QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington,
D.C. 20549 FORM 10-Q  
  x
  
  Quarterly Report Pursuant to
  Section 13 or 15(d) of
  the Securities Exchange Act of 1934For the period ended
  September 30, 2003oro
  
  Transition Report Pursuant to
  Section 13 or 15(d) of
  the Securities Exchange Act of 1934
  for
the transition period from _______________
To _______________  
 Commission file number 0-7903 I.R.S.
Employer Identification Number 36-2675371 QUIXOTE CORPORATION (a Delaware Corporation)
One East Wacker Drive
Chicago, Illinois 60601
Telephone: (312) 467-6755 Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.   YES x   NO o Indicate by check mark whether the registrant is an
accelerated filer as defined by Rule 12b-2 of the Securities Exchange Act
of 1934.   YES x   NO o Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date:  8,377,317
shares of theCompanys
Common Stock ($.01-2/3 par value) were outstanding as of September 30,
2003.


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PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS QUIXOTE CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) Three Months Ended
  September 30,2003
  
  2002Net sales
  
  $
  39,184,000
  
  $
  24,629,000Cost of sales
  
  26,408,000
  
  13,981,000Gross profit
  
  12,776,000
  
  10,648,000Operating
  expenses:Selling & administrative
  
  7,951,000
  
  7,303,000Research & development
  
  716,000
  
  435,0008,667,000
  
  7,738,000Operating profit
  
  4,109,000
  
  2,910,000Other income
  (expense):Interest income
  
  15,000
  
  25,000Interest expense
  
  (498,000
  )
  (240,000
  )(483,000
  )
  (215,000
  )Earnings before
  income taxes
  
  3,626,000
  
  2,695,000Provision for
  income taxes
  
  1,305,000
  
  916,000Net earnings
  
  $
  2,321,000
  
  $
  1,779,000Per share databasic:Net earnings
  
  $
  .28
  
  $
  .23Weighted average common shares outstanding
  
  8,366,336
  
  7,799,007Per share datadiluted:Net earnings
  
  $
  .27
  
  $
  .22Weighted average
  common shares outstanding
  
  8,679,678
  
  8,018,482  See Notes to Consolidated Financial Statements. 2


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QUIXOTE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) September 30,
  2003
  
  June 30,
  2003ASSETSCurrent assets:Cash and cash equivalents
  
  $
  1,169,000
  
  $
  3,753,000Accounts receivable, net of allowance for doubtful
  accounts of $1,422,000 at September 30 and $1,267,000 at June 30
  
  34,799,000
  
  36,835,000Inventories, net:Raw materials
  
  10,950,000
  
  10,475,000Work in progress
  
  5,211,000
  
  5,508,000Finished goods
  
  5,982,000
  
  6,984,00022,143,000
  
  22,967,000Notes receivable
  
  217,000
  
  217,000Deferred income tax assets
  
  2,713,000
  
  2,713,000Other current assets
  
  1,828,000
  
  603,000Total current
  assets
  
  62,869,000
  
  67,088,000Property, plant and equipment, at cost
  
  44,126,000
  
  44,165,000Less: accumulated
  depreciation
  
  (18,464,000
  )
  (17,928,000
  )25,662,000
  
  26,237,000Goodwill
  
  48,642,000
  
  48,642,000Intangible
  assets, net
  
  8,008,000
  
  8,387,000Other assets
  
  427,000
  
  471,000$
  145,608,000
  
  $
  150,825,000  See Notes to Consolidated Financial Statements. 3


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QUIXOTE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets  (Unaudited) September 30,
  2003
  
  June 30,
  2003LIABILITIES AND SHAREHOLDERS
  EQUITYCurrent liabilities:Current portion of long-term debt
  
  $
  4,020,000
  
  $
  4,028,000Accounts payable
  
  6,209,000
  
  10,761,000Dividends payable
  
  
  
  1,402,000Income tax payable
  
  1,709,000
  
  1,305,000Accrued expenses
  
  9,101,000
  
  13,503,000Total current
  liabilities
  
  21,039,000
  
  30,999,000Long-term debt,
  net of current portion
  
  41,493,000
  
  39,789,000Deferred income
  tax liabilities
  
  3,917,000
  
  3,917,000Other long-term
  liabilities
  
  510,000
  
  565,000Commitments and
  contingent liabilities (Note 9)Shareholders
  equity:Preferred stock,
  no par value; authorized 100,000 shares; none issuedCommon stock, par value $.01-2/3; authorized
  15,000,000 shares;
  issued 10,509,280 shares at September 30 and 10,437,436 shares
  at June 30
  
  175,000
  
  174,000Capital in excess of par value of stock
  
  52,893,000
  
  52,173,000Retained earnings
  
  49,689,000
  
  47,368,000Accumulated other comprehensive income (loss)
  
  8,000
  
  (44,000
  )Treasury stock, at cost, 2,131,963 shares at
  September 30 and
  June 30
  
  (24,116,000
  )
  (24,116,000
  )Total
  shareholders equity
  
  78,649,000
  
  75,555,000$
  145,608,000
  
  $
  150,825,000  See Notes to Consolidated Financial Statements. 4


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QUIXOTE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Three Months Ended
  September 30,2003
  
  2002Operating activities:Net earnings
  
  $
  2,321,000
  
  $
  1,779,000Adjustments to
  reconcile net earnings to net cash provided by (used in) operating activities
  of continuing operations:Depreciation
  
  1,038,000
  
  739,000Amortization
  
  379,000
  
  95,000Provisions for losses on accounts receivable
  
  168,000
  
  148,000Changes in
  operating assets and liabilities:Accounts receivable
  
  1,868,000
  
  4,044,000Inventories
  
  824,000
  
  (134,000
  )Other assets
  
  (1,181,000
  )
  (501,000
  )Accounts payable and accrued expenses
  
  (8,614,000
  )
  (877,000
  )Income taxes
  
  404,000
  
  902,000Net cash (used
  in) provided by operating activities
  
  (2,793,000
  )
  6,195,000Investing
  activities:Capital expenditures
  
  (463,000
  )
  (487,000
  )Patent expenditures
  
  
  
  (351,000
  )Net cash used in
  investing activities
  
  (463,000
  )
  (838,000
  )Financing
  activities:Proceeds from revolving credit agreement
  
  7,000,000
  
  1,000,000Payments on revolving credit agreement
  
  (4,500,000
  )
  (5,500,000
  )Payments on notes payable
  
  (750,000
  )
  (228,000
  )Payment of semi-annual cash dividend
  
  (1,402,000
  )
  (1,240,000
  )Proceeds from exercise of stock options
  
  327,000
  
  129,000Repurchase of common stock for treasury
  
  
  
  (422,000
  )Net cash provided
  by (used in) financing activities
  
  675,000
  
  (6,261,000
  )Effect of exchange rate changes on cash
  
  (3,000
  )
  (8,000
  )Decrease in cash and cash equivalents
  
  (2,584,000
  )
  (912,000
  )Cash and cash
  equivalents at beginning of period
  
  3,753,000
  
  1,798,000Cash and cash
  equivalents at end of period
  
  $
  1,169,000
  
  $
  886,000  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, 2003
consolidated balance sheet as presented was derived from audited financial
statements. The interim financial statements and notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the year ended June 30,
2003. Management believes the financial statements include all normal recurring
adjustments necessary for a fair presentation of the results for the interim
periods. 2.      As of September 30,
2003, the Company had stock option plans providing for grants of options for
directors based upon a fixed calculation and grants of options and restricted
stock for employees as may be determined by the Compensation Committee of the
Board of Directors. The cost of restricted stock granted is expensed in the
period the stock is issued. The Company accounts for the options granted under
the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. No
charges are made to earnings in connection with the options granted, as all
options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of FASB Statement No. 123, Accounting
for Stock-Based Compensation, to the stock options granted. Three Months Ended
  September 30,2003
  
  2002Net earnings, as
  reported
  
  $
  2,321,000
  
  $
  1,779,000Add: Stock-based
  employee compensation expense included in reported net earnings, net of
  related tax effects
  
  252,000Deduct: Total
  stock-based employee compensation expense determined under fair value based
  method for all awards, net of related tax effects
  
  (553,000
  )
  (347,000
  )$
  2,020,000
  
  $
  1,432,000Earnings per shareBasicas reported
  
  $
  .28
  
  $
  .23Basicpro forma
  
  $
  .24
  
  $
  .18Dilutedas reported
  
  $
  .27
  
  $
  .22Dilutedpro forma
  
  $
  .23
  
  $
  .18  3.      The
provision for income taxes for the current quarter is based upon the estimated
effective tax rate for the full fiscal year. 4.      Operating
results for the first three months of fiscal 2004 are not necessarily
indicative of performance for the entire year. The Companys business is
seasonal with a higher level of sales in the Companys fourth fiscal quarter. 6 QUIXOTE CORPORATION AND SUBSIDIARIES (Continued) Notes to Consolidated Financial Statements (Unaudited) 5.      The computation of basic and diluted
earnings per share is as follows: Three Months Ended
  September 30,2003
  
  2002Numerator:Net earnings
  available to common shareholders
  
  $
  2,321,000
  
  $
  1,779,000Denominator:Weighted average
  shares outstandingbasic
  
  8,366,336
  
  7,799,007Effect of
  dilutive securitiescommon stock options
  
  313,342
  
  219,475Weighted average shares
  outstandingdiluted
  
  8,679,678
  
  8,018,482Net
  earnings per share of common stock:Basic
  
  $
  .28
  
  $
  .23Diluted
  
  $
  .27
  
  $
  .22  There
were outstanding options to purchase common stock at prices that exceeded the
average market price for the income statement period. These options have been
excluded from the computation of diluted earnings per share for the three-month
periods ended September 30, 2003 and 2002 and are as follows: Three Months Ended
  September 30,2003
  
  2002Average exercise
  price per share
  
  $
  25.21
  
  $
  24.00Number of shares
  
  268,700
  
  230,300  6.      The
Company is exposed to market risk from fluctuations in interest rates. The
Company manages its exposure to interest rate fluctuations through the use of
derivative instruments in the form of non-trading interest rate swaps. The
objective of the swap is to fix the interest rate on certain variable rate debt
to stabilize interest rates and to more effectively balance the Companys
long-term borrowing costs and interest rate risk. During July 2003, the
Company entered into an interest rate swap agreement (the Agreement) to set a
fixed interest rate relating to $20 million of its outstanding debt at variable
interest rates. The terms of the Agreement match the terms of the underlying
debt. In addition, the Agreement has been designated as, and is effective as, a
cash-flow hedge of an outstanding debt obligation. Changes in fair value of the
Agreement are reported as other comprehensive income and are recognized into
earnings when the hedge transaction affects earnings. 7 QUIXOTE CORPORATION AND SUBSIDIARIES (Continued) Notes to Consolidated Financial Statements (Unaudited) Accumulated
other comprehensive income (loss) consists of the following: Currency translation
  adjustment:BalanceJuly 1, 2003
  
  $
  (44,000
  )Currency translation adjustment
  
  6,000BalanceSeptember 30, 2003
  
  $
  (38,000
  )Unrealized gain
  on derivative instrument:BalanceJuly 1, 2003
  
  $
  Change in derivative instrument
  
  46,000BalanceSeptember 30,
  2003
  
  $
  46,000  Comprehensive
income consists of the following: Three Months Ended
  September 30,2003
  
  2002Net earnings
  
  $
  2,321,000
  
  $
  1,779,000Other
  comprehensive income:Currency translation adjustment
  
  6,000
  
  42,000Change in derivative instrument
  
  46,000Comprehensive income
  
  $
  2,373,000
  
  $
  1,821,000  7.      The
Companys operations are classified as two reportable segments within the
highway and transportation safety industry. The Companys two reportable
segments are: the manufacture and sale of the Companys products which Protect
and Direct, and the manufacture and sale of products which Inform and are often
referred to as Intelligent Transportation Systems (ITS) products. The Companys segments are discussed in
detail in the Companys Annual Report on Form 10-K for the year ended June 30,
2003. The
following table presents financial information about reported segments as of
and for the three-month periods ended September 30, 2003 and 2002 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
  
  TotalSeptember 30,
  2003Net sales from
  external customers
  
  $
  19,396,000
  
  $
  19,788,000
  
  
  
  $
  39,184,000Operating profit
  (loss)
  
  4,483,000
  
  1,372,000
  
  $
  (1,746,000
  )
  4,109,000Identifiable
  assets
  
  52,320,000
  
  89,010,000
  
  4,278,000
  
  145,608,000September 30,
  2002Net sales from
  external customers
  
  $
  18,765,000
  
  $
  5,864,000
  
  
  
  $
  24,629,000Operating profit
  (loss)
  
  4,503,000
  
  226,000
  
  $
  (1,819,000
  )
  2,910,000Identifiable assets
  
  50,876,000
  
  40,005,000
  
  3,972,000
  
  94,853,000  Identifiable assets of the Inform segment as of September 30,
2003 increased to $89,010,000 from $40,005,000 as of September 30, 2002
primarily due to the acquisition of U.S. Traffic Corporation in May 2003
(see Note 10). 8 QUIXOTE CORPORATION AND SUBSIDIARIES (Continued) Notes to Consolidated Financial Statements (Unaudited) 8.Intangible
assets consist of the following: September 30, 2003
  
  June 30, 2003Gross
  Carrying
  Amount
  
  Accumulated
  Amortization
  
  Gross
  Carrying
  Amount
  
  Accumulated
  AmortizationAmortized intangible
  assets:Patents and licenses
  
  $
  2,779,000
  
  $
  1,461,000
  
  $
  2,779,000
  
  $
  1,410,000Technology and installed base
  
  3,100,000
  
  457,000
  
  3,100,000
  
  386,000Customer relationships
  
  2,320,000
  
  242,000
  
  2,320,000
  
  126,000Other
  
  530,000
  
  221,000
  
  530,000
  
  80,0008,729,000
  
  2,381,000
  
  8,729,000
  
  2,002,000Indefinite-lived
  intangible assets:Trade names
  
  1,660,000
  
  
  
  1,660,000Total
  
  $
  10,389,000
  
  $
  2,381,000
  
  $
  10,389,000
  
  $
  2,002,000  Amortization expense was $379,000 and $95,000 for the
three months ended September 30, 2003 and 2002, respectively. The
estimated amortization expenses for the fiscal year ended June 30, 2004
and for the four fiscal years subsequent to 2004 are as follows: $1,384,000,
$899,000, $885,000, $816,000 and $747,000. The carrying amount of goodwill consists of
$40,503,000 for the Inform segment and $8,139,000 for the Protect and Direct
segment as of September 30, 2003 and June 30, 2003. 9.      The
Companys guarantees, commitments and contingent liabilities are discussed in
detail in the Companys Annual Report on Form 10-K for the year ended June 30,
2003. The following discusses changes since June 30, 2003. The
Company warrants the original purchase of its products that it will, at its
option, repair or replace, without charge, such products if they fail due to a
manufacturing defect. The term of these warranties varies (30 days to 5 years)
by product. The Company accrues 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. The Companys estimated product warranty liability
(in thousands of dollars) is as follows: BalanceJuly 1,
  2003
  
  $
  1,986,000Current
  provisions
  
  21,000Expenditures
  
  (60,000
  )Changes in
  estimates
  
  (152,000
  )BalanceSeptember 30,
  2003
  
  $
  1,795,000  The Company has entered into bid and performance
related bonds associated with various contracts. Potential payments due under
these bonds are related to the Companys performance under the applicable
contract. The total amount of bid and performance related bonds that were
available and undrawn was $4,100,000 at September 30, 2003 and $5,300,000
at June 30, 2003. Historically, the Company has not made significant
payments on bid and performance bonds, and no amount has been accrued in the
accompanying consolidated financial statements. 9 QUIXOTE CORPORATION AND SUBSIDIARIES (Continued) Notes to Consolidated Financial Statements (Unaudited) The Company has
standby letters of credit covering potential workers compensation liabilities.
The total standby exposure at September 30, 2003 was $740,000 and at June 30,
2003 was $330,000. 10.   Effective May 16,
2003 the Company acquired certain assets and liabilities of the Traffic and
Transit Lighting businesses of U.S. Traffic Corporation (UST). The Company paid
a purchase price of $35,725,000, net of cash acquired. The Companys source of
funds for this acquisition was a $70,000,000 credit facility. UST is a
designer, manufacturer and supplier of intelligent intersection control systems
and other transportation equipment. The results of UST have been included in
the Companys Inform segment since the date of acquisition. The Company
anticipates that the UST business will provide future operating synergies in
the traffic control market, expand the Companys customer base in the municipal
and county markets and leverage the Companys existing technologies within the
Inform segment. The
following pro forma summary presents the Companys consolidated results of
operations for the three-month period ended September 30, 2002 as if the
acquisition had occurred at the beginning of fiscal year 2003. Net sales
  
  $
  37,747,000Net earnings
  
  2,097,000Net earnings per diluted
  share
  
  $
  .25  The consolidated pro forma information is not
necessarily indicative of the combined results that would have occurred had the
acquisition occurred on that date, nor is it indicative of the results that may
occur in the future. 10


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PART IFINANCIAL
INFORMATION ITEM 2.   Managements Discussion and Analysis of Financial
Condition and Results of Operations CURRENT YEAR-TO-DATE VERSUS PRIOR YEAR-TO-DATE The Companys sales for the first quarter of fiscal
2004 increased 59% to $39,184,000 from $24,629,000 in the first quarter last
year primarily due to the acquisition of U.S. Traffic Corporation (UST) in May of
2003 as well as organic sales growth for both its Protect and Direct and Inform
segments. Sales for the Protect and Direct segment increased 3% to $19,396,000
as a result of higher sales of truck mounted attenuators and Triton barriers. Truck-mounted
attenuator sales increased 56% over last years first quarter, while sales of
Triton barriers more than doubled. Offsetting these increases in sales
somewhat, sales of delineators decreased and sales of permanent crash cushions,
including the QuadGuard® family of products, decreased 16% over last years
first quarter. Sales for the Inform segment increased to $19,788,000 from
$5,864,000 last year primarily due to the contribution of sales from UST, which
added $12,708,000 in the first quarter of the current year not comparable to
the prior year. Excluding sales from UST, sales for the Inform segment
increased $1,216,000, or 21% over last years first quarter due to increased
sales across all major product lines. Contributing to increases in sales for
both segments, international sales increased 23% over the first quarter of last
year to $4,029,000 particularly due to continued high interest in the Triton®
barrier product in Australia. The gross profit margin for the first quarter of the
current year decreased to 32.6% from 43.2% for the first quarter last year due
principally to the lower gross margins generated at UST. In addition, the Protect
and Direct segment experienced decreased gross margins due to an unfavorable
change in product mix with increased sales of the lower margin truck-mounted
attenuators and Triton barriers. Excluding UST results, the Inform segment had
slightly lower gross margins due to increased lower margin contract sales. The
Company currently estimates consolidated gross profit margins to be lower than
managements original range of 38% to 40% for fiscal year 2004. Selling and administrative expenses for the current quarter
increased $648,000, or 9%, to $7,951,000 compared to $7,303,000 for the first
quarter last year due to the inclusion of selling and administrative expenses
from UST which added $1,704,000 in the quarter. Excluding UST results, selling
and administrative expenses in the current quarter decreased $1,056,000 as
selling and administrative expenses for the first quarter last year were
unusually high due to costs associated with acquisition development work and
non-recurring consulting work. Selling and administrative expenses were 20.2%
of sales in the current quarter, compared to 29.7% last year.The Company currently estimates
selling and administrative expenses as a percentage of sales to be lower than
managements original range of 23% to 25% of sales for fiscal year 2004. Research and development expenditures increased in the
current quarter to $716,000 from $435,000 last year. This increase was due to
the inclusion of $131,000 in expenses at UST, as well as outside development
costs for several projects. The Company continued with its work on new products
as well as upgrades and modifications to existing products. Operating profit increased 41% to $4,109,000 in the
first quarter of fiscal 2004 from $2,910,000 for the first quarter of 2003. Interest expense in the first quarter of fiscal 2004
increased to $498,000 from $240,000 last year due to higher long-term debt
since the acquisition of UST. Income taxes for the current quarter were $1,305,000,
reflecting a 36% effective income tax rate. This compares to a 34% effective
income tax rate for the first quarter last year. The increase in effective rate
is due primarily to higher state taxes related to the acquisition of UST. 11 Net earnings for the first
quarter of fiscal 2004 increased to $2,321,000, or $0.27 cents per diluted
share, compared to $1,779,000, or $0.22 cents per diluted share last year. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of
$1,169,000 as of September 30, 2003 and access to additional funds of
$23,900,000 under a three-year unsecured bank credit agreement. The Company
believes that this credit facility is an important source of liquidity. The
credit agreement provides for a $50 million revolving credit facility and a $20
million term loan agreement. The facility contains both fixed and floating
interest rate options, at the prime rate or LIBOR rate, plus a margin. The
facility contains affirmative and negative covenants including requirements
that the Company maintain certain financial ratios and be profitable each year.
The agreement may be renewed one additional year on each anniversary date upon
mutual consent of the Company and the banks. The Company is currently in
compliance with all covenants in this agreement. The Company used $2,793,000 in cash for operations
during the quarter, in part due to an investment in working capital at UST
through the payment of amounts included in accounts payable and accrued
expenses. Investing activities used cash of $463,000 during the first quarter
of fiscal 2004 for capital expenditures. Financing activities generated cash of $675,000 during
the current quarter. The Company borrowed a net $2,500,000 against its
outstanding revolving credit facility. The Company also paid $750,000 as the
quarterly payment on the term loan due in connection with the acquisition of
UST. The payment of the Companys semi-annual cash dividend used cash of
$1,402,000. The Company received cash of $327,000 from the exercise of common
stock options. For fiscal 2004, the
Company anticipates needing approximately $5,000,000 in cash for capital
expenditures. The Company also anticipates spending approximately $500,000
primarily during the second and third quarters to comply with Section 404
of the Sarbanes-Oxley Act of 2002. The Company may also need additional cash as
it considers acquiring businesses that complement its existing operations. Also,
the Company will require additional investments in working capital to maintain
growth. The Company may also need additional funds to repurchase its own common
stock from time to time. These expenditures will be financed either through the
Companys invested cash, cash generated from its operations or from borrowings
available under the Companys bank credit facility. The Company believes its
existing cash, cash generated from operations and funds available under its
existing credit facility are sufficient for all planned operating and capital
requirements. If needed and available on favorable terms, the Company may also
enter other debt or equity financing arrangements. CRITICAL ACCOUNTING POLICIES The Securities and Exchange Commission (SEC) requires
all registrants to discuss critical accounting policies or methods used in the
preparation of financial statements. 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 from those estimates. Note 2 to the Companys June 30, 2003
consolidated financial statements includes a summary of the significant
accounting policies, methods and estimates used in the preparation of the
Companys consolidated financial statements. In the opinion of management, the
Company does not have any 12 individual accounting
policy or use any individual estimate that is critical to the preparation of
its consolidated financial statements. In most instances, the Company must use
an accounting policy or method because it is the only policy or method
permitted under U.S. GAAP. The following is a summary of the more significant
accounting policies and methods used by the Company: Revenue Recognition: Revenues are recognized when either
services have been rendered or both title and risk of loss of products has been
transferred to unaffiliated customers, with appropriate provision for
uncollectible accounts. Long-Lived Assets: Long-lived assets include such
items as goodwill, patents, product rights and other intangible assets. Long-lived
assets held and used by the Company are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. For purposes of evaluating the recoverability of long-lived
assets, the Company assesses the possibility of obsolescence, demand, new
technology, competition, and other pertinent economic factors and trends that
may have an impact on the value or remaining lives of these assets. Additionally,
goodwill and other indefinite-lived intangible assets are tested for impairment
at least annually using the discounted cash flow method. Patents and other
finite-lived intangible assets are amortized on a straight-line basis over the
life of the patent or agreement. Income Taxes: The Company
recognizes deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. In addition, the amount of
any future tax benefits are reduced by a valuation allowance to the extent such
benefits are not expected to be fully realized. OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL
OBLIGATIONS The
Company is subject to certain debt obligations, guarantees, commitments and
contingent liabilities further described in the Companys Annual Report on Form 10-K
for the year ended June 30, 2003. The following table presents the Companys
contractual obligations to make future payments under contracts, such as debt
and lease agreements, as of September 30, 2003: Total
  
  Less than
  1 Year
  
  1-3 Years
  
  3-5 Years
  
  More than
  5 YearsLong-term debt
  
  $
  45,513,000
  
  $
  4,020,000
  
  $
  6,820,000
  
  $
  11,469,000
  
  $
  23,204,000Operating leases
  
  17,227,000
  
  3,438,000
  
  5,159,000
  
  3,527,000
  
  5,103,000Minimum royalty
  payments
  
  2,613,000
  
  513,000
  
  600,000
  
  600,000
  
  900,000Purchase
  obligations
  
  450,000
  
  450,000Total
  
  $
  65,803,000
  
  $
  8,421,000
  
  $
  12,579,000
  
  $
  15,596,000
  
  $
  29,207,000  FUTURE OUTLOOK The Company continues to
be affected by adverse factors that are impacting the transportation safety
industry as a whole. These factors included revenue shortfalls and budget
deficits at the state level where the majority of states are currently
operating at a deficit. The Companys backlog, excluding UST, is $900,000 lower
than last years first quarter. In addition, passage of new federal highway
funding legislation has been delayed. The current six-year federal highway bill
(TEA-21), which expired on September 30, 2003, has been extended through February of
2004. The Company believes that some customers may delay orders until a new
bill is passed. The next highway funding bill is currently under consideration
by the federal government and it is uncertain as to what the future federal
governmental spending levels will be. 13 FORWARD LOOKING STATEMENTS Various statements made within the Managements
Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this report constitute forward-looking statements for purposes
of the SECs safe harbor provisions under the Private Securities Litigation
Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of
1934, as amended. Any statement that addresses expectations or projections
about the future, including statements about the Companys strategy for growth,
product development, market position, expenditures and financial results, are
forward-looking statements. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including
those detailed in the Companys public filings with the SEC, news releases and
other communications, which speak only as of the dates of those filings or
communications. The Company does not undertake any obligation to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances after the date hereto or to reflect the occurrence of
unanticipated events. There can be no assurance that actual results will not
differ materially from the Companys expectations. Factors which could cause
materially different results include, among others, uncertainties related to
continued federal and state funding for highways and risks related to
reductions in government expenditures; the successful completion and integration
of acquisitions; the introduction and acceptance of the Companys products and
services; an unfavorable change in product sales mix; seasonality along with
the extent and timing of the award of large contracts; the cyclical nature of
the Companys governmental markets; competitive and pricing pressures;
increasing raw material costs; excess manufacturing capacity; weather
conditions; acts of war and terrorist activities; the possible impairment of
intangible assets; and general economic conditions. ITEM 3.   Quantitative and
Qualitative Disclosures about Market Risk Item 7.A. of theCompanys
Annual Report on Form 10-K for the year ended June 30, 2003 presents
information regarding Quantitative and Qualitative Disclosures about Market
Risk. The Company is exposed to
market risk from fluctuations in interest rates. The Company manages its
exposure to interest rate fluctuations through the use of derivative
instruments in the form of non-trading interest rate swaps. The objective of
the swap is to fix the interest rate on certain variable rate debt to stabilize
interest rates and to more effectively balance the Companys long-term
borrowing costs and interest rate risk. During July 2003, the Company
entered into an interest rate swap agreement to set a fixed interest rate
relating to $20 million of its outstanding debt at variable interest rates. ITEM 4.   Controls and
Procedures (a)Evaluation of
Disclosure Controls and Procedures Disclosure controls and procedures are controls and
other procedures that are designed to ensure that information required to be
disclosed in the reports that are filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commissions rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in the reports
that are filed under the Exchange Act is accumulated and communicated to management,
including the principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure. Under the
supervision of and with the participation of management, including the
principal executive officer and principal financial officer, the Company has
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by this report,
and, based on its evaluation, our principal executive officer and principal
financial officer have concluded that these controls and procedures are
effective. 14 (b)   Changes in Internal Controls There have been no
significant changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of the evaluation
described above. In addition, there have been no corrective actions with regard
to significant deficiencies and material weaknesses. PART IIOTHER
INFORMATION There is no information
required to be reported under any items except as indicated below: ITEM 6.   Exhibits and
Reports on Form 8-K (a)Exhibits 31Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32Certifications
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b)Reports
on Form 8-K On October 29, 2003,
the Company filed a report on Form 8-K dated October 28, 2003, to
report the issuance of a press release announcing its first quarter fiscal 2004
financial results.  15


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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,
2003 to be signed on its behalf by the undersigned thereunto duly authorized. QUIXOTE CORPORATIONDATED:
  
  November 12, 2003
  
  /s/ Daniel P. GoreyDaniel P. GoreyChief Financial Officer, Vice President and
  Treasurer (Chief Financial & 
  Accounting Officer)  16


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