Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act. (Check one)
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Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
State the aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $160,016,886 as of December 31, 2006
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 9,048,237 shares of the Company’s Common Stock ($.01-2/3 par value) were outstanding as of September 4, 2007.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 15, 2007 which will be filed with the Commission on or about October 3, 2007 is incorporated by reference at Part III.
TABLE OF CONTENTS
Various statements made within 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. Except for historical information, any statement that addresses expectations or projections about the future, including statements about our strategy for growth, product development, market position, expenditures, financial results or changes in governmental legislation, policies and conditions, is a forward-looking statement. Readers are cautioned not to place undue reliance on these forward-looking statements and that all forward-looking statements involve risks and uncertainties, including those detailed in our public filings with the SEC, news releases and other communications, which speak only as of the dates of those filings or communications. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. There can be no assurance that actual results will not differ materially from our expectations.
Overview of the Company and Its Financial Condition
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. When we use the terms “Quixote Corporation”, “the Company”, “we”, “our” or “us” in this report, we refer to Quixote Corporation and its subsidiaries, unless otherwise provided by the context in which the term is used.
We develop, manufacture and sell highway and transportation safety products to domestic and international markets. Our three reportable segments are: highway and transportation safety products that “Protect and Direct” by minimizing the severity of crashes or by directing or guiding traffic to avoid crashes; highway and transportation safety products that “Inform” motorists, state and local highway personnel about dangerous or congested conditions or provide other useful information; and “Intersection Control” products which provide solutions for controlling intersections. Our products are sold worldwide through a distribution network, as well as by a direct sales force, to customers in the highway construction and safety business, state and municipal departments of transportation and other governmental transportation agencies.
In the United States our business is directly affected by federal, state and municipal government funding for transportation safety, highway construction and maintenance, and other infrastructure projects. A significant part of our sales are ultimately financed by funds provided to the states by the federal government through the federal transportation funding bill. The current bill, SAFETEA-LU, was enacted in August 2005, delayed almost two years. Until the new legislation was enacted, the transportation safety allotment in federal and state budgets was uncertain. We believe this prolonged uncertainty adversely impacted sales of our products and services in fiscal years 2005 and 2006 and our financial performance in those fiscal years. We believe that the passage of SAFETEA-LU has provided a more predictable funding stream for our products.
At the same time, many states suffered budget constraints in fiscal year 2005. Such budget constraints adversely affected the ability of the states to fund highway and infrastructure projects, and therefore reduced the demand for our products. Municipalities also suffered from budget restraints that reduced transportation safety spending. Due to the improvement in general economic conditions, we believe that state and municipal budgetary conditions improved.
Sales and operating
results were below historic levels and expectations in fiscal year 2005 and
operating results for our Intersection Control segment were substantially less
than expected. In fiscal year 2006, continued significant operating losses at
our Intersection Control segment caused us to restructure that segment. The
restructuring lowered costs through headcount and facility reductions, as well
as through the discontinuation of non-core and low margin product lines. We
also outsourced non-core manufacturing activities. The restructuring resulted
in a significant reduction in operating losses for the Intersection Control
segment beginning in the third quarter of fiscal 2007. However, this segment
experienced losses in fiscal 2007 because sales were below break-even levels. Quixote Corporation, through its subsidiaries,
develops, manufactures and markets highway and transportation safety products
to protect, direct and inform motorists and highway workers in both domestic
and international markets. Our products include energy-absorbing highway crash
cushions, flexible post delineators, electronic wireless measuring and sensing
devices, weather information systems, highway advisory radios, intelligent
intersection control devices, video detection equipment and other highway and
transportation safety devices. As of June 30, 2007,
we employed approximately 700 people. Our operations are
comprised of three reportable segments: · The
Protect and Direct segment provides solutions for improving safety on the roads
either by minimizing the severity of crashes that occur or by preventing
crashes from occurring by directing or guiding traffic. · The
Inform segment provides solutions for improving traffic flow and safety on
roads and runways by providing information. · The
Intersection Control segment provides solutions for controlling intersections. Our products are sold world-wide through a distribution
network, as well as by a direct sales force, to customers in the highway
construction and safety business, state and municipal departments of
transportation and other governmental transportation agencies. Financial information
relating to industry segments appears in Note 16 of the notes to our
consolidated financial statements incorporated by reference herein. Our Protect and Direct segment of products include our
patented highway crash cushions which were first conceived and developed in
1969. These products were developed and sold 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 1969,
various types of highway crash cushions have been installed in front of
thousands of life-threatening roadside hazards. The Federal Highway
Administration (FHWA) endorses the installation of highway crash cushions as an
effective safety program and they are mandatory on interstate roads in the U.S. We develop, manufacture and market lines of patented
highway crash cushion systems, truck-mounted attenuators (TMA’s) and other barriers
which absorb and dissipate the force of impact in collisions between vehicles
and fixed roadside objects or slow moving highway construction vehicles. The
product lines utilize the principles of momentum transfer and kinetic energy to
safely decelerate errant vehicles. Energy
absorption or energy dissipation is accomplished by using different
combinations of water, aluminum, steel, urethane foam systems, cardboard,
plastic structures, elastometric cylinders and sand. We also manufacture and sell products that prevent
crashes and help control the flow of traffic by directing or guiding. These
products consist of a line of flexible sign and guide post systems
(delineators) and a glare screen system. The guide posts are used to delineate
a travel way, channel vehicles or mark the location of an object. The post
features an in-ground anchor system that permits inexpensive repair and
replacement. The glare screen system, made from polyethylene, is installed on
top of median barriers to eliminate the distraction of lights from oncoming
vehicles. Our products within the
Protect and Direct segment also include a crashworthy barrier arm for use at
areas such as railroad crossings and toll roads and as security for access
ways, driveways and parking lots. In addition, we market a FreezeFree®
anti-icing system which automatically or manually dispenses deicing liquids in
advance of ice formation on bridges, roads and overpasses. To expand our business within the highway and
transportation safety industry, in 1998 we began acquiring companies that
manufacture Intelligent Transportation System (ITS) products which provide
information to improve traffic flow and safety. Products sold by our Inform
segment include weather and traffic sensing products and highway advisory radio
products. These products include portable and permanent sensors
that record traffic volume, speed, and length classification of vehicles. These
sensors also collect, analyze and store traffic, road surface conditions and
freezing point data which can be relayed on a real-time basis to a
transportation department’s base computer or control center via telephone,
cellular link, fiber optic connection or a wireless link. We also manufacture
and market road/runway weather information systems. Using a tower equipped with
weather instruments and special detectors, these systems can detect freezing
conditions and provide valuable weather information to transportation
departments or airports in order to dispatch salt trucks or automatically activate
anti-icing systems. We are a leading
manufacturer of highway advisory radio (HAR) systems that broadcast traffic
information using an AM radio frequency with reception up to six miles from the
unit. HAR systems, in connection with flashing lights and message signs, advise
drivers to tune into a particular AM station to hear messages about traffic,
road conditions and weather. These HAR systems can be permanent or mobile. Our
Intellizone® system is designed to provide real-time information to motorists by
integrating traffic and/or weather sensors, variable message signs and computer
controlled software. To further expand our business within the highway and
transportation safety industry, in 2003 we acquired two companies that
manufacture Intelligent Transportation System (ITS) products which control
intersections. After substantial losses as discussed earlier, in April 2006,
we approved a plan to restructure this segment which included the sale and
discontinuation of several product lines. After restructuring, its products
include traffic controllers, traffic and pedestrian signals, traffic
uninterruptible power supply (UPS) systems, video detection equipment, toll
road monitoring systems and parking detection devices. Traffic controllers and
detectors are devices that control traffic signal operations at intersections
either with pre-set timers or with detectors that enable the signals to change
in response to variations in traffic. Traffic and pedestrian signals are LED or
incandescent signals for intersection operations and pedestrian crossings which
may include a numerical countdown warning before a signal changes. UPS systems
are power supply systems with battery backup that keeps a lighted intersection
operating either normally or in flash-mode during a power interruption. Video
detection systems are based on one or more cameras that detect a vehicle’s
presence and then activate a left turn arrow. A toll road monitoring system is
a data collection system able to
count axles of vehicles in order for the authorities to ensure the proper toll
amount is collected. Across all segments, we
may provide product education, selection and application assistance. In limited
cases, we perform site preparation and installation services for our products. Our products are sold in all 50 U.S. states and
internationally. Domestically, we sell either through a distribution network or
through a direct sales force. Regional managers supervise domestic distributors and make direct sales in
areas not covered by distributors. We sell our products principally to
distributors, contractors (on behalf of state and local governments), state
departments of transportation, state agencies, local governments,
municipalities, and airports. Although the federal government provides matching
funds for the purchase of certain highway safety products by state and local
governmental agencies, the federal government is usually not a direct purchaser
of our domestic products. For certain products, we sell through catalogs and
inside sales personnel. Many foreign governments are beginning to recognize
the need for our products as a method of reducing traffic congestion and
improving safety. Our products are sold outside of the U.S through a network of
distributors who make sales to municipal and national governments and
contractors who are responding to bids from their respective governments. Although we experience competition in many of our
product lines, we believe that we are a leading U.S. manufacturer of
transportation safety products. Within the Protect and Direct segment, we
believe that no other company presently markets as broad a line of highway
crash cushion systems designed to shield as large a variety of fixed roadside
hazards as we do. However, many of our competitors in all three of our business
segments offer products similar to those supplied by us. We experience some
competition in most product lines. We compete in the U.S. market for crash
cushions, TMA’s and sand barrels with Trinity Industries, Inc., (NYSE:
TRN), TrafFix Devices, Inc., Barrier Systems, Inc. (a subsidiary of
Lindsay Corporation, (NYSE: LNN)) and other smaller regional companies. A
number of other companies manufacture flexible sign and guide post systems. Within
the Inform and Intersection Control segments, we experience rigorous
competition in selling certain product lines because they are generally sold
through a bidding process. These product lines include our road weather
information systems (RWIS) within the Inform segment and traffic controllers
and pedestrian signals within the Intersection Control segment. There are a few
companies that compete with us in selling HAR systems within the Inform segment.
In addition, we compete with many different companies that sell sensors using
different technologies, including microwave and infra-red sensors and
machine-vision (video), with each technology offering its own advantages. Competition may have an
adverse effect on our selling prices and profit margins of certain product
lines, and depending on the product mix sold, can adversely affect our
financial results. We believe that we compete effectively through our own
in-house product development, patent protection, quality and price, and the
effectiveness of our strong distribution network. Government Policies
and Funding The domestic market for highway and transportation
safety products is directly affected by federal, state and local governmental
policies. Federal transportation spending is funded through a trust based on
the sale of gasoline. Funds are allocated and highway policy is developed
through a six-year federal highway bill. A portion of our sales is ultimately
financed by funds provided to the states by the federal government. Historically,
these funds cover 75% to 90% of the cost of highway safety projects on roads
constructed or maintained with federal assistance. The last six-year federal
highway bill expired on September 30, 2003, and the current bill,
SAFETEA-LU, was enacted in August 2005. SAFETEA-LU, “Safe,
Accountable, Flexible and Efficient Transportation Equity Act - A Legacy for
Users”, will provide $286.4 billion in guaranteed funding for the federal
highway, transit and safety programs through September 2009. Importantly,
unlike historical funding bills, SAFETEA-LU focuses on improving safety and
relieving congestion as a priority, as well as on new highway construction and
resurfacing projects. Several sections of SAFETEA-LU provide for increased
funding and focus on products and systems within our Inform segment. While the
current bill does not include projects that specifically indicate our products
by name and there can be no guarantee of increased sales, we expect the market
potential for applications of our sensors, counters, audio and visual output
displays and adaptive control and monitored intersections to increase due to
this legislation. However, any change in the availability of federal
funds and the timing of the release of those funds to the state and local
governments can have an adverse impact on our financial results. Many of our products are approved as acceptable
highway hardware according to procedures in the National Cooperative Highway
Research Program number 230 or 350 that provide various test levels depending
on the application. This FHWA approval makes the products eligible for federal
funds for certain highway projects. We are obligated to seek such approval for
improvements or upgrades to such devices and for any new devices. Foreign government
policies and funding vary by country for highway and transportation safety. In
many cases, additional testing of our products may be required in order to
obtain certification. As of June 30, 2007,
2006 and 2005, we had a backlog of unfilled orders for our products of
$45,100,000, $24,481,000 and $23,796,000, respectively. We generally fill an
order for our products within two days to eight weeks of receipt depending on
the type of product. However, some orders or awarded contracts included in
backlog may not be completed for up to five years. In particular, the backlog
as of June 30, 2007 includes a $20 million contract, awarded in January 2007,
to provide traffic controllers to New York City over the next three years. Research and
Development; Patents Many of our products have patented features and we
conduct our own research, development and testing of new products before
introducing them to the marketplace. The expenditures for research and
development activities were $5,174,000, $5,958,000 and $5,391,000 for the
fiscal years 2007, 2006 and 2005, respectively. We maintain a crash test
facility in California for Protect and Direct products. We develop new products by working with customers as
well as federal, state and local highway officials to determine transportation
safety needs, and then we design products to satisfy those needs. We are 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, we are also
seeking to acquire new products which can be sold through our distribution
networks to our existing customers. We own a number of U.S.
and foreign patents covering our major products. We actively seek patent and
trademark protection for new developments. The principal raw materials used in the production of
transportation safety devices are plastic and plastic resins, steel, aluminum
and electronic components. These raw materials are purchased from various
suppliers and have been readily available throughout the last year. We believe
that adequate supplies of these materials will continue to be available.
In fiscal 2007, 2006 and 2005 we were affected by increased prices for certain commodities, particularly aluminum, steel and resin, which can be a significant component of the cost of certain of our products. We attempt to reduce the negative impact of increasing prices by entering into fixed price arrangements and by passing along price increases to our customers. However, increased commodity prices have negatively impacted our gross margin for certain products. In addition, increasing fuel and freight costs adversely affected our results in fiscal 2007 and 2006. Increasing material, fuel and freight costs may continue into fiscal 2008.
No single customer represents a significant portion of our total revenues. However, approximately 9%, 8% and 7% of our consolidated revenues resulted from sales to customers in the states of California, Florida and Texas, respectively, in fiscal 2007. Our customers are typically distributors, contractors, departments of transportation, state agencies, local governments or municipalities and, therefore, a change in policy in state spending could materially affect our sales in that state.
Our sales are historically seasonal with domestic highway construction and maintenance projects typically peaking in our fourth fiscal quarter.
Foreign and Domestic Operations and Revenues
Our business is conducted principally in the United States, with sales outside of the United States as follows: $23,399,000, $21,821,000 and $19,111,000 in 2007, 2006 and 2005 respectively.
Our assets outside of the United States are not material except for our manufacturing facility in Beijing, China (See Properties at Item 2) established during fiscal 2007. Our long-lived assets used in the leased Beijing facility are less than $200,000 as of June 30, 2007.
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, special reports, proxy and information statements, and amendments to those reports, with the Securities and Exchange Commission (SEC). The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E., Washington D. C. Information about the operation of the SEC Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SEC’s Internet site at sec.gov. We also maintain an internet website at http://www.quixotecorp.com that contains access to our public filings and other information regarding us. We make our public filings available as soon as reasonably practicable after such material is filed, or furnished, to the SEC. A copy of our filings will also be furnished free of charge upon request to our Corporate Secretary, Joan R. Riley, at our address listed on the cover of this Form 10-K.
There are many factors that pose material risks to our business, operating results and financial condition which are frequently beyond our control. These factors include, but are not limited to, the following:
A decrease or delay
in federal government funding of transportation safety and highway construction
and maintenance may cause our revenues and profits to decrease. We depend substantially on federal, state and
municipal funding for transportation safety, highway construction and
maintenance and other related infrastructure projects. Any decrease or delay in
government funding could cause our revenues and profits to decrease. Federal government funding for infrastructure projects
is usually accomplished through highway authorization bills, which establish
funding over a multi-year period. The most recent highway authorization bill,
SAFETEA-LU, became law in August 2005, after the prior law, which
authorized federal spending through September 30, 2003, was extended at
then current funding levels eleven times. Until the new law was passed, the
transportation safety allotment in federal and state budgets was uncertain, and
we believe this uncertainty negatively impacted spending on our products and
services. The delayed passage of the new highway funding bill adversely
affected our financial performance in fiscal year 2005 and fiscal year 2006. SAFETEA-LU currently
expires September 30, 2009. Delays in a new highway bill could occur and
could relate to political uncertainties. Even after federal legislation is
enacted, funding appropriations may be revised in future congressional
sessions, and federal funding for infrastructure projects may be reduced in the
future. In addition, Congress could pass legislation in future sessions which
would divert highway funds for other national purposes or would restrict
funding for infrastructure projects unless states comply with certain federal
policies. Constraints on
state and local government budgets may adversely affect our financial
performance. States and municipalities
may reduce spending on highways due to budget constraints as well as other
budget priorities. Such budgetary constraints adversely affect the ability of
states to fund transportation, highway and infrastructure projects, and
therefore reduce the demand for our products. Municipalities also suffer from
budget constraints that can reduce transportation safety spending. Downturns in
domestic or foreign economies or the transportation safety and highway
construction industries may adversely affect our results. General economic
downturns, including downturns in the transportation safety and highway
construction industries, could result in a material decrease in our revenues
and operating results. We believe that the economic downturn and the related domestic
funding uncertainty during fiscal years 2002 into 2006 negatively affected our
expected revenue growth. Sales of our products are sensitive to foreign,
domestic and regional economies in general, and in particular, changes in
government infrastructure spending. In addition, trends toward privatization of
highways may impact the nature of spending on transportation safety products. Many
of our costs are fixed and cannot be quickly reduced in response to decreased
demand. Our products often
are subject to government testing, inspection and approval. We frequently supply
products and services pursuant to agreements with general contractors or
directly with government agencies. The successful completion of our obligations
under these contracts is often subject to satisfactory testing, inspection and
approval of such products and services. Although we endeavor to satisfy the
requirements of each of these contracts to which we are a party, no assurance
can be given that the necessary approval of our products and services will be
granted on a timely basis or at all, and that we will receive any payments due
to us. In some cases, we may be dependent on others to complete these projects
which may also delay payments to us. Any failure to obtain these approvals and
payments may have a material adverse effect on our business and future
financial performance. Past and future
acquisitions involve risks that could adversely affect our future financial
results. We grow our Company
by acquisitions and may acquire additional businesses in the future. We may be
unable to achieve the benefits expected to be realized from our acquisitions.
We may incur additional costs and our management’s attention may be diverted
because of unforeseen expenses, complications, delays and other risks inherent
in acquiring businesses, including the following: · we
may have difficulty integrating the acquired businesses as planned, which may
include integration of systems of internal controls over financial reporting
and other financial and administrative functions; · acquisitions
may divert management’s attention from our existing operations; · we
may have difficulty in competing successfully for available acquisition
candidates, completing future acquisitions or accurately estimating the financial
effect of any businesses we acquire; · we
may have delays in realizing the benefits of our strategies for an acquired
business; · we
may not be able to retain key employees necessary to continue the operations of
an acquired business; · acquisition
costs may be met with cash or debt, increasing the risk that we will be unable
to satisfy current financial obligations; · we
may acquire businesses that are less profitable or have lower profit margins
than our historical profit margins; and · acquired
companies may have unknown liabilities that could require us to spend
significant amounts of additional capital. In May and December,
2003, we made two acquisitions in the Intersection Control segment. Integration
of these businesses, combined with reduced demand for our products, adversely
affected our financial performance in fiscal 2005 and 2006. Given substandard
performance of our Intersection Control segment, we recorded asset impairment
charges in that segment of $13,374,000
for the year ended June 30, 2006. Confronted with the underperformance of
the Intersection Control business, in April 2006, our Board of Directors
approved a restructuring plan for that business which included further
rationalizing of operations and divesting certain non-core product lines. We
completed the restructuring plan in the second quarter of fiscal 2007. However,
the restructuring activities may not result in profitability for the
Intersection Control segment. Management’s
estimates and assumptions affect reported amounts of expenses and changes in
those estimates could impact operating results. Goodwill and other indefinite-lived intangible assets
are tested for impairment at least annually, and the results of such testing
may adversely affect our financial results. We use a variety of valuation
techniques in determining fair value. The impairment review is highly
judgmental and involves the use of significant estimates and assumptions. These
estimates and assumptions have a significant impact on the amount of any
impairment charge recorded, and actual results may differ significantly from
the estimates and assumptions used. We recognize deferred tax
assets and liabilities for the expected future tax consequences of events which
are included in the financial statements or tax returns. In assessing the
realizability of the deferred tax assets, management makes certain assumptions
about whether the deferred tax assets will be realized. We expect the deferred
tax assets currently recorded to be fully realizable, however there can be no
assurance that an increased valuation allowance would not need to be recorded
in the future. Our business could
be adversely affected by reduced levels of cash, whether from operations or
from bank borrowings. Historically, our
principal sources of funds have been cash flows from operations and borrowings
from banks. Our operating and financial performance may generate less cash and
result in our failing to comply with our
bank credit agreement covenants. We are currently in compliance with the
covenants of the credit agreement and expect to be during fiscal 2008. However,
our ability to remain in compliance in the future will depend on our future
financial performance and may be affected by events beyond our control. There
can be no assurance that we will generate sufficient earnings and cash flow to
remain in compliance with the credit agreement, or that we will be able to
obtain future amendments to the credit agreement to avoid a default. In the
event of a default, there can be no assurance that we could negotiate a new
credit agreement or that we could obtain a new credit agreement with
satisfactory terms and conditions within a reasonable time period. If we are unable to
protect our proprietary technology from infringement or if our technology
infringes technology owned by others, then the demand for our products may
decrease or we may be forced to modify our products which could increase our
costs. We hold numerous patents
covering technology and applications related to many of our products and
systems, and numerous trademarks and trade names registered with the U.S.
Patent and Trademark Office and in foreign countries. Our existing and future
patents and trademarks may not adequately protect us against infringements,
especially in certain foreign countries, and pending patent or trademark
applications may not result in issued patents or trademarks. Our patents,
registered trademarks and patent applications may not be upheld if challenged,
and competitors may develop similar or superior methods or products outside the
protection of our patents. This could increase competition for our products and
materially decrease our revenues. If our products are deemed to infringe the
patents or proprietary rights of others, we could be required to modify the
design of our products, change the name of our products or obtain a license for
the use of some of the technologies used in our products. We may be unable to
do any of the foregoing in a timely manner, upon acceptable terms and
conditions, or at all, and the failure to do so could cause us to incur
additional costs or lose expected revenue. Our success depends
on our management and other employees. A factor in our ability to
profitably execute our work is our ability to attract, develop and retain
qualified personnel. Our success in attracting qualified people is dependent on
the resources available in individual geographic areas and the impact on the labor
supply due to general economic conditions as well as our ability to provide a
competitive compensation package and work environment. Leslie J. Jezuit, our
Chairman and President, and Daniel P. Gorey, our Chief Financial Officer, are
of significant importance to our business and operations. The loss of their
services may adversely affect our business. In addition, our ability to attract
and retain qualified engineers, skilled manufacturing and marketing personnel
and other professionals, either through direct hiring or acquisition of other
businesses employing such professionals, is an important factor in determining
our future success. Difficulties in
managing and expanding in international markets could affect future growth in
these markets. In fiscal year
2007, international sales were $23,399,000 or 17%, of our total sales and we
believe international markets are an important source of growth. We plan to
continue to increase our presence in these markets. In connection with an
increase in international sales efforts, we need to hire, train and retain
qualified personnel in countries where language, cultural or regulatory
barriers may exist. Moreover, funding and government requirements vary by
country with respect to transportation safety. In a number of countries there
are no governmental requirements or funding for transportation safety and we
must educate
officials and demonstrate the need for and the benefits of our products. In
addition, international revenues are subject to the following risks: · fluctuating
currency exchange rates could reduce the demand for or profitability of foreign sales by affecting
the pricing of our products; · the
burden of complying with a wide variety of foreign laws and regulations,
including the requirements for additional testing of our products; · dependence
on foreign sales agents; · political
and economic instability of foreign governments; and · the imposition of
protective legislation such as import or export barriers. There are risks associated with doing business in China. Some of our future business projects will be located in China, where we
opened a new facility in Beijing during fiscal 2007. As a consequence, the
economic, political, legal and social conditions in China could have an adverse
effect on our business, results of operations and financial condition. Some of
the risks related to doing business in China include: · The legal environment in China is uncertain and our ability to legally
protect our investment could be limited; · The Chinese government exerts substantial influence over the manner in
which we must conduct our business activities; · Future inflation in China may inhibit our activity to conduct business in
China; · Restrictions on currency exchange may limit our ability to receive and
use our cash effectively; and · More
restrictive rules on foreign investment could adversely affect our ability
to expand our operation in China or repatriate any profits earned there. We depend on
principal customers. Although we depend on
principal customers, no single customer of Quixote represents a significant
portion of total revenues. In fiscal 2007, approximately 9%, 8% and 7% of our
consolidated revenues resulted from sales to customers in the States of
California, Florida and Texas, respectively. Customers may include
distributors, contractors, departments of transportation, state agencies, local
governments or municipalities. A change in spending policy could materially
affect our sales in those states. The loss of, or a significant reduction in,
orders from these or our other major customers could have a material adverse
effect on our financial condition and results of operations. We are in a
competitive marketplace. To the extent one or more of our current or future
competitors introduce products that better address customer requirements, or
are less expensive than our products, our business could be adversely affected
and we may be unable to maintain our leadership position in certain products. Competition
may adversely affect the selling prices and the profit margins on our products.
We may not be successful in developing and marketing our existing products or
new products or incorporating new technology on a timely basis or at a reduced
cost. If we are unable to timely develop and introduce new products, or enhance
existing products, or reduce costs in response to changing market conditions or
customer requirements or demands, our business and results of operations could
be materially and adversely affected. We have acquired complementary businesses over the
past several years and, as a part of our strategy, may continue to acquire
complementary businesses. The gross profit margins of certain acquired product
lines are lower than our historical gross profit margin, which adversely
affects our gross profit margin. Given competitive conditions, we may be unable
to improve our gross profit margins for these businesses and products. We have been affected by
increased prices for certain commodities, particularly aluminum, steel and
resin, which are a significant component of the cost of certain of our products.
Such price increases negatively impact our gross margin for certain products,
if we are unable to pass along to our customers cost increases. Increasing fuel
and freight costs adversely affected our performance in fiscal 2006 and 2007. We
expect these trends will continue in fiscal 2008. Our facilities or
facilities of our customers and suppliers could be susceptible to natural
disasters. Two of our major
facilities are located in the Southeastern U.S. Should a natural disaster such
as a hurricane, tornado, earthquake or flood severely damage one of our major
manufacturing facilities, or damage a major facility of one or more of our
significant customers or suppliers, our business could be materially disrupted. Our insurance coverage could be inadequate. In
accordance with risk management practices, we continually re-evaluate risks,
their potential costs and the cost of minimizing them. To reduce our exposure
to material risks, we purchase insurance in certain circumstances. We believe
that we maintain adequate insurance coverage to effectively mitigate risk when
possible. However, certain risks are inherent in our business and our insurance
may not be adequate to cover potential claims or may be unavailable. Our quarterly
operating results are likely to fluctuate, which may affect our stock price. Our quarterly
revenues, expenses, operating results and gross profit margins vary
significantly from quarter to quarter. As a result, our operating results may
fall below the expectations of securities analysts and investors in some
quarters, which could result in a decrease in the market price of our common
stock. The reasons our quarterly results may fluctuate include: · seasonality
inherent in the transportation safety and highway construction and maintenance industry; · variations
in profit margins attributable to product mix; · changes
in the general competitive and economic conditions; · delays
in, or uneven timing in the delivery of, customer orders; · the
introduction of new products by us or our competitors; and · delays
in federal highway funding and budgetary restraints on state and local
government spending. Period to period
comparisons of our results should not be relied on as indications of future
performance. We may experience
volatility in our stock price. The market price of our common stock may be subject to significant
fluctuations in response to various factors, including: · the relatively small public float of our stock; · quarterly fluctuations in our operating results, as described in the
prior risk factor; · changes in securities analysts’ estimates of our future earnings; and · loss of significant customers or significant business developments
relating to us or our competitors. Our
failure to meet analysts’ expectations, even if minor, could cause the market
price of our common stock to decline. In addition, stock markets have generally
experienced a high level of price and volume volatility, and the market prices
of equity securities of many companies have experienced wide price fluctuations
not necessarily related to the operating performance of such companies. These
broad market fluctuations may adversely affect our common stock’s market price.
In the past, securities class action lawsuits have been instituted against
companies following periods of volatility in the market price of such companies’
securities. If any such litigation is instigated against us, it could result in
substantial costs and a diversion of management’s attention and resources,
which could have a material adverse effect on our business, results of
operations and financial condition. Acts of war could adversely impact our business and operating results. Acts
of war (wherever located around the world) may cause damage or disruption to
our employees, facilities, suppliers, distributors or customers, which could
significantly impact our sales, costs, expenses and financial condition. The
potential for acts of war or hostility may create many economic and political
uncertainties, which could adversely affect our business and results of
operations in ways that cannot presently be predicted. We are uninsured for
losses and interruption caused by acts of war. The
foregoing list is not exhaustive. There can be no assurance that we have
correctly identified and evaluated all factors affecting our business. Additional
risks and uncertainties not presently known to us or that we currently believe
to be immaterial also may adversely impact us. Should any risks and
uncertainties develop into actual events, these developments could have
material adverse effects on our business, financial condition and results of
operations. Item 1B.