast, CCI, CTI, IIS,
LSI and Safe-Hit to NBD, filed as Exhibit 10(a) 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; Term Loan Agreement
dated as of August 4, 1995 by and among the Company, Energy, DMI,
Stenograph, LTI, Discovery, Spin-Cast, CTI, CCI, IIS, LSI, Safe-Hit
and Northern in its own right and as agent for NBD and LaSalle,
filed herewith; Term Note dated as of August 4, 1995 from the
Company, Energy, DMI, Stenograph, LTI, Discovery, Spin-Cast, CTI,
CCI, IIS, LSI and Safe-Hit to NBD; Term Note dated as of August 4,
1995 from the Company, Energy, DMI, Stenograph, LTI, Discovery,
Spin-Cast, CTI, CCI, IIS, LSI and Safe-Hit to LaSalle, all filed
herewith; Guaranty Agreement by and between DMI and First Alabama
Bank dated as of March 1, 1993, filed as Exhibit 10(a) 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.
(b) Agreements regarding conditional sales and lease financing
arrangements between the Company, Stenograph and the Continental
Illinois National Bank and Trust Company of Chicago, dated February
21, 1980, filed as Exhibit 10(c) to S-7 Registration Statement No.
2-70372, and incorporated herein by reference; Guaranty dated May
31, 1982 and Agreement dated May 31, 1982 between the same parties,
filed as Exhibit 10(d) to the Company's Form 10-K Report for the
fiscal year ended June 30, 1982, File No. 0-7903, and incorporated
herein by reference; and Letter Agreement between Stenograph and
Sanwa Business Credit Corporation (the successor to the rights of
Continental Illinois Bank and Trust Company under the above
agreements) dated June 30, 1985 ("Sanwa Letter Agreement"), filed
as Exhibit 10(b) to the Company's S-2 Registration Statement No. 33-
4489 ("S-2 No. 33-4489"), and incorporated herein by reference;
First Amendment dated June 26, 1986 and Second Amendment dated May
29, 1990 to Sanwa Letter Agreement, filed as Exhibit 10(b) to the
Company's Form 10-K Report for the fiscal year ended June 30, 1990,
File No. 0-7903, and incorporated herein by reference; Fourth
Amendment dated January, 1991 to Sanwa Letter Agreement, filed as
Exhibit 10(b) to the Company's Form 10-K Report for the fiscal year
ended June 30, 1991, File No. 0-7903, and incorporated herein by
reference; Amended Schedule A to Sanwa Letter Agreement dated
January 23, 1992, filed as Exhibit 10(b) 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; Fifth Amendment to Sanwa Letter
Agreement dated as of August 1, 1994 and Rider to Sanwa Letter
Agreement dated October 28, 1994, filed as Exhibit 10(b) to the
Company's Form 10-Q Report for the quarter ended December 31, 1994,
File No. 0-7903 and incorporated herein by reference.
(c)* 1981 Employee Incentive Stock Option Plan, as amended
through June 3, 1988, filed as Exhibit 4.4 to the Company's Form S-8
Registration Statement No. 33-22289, and incorporated herein by
reference; Amendment dated February 12, 1989 to the Employee
Incentive Stock Option Plan, filed as Exhibit 10(c) to the Company's
Form 10-K Report for the fiscal year ended June 30, 1989, File No.
0-7903, and incorporated herein by reference.
(d)* 1991 Incentive Stock Option Plan, filed as Exhibit 4(a) to
the Company's S-8 Registration Statement No. 33-50428, and
incorporated herein by reference.
(e)* Restated 1972 Director Stock Option Plan, as amended through
June 3, 1988, filed as Exhibit 4.3 to the Company's S-8 Registration
Statement No. 33-22289, and incorporated herein by reference;
Amendment dated February 12, 1989 to the Restated Director Stock
Option Plan, filed as Exhibit 10(d) to the Company's Form 10-K
Report for the fiscal year ended June 30, 1989, File No. 0-7903, and
incorporated herein by reference.
-49-
(f)* 1991 Director Stock Option Plan, filed as Exhibit 4(b) to
the Company's S-8 Registration Statement No. 33-50428, and
incorporated herein by reference.
(g)* 1993 Long-Term Stock Ownership Incentive Plan, filed as
Exhibit 4(a) to the Company's S-8 Registration Statement No. 33-
74488, and incorporated herein by reference.
(h) Lease Agreement between the Company and United Insurance
Company of America 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 between the Company and United Insurance Company of
America 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; Agreement of
Lease dated March 21, 1988 between Opus North Corporation, as
landlord, and Stenograph, as tenant, filed as Exhibit 10.1 to the
Company's Form 10-Q Report for the quarter ended March 31, 1988,
File No. 0-7903, and incorporated herein by reference; Amended and
Restated Lease Agreement dated as of September 1, 1987 by and
between the Industrial Development Board of the City of Huntsville,
Alabama, (the "Board") and LaserVideo, Inc. (now known as Disc
Manufacturing Inc. ("DMI")), filed as Exhibit 10(g) to the Company's
Form 10-K Report for the fiscal year ended June 30, 1990, File No.
0-7903, and incorporated herein by reference; Series 1991 Amendment
to Lease Agreement dated as of April 1, 1991 by and between DMI and
the Board, filed as Exhibit 10(i) to the Company's Form 10-K Report
for the fiscal year ended June 30, 1991, File No. 0-7903, and
incorporated herein by reference; Series 1993 Amendment to Lease
Agreement dated as of March 1, 1993 by and between DMI and the Board
and Financing Statement, filed as Exhibit 10(j) to the Company's
Form 10-K Report for the fiscal year ended June 30, 1993, and
incorporated herein by reference; Lease Agreement between CompuLitS,
Inc. and Meridian Mile Associates, L.P. for lease term commencing
May 1, 1992, 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 Agreement as amended between
Litigation Sciences, Inc./LSI Graphic Evidence and Bailey Tarrytown
Associates dated September 28, 1989, Office Building Lease Agreement
between Stenograph Corporation and BGT Limited dated November 16,
1993, Office Lease between Amberjack, Ltd. and Litigation Sciences,
Inc. dated July 2, 1990, Lease Agreement between Coventry Fund III,
Ltd. and Litigation Sciences, Inc. dated July 30, 1990, all 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.
(i)* Employment agreements dated as of June 24, 1991 between
the Company and each of Messrs. Philip E. Rollhaus, James H. DeVries
and Myron R. Shain, filed as Exhibit 10(k) to the Company's Form 10-
K Report for the fiscal year ended June 30, 1991, File No. 0-7903,
and incorporated herein by reference; Key Employee Severance
Agreement between the Company and George D. Ebersole; Trust
Agreement dated March 3, 1989 between the Company and The Northern
Trust Company, as trustee, filed as Exhibits 28.4 and 28.5,
respectively, to the Company's Form 8-K Report dated April 14, 1989,
and incorporated herein by reference; Amendment to Trust Agreement
dated November 9, 1989, filed as Exhibit 10(j) to the Company's Form
10-K Report for the fiscal year ended June 30, 1990, File No. 0-
7903, and incorporated herein by reference; Amendment to Trust
Agreement dated as of June 13, 1991, filed as Exhibit 10(k) to the
Company's Form 10-K Report for the fiscal year ended June 30, 1991,
File No. 0-7903, and incorporated
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herein by reference; Key Employee Severance Agreement dated June 1,
1994 by and between the Company and Michael J. La Forte, Jr.,and
Letter Agreement dated April 27, 1994 between Stenograph and Michael
J. La Forte, Jr., filed as Exhibit 10(i) 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.
(j) Summary Plan Description for the Incentive Savings Plan of
the Company Amended and Restated to Reflect Provisions Effective
July 1, 1993, filed as Exhibit 10(j) 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.
(k) Memorandum of Agreement between Philip E. Rollhaus and the
Company dated as of January 24, 1986, filed as Exhibit 10(p) to
Amendment No. 1 to the Company's S-2 No. 33-4489, and incorporated
herein by reference; Agreements between the Company, Philip E.
Rollhaus and Yukio Endo dated May 5, 1986, filed as Exhibit 10(a) to
the Company's Form 10-Q Report for the quarter ended March 31, 1986,
File No. 0-7903, and incorporated herein by reference.
(l) Assignment Agreement between Quick-Steel Engineering Pty.
Limited and Energy Absorption Systems, Inc. for the assignment of
certain patents and related invention dated November 21, 1989, filed
as Exhibit 10(n) to the Company's Form 10-K Report for the fiscal
year ended June 30, 1990, File No. 0-7903, and incorporated herein
by reference.
(m) Asset Purchase Agreement between Stenograph Corporation and
CompuLitS, Inc. dated July 20, 1993, filed as Exhibit 10(q) 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.
(n) Stock Purchase Agreement dated December 3, 1993 by and among
Energy Absorption Systems, Inc., and Robert Cunningham and Gene
Arthur, filed as Exhibit 10(b) to the Company's Form 10-Q Report for
the quarter ended December 31, 1993, File No. 0-7903, and
incorporated herein by reference.
(o) Asset Purchase Agreement by and among Litigation Sciences,
Inc., Saatchi & Saatchi Company PLC, Stenograph Corporation and
Quixote Corporation dated as of December 13, 1993 filed as Exhibit
10(c) to the Company's Form 10-Q Report for the quarter ended
December 31, 1993, File No. 0-7903, and incorporated herein by
reference.
(p) Standard Offer, Agreement and Escrow Instructions for
Purchase of Real Estate dated as of April 5, 1994 by and between
Disc Manufacturing, Inc. and Rockwell International Corporation, as
amended; Disposition and Development Agreement dated August 30, 1994
by and among The Anaheim Redevelopment Agency, the City of Anaheim
and Disc Manufacturing, Inc., filed as Exhibit 10(p) 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.
(q) Agreement between Quantic Industries, Inc. ("Quantic), Quantic
Holdings, L.L.C., James S. Fetherston, Charles G. Davis, Jr.,
individually and as trustee, Robert M. Valenti, William David Fahey,
Craig Bambrough, Myles H. Kitchen, Kenneth E. Willis, Robert P.
Coler and Energy Absorption Systems, Inc. dated April 12, 1995;
Purchase Agreement between Charterhouse Equity Partners, L.P.,
Northern & Midland Nominees Limited, George Sbordone and Energy
Absorption Systems, Inc. dated April 3, 1995; and Surviving
Stockholders Agreement between Quantic, James S. Fetherston, Charles
G. Davis, Jr., individually and as trustee, Robert M. Valenti,
William David Fahey, Craig Bambrough, Myles H. Kitchen, Kenneth E.
Willis, Robert P.
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Coler and Energy Absorption Systems, Inc. dated April 1995, filed as
Exhibits 10(b), 10(c) and 10(d), respectively, to the Company's Form
10-Q Report for the quarter ended March 31, 1995, File No. 0-7903,
and incorporated herein by reference.
11. Statement regarding computation of earnings per share
21. Subsidiaries of the Company
23. Consent of Coopers & Lybrand, L.L.P. as Independent
Certified Public Accountants
27. Financial Data Schedule
(d) Schedules:
---------
II - Valuation and Qualifying Accounts and Reserves
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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, 1995 By: /s/Philip E. Rollhaus, Jr.
-------------------------- --------------------------------
Philip E. Rollhaus Jr., President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Philip E. Rollhaus Jr.
- --------------------------- Chairman and President, Director September 27, 1995
Philip E. Rollhaus Jr. (Chief Executive Officer)
/s/Myron R. Shain
- --------------------------- Executive Vice President-Finance September 27, 1995
Myron R. Shain (Chief Accounting and Financial
Officer)
/s/James H. DeVries
- --------------------------- Executive Vice President and September 27, 1995
James H. DeVries Secretary, Director
/s/William G. Fowler
- --------------------------- Director September 27, 1995
William G. Fowler
/s/Lawrence C. McQuade
- --------------------------- Director September 27, 1995
Lawrence C. McQuade
/s/David S. Ruder
- --------------------------- Director September 27, 1995
David S. Ruder
/s/Robert D. van Roijen Jr.
- --------------------------- Director September 27, 1995
Robert D. van Roijen Jr.
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QUIXOTE CORPORATION & SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the years ended June 30, 1995, 1994, and 1993
Column A Column B Column C(1) Column C(2) Column D Column E
- -------- -------- ----------- ----------- -------- ---------
Additions
Balance at Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Additions Deductions Period
- ----------- ------------ ---------- ----------- ---------- ----------
Deducted from
Receivables:
Allowance for
Doubtful Accounts:
Year ended
June 30, 1995 $2,765,000 $ 955,000 $ 0 $ 982,000 $2,738,000
========== ========== ========== ========== ==========
Year ended
June 30, 1994 $2,488,000 $1,222,000 $ 247,000 $1,192,000 $2,765,000
========== ========== ========== ========== ==========
Year ended
June 30, 1993 $2,469,000 $ 999,000 $ 0 $ 980,000 $2,488,000
========== ========== ========== ========== ==========
NOTES:
(a) Column D represents accounts written off as uncollectable, net of
collections on accounts previously written off.
(b) Column C(2) relates to the Company's acquisition of Integrated Information
Services, Litigation Sciences and Safe-Hit Corporation.
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EXHIBIT INDEX
EXHIBIT NUMBER EXHIBITS
- ---------------------------- -----------------------------------------------
10(a) TERM LOAN AGREEMENT DATED AS OF AUGUST 4, 1995.
10(a) TERM NOTE AGREEMENT DATED AS OF AUGUST 4, 1995.
11 STATEMENT REGARDING COMPUTATION OF EARNINGS
PER SHARE.
21 SUBSIDIARIES OF THE COMPANY.
23 CONSENT OF COOPERS & LYBRAND LLP AS INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS.
27 FINANCIAL DATA SCHEDULE.
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