QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the period ended March 31, 2003 |
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or |
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o |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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for the transition period from |
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To |
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Commission file number 0-7903
I.R.S. Employer Identification Number 36-2675371
QUIXOTE CORPORATION
(a Delaware Corporation)
One East Wacker Drive
Chicago, Illinois 60601
Telephone: (312) 467-6755
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o
Indicate by check mark whether the registrant is an accelerated filer as defined by Rule 12b-2 of the Securities Exchange Act of 1934. YES ý NO o
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 7,675,671 shares of the Company's Common Stock ($.01-2/3 par value) were outstanding as of March 31, 2003.
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
| |
Nine Months Ended March 31, |
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|---|---|---|---|---|---|---|---|---|
| |
2003 |
2002 |
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| Net sales | $ | 75,472,000 | $ | 62,279,000 | ||||
| Cost of sales | 44,964,000 | 40,019,000 | ||||||
| Gross profit | 30,508,000 | 22,260,000 | ||||||
Operating expenses: |
||||||||
| Selling & administrative | 20,986,000 | 17,087,000 | ||||||
| Research & development | 1,543,000 | 1,561,000 | ||||||
| 22,529,000 | 18,648,000 | |||||||
| Operating profit | 7,979,000 | 3,612,000 | ||||||
Other income (expense): |
||||||||
| Interest income | 66,000 | 27,000 | ||||||
| Interest expense | (637,000 | ) | (949,000 | ) | ||||
| Other | 830,000 | |||||||
| (571,000 | ) | (92,000 | ) | |||||
| Earnings before income taxes | 7,408,000 | 3,520,000 | ||||||
| Provision for income taxes | 2,519,000 | 1,267,000 | ||||||
| Earnings from continuing operations | 4,889,000 | 2,253,000 | ||||||
| Earnings from discontinued operations, net of income taxes | 192,000 | |||||||
| Net earnings | $ | 4,889,000 | $ | 2,445,000 | ||||
Per share data—basic: |
||||||||
| Earnings from continuing operations | $ | .63 | $ | .29 | ||||
| Net earnings | $ | .63 | $ | .32 | ||||
| Average common shares outstanding | 7,793,082 | 7,651,754 | ||||||
Per share data—diluted: |
||||||||
| Earnings from continuing operations | $ | .61 | $ | .28 | ||||
| Net earnings | $ | .61 | $ | .30 | ||||
| Average diluted common shares outstanding | 7,990,722 | 8,132,445 | ||||||
See Notes to Consolidated Financial Statements.
2
| |
Three Months Ended March 31, |
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|---|---|---|---|---|---|---|---|---|
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2003 |
2002 |
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| Net sales | $ | 25,205,000 | $ | 21,507,000 | ||||
| Cost of sales | 15,156,000 | 13,899,000 | ||||||
| Gross profit | 10,049,000 | 7,608,000 | ||||||
Operating expenses: |
||||||||
| Selling & administrative | 6,877,000 | 5,815,000 | ||||||
| Research & development | 635,000 | 667,000 | ||||||
| 7,512,000 | 6,482,000 | |||||||
| Operating profit | 2,537,000 | 1,126,000 | ||||||
Other income (expense): |
||||||||
| Interest income | 11,000 | 2,000 | ||||||
| Interest expense | (187,000 | ) | (240,000 | ) | ||||
| (176,000 | ) | (238,000 | ) | |||||
| Earnings before income taxes | 2,361,000 | 888,000 | ||||||
| Provision for income taxes | 803,000 | 319,000 | ||||||
| Net earnings | $ | 1,558,000 | $ | 569,000 | ||||
Per share data—basic: |
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| Net earnings | $ | .20 | $ | .07 | ||||
| Average common shares outstanding | 7,738,268 | 7,744,173 | ||||||
Per share data—diluted: |
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| Net earnings | $ | .20 | $ | .07 | ||||
| Average diluted common shares outstanding | 7,927,684 | 8,035,561 | ||||||
See Notes to Consolidated Financial Statements.
3
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
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March 31, 2003 |
June 30, 2002 |
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|---|---|---|---|---|---|---|---|---|---|
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(Unaudited) |
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| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 897,000 | $ | 1,798,000 | |||||
| Accounts receivable, net of allowances for doubtful accounts of $1,629,000 at March 31 and $1,546,000 at June 30 | 23,640,000 | 24,448,000 | |||||||
| Refundable income taxes | 228,000 | 732,000 | |||||||
Inventories: |
|||||||||
| Raw materials | 3,623,000 | 2,940,000 | |||||||
| Work in process | 2,988,000 | 2,453,000 | |||||||
| Finished goods | 5,230,000 | 6,497,000 | |||||||
| 11,841,000 | 11,890,000 | ||||||||
| Notes receivable | 233,000 | 233,000 | |||||||
| Deferred income tax assets | 3,098,000 | 3,098,000 | |||||||
| Other current assets | 962,000 | 895,000 | |||||||
| Total current assets | 40,899,000 | 43,094,000 | |||||||
Property, plant and equipment, at cost |
38,898,000 |
37,328,000 |
|||||||
| Less accumulated depreciation | (17,218,000 | ) | (15,369,000 | ) | |||||
| 21,680,000 | 21,959,000 | ||||||||
| Goodwill | 29,594,000 | 29,594,000 | |||||||
| Intangible assets, net | 5,065,000 | 4,967,000 | |||||||
| Other assets | 342,000 | 430,000 | |||||||
| $ | 97,580,000 | $ | 100,044,000 | ||||||
See Notes to Consolidated Financial Statements.
4
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March 31, 2003 |
June 30, 2002 |
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|---|---|---|---|---|---|---|---|---|
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(Unaudited) |
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| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 960,000 | $ | 998,000 | ||||
| Accounts payable | 4,560,000 | 4,511,000 | ||||||
| Dividends payable | 1,240,000 | |||||||
| Accrued expenses | 6,763,000 | 5,422,000 | ||||||
| Total current liabilities | 12,283,000 | 12,171,000 | ||||||
| Long-term debt, net of current portion | 20,934,000 | 24,772,000 | ||||||
| Deferred income tax liabilities | 3,010,000 | 3,010,000 | ||||||
| Other long-term liabilities | 645,000 | 865,000 | ||||||
Shareholders' equity: |
||||||||
| Preferred stock, no par value; authorized 100,000 shares; none issued | ||||||||
| Common stock, par value $.01-2/3; authorized 15,000,000 shares; issued 9,807,634 shares at March 31 and 9,744,033 shares at June 30 | 163,000 | 162,000 | ||||||
| Capital in excess of par value of common stock | 40,538,000 | 40,033,000 | ||||||
| Retained earnings | 44,190,000 | 40,547,000 | ||||||
| Currency translation adjustment | (67,000 | ) | (424,000 | ) | ||||
| Treasury stock, at cost, 2,131,963 shares at March 31 and 1,967,963 shares at June 30 | (24,116,000 | ) | (21,092,000 | ) | ||||
| Total shareholders' equity | 60,708,000 | 59,226,000 | ||||||
| $ | 97,580,000 | $ | 100,044,000 | |||||
See Notes to Consolidated Financial Statements.
5
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
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Nine Months Ended March 31, |
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|---|---|---|---|---|---|---|---|---|---|---|
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2003 |
2002 |
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| Operating activities: | ||||||||||
| Earnings from continuing operations | $ | 4,889,000 | $ | 2,253,000 | ||||||
| Discontinued operations: | ||||||||||
| Gain on disposal, net of income taxes | 192,000 | |||||||||
| Net earnings | 4,889,000 | 2,445,000 | ||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities of continuing operations: | ||||||||||
| Depreciation | 2,304,000 | 1,854,000 | ||||||||
| Amortization | 347,000 | 253,000 | ||||||||
| Provisions for losses on accounts receivable | 83,000 | 178,000 | ||||||||
| Discontinued operations | (192,000 | ) | ||||||||
| Gain on sale of assets | (830,000 | ) | ||||||||
| Changes in operating assets and liabilities: | ||||||||||
| Accounts receivable | 768,000 | 3,964,000 | ||||||||
| Inventories | 61,000 | 5,923,000 | ||||||||
| Other assets | (492,000 | ) | (624,000 | ) | ||||||
| Accounts payable and accrued expenses | 1,442,000 | (3,838,000 | ) | |||||||
| Income taxes | 504,000 | (44,000 | ) | |||||||
| Net cash provided by operating activities of continuing operations | 9,906,000 | 9,089,000 | ||||||||
| Net cash provided by discontinued operations | 32,000 | |||||||||
| Net cash provided by operating activities | 9,906,000 | 9,121,000 | ||||||||
Investing activities: |
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| Capital expenditures | (1,512,000 | ) | (6,245,000 | ) | ||||||
| Patent and license expenditures | (445,000 | ) | (684,000 | ) | ||||||
| Cash paid for acquired businesses, net of cash acquired | (11,300,000 | ) | ||||||||
| Proceeds from sale of assets | 581,000 | |||||||||
| Net cash used in investing activities | (1,957,000 | ) | (17,648,000 | ) | ||||||
Financing activities: |
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| Borrowing on revolving line of credit | 10,800,000 | 25,500,000 | ||||||||
| Payments on revolving line of credit | (13,800,000 | ) | (17,800,000 | ) | ||||||
| Payments on notes payable | (876,000 | ) | (1,412,000 | ) | ||||||
| Payment of semi-annual cash dividend | (2,486,000 | ) | (2,351,000 | ) | ||||||
| Proceeds from exercise of common stock options | 506,000 | 2,004,000 | ||||||||
| Repurchase of common stock for treasury | (3,024,000 | ) | ||||||||
| Net cash provided by(used by)financing activities. | (8,880,000 | ) | 5,941,000 | |||||||
| Effect of exchange rate changes on cash | 30,000 | 25,000 | ||||||||
| Decrease in cash and cash equivalents | (901,000 | ) | (2,561,000 | ) | ||||||
| Cash and cash equivalents at beginning of period | 1,798,000 | 4,118,000 | ||||||||
| Cash and cash equivalents at end of period | $ | 897,000 | $ | 1,557,000 | ||||||
See Notes to Consolidated Financial Statements.
6
QUIXOTE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. The accompanying unaudited consolidated financial statements present information in accordance with generally accepted accounting principles for interim financial information and applicable rules of Regulation S-X. Accordingly, they do not include all information or footnotes required by generally accepted accounting principles for complete financial statements. The June 30, 2002 consolidated balance sheet as presented was derived from audited financial statements. The interim financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2002. Management believes the financial statements include all normal recurring adjustments necessary for a fair presentation of the results for the interim periods presented.
2. The provision for income taxes is based upon the estimated effective income tax rate for the year.
3. Operating results for the first nine months of fiscal 2003 are not necessarily indicative of the performance for the entire year. Historically, the Company's business is seasonal with a higher level of sales in the Company's fourth fiscal quarter.
4. The computation of basic and diluted earnings per share is as follows:
| |
Nine Months Ended March 31, |
Three Months Ended March 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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2003 |
2002 |
2003 |
2002 |
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| Numerator: | |||||||||||||
| Net earnings available to common shareholders | $ | 4,889,000 | $ | 2,445,000 | $ | 1,558,000 | $ | 569,000 | |||||
| Denominator: | |||||||||||||
| Weighted average shares outstanding—basic | 7,793,082 | 7,651,754 | 7,738,268 | 7,744,173 | |||||||||
| Effect of dilutive securities—common stock options | 197,640 | 480,691 | 189,416 | 291,388 | |||||||||
| Weighted average shares outstanding—diluted | 7,990,722 | 8,132,445 | 7,927,684 | 8,035,561 | |||||||||
| Net earnings per share of common stock: | |||||||||||||
| Basic | $ | .63 | $ | .32 | $ | .20 | $ | .07 | |||||
| Diluted | $ | .61 | $ | .30 | $ | .20 | $ | .07 | |||||
There were outstanding options to purchase common stock at prices that exceeded the average market price for the income statement period. These options have been excluded from the computation of diluted earnings per share for both the nine-month and three-month periods ended March 31, 2003 and 2002 and are as follows:
| |
Nine Months Ended March 31, |
Three Months Ended March 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2003 |
2002 |
2003 |
2002 |
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| Average exercise price per share | $ | 23.78 | $ | 24.84 | $ | 23.78 | $ | 24.04 | ||||
| Number of shares | 246,300 | 189,300 | 246,300 | 239,300 | ||||||||
7
5. Comprehensive income consists of the following:
| |
Nine Months Ended March 31, |
Three Months Ended March 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2003 |
2002 |
2003 |
2002 |
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| Net earnings | $ | 4,889,000 | $ | 2,445,000 | $ | 1,558,000 | $ | 569,000 | ||||
| Currency translation adjustment | (4,000 | ) | 25,000 | (36,000 | ) | 14,000 | ||||||
| Total comprehensive income | $ | 4,885,000 | $ | 2,470,000 | $ | 1,522,000 | $ | 583,000 | ||||
6. The Company's operations are classified as two reportable segments within the highway and transportation safety industry. The Company's two reportable segments are the manufacture and sale of the Company's products which Protect and Direct, and the manufacture and sale of products which Inform and are often referred to as Intelligent Transportation Systems (ITS) products.
The following table presents financial information about reported segments for the nine-month and three-month periods ended March 31, 2003 and 2002 along with the items necessary to reconcile the segment information to the totals reported in the consolidated financial statements.
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Protect and Direct |
Inform |
Unallocated Corporate |
Total |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | ||||||||||||
| NINE MONTHS | ||||||||||||
| Net sales from external customers | $ | 53,822,000 | $ | 21,650,000 | $ | 75,472,000 | ||||||
| Operating profit (loss) | 11,474,000 | 1,657,000 | $ | (5,152,000 | ) | 7,979,000 | ||||||
| Identifiable assets | 52,019,000 | 40,982,000 | 4,579,000 | 97,580,000 | ||||||||
THREE MONTHS |
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| Net sales from external customers | $ | 17,836,000 | $ | 7,369,000 | $ | 25,205,000 | ||||||
| Operating profit (loss) | 3,723,000 | 317,000 | $ | (1,503,000 | ) | 2,537,000 | ||||||
2002 |
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| NINE MONTHS | ||||||||||||
| Net sales from external customers | $ | 46,370,000 | $ | 15,909,000 | $ | 62,279,000 | ||||||
| Operating profit (loss) | 7,355,000 | 163,000 | $ | (3,906,000 | ) | 3,612,000 | ||||||
| Identifiable assets | 51,252,000 | 38,732,000 | 5,180,000 | 95,164,000 | ||||||||
THREE MONTHS |
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| Net sales from external customers | $ | 16,228,000 | $ | 5,279,000 | $ | 21,507,000 | ||||||
| Operating profit (loss) | 2,770,000 | (435,000 | ) | $ | (1,209,000 | ) | 1,126,000 | |||||
8
7. Intangible assets consist of the following:
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March 31, 2003 |
June 30, 2002 |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
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| Amortized intangible assets: | |||||||||||||
| Patents and licenses | $ | 2,779,000 | $ | 1,350,000 | $ | 2,334,000 | $ | 1,195,000 | |||||
| Technology and installed base | 2,610,000 | 308,000 | 2,610,000 | 162,000 | |||||||||
| Customer relationships | 200,000 | 63,000 | 200,000 | 33,000 | |||||||||
| Other | 130,000 | 33,000 | 130,000 | 17,000 | |||||||||
| 5,719,000 | 1,754,000 | 5,274,000 | 1,407,000 | ||||||||||
Indefinite-lived intangible assets: |
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| Trade names | 1,100,000 | 1,100,000 | |||||||||||
| Total | $ | 6,819,000 | $ | 1,754,000 | $ | 6,374,000 | $ | 1,407,000 | |||||
Amortization expense was $347,000 and $253,000 for the nine months ended March 31, 2003 and 2002, respectively. The estimated amortization expenses for this fiscal year ended June 30, 2003 and for the four fiscal years subsequent to 2003 are as follows: $461,000, $424,000, $388,000, $379,000 and $307,000.
The carrying amount of goodwill consists of $21,455,000 for the Inform segment and $8,139,000 for the Protect and Direct segment as of March 31, 2003 and June 30, 2002.
8. During the first nine months of last fiscal year, the Company recorded other income of $830,000 related to the gain on sale of certain assets of its non-highway plastic product line for $581,000 in cash and $700,000 in a three-year promissory note with interest imputed at 8%.
9. Effective August 31, 2001, the Company acquired all of the outstanding stock of Surface Systems, Inc. (SSI) for approximately $11,300,000, net of cash acquired. SSI is a leading manufacturer and seller of patented pavement sensing equipment and specialized weather stations and also provides weather forecasting services. SSI has been included in the Company's Inform segment.
10. In December 2002, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard (FAS) No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123." The Company adopted FAS No. 148 as of January 1, 2003, which did not have an effect on the Company's results of operations or its financial position.
The Company has stock option plans providing for grants of options for directors and employees. No charges are made to earnings in connection with the option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value method for awards in 2003 and
9
2002 consistent with the provisions of FAS No. 123, the Company's net earnings and net earnings per diluted share would have been changed to the pro forma amounts indicated below:
| |
Nine Months Ended March 31, |
Three Months Ended March 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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2003 |
2002 |
2003 |
2002 |
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| Net earnings, as reported | $ | 4,889,000 | $ | 2,445,000 | $ | 1,558,000 | $ | 569,000 | ||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects | (1,021,000 | ) | (1,055,000 | ) | (337,000 | ) | (332,000 | ) | ||||||
| Pro forma net earnings | $ | 3,868,000 | $ | 1,390,000 | $ | 1,221,000 | $ | 237,000 | ||||||
| Earnings per share: | ||||||||||||||
| Basic—as reported | $ | .63 | $ | .32 | $ | .20 | $ | .07 | ||||||
| Basic—pro forma | $ | .50 | $ | .18 | $ | .16 | $ | .03 | ||||||
| Diluted—as reported | $ | .61 | $ | .30 | $ | .20 | $ | .07 | ||||||
| Diluted—pro forma | $ | .48 | $ | .17 | $ | .15 | $ | .03 | ||||||
11. The FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" which relates to accounting on a prospective basis to guarantees issued or modified by companies after December 31, 2002. The Company adopted FIN No. 45 as of January 1, 2003, which did not have a material effect on the Company's results of operations or its financial position.
10
PART I—FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
CURRENT YEAR-TO-DATE VERSUS PRIOR YEAR-TO-DATE
The Company's sales for the first nine months of fiscal 2003 increased 21% to $75,472,000 compared to $62,279,000 for the first nine months last year. Sales for the first nine months of fiscal 2002 were unusually low as the Company believes it was affected by generally weak economic conditions. Sales for the Protect and Direct segment increased 16% to $53,822,000 from $46,370,000 primarily due to higher sales of the QuadGuard® family of crash cushions, truck-mounted attenuators and parts, which were partially offset by lower sales of sand-filled barrels and the FreezeFree™ anti-icing system. Sales for the Inform segment increased 36% to $21,650,000 in the first nine months of fiscal 2003 from $15,909,000 for the same period last year. The increase was primarily due to higher sales of advanced sensing systems and variable message signs, which were partially offset by lower sales of highway advisory radios. The growth in sales of the sensing systems and variable message signs was due to shipments of two large contracts, including shipments of $2,800,000 in Ohio to supply weather and traffic sensing systems and $550,000 in variable message signs and arrowboards in California. The increase was also due, to a lesser extent, to the acquisition of Surface Systems, Inc. (SSI) in August 2001, which added $914,000 in sales for the first nine months not comparable to the prior year. Organic sales for this segment increased 30% for the first nine months of fiscal 2003. The Company's international sales increased to $10,164,000 for the first nine months of fiscal 2003 from $6,229,000 last year primarily due to increased sales in Australia, Asia and Europe. A large portion of the increase in international sales is due to an increase of $1,290,000 in sales of the Triton Barrier® product in Australia related to new legislation passed in Australia requiring positive protection for all highway work zones.
The gross profit margin for the first nine months of fiscal 2003 increased to 40.4% compared to 35.7% for the same period last year principally due to volume efficiencies associated with the higher level of sales for both segments. The increase in the gross profit margin for the Protect and Direct segment was partially offset by an unfavorable change in product mix with increased sales of lower margin truck-mounted attenuators. The increase in the gross profit margin for the Inform segment was partially offset by an unfavorable change in product mix with increased sales of lower margin large contract sales. The increase in the gross profit margin for the Inform segment was also offset by the lower gross margins generated at SSI as the first nine months of fiscal 2003 includes SSI's seasonally lowest months of July and August which were not a part of fiscal 2002 results.
Research and development expenditures remained consistent in the first nine months of fiscal 2003 at $1,543,000 compared to $1,561,000 last year. The Company continued with its work on new products as well as upgrades and modifications to existing products including enhancements to its existing line of crash cushions.
Selling and administrative expenses for the first nine months of fiscal 2003 increased to $20,986,000 compared to $17,087,000 for the same period last year. The increase was primarily due to the increase in sales as well as $511,000 in additional selling and administrative expenses from SSI not comparable to the prior year. In addition, the Company incurred increased expenses during the first nine months of fiscal 2003 compared to the same period last year relating to foreign currency losses, acquisition development efforts, certain employee related expenses and non-recurring consulting work. As a percentage of sales, selling and administrative expenses slightly increased to 27.8% of sales for the first nine months of fiscal 2003 as compared to 27.4% for the same period of the prior year.
Operating profit increased to $7,979,000 for the first nine months of fiscal 2003 from $3,612,000 for the same period last year.
11
Interest expense decreased to $637,000 from $949,000 in the first nine months of fiscal 2003 due to the lower level of average long-term debt outstanding and to lower interest rates.
During the first nine months of last fiscal year, the Company recorded other income of $830,000 related to the gain on sale of certain assets of its non-highway plastic product line.
Income taxes for the first nine months of fiscal 2003 were $2,519,000 reflecting a 34% effective income tax rate compared to a 36% effective income tax rate for the same period last year. The decline in effective rate is due to, among other things, continued federal and state tax planning opportunities and the expected utilization of certain state tax benefits. The Company expects its effective income tax rate to remain at 34% for fiscal 2003.
Earnings from continuing operations for the first nine months of fiscal 2003 were $4,889,000, or $0.61 per diluted share, compared to $2,253,000, or $0.28 per diluted share, for the first nine months last year. Net earnings for the first nine months of fiscal 2003 increased to $4,889,000, or $0.61 per diluted share, from $2,445,000, or $0.30 per diluted share, for the same period last year. Net earnings for the first nine months of last fiscal year included a gain from discontinued operations of $192,000, net of income taxes, or $.02 per diluted share, due to the favorable outcome of a legal settlement.
CURRENT YEAR QUARTER VERSUS PRIOR YEAR QUARTER
The Company's sales for the third quarter of fiscal 2003 increased 17% to $25,205,000 compared to $21,507,000 for the third quarter last year. Sales for the third quarter of fiscal 2002 were unusually low as the Company believes it was affected by generally weak economic conditions. Sales for the Protect and Direct segment increased 10% to $17,836,000 from $16,228,000 primarily due to higher sales of the QuadGuard® family of crash cushions and truck-mounted attenuators, which were partially offset by lower sales of parts. Sales for the Inform segment increased 40% to $7,369,000 in the third quarter of fiscal 2003 from $5,279,000 for the third quarter last year. The increase was primarily due to higher sales in all of the major product lines including weather, sensing system, advisory radio and variable message sign products. The growth in sales of the sensing system products was partially due to the remaining shipment of $600,000 on the large contract to Ohio to supply weather and traffic sensing systems. The Company's international sales increased to $3,579,000 for the third quarter of fiscal 2003 from $2,297,000 last year due to increased sales in Australia, Asia and Canada. The increase in international sales is primarily due to an increase of $870,000 in sales of the Triton Barrier® product in Australia related to the new legislation passed in Australia requiring positive protection for all highway work zones.
The gross profit margin for the third quarter of fiscal 2003 increased to 39.9% compared to 35.4% for the third quarter last year principally due to volume efficiencies associated with the higher level of sales for both segments. The increase in the gross profit margin for the Protect and Direct segment was partially offset by an unfavorable change in product mix with increased sales of lower margin truck-mounted attenuators. The increase in the gross profit margin for the Inform segment was partially offset by an unfavorable change in product mix with increased sales of lower margin large contract sales.
Research and development expenditures remained consistent in the third quarter of fiscal 2003 at $635,000 compared to $667,000 last year. The Company continued with its work on new products as well as upgrades and modifications to existing products.
Selling and administrative expenses for the third quarter of fiscal 2003 increased to $6,877,000 compared to $5,815,000 for the third quarter last year. The increase was primarily due to the increase in sales. In addition, the Company incurred increased expenses during the third quarter of fiscal 2003 compared to the same period last year relating to foreign currency losses and certain employee related expenses. As a percentage of sales, selling and administrative expenses remained consistent at 27.3% of
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sales for the third quarter of fiscal 2003 as compared to 27.0% of sales for the third quarter of fiscal 2002.
Operating profit increased to $2,537,000 for the third quarter of fiscal 2003 from $1,126,000 for the third quarter last year.
Interest expense decreased to $187,000 from $240,000 in the third quarter of fiscal 2003 due to the lower level of average long-term debt outstanding and to lower interest rates.
Income taxes for the third quarter of fiscal 2003 were $803,000 reflecting a 34% effective income tax rate compared to a 36% effective income tax rate for the third quarter last year.
Net earnings for the third quarter increased to $1,558,000, or $0.20 cents per diluted share, compared to $569,000, or $.07 cents per diluted share, for the third quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $897,000 as of March 31, 2003 and access to additional funds of $20,500,000 under an unsecured revolving credit agreement which currently expires on October 31, 2004. The Company believes that this credit facility is an important source of liquidity. The credit agreement provides for a $40 million credit facility and contains both fixed and floating interest rate options, at the prime rate or lower, and contains affirmative and negative covenants including requirements that the Company maintain certain financial ratios and be profitable each year. The agreement may be renewed one additional year on each anniversary date upon mutual consent of the Company and the banks. At any time before the facility expires, the Company may elect to convert the loan to a four-year term with equal quarterly principal payments due throughout the term to amortize the loan in full. The Company is currently in compliance with all covenants in this agreement.
Operating activities were a source of cash for the Company for the first nine months of fiscal 2003 providing $9,906,000.
Investing activities used cash of $1,957,000 during the first nine months of fiscal 2003 including $1,512,000 for capital expenditures and $445,000 for patent expenditures.
Financing activities used cash of $8,880,000 during the first nine months of fiscal 2003. The Company paid a net $3,000,000 against its outstanding revolving credit facility. The payment of the Company's semi-annual cash dividend used cash of $2,486,000. In addition, the Company used cash of $876,000 for the payment of notes payable due in connection with the acquisition of Roadway Safety Service, Inc. and National Signal, Inc. The Company also paid $3,024,000 to purchase 164,000 shares of its own common stock for the treasury. Offsetting these cash payments, the Company received cash of $506,000 from the exercise of common stock options.
For the remainder of fiscal 2003, the Company anticipates needing less than $1,000,000 in additional cash for capital expenditures. For 2003 and into 2004, the Company may also need additional cash as it continues to consider acquiring businesses that complement its existing operations. Also, the Company will require additional investments in working capital to maintain growth. The Company may also need additional funds to repurchase its own common stock from time to time. These expenditures will be financed either through the Company's invested cash, cash generated from its operations or from borrowings available either under the Company's revolving credit facility or from the renegotiation of a new credit facility. The Company believes that additional funds would be available from its banks if needed. The Company believes these sources of cash are sufficient for all planned operating, investing and capital requirements.
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CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Management's estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 to the Company's June 30, 2002 consolidated financial statements includes a summary of the significant accounting policies, methods and estimates used in the preparation of the Company's consolidated financial statements. In the opinion of management, the Company does not have any individual accounting policy or use any individual estimate that is critical to the preparation of its consolidated financial statements. In most instances, the Company must use an accounting policy or method because it is the only policy or method permitted under U.S. GAAP. The following is a summary of the more significant accounting policies, methods and estimates used by the Company:
Revenue Recognition: Revenues are recognized when either title and risk of loss of products has been transferred to unaffiliated customers or services have been rendered, with appropriate provision for uncollectible accounts.
Income Taxes: The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In addition, the amount of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be fully realized.
Long-Lived Assets: Long-lived assets include such items as goodwill, patents, product rights and equity method investments. Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the Company assesses the possibility of obsolescence, demand, new technology, competition, and other pertinent economic factors and trends that may have an impact on the value or remaining lives of these assets. Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually using the discounted cash flow method. Patents and product rights are amortized on a straight-line basis over the life of the patent or agreement.
In the preparation of the Company's financial statements, certain normal and recurring estimates are made including estimates in determining the allowance for doubtful accounts receivable, inventory valuation reserves, valuation allowance on deferred tax assets and health care liabilities. These estimates are made using management's best judgement given relevant factors and available data. These estimates may differ from actual results.
FUTURE OUTLOOK
The Company has been affected by the general slowdown in U.S. highway safety construction spending for the Company's products. The Company believes this is due principally to revenue shortfalls and budget deficits at the state level where the majority of states are currently operating at a deficit. Federal spending on highways for the government's fiscal year ending September 30, 2003 has been approved at approximately $32 billion consistent with federal spending last year. The current six-year federal highway bill (TEA-21) expires on September 30, 2003. The next highway funding bill is currently under consideration by the federal government and it is uncertain as to what the future federal governmental spending levels will be. Currently, the Company is encouraged by recent improvements in shipments, order flow and backlog. However, given the current uncertain economic
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conditions and state budget deficits, the Company remains cautious about its prospects for 2003 and into 2004.
The Company experiences fluctuation in its gross profit margin from quarter to quarter primarily due to sales volume related to seasonality, variability in product mix and changes in the competitive environment. In addition, the Company has acquired complementary businesses over the past several years and, as part of its strategy, may continue to acquire complementary businesses. The gross profit margins of certain acquired product lines are lower than the Company's historical gross profit margin, which is adversely affecting the Company's gross profit margin. Additional acquisitions may have a continuing adverse impact on the Company's gross profit margin. The Company is also experiencing rigorous competition in its variable message sign and weather sensing system product lines. The Company does not believe these trends will improve in the near future.
FORWARD LOOKING STATEMENTS
Various statements made within the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report constitute "forward-looking statements" for purposes of the SEC's "safe harbor" provisions under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934, as amended. Any statement that addresses expectations or projections about the future, including statements about the Company's strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the Company's public filings with the SEC, news releases and other communications, which speak only as of the dates of those filings or communications. There can be no assurance that actual results will not differ materially from the Company's expectations. Factors which could cause materially different results include, among others, uncertainties related to continued federal and state funding for highways and risks related to reductions in government expenditures; the introduction and acceptance of the Company's products and services; the successful completion and integration of acquisitions; an unfavorable change in product sales mix; seasonality along with the extent and timing of the award of large contracts; the cyclical nature of the Company's governmental markets; competitive and pricing pressures; increasing raw material costs; excess manufacturing capacity; weather conditions; acts of war and terrorist activities; the possible impairment of intangible assets; and general economic conditions.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the information provided in Item 7.A. of the Company's Annual Report on Form 10-K for the year ended June 30, 2002.
ITEM 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that are filed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision of and with the participation of management, including the principal executive officer and principal financial officer, the
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Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures within 90 days of the filing date of this quarterly report, and, based on its evaluation, our principal executive officer and principal financial officer have concluded that these controls and procedures are effective.
Although the Company believes its pre-existing disclosure controls and procedures were adequate to enable it to comply with current disclosure obligations, the Company implemented minor changes, primarily to formalize and document procedures already in place. The Company has also established a disclosure committee, which consists of certain members of the Company's management. The Company is currently in the process of further reviewing, documenting and refining its disclosure controls and procedures, including internal controls and procedures, in order to enhance their effectiveness.
There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation described above, including any corrective actions with regard to significant deficiencies and material weaknesses.
There is no information required to be reported under any items except as indicated below:
ITEM 6. Exhibits and Reports on Form 8-K
99. Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
On April 24, 2003, the Company filed a report on Form 8-K dated April 23, 2003, to report the issuance of a press release announcing its third quarter fiscal 2003 financial results.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 to be signed on its behalf by the undersigned thereunto duly authorized.
| QUIXOTE CORPORATION | ||||
DATED: |
May 9, 2003 |
/s/ DANIEL P. GOREY Daniel P. Gorey Chief Financial Officer, Vice President and Treasurer (Chief Financial & Accounting Officer) |
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I, Leslie J. Jezuit, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Quixote Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
DATED: |
May 9, 2003 |
/s/ LESLIE J. JEZUIT Leslie J. Jezuit President and Chief Executive Officer |
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I, Daniel P. Gorey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Quixote Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
DATED: |
May 9, 2003 |
/s/ DANIEL P. GOREY Daniel P. Gorey Vice President, Chief Financial Officer and Treasurer |
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