UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                             to


Commission File Number 001-08123

QUIXOTE CORPORATION(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

36-2675371(IRS Employer Identification No.)35 East Wacker Drive
Chicago, Illinois(Address of principal executive offices)

60601(Zip Code)


(312) 467-6755

(Registrant's telephone number, including area code)

No Change

Former name, former address and former fiscal year, if changed since last report

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. ý YES    o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o YES ý NO

As of October 31, 2008, there were 9,223,457 shares of the registrant's common stock ($.012/3 par value) outstanding.



---





ITEM 1.    FINANCIAL STATEMENTS

QUIXOTE CORPORATION AND SUBSIDIARIES  Consolidated Statements of Operations  (Unaudited)

Three Months Ended
September 30,2008

2007Net sales

$
25,139,000

$
24,504,000Cost of sales


16,901,000


16,085,000Gross profit


8,238,000


8,419,000Operating expenses:Selling & administrative


5,974,000


5,513,000Research & development


922,000


889,0006,896,000


6,402,000Operating profit


1,342,000


2,017,000Other income (expense):Interest income





2,000Interest expense


(917,000
)

(1,095,000
)(917,000
)

(1,093,000
)Earnings from continuing operations before income taxes


425,000


924,000Income tax provision


162,000


350,000Earnings from continuing operations


263,000


574,000Discontinued operations:Loss from operations, net of income taxes


(46,000
)

(104,000
)Loss on sale, net of income taxes


(712,000
)Loss from discontinued operations, net of income taxes


(758,000
)

(104,000
)Net earnings (loss)

$
(495,000
)
$
470,000Per share databasic:Earnings from continuing operations

$
0.03

$
0.06Loss from discontinued operations


(0.08
)

(0.01
)Net earnings (loss)

$
(0.05
)
$
0.05Weighted average common shares outstanding


9,188,195


9,057,365Per share datadiluted:Earnings from continuing operations

$
0.03

$
0.06Loss from discontinued operations


(0.08
)

(0.01
)Net earnings (loss)

$
(0.05
)
$
0.05Weighted average common shares outstanding


9,188,195


9,127,167Cash dividends declared per share of common stock

$


$



See
Notes to Consolidated Financial Statements.

2

---



QUIXOTE CORPORATION AND SUBSIDIARIES  Consolidated Balance Sheets  (Unaudited)

September 30, 2008

June 30, 2008ASSETSCurrent assets:Cash and cash equivalents

$
207,000

$
408,000Accounts receivable, net of allowance for doubtful accounts of $392,000 at September 30 and $418,000 at June 30


22,180,000


23,801,000Inventories, net:Raw materials


3,567,000


3,943,000Work in process


5,142,000


5,007,000Finished goods


11,627,000


10,439,00020,336,000


19,389,000Deferred income tax assets


2,608,000


2,608,000Other current assets


1,267,000


504,000Current assets of business held for sale





20,161,000Total current assets


46,598,000


66,871,000Property, plant and equipment, at cost


44,284,000


43,873,000Less accumulated depreciation


(27,890,000
)

(27,162,000
)16,394,000


16,711,000Goodwill


17,385,000


17,385,000Intangible assets, net


2,147,000


2,206,000Deferred income tax assets


13,508,000


13,371,000Other assets


678,000


890,000Assets of business held for sale





4,109,000$
96,710,000

$
121,543,000


See
Notes to Consolidated Financial Statements.

3

---





QUIXOTE CORPORATION AND SUBSIDIARIES  Consolidated Balance Sheets  (Unaudited)

September 30, 2008

June 30, 2008LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Current portion of long-term debt

$
900,000

$
17,600,000Accounts payable


5,997,000


5,950,000Accrued expenses


4,858,000


7,577,000Current liabilities of business held for sale





5,520,000Total current liabilities


11,755,000


36,647,000Long-term debt, net of current portion


40,000,000


40,000,000Other long-term liabilities


1,045,000


1,059,00052,800,000


77,706,000Commitments and contingent liabilities (Note 10)Shareholders' equity:Preferred stock, no par value; authorized 100,000 shares;
none issuedCommon stock, par value $.012/3; authorized 30,000,000 shares; issued 11,082,377 shares at September 30 and 11,051,815 at
June 30


185,000


184,000Capital in excess of par value of common stock


66,726,000


66,498,000Accumulated deficit


(545,000
)

(49,000
)Treasury stock, at cost, 1,865,304 shares at September 30 and 1,893,552 shares at June 30


(22,456,000
)

(22,796,000
)Total shareholders' equity


43,910,000


43,837,000$
96,710,000

$
121,543,000


See
Notes to Consolidated Financial Statements.

4

---



QUIXOTE CORPORATION AND SUBSIDIARIES  Consolidated Statements of Cash Flows  (Unaudited)

Three Months Ended September 30,2008

2007Operating activities:Net earnings (loss)

$
(495,000
)
$
470,000Loss on sale, net of tax


712,000Loss from discontinued operations, net of tax


46,000


104,000Income from continuing operations, net of tax


263,000


574,000Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:Depreciation


728,000


712,000Amortization


241,000


212,000Provisions for losses on accounts receivable


(26,000
)

(213,000
)Issuance of stock retirement plan shares


268,000Issuance of stock to 401K plan


225,000


299,000Share-based compensation expense


75,000


186,000Changes in operating assets and liabilities:Accounts receivable


1,647,000


4,486,000Inventories


(947,000
)

(1,251,000
)Other assets


(710,000
)

(698,000
)Income taxes


(386,000
)

350,000Accounts payable and accrued expenses


(1,032,000
)

(4,160,000
)Other long-term liabilities


(14,000
)

(11,000
)Net cash provided by operating activitiescontinuing operations


332,000


486,000Net cash used in operating activitiesdiscontinued operations


(1,545,000
)

(2,622,000
)Net cash used in operating activities


(1,213,000
)

(2,136,000
)Investing activities:Capital expenditures


(411,000
)

(870,000
)Patent expenditures


(23,000
)

(10,000
)Proceeds from sale of business


20,000,000Net cash provided by (used in) investing activitiescontinuing operations


19,566,000


(880,000
)Net cash used in investing activitiesdiscontinued operations


(25,000
)

(414,000
)Net cash provided by (used in) investing activities


19,541,000


(1,294,000
)Financing activities:Proceeds from revolving credit agreement


8,450,000


12,000,000Payments on revolving credit agreement


(25,150,000
)

(7,000,000
)Payment of semi-annual cash dividend


(1,829,000
)

(1,715,000
)Net cash (used in) provided by financing activities


(18,529,000
)

3,285,000Decrease in cash and cash equivalents


(201,000
)

(145,000
)Cash and cash equivalents at beginning of period


408,000


848,000Cash and cash equivalents at end of period

$
207,000

$
703,000


See
Notes to Consolidated Financial Statements.

5

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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, 2008 consolidated balance sheet as presented was derived from the audited financial statements. The interim
financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year
ended June 30, 2008. Management believes the financial statements include all normal recurring adjustments necessary for a fair presentation of the results for the interim periods presented.

Certain balances in fiscal 2008 have been reclassified to conform to the 2009 presentation. Included with the reclassifications are restatements for discontinued
operations. The discontinued operations arise out of the Intersection Control segment.

Recently Adopted and Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard No. 157 (FAS
No. 157), "Fair Value Measurements". This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value
measurements. In February 2008, the FASB issued FASB Staff Position FSP 157-2, "Effective Date of FASB Statement No. 157" (FSP 157-2), which delays the effective date of
FAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are disclosed at fair value in the financial statements on a recurring basis (at least annually). In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active", which clarifies the
application of FAS No. 157 in determining the fair values of assets or liabilities in a market that is not active. Staff Position No. FAS 157-3 became effective upon
issuance, including prior periods for which financial statements have not been issued. We adopted FAS No. 157 related to financial assets and liabilities on July 1, 2008, as discussed
further in footnote 11 and it did not have a material impact on our consolidated financial statements. We are currently evaluating the impact, if any, that FAS No. 157 may have on our future
consolidated financial statements related to non-financial assets and liabilities.

In
February 2007, the FASB issued FAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." FAS No. 159 provides companies with an option to
report selected financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent
reporting date. We adopted FAS No. 159 on July 1, 2008. We did not adopt the fair value option permitted under this statement and therefore the adoption of this statement had no effect
on our results of operations or financial position.

In
December 2007, the FASB issued FAS No. 141 (revised 2007), "Business Combinations", and FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements". FAS
No. 141 (revised 2007) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the
acquisition date, with goodwill being the excess value over the net identifiable assets acquired. This standard also requires the fair value measurement of certain other assets and liabilities related
to the acquisition such as contingencies and research and development. FAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated
financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement of income.
The calculation of earnings per share will continue to be based on

6

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

income
amounts attributable to the parent. The effective date for both Statements is the beginning of fiscal 2010. We are currently in the process of evaluating the impact, if any, that the adoption
of FAS No. 141 (revised 2007) and FAS No. 160 will have on our financial position, consolidated results of operations and cash flows.

In
March 2008, the FASB issued FAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan Amendment of FASB Statement 133". FAS No. 161
enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding: (a) how and why an entity uses derivative instruments; (b) how
derivative instruments and related hedged items are accounted for under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities"; and (c) how derivative
instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. This Statement is effective for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. We do not expect the adoption of this statement to have a material effect on our results of operations or financial position.

In
April 2008, the FASB issued Staff Position (FSP) No. FAS 142-3, "Determination of the Useful Life of Intangible Assets" (FSP 142-3). This guidance is
intended to improve the consistency between the useful life of a recognized intangible asset under FAS 142, "Goodwill and Other Intangible Assets" and the period cash flows used to measure the
fair value of the asset under FAS 141R when the underlying arrangement includes renewal or extension of terms that would require substantial costs or result in a material modification to the
asset upon renewal or extension. Companies estimating the useful life of a recognized intangible asset must now consider their historical experience in renewing or extending similar arrangements or,
in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension as adjusted for FAS 142's entity-specific factors. The effective
date for FAS 142-3 is the beginning of fiscal 2010. We are currently evaluating the impact, if any, that the adoption of this statement will have on our results of operations and
financial position.

In
May 2008, the FASB issued FSP Accounting Principles Board (APB) 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including
Partial Settlement)" (FSP APB 14-1). FSP APB 14-1 requires
the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components
of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. The effective date for FSP APB 14-1 is the beginning of fiscal 2010. We are
currently evaluating the impact that the adoption of FSP APB 14-1 will have on our results of operations and financial position.

In
May 2008, the FASB issued FAS No. 162, "The hierarchy of Generally Accepted Accounting Principles" (FAS No. 162). FAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the preparation of financial statement of nongovernmental entities that are presented in conformity with generally accepted accounting
principles (the GAAP hierarchy). FAS No. 162 will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." We do not currently expect the adoption of FAS No. 162 to have a material effect
on our consolidated results of operations or financial position.

2.On July 25, 2008, we sold our Intersection Control segment to Signal Group, Inc. for $20 million in
cash. The Intersection Control segment sold products including traffic controllers, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, video detection equipment,

7

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

toll
road monitoring systems and parking detection devices. We have reflected the results of those operations as discontinued operations. We recognized a loss on sale of the Intersection Control
segment of $712,000, net of income taxes of $436,000, in the first quarter of fiscal 2009.

The
results of discontinued operations are as follows:

Three months ended September 302008

2007Net sales

$
1,732,000

$
7,515,000Loss from operations of discontinued operations before income taxes

$
(75,000
)
$
(166,000
)Loss from sale of assets of business


(1,148,000
)

Loss before taxes


(1,223,000
)

(166,000
)Income tax benefit


(465,000
)

(62,000
)Loss from discontinued operations, net of income tax benefit

$
(758,000
)
$
(104,000
)


Assets
and liabilities of the Intersection Control segment were classified as assets and liabilities held for sale within our consolidated balance sheet as of June 30, 2008 and
consisted of the following:

June 30Assets:Current assetsReceivables

$
6,270,000Inventories


13,134,000Other current assets


757,000Total current assets


20,161,000Property, plant and equipment


2,474,000Other assets


1,635,000Total assets of business held for sale

$
24,270,000Liabilities:Total liabilities of business held for sale

$
5,520,000


As
of September 30, 2008, there were no assets or liabilities of the Intersection Control segment due to the sale of the segment on July 25, 2008.

3.Share-based compensation cost recognized in the three-month periods ended September 30, 2008 and 2007 includes
compensation cost for share-based awards based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). As of September 30, 2008, we have 466,593
common shares reserved for future grants from our stock option and award plans. Our stock option and award plans are discussed in further detail in our Annual Report on Form 10-K
for the year ended June 30, 2008.

8

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Share-based Compensation Expense

The share-based compensation cost that has been charged to Selling and Administrative Expense for stock options and restricted stock
awards under our stock option and award plans was $75,000 and $186,000 for the three-month periods ended September 30, 2008 and 2007, respectively. As of September 30, 2008, the total
compensation cost related to unvested stock options and restricted stock granted under our stock option plans not yet recognized was approximately $681,000. This cost will be amortized on a
straight-line basis over a weighted average period of approximately 1.9 years and will be adjusted for subsequent changes in estimated forfeitures. The 169,433 unvested stock
options outstanding at September 30, 2008 had a weighted-average fair value of $2.45. The 18,198 shares of restricted stock unvested at September 30, 2008 had a fair value of $19.52.

Determining Fair Value

The fair value of stock options granted is estimated using the Black-Scholes option-pricing model that uses the assumptions noted below
for the first three months of fiscal 2009. No options were granted in the first three months of fiscal 2008. Expected volatilities are based on historical volatility of the Company's stock. We use
historical data to estimate option exercise patterns, employee termination and forfeiture rates within the valuation model; separate groups of optionees that have similar historical exercise behavior
are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted
are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of
the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected dividend yield is determined by dividing the current level of per share dividend by the grant date
stock price. We do not incorporate
changes in dividends anticipated by management unless those changes have been communicated to marketplace participants.

Fiscal 2009Risk free interest rate

2.9%Expected dividend yield

5.0%Weighted average expected volatility.

38%Expected term

3.9  4.1 yrsWeighted average expected term

4.0 yrsWeighted average grant date fair value

$1.74


The
fair value of the options granted is being amortized on a straight-line basis over the requisite service period, which is generally the vesting period.

The
fair value of the restricted stock granted in the first quarter of fiscal 2008 was determined and fixed based on the price of our stock at the time of the grant. The fair value of
the restricted stock awarded is being amortized on a straight-line basis over the requisite service period, which is the vesting period.

9

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Stock Option and Restricted Stock Activity

Information with respect to stock option activity under our plans is as follows:

Common Shares

Weighted-
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
ValueOutstanding at July 1, 2007


859,203

$
18.54GrantedExercisedCancelled or expired


(18,601
)
$
21.71Outstanding at September 30, 2007


840,602

$
18.47

3.0 Years

$
1,914,000Outstanding at July 1, 2008


830,670

$
18.72Granted


127,100

$
8.05ExercisedCancelled or expired


(23,030
)
$
19.01Outstanding at September 30, 2008


934,740

$
17.26

2.5 Years

$
19,065Vested at September 30, 2008


765,307

$
18.69

2.0 Years

$
0


Options
outstanding at September 30, 2008 are exercisable as follows: 765,307 currently, 84,702 within one year, 42,363 in two years and 42,368 in three years. As of
September 30, 2007, 718,045 options were exercisable. During the three-month periods ended September 30, 2008 and 2007, the following stock option activity occurred under our plans:

Three Months Ended
September 30,2008

2007Total intrinsic value of stock options exercised





Total fair value of stock options vested

$
356,000

$
73,000


10

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Information
with respect to restricted stock activity under our plans is as follows:

Number of Shares

Weighted-Average
Grant Date
Fair ValueOutstanding at July 1, 2007





Restricted stock granted


29,100

$
19.52Restricted stock vested





Cancelled or expired





Unvested at September 30, 2007


29,100

$
19.52Outstanding at July 1, 2008


29,100

$
19.52Restricted stock granted





Restricted stock vested


(9,102
)
$
19.52Cancelled or expired


(1,800
)
$
19.52Unvested at September 30, 2008


18,198

$
19.52Vested at September 30, 2008


9,102

$
19.52


We
also have a retirement stock award program for certain of our key executives which ended with the final issuance of shares in July 2008. The retirement stock award program resulted in
a charge to earnings for compensation expense of $268,000 for the three months ended September 30, 2008 and $54,000 for the three months ended September 30, 2007.

4.The income tax benefit for the current quarter is based upon the estimated effective income tax rate for the full fiscal
year.

On
July 1, 2007 we adopted FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement
No. 109" as required under U.S. generally accepted accounting principles. We had unrecognized tax benefits of $227,000 as of September 30, 2008 and June 30, 2008, of which
$189,000, if recognized, would favorably affect our income tax rate. The tax liability under FIN 48 is recorded in accrued expenses.

We
record the interest related to uncertain tax positions as interest expense during the period incurred. Penalties related to uncertain tax positions, which have historically been
immaterial, are recorded as part of the income tax expense during the period incurred. In accrued expenses, we had accrued $38,000 for interest and $5,000 for penalties as of September 30, 2008
and $37,000 for interest and $5,000 for penalties as of June 30, 2008.

We
file income tax returns in jurisdictions of operation, including federal, state and international jurisdictions. At times, we are subject to audits in these jurisdictions. The final
resolution of any such tax audit could result in either a reduction in our accruals or an increase in our income tax provision, both of which could have an impact on consolidated results of operations
in any given period. U.S. federal income tax returns have been audited through fiscal 2004. The tax years 2005 through 2008 remain open to examination by the other major taxing authorities to which we
are subject. We currently have no audits in process. We do not anticipate changes in the unrecognized tax benefits within the next twelve months as the result of examinations or lapse of statues of
limitations to be material to our results of operations or financial position.

11

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

5.Operating results for the first three months of fiscal 2009 are not necessarily indicative of the performance for the
entire year. Our business is generally seasonal with a higher level of sales in the fourth fiscal quarter.

6.The computation of basic and diluted earnings (loss) per share is as follows:

Three Months Ended
September 30,2008

2007Numerator:Earnings from continuing operations

$
263,000

$
574,000Loss from discontinued operations


(46,000
)

(104,000
)Loss on sale of discontinued operation


(712,000
)

Net earnings (loss)

$
(495,000
)
$
470,000Denominator:Weighted average shares outstandingbasic


9,188,195


9,057,365Effect of dilutive securitiescommon stock options





69,802Weighted average shares outstandingdiluted


9,188,195


9,127,167Earnings (loss) per share of common stockbasic:Earnings from continuing operations

$
0.03

$
0.06Loss from discontinued operations


(0.01
)

(0.01
)Loss on sale of discontinued operations


(0.07
)

Net earnings (loss)

$
(0.05
)
$
0.05Earnings (loss) per share of common stockdiluted:Earnings from continuing operations

$
0.03

$
0.06Loss from discontinued operations


(0.01
)

(0.01
)Loss on sale of discontinued operations


(0.07
)

Net earnings (loss)

$
(0.05
)
$
0.05


There
were outstanding options to purchase common stock at prices that exceeded the average market price for the income statement periods. These options have been excluded from the
computation of diluted earnings per share for the three-month period ended September 30, 2008 and 2007 and are as follows:

Three Months Ended
September 30,2008

2007Average exercise price per share

$
18.71

$
21.37Number of shares


806,440


470,266


In
addition, employee stock options totaling 470 shares for the three-month period ending September 30, 2008 were not included in the diluted weighted average shares calculation
because the effects of these securities were anti-dilutive.

12

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QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

7.Accumulated other comprehensive income consists of the following:

September 30,
2008

September 30,
2007Unrealized gain on derivative instrument:Beginning balanceJuly 1

$


$
109,000Amortization to earnings





(30,000
)Total accumulated comprehensive income

$


$
79,000


8.We have two continuing reportable segments, one of which manufactures and sells products that Protect and Direct and one
of which manufactures and sells products that Inform. In July, 2008, our Intersection Control segment was divested. The operations from this business segment have been included in discontinued
operations, and are discussed in more detail in Note 2 on dispositions. The segment information included below has been reclassified to reflect such discontinued operations.

The
primary product lines within the Protect and Direct segment include energy-absorbing products such as crash cushions, truck-mounted attenuators, sand-filled barrels and
barriers as well as highway delineators. The products within this segment absorb and dissipate the force of impact in collisions between vehicles and fixed roadside objects as well as prevent
collisions and help to control the flow of traffic by directing or guiding. The primary product lines within the Inform segment include highway advisory radio systems; advanced sensing products which
measure distance, count and classify vehicles; weather sensing systems and other transportation equipment. The products within this segment provide information to prevent collisions from occurring and
to ease traffic congestion.

The
majority of our sales of highway and transportation safety products are to distributors and contractors who then provide product and services to federal, state and local governmental
units. Our business is conducted principally in the United States, our country of domicile, with sales outside the United States of $7,958,000 in the first quarter of fiscal 2009 and $5,049,000 in the
first quarter of fiscal 2008. Inter-company sales between segments represented less than one percent of consolidated net sales in the first quarters of fiscal 2009 and 2008.

Our
reportable segments are based on similarities in products and represent the aggregation of operating units for which financial information is regularly evaluated in determining
resource allocation and assessing performance. We evaluate the performance of our segments and allocate resources to them based on operating income as well as other factors. Operating income is
determined by deducting operating expenses from all revenues. In computing operating income, none of the following has been added or deducted: unallocated corporate expenses, interest income or
expense, other income or loss or income tax provisions or benefits. Corporate assets consist primarily of cash and cash equivalents, depreciable assets and income tax assets. Accounting policies for
the segments are the same as those for the Company.

13

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

The
following table presents financial information about our continuing operations by segment for the three-month periods ended September, 2008 and 2007 along with the items necessary to
reconcile the segment information to the totals reported in the consolidated financial statements.

Protect and
Direct

Inform

Unallocated
Corporate

Total2008THREE MONTHSNet sales from external customers

$
19,982,000

$
5,157,000




$
25,139,000Operating profit (loss)

$
2,372,000

$
420,000

$
(1,450,000
)
$
1,342,000Unallocated interest and other








(917,000
)

(917,000
)Total earnings (loss) from continuing operations before taxes

$
2,372,000

$
420,000

$
(2,367,000
)
$
425,000Identifiable assets

$
55,779,000

$
22,877,000

$
18,054,000

$
96,710,0002007THREE MONTHSNet sales from external customers

$
19,725,000

$
4,779,000




$
24,504,000Operating profit (loss)

$
3,229,000

$
345,000

$
(1,557,000
)
$
2,017,000Unallocated interest and other








(1,093,000
)

(1,093,000
)Total earnings (loss) from continuing operations before taxes

$
3,229,000

$
345,000

$
(2,650,000
)
$
924,000Identifiable assets

$
55,563,000

$
21,832,000

$
20,369,000

$
97,764,000Assets held for sale








20,291,000


20,291,000Total identifiable assets

$
55,563,000

$
21,832,000

$
40,660,000

$
118,055,000


9.Intangible assets consist of the following:

September 30, 2008

June 30, 2008Gross
Carrying
Amount

Accumulated
Amortization

Net
Intangible
Assets

Gross
Carrying
Amount

Accumulated
Amortization

Net
Intangible
AssetsAmortized intangible assets:Patents and licenses

$
3,770,000

$
2,217,000

$
1,553,000

$
3,746,000

$
2,160,000

$
1,586,000Technology and installed base


1,271,000


866,000


405,000


1,271,000


849,000


422,000Customer relationships


200,000


200,000





200,000


200,000Trade names


330,000


141,000


189,000


330,000


132,000


198,000Other


20,000


20,000





20,000


20,000Total

$
5,591,000

$
3,444,000

$
2,147,000

$
5,567,000

$
3,361,000

$
2,206,000


Intangible
amortization expense was $82,000 for the three-month periods ended September 30, 2008 and 2007, respectively. The estimated amortization expense for this fiscal year
ended June 30,

14

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

2009
and for the five fiscal years subsequent to 2009 is as follows: $321,000, $321,000, $320,000, $267,000, $264,000 and $252,000. The carrying amount of goodwill consists of $9,246,000 for the
Inform segment and $8,139,000 for the Protect and Direct segment as of September 30, 2008 and June 30, 2008.

10.Disclosures regarding guarantees, commitments and contingencies are provided below.

Lease Commitments

We use various leased facilities and equipment in our operations. The terms for these leased assets vary depending on the lease
agreements. These operating leases may include options for renewal and we may guarantee the performance of our obligations under the leases. Annual minimum future rental payments for lease commitments
will be approximately $1,506,000 in fiscal year 2009, a total of $2,057,000 in fiscal years 2010 to 2011 and a total of $16,000 in fiscal year 2012, for an aggregate of $3,579,000.

Product Warranty Liability

We warrant to the original purchaser of our products that we will, at our option, repair or replace, without charge, such products if
they fail due to a manufacturing defect. The term of these warranties typically varies (30 days to 1 year) by product. We accrue for product warranties, when, based on available
information, it is probable that customers will make claims under warranties relating to products that have been sold, and a reasonable estimate of the costs can be made. Our estimated product
warranty liability for the three-month periods ended September 30 is as follows:

2008

2007Beginning BalanceJuly 1

$
130,000

$
231,000Warranties issued


44,000


48,000Repairs, replacements and settlements


(48,000
)

(79,000
)Changes in liability for pre-existing warranties, including expirations





Ending balanceSeptember 30

$
126,000

$
200,000


Legal

We are involved in several pending judicial proceedings for product liability and other damages arising out of the conduct of our
business. We record loss contingencies where appropriate within the guidelines established by Statement of FAS No. 5 "Accounting for Contingencies". While the outcome of litigation is subject
to uncertainties, we believe, after consultation with counsel, that the outcome of these proceedings, based on current available information and after taking into account the availability and limits
of our insurance coverage, will not have a material effect on our consolidated financial condition and results of operations.

Executive Agreements

We have agreements with certain named executives which are designed to retain the services of key employees and to provide for
continuity of management in the event of an actual or threatened

15

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

change
in control of the Company. Upon occurrence of a triggering event after a change in control, as defined, we would be liable for payment of benefits under these agreements, of approximately
$4.4 million. A portion of these benefits will fluctuate based upon the share price at the time of the triggering event. We also have employment agreements with certain key executives which are
designed to retain the services of those key employees. Upon occurrence of a triggering event under these agreements, we would be liable for payment of certain benefits under these agreements of
approximately $2.1 million.

We
have by-laws and agreements under which we indemnify our directors and officers from liability for certain events or occurrences while the directors or officers are, or
were, serving at the Company's request in such capacities. The term of the indemnification period is for the director's or officer's lifetime. We believe that any obligations relating to this
indemnification are predominantly covered by insurance subject to certain exclusions and deductibles. Historically, we have not made payments under these executive agreements, and no amount has been
accrued in the accompanying consolidated financial statements.

Indemnification of Lenders and Agents Under Credit Facilities

Under our credit facility, we have agreed to indemnify our lender against costs or losses resulting from changes in laws and
regulations which would increase the lender's costs, and from any legal action brought against the lender related to the use of loan proceeds. These indemnifications generally extend for the term of
the credit facility and do not provide for any limit on the maximum potential liability. Historically, we have not made any significant indemnification payments under such agreements and no amount has
been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

Bid and Performance Bonds

We have entered into bid and performance related bonds associated with various contracts. Potential payments due under these bonds are
related to our performance under the applicable contract. The total amount of bid and performance related bonds that were available and undrawn was $2,923,000 as of September 30, 2008 and
$2,684,000 as of June 30, 2008. Historically, customers have not drawn upon these instruments due to non-performance, and no amount has been accrued in the accompanying consolidated
financial statements.

Other Commitments

We have standby letters of credit covering potential workers' compensation liabilities. The total amount of standby letters of credit
that were outstanding was $902,000 as of September 30, 2008 and $1,012,000 as of June 30, 2008. We have included $752,000 in accrued liabilities for potential workers' compensation
liabilities as of September 30, 2008.

We
have certain non-cancelable royalty agreements, which contain certain minimum payments in the aggregate of $1,410,000 through fiscal year 2012. We have included $247,000
in accrued liabilities for current obligations relating to royalty agreements as of September 30, 2008.

16

---



QUIXOTE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

11.On July 1, 2008, we adopted FAS No. 157, "Fair Value Measurements", related to financial assets and
liabilities. In accordance with FASB Staff Position No. FAS 157-2, "Effective Date of SFAS 157", we deferred the adoption of FAS No. 157 for nonfinancial assets and
nonfinancial liabilities, which include goodwill, intangible assets and fixed assets, for one year. The effect of adoption of FAS No. 157 was not material, resulting only in increased
disclosures.

FAS
No. 157 establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires that assets and liabilities carried at
fair value be classified and disclosed in one of the following three categories:



We
chose not to elect the fair value option as prescribed by FAS No. 159 for our financial assets and liabilities. Our financial instruments, which consist principally of cash,
accounts receivable, accounts payable, short-term debt and convertible debt, are carried at cost. The carrying value of our cash, accounts receivable, accounts payable and accrued
liabilities approximates fair value due to their short maturities. The carrying value of our short-term debt approximates fair value due to the variable-rate nature of the
respective borrowings. The fair value of the company's convertible notes as of September 30, 2008 was estimated at $37,600,000, determined based on the closing price of the convertible debt
traded in the limited trade market. The convertible notes are recorded on the balance sheet at $40,000,000 as of September 30, 2008.

17

---





ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We develop, manufacture and market highway and transportation safety products to protect, direct and inform motorists, pedestrians and
road workers in both domestic and international markets. Our continuing operations are comprised of two reportable segments within the highway and transportation safety industry. Our two reportable
segments are: the manufacture and sale of highway and transportation safety products which Protect and Direct and the manufacture and sale of highway products and services which Inform motorists and
highway personnel. 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 primary product lines within the Protect and Direct segment include energy-absorbing products such as crash cushions, truck-mounted attenuators,
sand-filled barrels and water-filled barriers, and directing and guiding products such as flexible post delineators and glare screen systems. The Inform segment provides solutions for
improving traffic flow and safety on roads and runways by providing information. The primary product lines within the Inform segment include advanced sensing products which measure distance, count and
classify vehicles; weather sensing systems and computerized highway advisory radio transmitting systems.

Our
products are sold worldwide primarily through a distribution network and supplemented 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. The domestic market for highway and transportation safety products is directly affected by federal, state and
local governmental policies and budgets. A portion of our domestic sales is ultimately financed by funds provided to the states by the federal government. Historically, these funds have covered 75% to
90% of the cost of highway safety projects on roads constructed or maintained with federal assistance. Seasonality affects our business with generally a higher level of sales in our fourth fiscal
quarter.

Due
to the recent market events that have adversely affected most industries and the economy as a whole, management has placed increased emphasis on monitoring the risks associated with
the current environment, particularly the collectibility of accounts receivables and our liquidity. If the future economic environment continues to deteriorate, the company could experience
difficulties due to the financial viability of certain of its customers and suppliers. In addition, the volatility in the company's stock price and declines in its market capitalization could put
pressure on the carrying value of goodwill and other long-lived assets if these conditions persist for an extended time. At this point in time, there has not been a material impact on our
assets and liquidity. Management will continue to monitor the risks associated with the current economic environment and their impact on our results.

DISCONTINUED OPERATIONS

On July 25, 2008, we sold our Intersection Control segment to Signal Group, Inc. for $20 million in cash. The
Intersection Control segment sold products including traffic controllers, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, video detection equipment and toll road
monitoring systems. Accordingly, we reflect the results of those operations as discontinued operations for all periods presented. The assets and liabilities of the divested segment were classified as
assets and liabilities held for sale within our consolidated balance sheets until the sale. In the quarter ended September 30, 2008, we recorded a loss on the sale of this business of $712,000,
net of income taxes. The sale of this business allowed us to strengthen our balance sheet and improve our financial flexibility by reducing the amount outstanding against our revolving credit
facility.

18

---



RESULTS OF OPERATIONS

For the current first quarter, sales increased 3% compared to the first quarter of fiscal 2008 due to increased sales in both the
Protect and Direct and the Inform segments offset somewhat by decreased domestic sales in the Protect and Direct segment. International sales for the first quarter of fiscal 2009 increased 58%, or
$2,909,000, compared to the first quarter last year as sales increased across all major non-US regions, particularly in Europe. Domestic sales decreased 12%, or $2,274,000, compared to the
first quarter of fiscal 2008 due to state and municipal budgetary constraints. Sales for the Protect and Direct segment increased 1% compared to the first quarter of last year due to increased
international sales which were mostly offset by decreased domestic sales. Sales in the Inform segment increased 8% driven by strong international sales. For the first quarter, operating profit
decreased primarily due to unfavorable product sales mix in the Protect and Direct segment. See FUTURE OUTLOOK for further information.

The
following table sets forth selected key operating statistics relating to the financial results of our continuing operations:

Three Months Ended
September,2008

2007Revenues by Segment:Protect and Direct

$
19,982,000

$
19,725,000Inform


5,157,000


4,779,000$
25,139,000

$
24,504,000Geographic Revenues:Domestic

$
17,181,000

$
19,455,000International


7,958,000


5,049,000$
25,139,000

$
24,504,000Operating Income (Loss) by Segment:Protect and Direct

$
2,372,000

$
3,229,000Inform


420,000


345,000Unallocated Corporate


(1,450,000
)

(1,557,000
)$
1,342,000

$
2,017,000Gross profit percentage


32.8
%

34.4
%Selling and administrative expenses as a percentage of sales


23.8
%

22.5
%Diluted earnings from continuing operations per share

$
0.03

$
0.06


19

---



Revenues

Our net sales for the first quarter of fiscal 2009 increased $635,000, or 3%, to $25,139,000 from $24,504,000 for the first quarter
last year. This was due to increased international sales in both segments, which were partially offset by decreased domestic sales in the Protect and Direct segment.

GeographicInternational sales for the first quarter of fiscal 2009 increased $2,909,000, or 58%, to $7,958,000, compared to $5,049,000 for the first quarter last
year with increases across all regions, particularly in Europe. International sales for the Protect and Direct segment increased 55%, or $2,565,000, primarily due to increased sales of ABC Terminal
products in Europe and Latin America. International sales for the Inform segment increased 90%, or $344,000, from last year primarily in Canada and the Asia Pacific region. Domestic sales for the
first quarter of fiscal 2009 decreased 12% to $17,181,000 from $19,455,000 due to decreased sales in the Protect and Direct segment which we believe is due to the current economic uncertainty and
state and municipal budgetary constraints. Domestic sales in the Inform segment increased 1% over the first quarter last year.

Protect and DirectNet sales for the Protect and Direct segment for the first quarter of fiscal 2009 increased 1% to $19,982,000 from $19,725,000 for the first
quarter last year due to increases in international sales, partially offset by decreases in domestic sales compared to last year. The increase in international sales was across most regions, but most
significant in Europe, where we added several new distributors late last fiscal year; in the Mideast/Africa region, where we opened a new sales office in Dubai late last year; and in Latin America.
Sales of our ABC Terminal products are up $2,127,000 over the prior year, primarily in Europe and Latin America. Sales of Triton Barriers®
and permanent crash cushions also increased over the prior year, while sales of truck mounted attenuators, parts and delineators decreased from last year.

InformNet sales for the Inform segment for the first quarter of fiscal 2009 increased 8%, or $378,000, to $5,157,000 from $4,779,000 for the first quarter last
year primarily due to increased international sales. Sales of weather and traffic sensing systems increased, offset somewhat by decreased sales of highway advisory radio products.

Gross Profit Margin

Our gross profit margin for the first quarter of fiscal 2009 was 32.8% compared to 34.4% for the first quarter last year. The gross
margin for the Protect and Direct segment declined primarily due to unfavorable product sales mix as a result of increased sales of our lower margin ABC Terminal products. The gross margin for the
Inform segment increased somewhat due partially to volume efficiencies and partially due to a favorable product sales mix with increased sales of higher-margin traffic sensing systems.

Selling and Administrative Expenses

Selling and administrative expenses for the first quarter of fiscal 2009 increased $461,000, or 8%, to $5,974,000 from $5,513,000 for
the first quarter last year. This was primarily due to increased legal and marketing promotion expenses in our Protect and Direct segment and due to decreased bad debt expense for both segments for
the first quarter last year. Selling and administrative expenses increased as a percentage of sales to 23.8% for the first quarter of 2009 from 22.5% last year.

Research and Development

Research and development expenditures increased to $922,000 for the first quarter of fiscal 2009 compared to $889,000 for the same
period last year as we continue our development of new products.

20

---



Operating Profit

Operating profit for the first quarter of fiscal 2009 was $1,342,000 compared to operating profit of $2,017,000 for the first quarter
of fiscal 2008. For the first quarter of fiscal 2009, operating profit for the Protect and Direct segment decreased 27% to $2,372,000 from $3,229,000 due primarily to unfavorable product sales mix and
increased legal and marketing promotion expenses. Operating profit for the Inform segment increased 22% to $420,000 compared to operating profit of $345,000 for the first quarter of last year related
to their increased sales this year.

Interest Expense

Interest expense for the first quarter of fiscal 2009 decreased to $917,000 from $1,095,000 for the first quarter last year, primarily
due to the lower average level of borrowings outstanding. The majority of our interest expense relates to $40 million in convertible debentures at a fixed rate of 7.0%. The interest rate on our
bank revolving credit facility, against which $900,000 is outstanding as of September 30, 2008, is based on prime or LIBOR plus a margin. Our overall weighted average interest rate was 7.0% as
of September 30, 2008.

Income Tax Provision

The income tax provision for the first quarter of fiscal 2009 was $162,000 representing a 38% effective income tax rate. The income tax
provision for the first quarter of fiscal 2008 was $350,000 also representing a 38% effective income tax rate.

Earnings from Continuing Operations

Earnings from continuing operations for the first quarter of fiscal 2009 were $263,000, or $0.03 cents per diluted share, compared to
earnings of $574,000, or $0.06 cents per diluted share, for the first quarter last year.

Loss from Discontinued Operations, net of income taxes

The loss from discontinued operations, net of income taxes, for the first quarter of fiscal 2009 was $758,000, or $0.08 per diluted
share, compared to a loss of $104,000, or $0.01 per diluted share for the first quarter last year. Included in the loss was a $712,000 loss on the sale of the Intersection Control segment in the first
quarter of fiscal 2009.

Net Earnings (Loss)

The net loss for the first quarter of fiscal 2009 was $495,000, or $0.05 per diluted share, compared to net earnings of $470,000, or
$0.05 per diluted share for the first quarter last year.

21

---



FINANCIAL CONDITION

Liquidity and Capital Resources

Our principal sources of cash historically have been cash flows from operations and borrowings from banks and other sources. We had
cash and cash equivalents of $207,000 as of September 30, 2008. Our secured bank credit agreement provides for $40 million in borrowings under which we have access to additional funds of
approximately $15 million as of September 30, 2008. The credit agreement includes both fixed and floating interest rate options, at the prime rate or LIBOR rate, plus a margin. The
credit agreement also contains affirmative and negative covenants including requirements that we meet certain consolidated financial criteria, including a fixed charge coverage ratio, a maximum senior
leverage ratio, and a maximum total leverage ratio. The covenants also limit the incurrence of additional indebtedness, acquisitions, liens and encumbrances and other matters customarily restricted in
such agreements. We were either in compliance with these covenants or we received the necessary waivers from the bank through the first quarter of fiscal 2009. The credit agreement currently expires
in February 2010, but may be renewed one additional year on each anniversary date upon mutual consent of the Company and the bank.

Our
outstanding borrowings were $40,900,000, or 48.2% of total capitalization, as of September 30, 2008, of which $900,000 was outstanding against our bank credit facility. This
compares to outstanding borrowings of $57,600,000, or 56.8% of total capitalization, as of June 30, 2008, of which $17,600,000 was outstanding against our bank credit facility. We used
$20 million in proceeds from the sale of the Intersection Control segment in the first quarter to pay down substantially all of our revolving bank
debt. Included in long-term debt as of September 30, 2008 and June 30, 2008 was $40 million in 7% Convertible Senior Subordinated Notes due February 2025, which the
noteholders may require us to repurchase in February 2010. The amount of standby letters of credit outstanding was $902,000 as of September 30, 2008 and $1,012,000 as of June 30, 2008.

Although
the variable interest rates under our revolving credit facility have been volatile due to the current difficult credit environment, the financial effect on us has not been
significant as the amount outstanding against the facility was only $900,000 as of September 30, 2008. Currently, we do not believe that our operating cash flow needs would require us to
significantly increase our bank borrowings in the near term. The majority of our outstanding debt as of September 30, 2008, $40 million of the $40.9 million, represents
convertible debentures at a fixed rate of 7.0%.

Cash Flows

Cash flows provided by continuing operations were $332,000 during the first three months of fiscal 2009. This compares with $486,000
provided by continuing operations in the first three months of fiscal 2008. Cash flow generated by operations is derived primarily from earnings before non-cash expenses such as
depreciation and amortization. Non-cash expenses of $1,551,000 were nearly offset by a net decrease in cash of $1,442,000 used to fund working capital, primarily representing decreased accounts
payable and accrued expenses.

Cash
flows used in discontinued operations were $1,545,000 during the first three months of fiscal 2009 compared with $2,622,000 used in the first three months of fiscal 2008 primarily
representing decreased accounts payable and accrued expenses.

Investing
activities of continuing operations provided cash of $19,566,000 during the first three months of fiscal 2009, compared to using cash of $880,000 in the first three months of
the prior year. Proceeds from the sale of the Intersection Control segment provided cash of $20 million in the first quarter of fiscal 2009. Expenditures during the first quarter of fiscal 2009
included $411,000 for capital expenditures compared with $870,000 for the first quarter last year.

22

---



Financing
activities used cash of $18,529,000 during the first quarter of fiscal 2009, compared with $3,285,000 of cash provided during the first quarter of fiscal 2008. The
$20 million in proceeds from the
sale of the Intersection Control segment was used to pay down substantially all of our bank debt in the first quarter of this year. Also during the first quarter of fiscal 2009, we borrowed a net
$3,300,000, excluding the $20 million, against our outstanding revolving credit facility. The payment of our semi-annual cash dividend used cash of $1,829,000 during the first
quarter of fiscal 2009.

For
fiscal 2009, we anticipate needing approximately $3,000,000 in cash for capital expenditures. We may require additional investments in working capital to support growth. The credit
markets have recently experienced adverse conditions. Continuing volatility in the credit markets may increase costs associated with borrowing and issuing debt instruments or affect our ability to
access those markets. Notwithstanding these adverse market conditions, we currently believe that future cash needs will be financed either through cash on-hand, cash generated from
operations, from borrowings available under our bank credit facility or from proceeds resulting from the sale of assets. We currently believe that these sources of cash should be sufficient for all
planned operating and capital requirements in the near term. Management will continue to closely monitor our liquidity and the credit markets. However, management cannot predict the impact to our
company related to any further disruption in the credit environment.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We are subject to certain debt obligations, guarantees, commitments and contingent liabilities further described in our Annual Report
on Form 10-K for the year ended June 30, 2008. The following table presents our contractual obligations to make future payments under contracts, such as debt and lease
agreements, as of September 30, 2008:

Total

Less than
1 Year

1-3 Years

3-5 Years

More than
5 YearsLong-term debt(1)

$
40,900,000

$
900,000

$
40,000,000Estimated interest payments(2)


5,800,000


3,000,000


2,800,000Operating leases


3,579,000


1,506,000


2,057,000


16,000Minimum royalty payments


1,410,000


510,000


600,000


300,000Uncertain tax benefits


227,000


109,000


118,000Purchase obligations


1,706,000


1,706,000Total

$
53,622,000

$
7,731,000

$
45,575,000

$
316,000


---

As
disclosed in the footnotes to the consolidated financial statements, we have entered into bid and performance related bonds associated with various contracts. Potential payments due
under these bonds are related to our performance under certain contracts. The total amount of bid and performance related bonds that were available and undrawn as of September 30, 2008 was
$2,923,000. We also have standby letters of credit covering potential workers' compensation liabilities and other liabilities. The total standby exposure relating to letters of credit as of
September 30, 2008 was $902,000.

23

---



FUTURE OUTLOOK

Looking forward, we remain cautious due to domestic state and municipal budgetary constraints and the difficult financial market. The
domestic marketplace also remains challenging due to the economic environment and higher commodity prices. Although the near-term outlook for domestic spending remains uncertain, recent
developments may lead to an improvement in current market conditions. Recent legislation has injected $8.0 billion into the federal highway trust fund that will ensure full federal funding
until September 2009. In addition, the current trend towards lower gasoline prices may positively impact state and federal gasoline tax collections as drivers return to the road. There is also the
prospect of a possible economic stimulus package aimed at increasing jobs through infrastructure projects. Although we remain cautious, these factors provide us with guarded optimism that prospects
for domestic sales of our products may improve in the near term.

We
expect international sales to continue to be an important driver of our sales growth and we plan to continue to focus on these markets to reduce our exposure to the domestic market.
We continue to invest in our international operations, which is enabling us to further diversify our geographic coverage and increase our exposure to marketplaces where demand for our products
continues to grow. We expect that international sales will be an increasing part of our business and may continue to offset the softness in domestic sales this fiscal year. However, there can be no
assurance that either international or domestic sales will increase.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES

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. In addition, 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 judgment given relevant factors and available data. Actual results could differ materially from those estimates. Note 2 to our June 30, 2008 consolidated
financial statements includes a summary of the significant accounting policies, methods and estimates used in the preparation of our consolidated financial statements. There have been no material
changes in accounting policies, methods and estimates used by management during this fiscal year except for the adoption of accounting pronouncements as described in Note 1 in the Notes to
Consolidated Financial Statements. In most instances, we must use an accounting policy or method because it is the only policy or method permitted under U.S. GAAP.

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RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See Note 1 in the Notes to Consolidated Financial Statements.

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. 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. Factors which could cause materially different results include uncertainties related to continued federal, state and municipal funding for
highways and risks related to reductions in government expenditures; economic conditions; market demand; pricing and competitive factors, among others which are set forth in the "Risk Factors" of
Part I, Item 1A, to our Annual Report on Form 10-K for the year ended June 30, 2008, which are hereby incorporated by reference.

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ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk

Part I,
Item 7.A. of our Annual Report on Form 10-K for the year ended June 30, 2008 presents information regarding Quantitative and Qualitative
Disclosures about Market Risk.

We
are exposed to market risk from fluctuations in interest rates on our revolving credit facility, and, to a very limited extent, currency exchange rates. The majority of our debt is
outstanding at a fixed interest rate. Given that our exposure to interest rate fluctuations with respect to amounts borrowed against our revolving credit facility is lower, we currently believe that
the use of derivative instruments in the form of non-trading interest rate swaps to manage the risk is not necessary.

Assets,
liabilities and commitments that are to be settled in cash and are denominated in foreign currencies for transaction purposes are sensitive to changes in currency exchange rates.
The majority of our business is transacted in U.S. dollars and the U.S. dollar is considered the primary currency for the majority of our operations. There were no significant transaction gains or
losses during the first three months of fiscal 2009 or in fiscal year 2008 and we do not believe we are currently exposed to any material risk of loss from currency exchange fluctuations. We will
continue to evaluate derivative financial instruments to manage foreign currency exchange rate changes. In the next few years we may confront greater risks from currency exchange fluctuations as our
business expands internationally.

ITEM 4.    Controls and Procedures



We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934,
as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any system of disclosure controls and
procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any disclosure controls and procedures will succeed in achieving their
stated goals under all potential future conditions.

Our
management, under the supervision of and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's
disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2008.



There
have been no changes in our internal controls over financial reporting that may have materially affected, or are likely to materially affect, our internal control over financial
reporting. Our process for evaluating controls and procedures is continuous and encompasses review of the design and effectiveness of established controls and procedures and the remediation of any
deficiencies which may be identified during this process.

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PART IIOTHER INFORMATION

There is no information required to be reported under any items except as indicated below:

Item 1.    Legal Proceedings

We
are involved in several pending judicial proceedings for product liability and other damages arising out of the conduct of our business. While the outcome of litigation is subject to
uncertainties, we believe, after consultation with counsel, that the outcome of these proceedings, based on current available information and after taking into account the availability and limits of
our insurance coverage, will not have a material effect on our consolidated financial condition and results of operations.

Item 6.    Exhibits



| |       |  |                                                                                                                                                                                                                     
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10(a) |  | Fourth Amendment to Amended and Restated Credit Agreement and Reaffirmation of Guaranties dated as of November 7, 2008 by and between Quixote Corporation and certain Subsidiaries thereof and Bank of
America, N.A.
| | 31    |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                             
| | 32    |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                             

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on
Form 10-Q for the quarter ended September 30, 2008 to be signed on its behalf by the undersigned thereunto duly authorized.

QUIXOTE CORPORATIONDATED: November 7, 2008

By:

/s/ DANIEL P. GOREY Daniel P. Gorey Chief Financial Officer,
Vice President and Treasurer
(Chief Financial & Accounting Officer)


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EXHIBIT INDEX

Exhibits:

| |       |  |                                                                                                                                                                                                                     
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10(a) |  | Fourth Amendment to Amended and Restated Credit Agreement and Reaffirmation of Guaranties dated as of November 7, 2008 by and between Quixote Corporation and certain Subsidiaries thereof and Bank of
America, N.A.
| | 31    |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                             
| | 32    |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                             

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