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

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)For the fiscal year ended June 30, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period                        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(I.R.S. Employer Identification No.)THIRTY FIVE EAST WACKER DRIVE,
CHICAGO, ILLINOIS(Address of principal executive offices)

60601(Zip Code)Registrant's telephone number including area code:(312) 467-6755Securities Registered Pursuant to Section 12(b) of the Act:(Title of Class)

(Name of Exchange on Which Registered)Common Stock ($.012/3 Par Value)

The NASDAQ Stock Market LLC


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Act.    Yes o      No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act.    Yes o      No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes ý      No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K ý.

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).    Yes o      No ý

State the aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the price at which the
common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. $159,407,760 as of
December 31, 2007

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 9,217,073 shares of the Company's Common Stock
($.012/3 par value) were outstanding as of September 5, 2008.

DOCUMENTS
INCORPORATED BY REFERENCE

The
Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 13, 2008 which will be filed with the Commission on or about
October 2, 2008 is incorporated by reference at Part III.



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PAGEPART IItem 1.

Business

3-8Item 1A.

Risk Factors

8-14Item 1B.

Unresolved Staff Comments

14Item 2.

Properties

15Item 3.

Legal Proceedings

15Item 4.

Submission of Matters to a Vote of Security Holders

15PART IIItem 5.

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

16-17Item 6.

Selected Financial Data

18Item 7.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

19-32Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

32Item 8.

Financial Statements and Supplementary Data

33-63Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

64Item 9A.

Controls and Procedures

64-65Item 9B.

Other Information

65PART IIIItem 10.

Directors, Executive Officers and Corporate Governance

66Item 11.

Executive Compensation

66Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

66-67Item 13.

Certain Relationships, Related Transactions, and Director Independence

67Item 14.

Principal Accountant Fees and Services

67PART IVItem 15.

Exhibits and Financial Statement Schedule

68-70SIGNATURES

71


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PART I  THE COMPANY

Forward Looking Statements

Various statements made within this report constitute "forward-looking statements" for purposes of the SEC's "safe harbor" provisions
under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934, as amended. Except for historical information, any statement that
addresses expectations or projections about the future, including statements about our strategy for growth, product development, market position, expenditures, financial results or changes in
governmental legislation, policies and conditions, is a forward-looking statement. Readers are cautioned not to place undue reliance on these forward-looking statements and that all forward-looking
statements involve risks and uncertainties, including those detailed in our public filings with the SEC, news releases and other communications, which speak only as of the dates of those filings or
communications. We do not undertake any obligation to release
publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. There can be no assurance that
actual results will not differ materially from our expectations.

Item 1.    Business

Overview of the Company and Its Financial Condition

Quixote Corporation was originally incorporated under the laws of the State of Delaware in 1969 as Energy Absorption
Systems, Inc. In June 1980, Energy Absorption Systems, Inc. changed its name to Quixote Corporation. When we use the terms "Quixote Corporation", "the Company", "we", "our" or "us" in
this report, we refer to Quixote Corporation and its subsidiaries, unless otherwise provided by the context in which the term is used.

On
July 25, 2008, we sold our Intersection Control segment to Signal Group, Inc. for $20 million in cash. The Intersection Control segment sells products including
traffic controllers, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, video detection equipment, toll road monitoring systems and parking detection devices.
Accordingly, we have reflected the results of those operations as discontinued operations for all periods presented. The assets and liabilities of the divested segment are classified as assets and
liabilities held for sale within our consolidated balance sheets as of June 30, 2008 and for all prior periods presented.

Through
our subsidiaries, we develop, manufacture and market highway and transportation safety products to protect, direct and inform motorists and highway workers in both domestic and
international markets. Our two continuing reportable segments are: highway and transportation safety products that "Protect and Direct" by minimizing the severity of crashes or by directing or guiding
traffic to avoid crashes; and highway and transportation safety products that "Inform" motorists, state and local highway personnel about dangerous or congested conditions or provide other useful
information. Our products include energy-absorbing highway crash cushions, flexible post delineators, electronic wireless measuring and sensing devices, weather information systems, highway advisory
radios, and other highway and transportation safety devices. Our products are sold worldwide through a distribution network, as well as by a direct sales force, to customers in the highway
construction and safety business, state and municipal departments of transportation and other governmental transportation agencies.

In
the United States our business is directly affected by federal, state and municipal government funding for transportation safety, highway construction and maintenance, and other
infrastructure projects. A significant part of our sales are ultimately financed by funds provided to the states by the federal government through the federal transportation funding bill. The current
bill, SAFETEA-LU,

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enacted
in August 2005, was delayed almost two years. Until the new legislation was enacted, the transportation safety allotment in federal and state budgets was uncertain and we believe that this
prolonged funding uncertainty adversely impacted sales of our products and services in fiscal 2006 and our financial performance in that fiscal year. We believe that the passage of
SAFETEA-LU provided a more predictable funding stream for our products in fiscal 2007. During fiscal 2008, we began to see a general economic slowdown in the United States causing many
states and municipalities to face budgetary constraints and deficits. In addition, basic material costs including steel, asphalt and other materials for building and maintaining roads and bridges
increased significantly. Facing these issues, many states postponed or cancelled many transportation projects which adversely impacted the domestic demand for our products. As international markets
are not dependent on federal funding, our international sales have not been adversely impacted and continue to grow.

As
of June 30, 2008, we employed approximately 500 people in our continuing businesses. In addition, our discontinued segment employed approximately 134 people.

Description of Business

Our continuing operations are comprised of two reportable segments:



Our
products are sold world-wide through a distribution network, as well as by a direct sales force, to customers in the highway construction and safety business, state and
municipal departments of transportation and other governmental transportation agencies.

Financial
information relating to industry segments appears in Note 14 of the notes to our consolidated financial statements incorporated by reference herein.

Protect and Direct Segment

Our Protect and Direct segment of products include our patented highway crash cushions which were first conceived and developed in
1969. These products were developed and sold in response to the high number of fatalities and serious injuries suffered by occupants of errant vehicles in collisions with roadside hazards, such as
bridge abutments, overpass piers, overhead sign supports, lane dividers, traffic islands and toll booths. Since 1969, various types of highway crash cushions have been installed in front of thousands
of life-threatening roadside hazards. The Federal Highway Administration (FHWA) endorses the installation of highway crash cushions as an effective safety program and they are mandatory on
interstate roads in the U.S.

We
develop, manufacture and market lines of patented highway crash cushion systems, truck-mounted attenuators (TMA's) and other barriers which absorb and dissipate the force of impact in
collisions between vehicles and fixed roadside objects or slow moving highway construction vehicles. The product lines utilize the principles of momentum transfer and kinetic energy to safely
decelerate errant vehicles. Energy absorption or energy dissipation is accomplished by using different combinations of water, aluminum, steel, urethane foam systems, cardboard, plastic structures,
elastometric cylinders and sand.

We
also manufacture and sell products that prevent crashes and help control the flow of traffic by directing or guiding. These products consist of a line of flexible sign and guide post
systems (delineators) and a glare screen system. The guide posts are used to delineate a travel way, channel

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vehicles
or mark the location of an object. The post features an in-ground anchor system that permits inexpensive repair and replacement. The glare screen system, made from polyethylene,
is installed on top of median barriers to eliminate the distraction of lights from oncoming vehicles.

Our
products within the Protect and Direct segment also include a crashworthy barrier arm for use at areas such as railroad crossings and toll roads and as security for access ways,
driveways and parking lots. In addition, we market a FreezeFree® anti-icing system which automatically or manually dispenses deicing liquids in advance of ice formation on
bridges, roads and overpasses.

Inform Segment

To expand our business within the highway and transportation safety industry, in 1998 we began acquiring companies that manufacture
Intelligent Transportation System (ITS) products which provide information to improve traffic flow and safety. Products sold by our Inform segment include weather and traffic sensing products and
highway advisory radio products.

These
products include portable and permanent sensors that record traffic volume, speed, and length classification of vehicles. These sensors also collect, analyze and store traffic,
road surface conditions and freezing point data which can be relayed on a real-time basis to a transportation department's base computer or control center via telephone, cellular link,
fiber optic connection or a wireless link. We also manufacture and market road/runway weather information systems. Using a tower equipped with weather instruments and special detectors, these systems
can detect freezing conditions and provide valuable weather information to transportation departments or airports in order to dispatch salt trucks or automatically activate anti-icing
systems.

We
are a leading manufacturer of highway advisory radio (HAR) systems that broadcast traffic information using an AM radio frequency with reception up to six miles from the unit. HAR
systems, in connection with flashing lights and message signs, advise drivers to tune into a particular AM station to hear messages about traffic, road conditions and weather. These HAR systems can be
permanent or mobile. Our Intellizone® system is designed to provide real-time information to motorists by integrating traffic and/or weather sensors, variable message signs and
computer controlled software.

Across
both segments, we may provide product education, selection and application assistance. In limited cases, we perform site preparation and installation services for our products.

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 sells products including traffic controllers, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, video detection equipment, toll road
monitoring systems and parking detection devices. Accordingly, we have reflected the results of those operations as discontinued operations for all periods presented. The assets and liabilities of the
divested segment are classified as assets and liabilities held for sale within our consolidated balance sheets for all periods presented.

Marketing and Competition

Our products are sold in all 50 U.S. states and internationally. Domestically, we sell either through a distribution network or through
a direct sales force. Regional managers supervise domestic distributors and make direct sales in areas not covered by distributors. We had approximately 31 domestic distributors on June 30,
2008. We sell our products principally to distributors, contractors (on behalf of state and local governments), state departments of transportation, state agencies, local governments, municipalities,
and airports. Although the federal government provides matching funds for the purchase of certain highway safety products by state and local governmental agencies, the

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federal
government is usually not a direct purchaser of our domestic products. For certain products, we sell through catalogs and inside sales personnel.

Many
foreign governments are beginning to recognize the need for our products as a method of reducing traffic congestion and improving safety. Our products are sold outside of the U.S
through a network of distributors who make sales to municipal and national governments and contractors who are responding to bids from their respective governments. We had approximately 97
international distributors on June 30, 2008.

Although
we experience competition in many of our product lines, we believe that we are a leading U.S. manufacturer of transportation safety products. Within the Protect and Direct
segment, we believe that no other company presently markets as broad a line of highway crash cushion systems designed to shield as large a variety of fixed roadside hazards as we do. However, many of
our competitors in both of our business segments offer products similar to those supplied by us. We experience some competition in most product lines. We compete in the U.S. market for permanent and
work-zone crash cushions with Barrier Systems, Inc. (a subsidiary of Lindsay Corporation (NYSE: LNN)), Trinity Industries, Inc. (NYSE: TRN), TrafFix Devices, Inc., and
other smaller regional companies. A number of other companies manufacture flexible sign and guide post systems. Within the Inform segment, we experience competition in selling certain product lines,
particularly our road weather information systems (RWIS), because they are generally sold through a bidding process. There are a few companies that compete with us in selling HAR systems. In addition,
we compete with many different companies that sell sensors using different technologies, including microwave and infra-red sensors and machine-vision (video), with each technology offering
its own advantages.

Competition
may have an adverse effect on our selling prices and profit margins of certain product lines, and depending on the product mix sold, can adversely affect our financial
results. We believe that we compete effectively through our own in-house product development, patent protection, quality and price, and the effectiveness of our strong distribution
network.

Government Policies and Funding

The domestic market for highway and transportation safety products is directly affected by federal, state and local governmental
policies. Federal transportation spending is funded through a highway trust fund which derives most of its money from gasoline tax revenue. Funds are allocated and highway policy is developed through
a six-year federal highway bill. A portion of our sales is ultimately financed by funds provided to the states by the federal government. Historically, these funds cover 75% to 90% of the
cost of highway safety projects on roads constructed or maintained with federal assistance. The current federal highway funding legislation, SAFETEA-LU, was enacted in August 2005.
SAFETEA-LU, "Safe, Accountable, Flexible and Efficient Transportation Equity ActA Legacy for Users", provides $286.4 billion in guaranteed funding for the federal
highway, transit and safety programs through September 30, 2009. Unlike historical highway funding bills, SAFETEA-LU focuses on improving safety and relieving congestion as a
priority, as well as on new highway construction and resurfacing projects. Several sections of SAFETEA-LU provide for increased funding and focus on products and systems within our Inform
segment. While the current law does not include projects that specifically indicate our products by name and there can be no guarantee of increased sales, we expect there to continue to be market
potential for applications of our sensors, counters, and audio and visual output displays due to this legislation. However, any change in the availability of federal funds and the timing of the
release of those funds to the state and local governments can have an adverse impact on our financial results. The federal highway trust fund relies on gasoline tax revenue. With the increased price
of gasoline, the number of miles driven has decreased significantly which depleted the surplus in the federal highway trust fund. Legislation is currently in the process of being approved to transfer
$8 billion from the general fund to the highway trust fund in an attempt to keep the fund solvent for

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the
remainder of the term of the current federal funding legislation, SAFETEA-LU. However, driving patterns may impact the future solvency of the highway trust fund.

SAFETEA-LU,
currently expires September 30, 2009. Delays in the passage of a new highway bill may likely occur. SAFETEA-LU was delayed more than two years
after the previous bill had expired. Even after federal legislation is enacted, funding appropriations may be revised in future congressional sessions, and federal funding for infrastructure projects
may be reduced in the future. These factors may continue to negatively impact domestic spending on our products affecting our financial performance in the near term.

Many
of our products are approved as acceptable highway hardware according to procedures in the National Cooperative Highway Research Program number 230 or 350 that provide
various test levels depending on the application. This FHWA approval makes the products eligible for federal funds for certain highway projects. We are obligated to seek such approval for improvements
or upgrades to such devices and for any new devices.

Foreign
government policies and funding vary by country for highway and transportation safety. In many cases, additional testing of our products may be required in order to obtain
certification.

Backlog

As of June 30, 2008, 2007 and 2006, our continuing businesses had a backlog of unfilled orders for our products of $17,390,000,
$16,411,000 and $14,357,000, respectively. We generally fill an order for our products within two days to eight weeks of receipt depending on the type of product. However, some orders or awarded
contracts included in backlog may not be completed for up to five years.

Research and Development; Patents

Many of our products have patented features and we conduct our own research, development and testing of new products before introducing
them to the marketplace. The expenditures for research and development activities on our continuing products were $3,650,000, $3,453,000 and $3,570,000 for the fiscal years 2008, 2007 and 2006,
respectively. We maintain a crash test facility in California for Protect and Direct products.

We
develop new products by working with customers as well as federal, state and local highway officials to determine transportation safety needs, and then we design products to satisfy
those needs. We are also active in promoting cooperation among state highway agencies, contractors and engineers to encourage comprehensive repair and maintenance of roadside crash attenuating
systems. In addition to developing new products, we are also seeking to acquire new products which can be sold through our distribution networks to our existing customers.

We
own a number of U.S. and foreign patents covering our major products. We actively seek patent and trademark protection for new developments.

Raw Materials

The principal raw materials used in the production of transportation safety devices are plastic and plastic resins, steel, aluminum and
electronic components. These raw materials are purchased from various suppliers and have been readily available throughout the last year. We believe that adequate supplies of these materials will
continue to be available.

In
fiscal 2008, 2007 and 2006 we were affected by increased prices for certain commodities, particularly steel, aluminum and resin, which can be a significant component of the cost of
certain of our products. We attempt to reduce the negative impact of increasing prices by entering into fixed price arrangements and by passing along price increases to our customers. However,
increased commodity

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prices
have negatively impacted our gross margin for certain products. In addition, increasing fuel and freight costs adversely affected our results in fiscal 2008, 2007 and 2006. Material, fuel and
freight costs may continue to increase in fiscal 2009.

Major Customers

No single customer represents a significant portion of our total revenues. However, approximately 7%, 7% and 6% of our consolidated
revenues resulted from sales to customers in the states of New York, Texas and California, respectively, in fiscal 2008. Our customers are typically distributors, contractors, departments of
transportation, state agencies, local governments or municipalities and, therefore, a change in policy in state spending could materially affect our sales in that state. As of June 30, 2008,
one customer represented 19% of our consolidated net accounts receivable.

Seasonality

Our sales are historically seasonal with domestic highway construction and maintenance projects typically peaking in our fourth fiscal
quarter.

Foreign and Domestic Operations and Revenues

Our business is conducted principally in the United States, with sales outside of the United States as follows: $24,642,000,
$20,432,000 and $16,914,000 in 2008, 2007 and 2006 respectively.

Our
assets outside of the United States (See Properties at Item 2) are not material except for our manufacturing facility in Beijing, China established during fiscal 2007. Our
long-lived assets used in the leased Beijing facility are less than $200,000 as of June 30, 2008.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, special reports, proxy and information statements, and amendments to those reports, with the Securities and Exchange Commission (SEC). The public may read and copy any
materials filed by us with the SEC at the SEC's Public Reference Room at 100 F. Street, N.E., Washington D. C. Information about the operation of the SEC Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SEC's Internet site at sec.gov. We also maintain an internet website at http://www.quixotecorp.comthat contains
access to our public filings and other information regarding us. We make our public filings available as soon
as reasonably practicable after such material is filed, or furnished, to the SEC. A copy of our filings will also be furnished free of charge upon request to our Corporate Secretary, Joan R.
Riley, at our address listed on the cover of this Form 10-K.

Item 1A.    Risk Factors

There are many factors that pose material risks to our business, operating results and financial condition which are frequently beyond
our control. These factors include, but are not limited to, the following:

A decrease or delay in federal government funding of transportation safety and highway construction and maintenance may cause our revenues and profits to
decrease.

We
depend substantially on federal, state and municipal funding for transportation safety, highway construction and maintenance and other related infrastructure projects. Federal
government funding for infrastructure projects is usually accomplished through highway authorization bills, which establish funding over a multi-year period. The most recent highway
authorization bill, SAFETEA-LU, became law in August 2005, after the prior law, which authorized federal spending through September 30, 2003,

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was
extended at then current funding levels eleven times. Until the new law was passed, the transportation safety allotment in federal and state budgets was uncertain, and we believe this uncertainty
negatively impacted spending on our products and services. The delayed passage of the new highway funding bill adversely affected our financial performance in fiscal year 2006.

Federal
transportation spending is funded through a highway trust fund which derives most of its money from gasoline tax revenue. With the increased price of gasoline, the number of
miles driven has decreased significantly which depleted the surplus in the federal highway trust fund. Legislation is currently in the process of being approved to transfer $8 billion from the
general fund to the highway trust fund in an attempt to keep the fund solvent for the remainder of the term of the current federal funding legislation, SAFETEA-LU. However, driving
patterns may impact the future solvency of the highway trust fund.

SAFETEA-LU,
currently expires September 30, 2009. Delays in the passage of a new highway bill may likely occur. SAFETEA-LU was delayed more than two years
after the previous bill had expired. Even after federal legislation is enacted, funding appropriations may be revised in future congressional sessions, and federal funding for infrastructure projects
may be reduced in the future. Any change in the availability of federal funds and the timing of the release of those funds to the state and local governments can have an adverse impact on our
financial results.

Constraints on state and local government budgets and decreases in state highway funding may adversely affect our financial performance.

States and municipalities may reduce spending on highways due to budget constraints as well as other budget priorities. Such budgetary constraints adversely
affect the ability of states to fund transportation, highway and infrastructure projects, and therefore reduce the demand for our products. Municipalities also suffer from budget constraints that can
reduce transportation safety spending.

Like
the federal highway trust fund which derives most of its money from gasoline tax revenue, state highway funds also are dependent on revenue from state gasoline taxes. A number of
states also contribute a portion of their sales tax on new car purchases into their state highway funds. A decrease in miles driven or new car sales may adversely affect the ability of states to fund
transportation projects.

Downturns in domestic or foreign economies or the transportation safety and highway construction industries may adversely affect our results.

General economic downturns, including downturns in the transportation safety and highway construction industries, could result in a material decrease in our
revenues and operating results. We believe that the economic downturn and the related domestic funding uncertainty during fiscal years 2002 into 2006 and in fiscal year 2008 negatively affected our
expected revenue growth. Sales of our products are sensitive to foreign, domestic and regional economies in general, and in particular, changes in government infrastructure spending. In addition,
trends toward privatization of highways may impact the nature of spending on transportation safety products. Many of our costs are fixed and cannot be quickly reduced in response to decreased demand.

We depend on principal customers.

Although we depend on principal customers, no single customer of Quixote represents a significant portion of total revenues. In fiscal 2008, approximately 7%, 7%
and 6% of our consolidated revenues resulted from sales to customers in the States of New York, Texas and California, respectively. Customers may include distributors, contractors, departments of
transportation, state agencies, local governments or municipalities. A change in transportation safety spending policy could materially affect our sales in those states. The loss of, or a significant
reduction in, orders from these or our other major customers could have a material adverse effect on our financial condition and results of operations.

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We are in a competitive marketplace.

To the extent one or more of our current or future competitors introduce products that better address customer requirements, or are less expensive than our
products, our business could be adversely affected and we may be unable to maintain our leadership position in certain products. Competition may adversely affect the selling prices and the profit
margins on our products. We may not be successful in developing and marketing our existing products or new products or incorporating new
technology on a timely basis or at a reduced cost. If we are unable to timely develop and introduce new products, or enhance existing products, or reduce costs in response to changing market
conditions or customer requirements or demands, our business and results of operations could be materially and adversely affected.

We
have acquired complementary businesses in the past and, as a part of our strategy, may continue to acquire complementary businesses. The gross profit margins of certain acquired
product lines are lower than our historical gross profit margin, which adversely affects our gross profit margin. Given competitive conditions, we may be unable to improve our gross profit margins for
these products.

We
have been affected by increased prices for certain commodities, particularly steel, aluminum and resin, which are a significant component of the cost of certain of our products. Such
price increases negatively impact our gross margin for certain products, if we are unable to pass along to our customers cost increases. Increasing fuel and freight costs adversely affected our
performance in fiscal 2006 through 2008. We expect these trends will continue in fiscal 2009.

Our products often are subject to government testing, inspection and approval.

We frequently supply products and services pursuant to agreements with general contractors or government agencies. The successful completion of our obligations
under these contracts is often subject to satisfactory testing, inspection and approval of such products and services. Although we endeavor to satisfy the requirements of each of these contracts to
which we are a party, no assurance can be given that the necessary approval of our products and services will be granted on a timely basis or at all, and that we will receive any payments due to us.
In some cases, we may be dependent on others to complete these projects which may also delay payments to us. Any failure to obtain these approvals and payments may have a material adverse effect on
our business and future financial performance.

Past and future acquisitions involve risks that could adversely affect our future financial results.

We grow our Company by acquisitions and may acquire additional businesses in the future. We may be unable to achieve the benefits expected to be realized from our
acquisitions. We may incur additional costs and our management's attention may be diverted because of unforeseen expenses, complications, delays and other risks inherent in acquiring businesses,
including the following:



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Management's estimates and assumptions affect reported amounts of expenses and changes in those estimates could impact operating results.

Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually, and the results of such testing may adversely affect our
financial results. We use a variety of valuation techniques in determining fair value. The impairment review is highly judgmental and involves the use of significant estimates and assumptions. These
estimates and assumptions have a significant impact on the amount of any impairment charge recorded, and actual results may differ significantly from the estimates and assumptions used.

We
recognize deferred tax assets and liabilities for the expected future tax consequences of events which are included in the financial statements or tax returns. In assessing the
realizability of the deferred tax assets, management makes certain assumptions about whether the deferred tax assets will be realized. We expect the deferred tax assets currently recorded to be fully
realizable, however there can be no assurance that an increased valuation allowance would not need to be recorded in the future.

Our business could be adversely affected by reduced levels of cash, whether from operations or from bank borrowings.

Historically, our principal sources of funds have been cash flows from operations and borrowings from banks. Our operating and financial performance may generate
less cash and result in our failing to comply with our bank credit agreement covenants. We were either in compliance with these covenants or we received the necessary waivers from the bank through
fiscal 2008. We expect to be in compliance with these covenants during fiscal 2009. However, our ability to remain in compliance in the future will depend on our future financial performance and may
be affected by events beyond our control. There can be no assurance that we will generate sufficient earnings and cash flow to remain in compliance with the credit agreement, or that we will be able
to obtain future amendments to the credit agreement to avoid a default. In the event of a default, there can be no assurance that we could negotiate a new credit agreement or that we could obtain a
new credit agreement with satisfactory terms and conditions within a reasonable time period.

If we are unable to protect our proprietary technology from infringement or if our technology infringes technology owned by others, then the demand for our
products may decrease or we may be forced to modify our products which could increase our costs.

We hold numerous patents covering technology and applications related to many of our products and systems, and numerous trademarks and trade names registered with
the U.S. Patent and Trademark Office and in foreign countries. Our existing and future patents and trademarks may not adequately protect us against infringements, especially in certain foreign
countries, and pending patent or trademark applications may not result in issued patents or trademarks. Our patents, registered trademarks and patent applications may not be upheld if challenged, and
competitors may develop similar or superior methods or products outside the protection of our patents. This could increase competition for our products and materially decrease our revenues. If our
products are deemed to infringe the patents or proprietary rights of others, we could be required to modify the design of our products, change the name of our products or obtain a license for the use
of some of the technologies used in our products. We may be unable to do any of the foregoing in a timely manner, upon

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acceptable
terms and conditions, or at all, and the failure to do so could cause us to incur additional costs or lose expected revenue.

Our success depends on our management and other employees.

A factor in our ability to profitably execute our work is our ability to attract, develop and retain qualified personnel. Our success in attracting qualified
people is dependent on the resources available in individual geographic areas and the impact on the labor supply due to general economic conditions as well as our ability to provide a competitive
compensation package and work environment. Leslie J. Jezuit, our Chairman and President, and Daniel P. Gorey, our Chief Financial Officer, are of significant importance to our business and operations.
The loss of their services may adversely affect our business. In addition, our ability to attract and retain qualified engineers, skilled manufacturing and marketing personnel and other professionals,
either through direct hiring or acquisition of other businesses employing such professionals, is an important factor in determining our future success.

Difficulties in managing and expanding in international markets could affect future growth in these markets.

In fiscal year 2008, international sales were $24,642,000 or 24%, of our total sales and we believe international markets are an important source of growth. We
plan to continue to increase our presence in these markets. In connection with an increase in international sales efforts, we need to hire, train and retain qualified personnel in countries where
language, cultural or regulatory barriers may exist. Moreover, funding and government requirements vary by country with respect to transportation safety. In a number of countries there are no
governmental requirements or funding for transportation safety and we must educate officials and demonstrate the need for and the benefits of our products. In addition, international revenues are
subject to the following risks:



There are risks associated with doing business in China.

Some of our future business projects will be located in China, where we opened a new facility in Beijing during fiscal 2007. As a consequence, the economic,
political, legal and social conditions in China could have an adverse effect on our business, results of operations and financial condition. Some of the risks related to doing business in China
include:



12

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Table of Contents



Our facilities or facilities of our customers and suppliers could be susceptible to natural disasters.

One of our major manufacturing facilities is located in the Southeastern U.S. Should a natural disaster such as a hurricane, tornado, earthquake or flood severely
damage one of our major manufacturing facilities, or damage a major facility of one or more of our significant customers or suppliers, our business could be materially disrupted.

Our insurance coverage could be inadequate.

In accordance with risk management practices, we continually re-evaluate risks, their potential costs and the cost of minimizing them. To reduce our
exposure to material risks, we purchase insurance in certain circumstances. We believe that we maintain adequate insurance coverage to effectively mitigate risk when possible. However, certain risks
are inherent in our business and our insurance may not be adequate to cover potential claims or may be unavailable.

Our quarterly operating results are likely to fluctuate, which may affect our stock price.

Our quarterly revenues, expenses, operating results and gross profit margins vary significantly from quarter to quarter. As a result, our operating results may
fall below the expectations of securities analysts and investors in some quarters, which could result in a decrease in the market price of our common stock. The reasons our quarterly results may
fluctuate include:



Period
to period comparisons of our results should not be relied on as indications of future performance.

We may experience volatility in our stock price.

The market price of our common stock may be subject to significant fluctuations in response to various factors,
including:



Our
failure to meet analysts' expectations, even if minor, could cause the market price of our common stock to decline. In addition, stock markets have generally experienced a high level
of price

13

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Table of Contents

and
volume volatility, and the market prices of equity securities of many companies have experienced wide price fluctuations not necessarily related to the operating performance of such companies.
These broad market fluctuations may adversely affect our common stock's market price. In the past, securities class action lawsuits have been instituted against companies following periods of
volatility in the market price of such companies' securities. If any such litigation is instigated against us, it could result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on our business, results of operations and financial condition.

Acts of war could adversely impact our business and operating results.

Acts of war (wherever located around the world) may cause damage or disruption to our employees, facilities, suppliers, distributors or customers, which could
significantly impact our sales, costs, expenses and financial condition. The potential for acts of war or hostility may create many economic and political uncertainties, which could adversely affect
our business and results of operations in ways that cannot presently be predicted. We are uninsured for losses and interruption caused by acts of war.

The
foregoing list is not exhaustive. There can be no assurance that we have correctly identified and evaluated all factors affecting our business. Additional risks and uncertainties not
presently known to us or that we currently believe to be immaterial also may adversely impact us. Should any risks and uncertainties develop into actual events, these developments could have material
adverse effects on our business, financial condition and results of operations.

Item 1B.    Unresolved Staff Comments

None.

14

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Table of Contents

Item 2.    Properties

We believe that our principal plants are suitable and adequate for manufacturing and other activities performed by our continuing
operations at those sites. In addition to the principal facilities listed below, we have other small facilities, including international locations, used primarily for sales activities.

Location

Available Space

Purpose

Owned or
Leased35 East Wacker Drive
Chicago, Illinois


21,000 sq. ft.

Executive Offices

Leased250 Bamberg Drive
Pell City, Alabama


300,000 sq. ft.

Manufacture of Protect and Direct transportation safety products

Owned3617 Cincinnati Avenue
Rocklin, California


22,000 sq. ft.

Research and development facility for Protect and Direct transportation safety products

OwnedNo. 16 Guanghua Road
Township Zhangijawan, District
Tongzhou, Beijing City,
People's Republic of China


16,000 sq. ft.

Sale and manufacture of Protect and Direct transportation safety products

Leased4021 Stirrup Creek Drive
Durham, North Carolina


13,000 sq. ft.

Sale and manufacture of Inform products

LeasedRoute 119 University Drive
Uniontown, Pennsylvania


26,000 sq. ft.

Sale and manufacture of Inform products

Owned11612 Lilburn Park Road
St. Louis, Missouri


17,000 sq. ft.

Sale and service of Inform products

Leased


In
addition to the above facilities used in our continuing operations, at June 30, 2008 our discontinued business leased facilities in Palmetto, Florida; Bedford, Pennsylvania;
and Anaheim, California.

Item 3.    Legal Proceedings

In January, 2008 we were served in a lawsuit entitledOlga Mata, Individually as Representative of the Estate
of Elpido Mata et al. vs. Energy Absorption Systems, Inc., Quixote Transportation Safety, Inc., William Brothers Construction, Keller Crash Cushions d/b/a Contractors Barricade Service,
J.I.T. Distributing Inc. and Gustavo Reyes d/b/a Cerrito Trucking,State of Texas, District Court of Brazoria County, No. 44361. This case involves a
tractor-trailer collision with a crash cushion. The plaintiffs allege various theories of liability against all defendants, including negligence, misrepresentations and breach of warranty. We have
tendered the case to our insurance carrier and have answered the complaint. Discovery is proceeding.

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 4.    Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 2008.

15

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Table of Contents

PART II

Item 5.    Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the NASDAQ Global Market, under the symbol QUIX. Set forth are the daily high and low sales prices for
our common stock for the periods indicated, as reported by the NASDAQ.

Three Months Ending9/30

12/31

3/31

6/30FISCAL 2008:High

$
20.36

$
20.25

$
19.33

$
12.70Low


17.26


17.00


7.00


7.88FISCAL 2007:High

$
18.43

$
21.96

$
21.46

$
21.09Low


15.40


15.92


18.35


17.92


As
of September 5, 2008, there were 927 shareholders of record.

Dividend Policy

During 2008, we declared two semi-annual cash dividends of twenty cents per share. During 2007, we declared two
semi-annual cash dividends of nineteen cents per share.

Issuer Purchases of Equity Securities

During fiscal 2008, our Board of Directors authorized an increase in the Company's stock repurchase plan to up to 500,000 shares
of the Company's common stock, which includes approximately 185,000 shares remaining under the previous authorization which was approved on October 2, 2001. The shares may be purchased
in open market and privately negotiated transactions at prices not to exceed the market price. During fiscal 2008, we purchased 4,550 shares at an average price of $8.53. During fiscal 2006, we
purchased 150,603 shares from the sellers of Peek Traffic for $20.62 per share, as further discussed in Note 15 to the consolidated financial statements. No shares were repurchased in
fiscal 2007. Repurchases in the fourth quarter of fiscal year 2008 were as follows:

Period

(a) Total number
of shares
purchased

(b) Average
price paid
per share

(c) Total number of shares
purchased as part of
publicly announced plans
or programs

(d) Maximum number of
shares (or approximate
dollar value of shares)
that may yet be
purchased under the
plans or programsApril 1, 2008April 30, 2008


4,350

$
8.55


4,350


495,450May 1, 2008May 31, 2008June 1, 2008June 30, 20084,350





4,350


495,450


16

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Table of Contents

Stock Performance Graph

The line graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the
NASDAQ Non-Financial Index and the Russell 2000 Index for the five fiscal years ended June 30, 2008. The graph and table assume that $100 was invested on the last day of trading for
the fiscal year ended June 30, 2003 in each of our common stock, the NASDAQ Non-Financial Index and the Russell 2000 Index, and that all dividends were reinvested.

GRAPHIC

6/03

6/04

6/05

6/06

6/07

6/08Quixote Corporation


100.00


80.15


79.83


74.71


79.12


35.84Russell 2000


100.00


133.37


145.96


167.24


194.73


163.19NASDAQ Non-Financial


100.00


127.91


124.07


128.84


154.44


133.79


---

Source:
Research Data Group, Inc.

17

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Table of Contents

Item 6.    Selected Financial Data

For the years ended June 30,Dollar amounts in thousands, except share data

2008

2007

2006

2005

2004Operating Results:Net sales

$
101,806

$
107,774

$
104,940

$
94,738

$
94,470Gross profit


36,839


43,519


41,200


38,414


38,942Selling and administrative expenses


24,845


28,346


27,044


28,452


26,571Research and development expenses


3,650


3,453


3,570


3,198


2,421Gain on sale of assets





518


846


1,126Asset impairment charge














9,865Operating profit


8,344


12,238


11,432


7,890


85Other expense


(4,000
)

(4,459
)

(4,646
)

(3,264
)

(2,326
)Earnings (loss) from continuing operations


3,119


4,815


4,525


2,744


(307
)Loss from discontinued operations, net of income taxes


(2,648
)

(8,394
)

(14,627
)

(3,394
)

(16,720
)Net earnings (loss)


471


(3,579
)

(10,102
)

(650
)

(17,027
)Cash dividends per common share

$
0.40

$
0.38

$
0.37

$
0.36

$
0.34Per Share Data:Basic EPS:Earnings (loss) from continuing operations

$
0.34

$
0.54

$
0.51

$
0.31

$
(0.04
)Loss from discontinued operations, net of income taxes


(0.29
)

(0.94
)

(1.65
)

(0.38
)

(1.95
)Net earnings (loss)

$
0.05

$
(0.40
)
$
(1.14
)
$
(0.07
)
$
(1.99
)Weighted average common shares outstanding


9,092,139


8,945,855


8,850,884


8,800,421


8,567,741Diluted EPS:Earnings (loss) from continuing operations

$
0.34

$
0.54

$
0.51

$
0.31

$
(0.04
)Loss from discontinued operations, net of income taxes


(0.29
)

(0.94
)

(1.65
)

(0.38
)

(1.95
)Net earnings (loss)

$
0.05

$
(0.40
)
$
(1.14
)
$
(0.07
)
$
(1.99
)Weighted average common and common equivalent shares outstanding


9,121,103


8,945,855


8,850,884


8,800,421


8,567,741Financial Position:Total assets

$
121,543

$
119,374

$
125,203

$
136,790

$
139,882Working capital


30,224


38,128


43,781


42,933


39,973Property, plant and equipment, net


16,711


16,223


17,830


18,680


22,612Long-term debt, net of current portion


40,000


47,000


51,122


49,587


47,014Shareholders' equity


43,837


45,208


48,946


61,846


63,907Book value per common share


4.79


5.00


5.50


6.96


7.30


---

Note: The results of the Intersection Control segment are reflected as discontinued operations for all periods presented. The assets and liabilities of the
segment are classified as assets and liabilities held for sale within our consolidated balance sheets as of June 30, 2008 and for all prior periods presented.

18

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Table of Contents

Item 7.    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.

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 are classified as
assets and liabilities held for sale within our consolidated balance sheets for all periods presented. The sale of this business allowed us to strengthen our balance sheet and improve our financial
flexibility as we focus on international markets for our Protect and Direct and Inform segments.

RESULTS OF CONTINUING OPERATIONS

Summary

Sales decreased 6% to $101,806,000 for fiscal 2008 compared to $107,774,000 for fiscal 2007 due to decreased sales for the Protect and
Direct and Inform segments. Overall, domestic sales decreased 12% to $77,164,000 for fiscal 2008 from $87,342,000 for fiscal 2007 due to decreases in both our Protect and Direct and our Inform
segments. Domestic sales for the Protect and Direct segment decreased 11% and sales for the Inform segment decreased 14% for fiscal 2008 compared to fiscal 2007. During fiscal 2008, we began to see a
general economic slowdown in the United States causing many states and municipalities to face budgetary constraints and deficits. In addition, basic material costs including steel, asphalt and other
materials for building and maintaining roads and bridges increased significantly. Facing these issues, many states postponed or cancelled many transportation projects which adversely impacted the
domestic demand for our products.

19

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Table of Contents

Given
the softness in the domestic economy, we focused our efforts on international sales opportunities during fiscal 2008. International sales increased 21% to $24,642,000 for fiscal
2008 compared to $20,432,000 for fiscal 2007. International sales for the Protect and Direct segment increased 22% and increased 11% for the Inform segment for fiscal 2008 compared to fiscal 2007. The
increases in international sales were driven by growth in both the Asia-Pacific and European regions.

The
overall lower sales volumes in fiscal 2008, unfavorable product sales mix and increased raw materials costs resulted in lower gross profit margin for both segments in fiscal 2008. As
a result, operating profit also decreased in fiscal 2008, offset somewhat by decreased selling and administrative expenses. See FUTURE OUTLOOK for further information.

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

For the Years Ended June 30(Dollar amounts in thousands, except per share data)

2008

2007

2006Revenues by Segment:Protect and Direct

$
80,523

$
83,593

$
80,806Inform


21,283


24,181


24,134$
101,806

$
107,774

$
104,940Geographic Revenues:Domestic

$
77,164

$
87,342

$
88,026International


24,642


20,432


16,914$
101,806

$
107,774

$
104,940Operating Income (Loss) by Segment:Protect and Direct

$
14,165

$
16,965
(1)
$
15,539Inform


1,441


3,445
(2)

3,403
(3)Unallocated Corporate


(7,262
)

(8,172
)

(7,510
)$
8,344

$
12,238

$
11,432Gross profit percentage


36.2
%

40.4
%

39.3
%Selling and administrative expenses as a percentage of sales


24.4
%

26.3
%

25.8
%Diluted earnings per share

$
0.34

$
0.54

$
0.51


---

Revenues

Our net sales for fiscal 2008 decreased 6% to $101,806,000 from $107,774,000 for 2007 due to lower sales in both segments as described
below. Our net sales for fiscal 2007 increased 3% to $107,774,000 from $104,940,000 for 2006 due to sales increases across both operating segments.

GeographicInternational sales for fiscal 2008 increased by $4,210,000, or 21%, to $24,642,000 compared to $20,432,000 for
fiscal 2007, primarily due to increases in the Protect and Direct segment, where international sales increased 22% to $22,236,000 for fiscal 2008 from $18,273,000 for fiscal 2007.

20

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Table of Contents

The
increase in international sales in the Protect and Direct segment was primarily due to increased sales of Triton® water-filled barriers and crash cushions in the
Asia-Pacific region, including China, and to increased sales in Europe. International sales for the Inform segment increased 11% to $2,406,000 primarily due to increased sales of sensing
products in Europe and Latin America. Domestic sales for fiscal 2008 decreased 12% to $77,164,000 from $87,342,000 due to an 11% decrease in the Protect and Direct segment and a 14% decrease in the
Inform segment.

International
sales for fiscal 2007 increased by $3,518,000, or 21%, to $20,432,000 compared to $16,914,000 for fiscal 2006, primarily due to increases in the Protect and Direct segment,
where international sales increased $3,169,000, or 21%, to $18,273,000. The increase in international sales in the Protect and Direct segment was primarily due to increased sales of
Triton® water-filled barriers and crash cushions in the Asia-Pacific region. International sales for the Inform segment increased 19% to $2,159,000 primarily due to increased
sales of sensing products in Canada. Domestic sales for fiscal 2007 decreased 1% to $87,342,000 from $88,026,000 with decreases in both of our segments.

Protect and DirectNet sales for the Protect and Direct segment for fiscal 2008 decreased 4% to $80,523,000 from $83,593,000
for fiscal 2007 due principally to lower domestic sales of permanent crash cushions, truck-mounted attenuators (TMA's) and barrels, offset somewhat by increased sales of parts and delineators. The
domestic sales decreases of certain product lines were attributable to decreased spending on highway safety projects due to funding issues related to the soft economy. In addition, fiscal 2007
included a $3 million order from the state of Illinois for TMA's which was not repeated in fiscal 2008. The segment had strong sales internationally in fiscal 2008 as those markets are
increasingly recognizing the importance of our safety devices. The Quest crash cushion product line reached targeted record sales aided by $1.2 million in sales in China. Sales of
Triton® water-filled barriers to international markets were also at record levels in fiscal 2008.

Net
sales for the Protect and Direct segment for fiscal 2007 increased 3% to $83,593,000 from $80,806,000 for fiscal 2006 due principally to strong sales internationally. Domestically
sales were flat with increased sales of TMA's offset somewhat by decreased sales of permanent crash cushions. The sales increases of certain product lines were attributable to increased spending on
workzone and other highway safety projects since the enactment of the federal highway bill. In addition, we saw increased spending on new products such as the SST Safestop® trailer TMA.

InformNet sales for the Inform segment for fiscal 2008 decreased 12% to $21,283,000 from $24,181,000 for fiscal 2007, due to
lower domestic sales of highway advisory radios, offset somewhat by increased sales of sensing products. Sales of highway advisory radios were at record levels in fiscal 2007 and included several
large contracts.

Net
sales for the Inform segment for fiscal 2007 increased slightly to $24,181,000 from $24,134,000 for fiscal 2006. Excluding $1,831,000 in sales related to the weather forecasting
product line which was sold at the end of fiscal 2006, sales for the Inform segment increased 8% due to record sales of highway advisory radio products and increased sales of traffic sensing products.

Gross Profit Margin

Our gross profit margin for fiscal 2008 was 36.2% compared to 40.4% for fiscal 2007. The gross margin in the Protect and Direct segment
decreased due to volume-related inefficiencies related to the fixed nature of certain expenses, increased raw material costs, higher freight costs and unfavorable product sales mix as sales of
higher-margin permanent crash cushions decreased and sales of lower-margin products such as the Triton barriers and delineators increased. The gross margin for the Inform segment decreased due to
volume-related inefficiencies and unfavorable product sales mix as sales of higher-margin highway advisory radio products decreased and sales of lower-margin weather sensing products increased.

21

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Table of Contents

Our
gross profit margin for fiscal 2007 was 40.4% compared to 39.3% for fiscal 2006. The gross margin in the Protect and Direct segment improved due to volume-related efficiencies offset
somewhat by increased raw material costs, higher freight costs and unfavorable product sales mix. The gross margin for the Inform segment decreased due to unfavorable product sales mix.

Selling and Administrative Expenses

Selling and administrative expenses for fiscal 2008 decreased $3,501,000, or 12%, to $24,845,000 from $28,346,000 for fiscal 2007. This
was primarily due to decreased selling costs related to our lower sales volume along with decreased bad debt expense in both segments. Selling and administrative expenses in the Protect and Direct
segment increased $924,000 relating to our new facility in Beijing, China, opened near the end of fiscal 2007. Selling and administrative expenses decreased as a percentage of sales to 24.4% for
fiscal 2008 compared to 26.3% for 2007.

Selling
and administrative expenses for fiscal 2007 increased $1,302,000, or 5%, to $28,346,000 from $27,044,000 for fiscal 2006. Selling and administrative expenses in the Protect and
Direct segment increased due to variable expenses related to the increased level of sales and to expenses incurred in establishing our new facility in Beijing, China. Selling and administrative costs
for the Inform segment decreased primarily due to lower personnel-related expenses. Selling and administrative expenses increased as a percentage of sales to 26.3% for fiscal 2007 compared to 25.8%
for 2006.

Research and Development

Research and development expenditures increased 6% to $3,650,000 for fiscal 2008 from $3,453,000 for fiscal 2007, due to increases in
both segments for new product extensions.

Research
and development expenditures decreased 3% to $3,453,000 for fiscal 2007 from $3,570,000 for fiscal 2006 due to decreases in both segments.

Gain on Sale of Assets

As further discussed in Note 3 to the consolidated financial statements, we recorded a gain on the sale of assets of $518,000 in
fiscal 2007. This gain included a gain of $236,000 on the sale of a former manufacturing facility of the Protect and Direct segment and a gain of $282,000 resulting from final contingent proceeds
relating to the sale of the weather forecasting product line in the Inform segment.

We
recorded a gain of $846,000 in fiscal 2006 in the Inform segment related to the sale of the assets of the weather forecasting product line.

Operating Profit

Operating profit decreased to $8,344,000 for fiscal 2008 from operating profit of $12,238,000 for fiscal 2007. The decreased operating
profit was primarily due to the lower sales levels, offset somewhat by lower selling and administrative costs in fiscal 2008 as discussed above. The fiscal 2007 operating profit included gains on
sales of assets of $518,000. Operating profit for the Protect and Direct segment decreased $2,800,000 to $14,165,000 from $16,965,000 for fiscal 2007, which included a gain on sale of assets of
$236,000, primarily due to lower gross margins, offset somewhat by lower selling and administrative expenses as discussed above. Operating profit for the Inform segment decreased $2,004,000 to
$1,441,000 for fiscal 2008 due to lower gross margins, offset somewhat by lower selling and administrative costs as discussed above. The fiscal 2007 operating profit included a $282,000 gain on sale
of assets.

Operating
profit increased to $12,238,000 for fiscal 2007 from operating profit of $11,432,000 for fiscal 2006. The increased operating profit was primarily due to improved gross profit
margin, offset somewhat by higher selling and administrative costs in fiscal 2007 as discussed above. The fiscal 2007

22

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Table of Contents

operating
profit included gains on sales of assets of $518,000. The fiscal 2006 operating profit included a gain on the sale of assets of $846,000. Operating profit for the Protect and Direct segment
increased $1,426,000 to $16,965,000 for fiscal 2007, which included a gain on sale of assets of $236,000, from $15,539,000 for fiscal 2006 primarily due to improved gross margins as discussed above.
Operating profit for the Inform segment increased $42,000 to $3,445,000 for fiscal 2007, including a $282,000 gain on sale of assets, from $3,403,000 for fiscal 2006, which included an $846,000 gain
on sale of assets, primarily due to the reduction in selling and administrative costs as discussed above.

Net Interest Expense

Net interest expense for fiscal 2008 decreased to $4,000,000 from $4,459,000 in fiscal 2007. The decrease was due primarily to lower
interest rates on our revolving bank debt and due to interest income received on an income tax refund in fiscal 2008. The interest rate on our bank credit facility is based on prime or LIBOR, plus a
margin. Our overall weighted average interest rate was 6.0% as of June 30, 2008 compared to our weighted average rate of 6.9% as of June 30, 2007. The interest rate on the Company's
convertible debt issued during fiscal 2005 is 7%. The Company expects the average interest rate during fiscal 2009 on all debt to be approximately 7%.

Net
interest expense for fiscal 2007 decreased slightly to $4,459,000 from $4,646,000 in fiscal 2006. The decrease was due primarily to our lower level of average long-term
debt outstanding during fiscal 2007 and partially due to lower interest rates on our revolving bank debt.

Income Taxes

The income tax provision for fiscal 2008 was $1,225,000, reflecting a 28% effective tax rate due to the utilization of R&D credits. We
expect to provide for income taxes at a rate of 38% for fiscal 2009. However, this rate may be negatively impacted based on management's ongoing evaluation as to whether it is more likely than not
that some or all of the deferred tax assets recorded are realizable.

The
income tax provision for fiscal 2007 was $2,964,000, reflecting a 38% effective tax rate.

Earnings from continuing operations

Earnings from continuing operations for fiscal 2008 were $3,119,000, or $0.34 per diluted share, compared to earnings of $4,815,000, or
$0.54 per diluted share, for 2007.

Earnings
from continuing operations for fiscal 2007 were $4,815,000, or $0.54 per diluted share, compared to earnings of $4,525,000, or $0.51 per diluted share, for 2006.

Loss from discontinued operations, net of income taxes

The loss from discontinued operations, net of income taxes for fiscal 2008 was $2,648,000, or $0.29 per diluted share, compared to a
loss of $8,394,000, or $0.94 per diluted share, for 2007. Included in the loss for fiscal 2008 was a $1,326,000 loss from the write-down of assets held for sale, net of income taxes.
Included in the net loss for fiscal 2007 was a gain on sales of assets, restructuring costs and related inventory write-offs totaling $6,566,000, net of income taxes.

The
loss from discontinued operations, net of income taxes for fiscal 2007 was $8,394,000, compared to a loss of $14,627,000 for fiscal 2006. Included in the net loss for fiscal 2007 was
a gain on sales of assets, restructuring costs and related inventory write-offs totaling $6,566,000, net of income taxes. Included in the net loss for fiscal 2006 were asset impairment
charges, restructuring costs and legal settlement gains totaling $10,620,000, net of income taxes.

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Net Earnings

Net earnings for fiscal 2008 were $471,000, or $0.05 per diluted share, compared to a net loss of $3,579,000, or $0.40 per diluted
share, for 2007.

The
net loss for fiscal 2007 was $3,579,000, or $0.40 per diluted share, compared to a net loss of $10,102,000, or $1.14 per diluted share, for 2006.

FINANCIAL CONDITION

Liquidity and Capital Resources

Our principal sources of funds historically have been cash flows from operations and borrowings from banks and other sources. We had
cash and cash equivalents of $408,000 as of June 30, 2008. We believe that our bank credit facility is an important source of liquidity. The amended credit agreement provides for a
$40 million secured revolving credit facility. The credit agreement includes both fixed and floating interest rate options, at the prime rate or LIBOR rate, plus a margin. The credit agreement
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 fiscal 2008. Subsequent to June 30, 2008, we used the proceeds from the sale of the
Intersection Control business to pay down substantially all of our bank debt and accordingly we reclassified the amount outstanding against the revolving credit facility as current as of
June 30, 2008. The 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 $57,600,000, or 56.8% of total capitalization, as of June 30, 2008, of which $17,600,000 was outstanding on our bank credit facility. This compares to $52,122,000, or 53.6% of
total capitalization, as of June 30, 2007, of which $7,000,000 was outstanding on our bank credit facility. Included in long-term debt as of June 30, 2008 and June 30,
2007 was $40 million in 7% Convertible Senior Subordinated Notes due February 2025. Included in the current portion of long-term debt as of June 30, 2007 was a
$5 million five-year subordinated promissory note, which was paid on its due date in April 2008. The amount of standby letters of credit outstanding was $1,012,000 as of
June 30, 2008 and $1,294,000 as of June 30, 2007.

During
February 2005, we sold $40,000,000 of 7% Convertible Senior Subordinated Notes due February 15, 2025 in a private placement and received net proceeds of $37,395,000. The
net proceeds were used to pay off our bank term loan and reduce the amount outstanding on our revolving credit agreement. The conversion price is $25.90 per share, which represented a 40% premium over
the closing price of our stock on the close of the transaction. If fully converted, the notes would convert into approximately 1,544,000 shares of our common stock. The shares are not included
in earnings per share as they are currently anti-dilutive until earnings per share reach approximately $1.20 per share. The notes are fully redeemable by the Company at any time after
February 20, 2008 at 100% of the principal amount plus accrued and unpaid interest. The investors may require us to repurchase the notes in cash at a price equal to 100% of the principal amount
of the notes plus accrued and unpaid interest, if any, on February 15, 2010, 2015 or 2020.

Cash Flows

Cash flows provided by continuing operations were $8,949,000 during fiscal 2008. This compares with $7,176,000 in fiscal 2007 and
$7,421,000 in fiscal 2006. In each of the past three years, cash flow from operations was primarily derived from earnings before non-cash expenses such as depreciation,

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amortization
and share-based compensation expense. The increase in cash generated from operating activities in fiscal 2008 is primarily due to changes in income taxes payable.

Cash
flows used in discontinued operations were $6,546,000 during fiscal 2008. This compares with $5,683,000 used in fiscal 2007 and $2,333,000 used in fiscal 2006. In each of the past
three years, cash used in discontinued operations was primarily due to losses before non-cash expenses such as depreciation, amortization, non-cash inventory disposals and
asset impairment charges.

Investing
activities of continuing operations used cash of $3,453,000 during fiscal 2008, compared to $967,000 in fiscal 2007 and $1,099,000 in fiscal 2006. We made expenditures during
fiscal 2008 of $3,453,000 for capital and patent expenditures. Expenditures during fiscal 2007 were $2,672,000 for capital and patent expenditures, which were offset somewhat by proceeds received from
the sale of assets.

Investing
activities of discontinued operations used cash of $1,437,000 for capital expenditures during fiscal 2008. In fiscal 2007, discontinued operations generated $484,000 in cash as
capital expenditures of
$310,000 were more than offset by cash received from the sale of the automated traffic enforcement product line. In fiscal 2006, discontinued operations generated $791,000 in cash as the $1,500,000 in
cash proceeds from the sale of the portable variable message sign, tunnel lighting and illuminated street sign product lines more than offset capital expenditures of $709,000.

Financing
activities generated cash of $2,047,000 during fiscal 2008, compared to cash used of $1,615,000 during fiscal 2007 and cash used of $3,483,000 in fiscal 2006. During fiscal
2008, we borrowed a net $10,600,000 on our outstanding revolving credit facility and paid $5,122,000 on other notes payable. The payment of our semi-annual cash dividend used cash of
$3,533,000. During fiscal 2007, we borrowed a net $1,000,000 on our outstanding revolving credit facility and paid $465,000 on other notes payable. We received cash of $970,000 from the exercise of
common stock options in fiscal 2007. The payment of our semi-annual cash dividend used cash of $3,381,000.

For
2009, we anticipate spending approximately $3,000,000 in cash for capital expenditures. We may require additional investments in working capital to maintain growth. We may also need
additional funds to repurchase our common stock from time to time or if we acquire product lines or businesses that complement our existing operations. These expenditures will be financed either
through our cash on-hand, cash generated from our operations or from borrowings available under our bank credit facility. We currently expect cash generated from operations to be higher in
fiscal year 2009 compared to fiscal 2008. However, there can be no assurance that this will occur, or to what extent this will occur. We believe that our existing cash, cash generated from operations
and funds available under our existing credit facility are sufficient for all planned operating and capital requirements in the near term. If needed and available on favorable terms, we may also enter
into other debt or equity financing arrangements.

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OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We are subject to certain debt obligations, guarantees, commitments and contingent liabilities further described in the notes to the
consolidated financial statements. The following table presents our contractual obligations to make future payments under contracts, such as debt and lease agreements, as of June 30, 2008:

(Dollar amounts in thousands)

Total

Less than
1 Year

1-3 Years

3-5 Years

More than
5 YearsLong-term debt(1)

$
57,600

$
17,600

$
40,000Estimated interest payments(2)


5,400


3,400


2,000Operating leases, net


3,524


1,461


2,047


16Minimum royalty payments


1,410


510


600


300Uncertain tax benefits


227


109


118Retirement award program(3)


175


175Purchase obligations(4)


1,908


1,908Total

$
70,244

$
25,163

$
44,765

$
316

$



---

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 the applicable contracts. The total amount of bid and performance related bonds that was available and undrawn as of June 30, 2008 was
$2,684,000. 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
June 30, 2008 was $1,012,000.

FUTURE OUTLOOK

Looking forward, the domestic marketplace will remain challenging due to the difficult domestic economic environment, uncertain federal
highway funding, state and municipal budgetary constraints and higher commodity prices. The federal highway trust fund which funds spending on transportation projects relies on gasoline tax revenue.
With the increased price of gasoline, the number of miles driven has decreased significantly which depleted the surplus in the federal highway trust fund. Legislation is currently in the process of
being approved to transfer $8 billion from the general fund to the highway trust fund in an attempt to keep the fund solvent for the remainder of the term of the current federal funding
legislation, SAFETEA-LU. However, driving patterns may impact the future solvency of the highway trust fund.

SAFETEA-LU,
currently expires September 30, 2009. Delays in the passage of a new highway bill may likely occur. SAFETEA-LU was delayed more than two years
after the previous bill had expired. Even after federal legislation is enacted, funding appropriations may be revised in future congressional

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sessions,
and federal funding for infrastructure projects may be reduced in the future. These factors may continue to negatively impact domestic spending on our products affecting our financial
performance in the near term. However, both segments have introduced new products during fiscal 2008 and we believe we have positioned our business for growth once domestic infrastructure spending
increases the demand for our products.

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 current domestic
economic conditions in the near term. To meet increasing international sales demands and further penetrate emerging markets, we are investing in international growth opportunities. In fiscal 2008, we
opened a
new office in Dubai to take advantage of the developing opportunities in the Middle East, which is experiencing a construction boom. We also are expanding our distributor base in Europe. Near the end
of last year, we opened a new sales and manufacturing facility in Beijing, China to capitalize on its growing infrastructure needs. We expect that sales from China will be uneven, similar to our
experience in the early stages of other international markets, which may require us to fund their operations for an indefinite period.

In
summary, we believe our near-term domestic sales growth will be limited, if any. We believe we will continue to see growth in international sales similar to the growth
we've seen in the past. However, it is difficult to predict when and to what extent we will see increased spending for our products and there can be no assurance that either domestic or international
sales will increase.

SIGNIFICANT ACCOUNTING POLICIES

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Management's
estimates also affect the reported amounts of revenues and expenses during the reporting period. 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, health care liabilities and determining stock-based compensation expense. 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 the Company's consolidated financial statements. There
have been no material changes in accounting policies, methods and estimates used by management. In the opinion of management, we do not have any individual accounting policy or use any individual
estimate that is critical to the preparation of its consolidated financial statements. In most instances, we must use an accounting policy or method because it is the only policy or method permitted
under U.S. GAAP. We believe the following significant accounting policies and methods used by the Company are the most important to the presentation of our financial statements:

Discontinued
Operations and Assets Held for Sale: We consider businesses to be held for sale when management approves and commits to a formal plan to actively market a business for sale.
Upon designation as held for sale, the carrying value of the assets of the business are recorded at the lower of their carrying value or their estimated fair value, less costs to sell. Results of
operations of a business classified as held for sale are reported as discontinued operations when (a) the operations and cash flows of the business will be eliminated from ongoing operations as
a result of the sale and (b) the Company will not have any significant continuing involvement in the operations of the business after
the sale. At June 30, 2008, the Intersection Control business is classified as held for sale and as a discontinued operation.

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Revenue
Recognition: Revenues, net of discounts and allowances, are recognized when either services have been rendered or both title and risk of loss of products have been transferred to
unaffiliated customers. We ensure that collection of the resulting receivable is probable, persuasive evidence that an arrangement exists, and the revenue is fixed or determinable. The majority of our
sales are for standard products and services with customer acceptance occurring upon shipment of the product or performance of the service. We also enter into agreements that contain multiple elements
(such as equipment, installation and service) or non-standard terms and conditions. For multiple-element arrangements, we recognize revenue for a delivered element when it has stand-alone
value to the customer, the fair values of undelivered elements are known, customer acceptance of the delivered element has occurred and there are only customary refund or return rights related to the
delivered element. In addition, equipment revenue is not recorded until the installation has been completed if equipment acceptance is dependent upon installation, or if installation is essential to
the functionality of the equipment. Provision for estimated uncollectible amounts and credits is made base upon management's analysis of bad debts, credit and returns.

Inventories:
Inventories are valued at the lower of cost (first-in, first-out method) or market. Actual costs are used to value raw materials and supplies.
Standard costs, which approximate actual costs, are used to value finished goods and work-in-process. Standard costs include raw materials, direct labor and manufacturing
overhead. Provision for potentially obsolete or slow-moving inventory is made based on management's analysis of inventory levels, ages and salability.

Long-Lived
Assets: Long-lived assets include such items as goodwill, patents, product rights, other intangible assets and property, plant and equipment. For
purposes of evaluating the recoverability of long-lived assets, we assess 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. In performing our impairment assessments, we first assess our indefinite-lived intangibles; second, assess our amortized
long-lived assets (including amortized intangible assets and property, plant and equipment); and third, assess our goodwill. Additionally, we reassess the remaining useful lives of our
amortized long-lived assets.

Amortized
long-lived assets (including amortized intangible assets and property, plant and equipment) held and used by us are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable in relation to future undiscounted cash flows of underlying asset groups. The net carrying value of assets
not recoverable is
reduced to fair value. Fair values of amortized long-lived assets are determined based upon the performance of a fair value appraisal. Patents and other finite-lived intangible assets are
amortized on a straight-line or systematic method over the life of the patent or intangible asset.

Goodwill
and other indefinite-lived intangible assets are tested for impairment annually in the fourth quarter or when a triggering event occurs. The indefinite-lived intangible asset
impairment test is performed by comparing the fair value of the intangible asset to its carrying value in a one-step analysis. If the fair value of the intangible asset is less than its
carrying value, the intangible asset is written-down to its fair value. The goodwill impairment test is performed at the reporting unit level and is a two-step analysis. First,
the fair value of the reporting unit is compared to its book value. If the fair value of the reporting unit is less than its book value, we perform a hypothetical purchase price allocation based on
the reporting unit's fair value to determine the implied fair value of the reporting unit's goodwill. If the implied fair value of the goodwill is less than its carrying value, the goodwill is written
down to its implied fair value. Fair values are determined using discounted cash flow methodologies.

The
impairment review is highly judgmental and involves the use of significant estimates and assumptions. These estimates and assumptions have a significant impact on the amount of any
impairment charge recorded. Estimates of fair value are primarily determined using discounted cash

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flow
methods and are dependent upon assumptions of future sales trends, market conditions and cash flows of each reporting unit over several years. Actual cash flows in the future may differ
significantly from those previously forecasted. Other significant assumptions include growth rates and the discount rate applicable to future cash flows.

Restructuring
Charges: We account for restructuring activities in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Generally,
costs associated with the exit or disposal activity are recognized when the liability is incurred. Costs related to employee separation arrangements requiring future service beyond a specified minimum
retention period are recognized over the service period.

Income
Taxes: We recognize 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 assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. To the extent that any future tax benefits are not expected to be fully realized, such future tax benefits are reduced by a valuation allowance.
Realization of deferred tax assets assumes that we will be able to generate sufficient taxable income so that the assets will be realized. The factors that we consider in assessing the likelihood of
realization include the forecast of
future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. We expect the deferred tax assets currently recorded to be fully realizable,
however there can be no assurance that an increased valuation allowance would not need to be recorded in the future.

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 recognize a tax position in the financial statements only if it has been determined that the position is more likely
than not to be sustained upon examination. The tax benefit for each position that meets this threshold is then measured as the largest amount that is at least 50% likely of being realized when
ultimately settled. Consistent with prior practice, we will continue to record the interest related to uncertain tax positions as interest expense during the period incurred. Penalties related to
uncertain tax positions are now recorded as part of the income tax expense during the period incurred. The tax liability under FIN 48 is recorded in accrued expenses.

Stock-based
Compensation: We adopted the provisions of SFAS No. 123 (revised 2004) (SFAS No. 123(R)), "Share-Based Payment" as of July 1, 2005 using the modified
prospective method. Under this transition method, share-based compensation cost recognized in the fiscal year ended June 30, 2008 includes compensation cost for all share-based awards which
were unvested as of July 1, 2005 as well as compensation cost for all share-based awards granted subsequent to July 1, 2005, based on the grant date fair value estimated in accordance
with the provisions of SFAS No. 123(R). 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. Our stock option plans are more fully described in Note 7 to the consolidated financial statements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the 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,

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except
those that are disclosed at fair value in the financial statements on a recurring basis (at least annually). FAS No. 157 is effective for our fiscal year beginning July 1, 2008.
FSP 157-2 delays the effective date for certain items to July 1, 2009. We do not expect the adoption of FAS No. 157 to have a material 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 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
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. FAS No. 159 is effective for our fiscal year beginning July 1, 2008. We do not expect the adoption of this statement to have a material effect on our results of
operations or financial position.

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 FAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" (FAS No. 162). FAS No. 162 identifies the sources of accounting
principles and the

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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.

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, if any, that the adoption of FSP APB 14-1 will
have on our results of operations and financial position.

In
June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities."
FSP EITF 03-6-1 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The two-class method is an earnings
allocation method for computing earnings per share when an entity's capital structure includes either two or more classes of common stock or commons stock and participating securities. It determines
earnings per share based on dividends declared on common stock and participating securities (i.e., distributed earnings) and participation rights of participating securities in any
undistributed earnings. The effective date for FSP EITF 03-6-1 is the beginning of fiscal 2010. We are currently evaluating the impact, if any, that the adoption of FSP
EITF 03-6-1 will have on our results of operations and financial position.

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, among others, uncertainties related to continued federal, state and municipal
funding for highways and risks related to reductions in government expenditures; competitive and pricing pressures; the ability to generate sufficient future cash flows to be in compliance with
financing agreements; the introduction and acceptance of our 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 our governmental markets; increasing raw material costs; excess manufacturing capacity; weather conditions

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and
natural disasters; the successful completion, integration and rationalization of acquisitions; acts of war and terrorist activities; the possible impairment of goodwill and other intangible
assets; and general economic conditions.

Item 7A.    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. Since the third quarter of fiscal 2005, our exposure to interest rate fluctuations has been significantly reduced by our issuing convertible debt and using the proceeds to pay
down the debt issued pursuant to the revolving credit agreement. Due to the lower exposure to rate fluctuations, the use of derivative instruments in the form of non-trading interest rate
swaps to manage the risk are no longer utilized. As described in Note 6 to the consolidated financial statements, the amount of long-term debt outstanding as of June 30, 2008
and 2007 was $57,600,000 and $47,000,000, respectively, of which $40,000,000 was convertible debt. A hypothetical 1% increase in interest rates on our revolving credit facility would have adversely
affected our 2008 and 2007 net earnings by approximately $92,000 and $61,000, respectively, and our cash flows by approximately $149,000 and $99,000, respectively.

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 2008, 2007 or 2006 and we do not believe we are currently exposed to any material risk of loss from currency exchange fluctuations. Although we continue to evaluate derivative financial
instruments to manage foreign currency exchange rate changes, we did not hold such derivatives during 2008 or 2007. In the next few years we may confront greater risks from currency exchange
fluctuations as our business expands internationally.

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Item 8.    Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Shareholders
Quixote Corporation

We
have audited the accompanying consolidated balance sheets of Quixote Corporation (a Delaware corporation) and Subsidiaries as of June 30, 2008 and 2007, and the related
consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 2008. Our audits of the basic financial statements included
the financial statement schedule listed in the index appearing under Schedule IIValuation and Qualifying Accounts as of June 30, 2008, 2007 and 2006. These financial
statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Quixote Corporation as of June 30, 2008
and 2007, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2008 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.

As
discussed in Note 9 to the consolidated financial statements, the Company has adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
TaxesAn Interpretation of FASB Statement No. 109 as of July 1, 2007.

We
also have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Quixote Corporation's internal control over financial
reporting as of June 30, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated September 15, 2008 expressed an unqualified opinion on the effective operation of internal control over financial reporting.

/S/ GRANT THORNTON LLPChicago, Illinois
September 15, 2008

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS

For each of the three years ended June 30,Dollar amounts in thousands, except share data

2008

2007

2006Net sales

$
101,806

$
107,774

$
104,940Cost of sales


64,967


64,255


63,740Gross profit


36,839


43,519


41,200Operating (income) expenses:Selling and administrative


24,845


28,346


27,044Research and development


3,650


3,453


3,570Gain on sale of assets





(518
)

(846
)28,495


31,281


29,768Operating profit


8,344


12,238


11,432Other income (expense):Interest income


338


19


62Interest expense


(4,338
)

(4,478
)

(4,708
)(4,000
)

(4,459
)

(4,646
)Earnings from continuing operations before income taxes


4,344


7,779


6,786Income tax provision


1,225


2,964


2,261Earnings from continuing operations


3,119


4,815


4,525Discontinued operations:Loss from operations, net of income taxes


(1,322
)

(8,394
)

(14,627
)Loss from write-down of assets held for sale, net of income taxes


(1,326
)Loss from discontinued operations, net of income taxes


(2,648
)

(8,394
)

(14,627
)Net earnings (loss)

$
471

$
(3,579
)
$
(10,102
)Basic earnings (loss) per share:Earnings from continuing operations

$
0.34

$
0.54

$
0.51Loss from discontinued operations

$
(0.29
)
$
(0.94
)
$
(1.65
)Net earnings (loss)

$
0.05

$
(0.40
)
$
(1.14
)Weighted average common shares outstanding


9,092,139


8,945,855


8,850,884Diluted earnings (loss) per share:Earnings from continuing operations

$
0.34

$
0.54

$
0.51Loss from discontinued operations

$
(0.29
)
$
(0.94
)
$
(1.65
)Net earnings (loss)

$
0.05

$
(0.40
)
$
(1.14
)Weighted average common and common equivalent shares outstanding


9,121,103


8,945,855


8,850,884


THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS

As of June 30,Dollar amounts in thousands, except share data

2008

2007ASSETSCurrent assets:Cash and cash equivalents

$
408

$
848Accounts receivable, net of allowance for doubtful accounts of $418 in 2008 and $957 in 2007


23,801


25,896Refundable income taxes





2,508Inventories, net


19,389


17,926Deferred income taxes


2,608


2,798Other current assets


504


650Current assets of business held for sale


20,161


13,623Total current assets


66,871


64,249Property, plant and equipment at cost:Land


988


988Buildings and improvements


14,835


13,989Machinery and equipment


14,730


13,726Furniture and fixtures


1,928


1,665Computer equipment and software


8,780


8,212Leasehold improvements


1,710


1,638Construction in progress


902


38443,873


40,602Less: accumulated depreciation


(27,162
)

(24,379
)16,711


16,223Goodwill


17,385


17,385Intangible assets, net


2,206


2,441Deferred income taxes


13,371


12,815Other assets


890


1,460Assets of business held for sale


4,109


4,801$
121,543

$
119,374LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Current portion of long-term debt

$
17,600

$
5,122Accounts payable


5,950


7,164Dividends payable


1,829


1,715Accrued expenses:Accrued payroll and commissions


1,289


2,819Accrued insurance


1,347


1,150Accrued interest


1,065


1,142Other accrued expenses


2,047


2,403Current liabilities of business held for sale


5,520


4,606Total current liabilities


36,647


26,121Long-term debt, net of current portion


40,000


47,000Other long-term liabilities


1,059


1,045Commitments and contingent liabilitiesShareholders' equity:Preferred stock, no par value; authorized 100,000 shares; none issuedCommon stock, par value $.012/3; authorized 30,000,000 shares; issued 11,051,815 shares2008 and issued 10,997,129 shares2007


184


183Capital in excess of par value of stock


66,498


65,230(Accumulated deficit) retained earnings


(49
)

3,238Accumulated comprehensive income





109Treasury stock, at cost, 1,893,552 shares2008 and 1,958,119 shares2007


(22,796
)

(23,552
)Total shareholders' equity


43,837


45,208$
121,543

$
119,374


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock

Capital in
Excess of
Par Value
of Stock



Retained
Earnings
(Accum
Deficit)

Treasury StockAccumulated
Comprehensive
Income(Loss)

Comprehensive
Income (Loss)Dollar amounts in thousands,
except share data

Shares

Dollars

Shares

DollarsBALANCES, JULY 1, 2005


10,799,784

$
180

$
59,382

$
345

$
23,605


1,915,353

$
(21,666
)Exercise of options, net of tax


94,100


2


1,234Net loss2006














(10,102
)






$
(10,102
)Other comprehensive income











(118
)










(118
)Declaration of semi-annual cash dividends ($0.18 and $0.19 per share)














(3,277
)Issuance of shares for 401K plan








575








(57,320
)

648FAS 123R stock compensation expense








1,027Shares for settlement of legal issue

















150,603


(3,105
)Issuance of shares pursuant to the stock retirement plan


10,794





216BALANCES, JUNE 30, 2006


10,904,678

$
182

$
62,434

$
227

$
10,226


2,008,636

$
(24,123
)
$
(10,220
)Exercise of options, net of tax


81,657


1


1,231Net loss2007














(3,579
)






$
(3,579
)Other comprehensive income











(118
)










(118
)Declaration of semi-annual cash dividends ($0.19 per share)














(3,409
)Issuance of shares for 401K plan








392








(50,517
)

571FAS 123R stock compensation expense








970Issuance of shares pursuant to the stock retirement plan


10,794





203BALANCES, JUNE 30, 2007


10,997,129

$
183

$
65,230

$
109

$
3,238


1,958,119

$
(23,552
)
$
(3,697
)Exercise of options, net of tax


14,790





141Net earnings2008














471







$
471Adoption of FIN 48














(110
)Other comprehensive income











(109
)










(109
)Declaration of semi-annual cash dividends ($0.20 per share)














(3,648
)Issuance of shares for 401K plan








251








(69,117
)

795Issuance of restricted stock


29,100


1Repurchase of shares

















4,550


(39
)FAS 123R stock compensation expense








773Issuance of shares pursuant to the stock retirement plan


10,796





103BALANCES, JUNE 30, 2008


11,051,815

$
184

$
66,498

$


$
(49
)

1,893,552

$
(22,796
)
$
362


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS

For each of the three years ended June 30,Dollar amounts in thousands

2008

2007

2006OPERATING ACTIVITIES:Net earnings (loss)

$
471

$
(3,579
)
$
(10,102
)Loss from discontinued operations, net of tax


1,322


8,394


14,627Loss from write-down of assets held for sale, net of tax


1,326Income from continuing operations, net of tax


3,119


4,815


4,525ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY CONTINUING OPERATIONS:Depreciation


2,883


2,870


3,017Amortization


778


829


860Gain on sale of assets





(518
)

(846
)Deferred income taxes


271


4,369


(1,334
)Provisions for losses on accounts receivable


(539
)

508


181Issuance of stock retirement plan shares


103


203


216Issuance of stock to 401K plan


1,046


963


1,223Share-based stock compensation expense


773


970


1,027Changes in operating assets and liabilities:Accounts receivable


2,634


(681
)

(3,646
)Inventories


(1,463
)

(3,413
)

(1,738
)Other assets


146


(462
)

3Accounts payable and accrued expenses


(3,229
)

(965
)

3,077Income taxes payable/refundable


2,413


(2,270
)

822Other


14


(42
)

34Net cash provided by operating activitiescontinuing operations


8,949


7,176


7,421Net cash used in operating activitiesdiscontinued operations


(6,546
)

(5,683
)

(2,333
)Net cash provided by operating activities


2,403


1,493


5,088INVESTING ACTIVITIES:Capital expenditures


(3,371
)

(2,143
)

(2,339
)Patent expenditures


(82
)

(529
)

(326
)Proceeds from sale of assets





1,705


1,566Net cash used in investing activitiescontinuing operations


(3,453
)

(967
)

(1,099
)Net cash provided by (used in) investing activitiesdiscontinued operations


(1,437
)

484


791Net cash used in investing activities


(4,890
)

(483
)

(308
)FINANCING ACTIVITIES:Proceeds from revolving credit agreement


36,000


25,650


39,350Payments on revolving credit agreement


(25,400
)

(24,650
)

(37,350
)Payments on notes payable


(5,122
)

(465
)

(427
)Payment of semi-annual cash dividends


(3,533
)

(3,381
)

(3,185
)Proceeds from exercise of common stock options


83


970


1,031Income tax benefit from employee stock options


58


261


203Repurchase of common stock for treasury


(39
)




(3,105
)Net cash provided by (used in) financing activities


2,047


(1,615
)

(3,483
)Net change in cash and cash equivalents


(440
)

(605
)

1,297Cash and cash equivalents at beginning of year


848


1,453


156Cash and cash equivalents at end of year

$
408

$
848

$
1,453


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Quixote
Corporation and its subsidiaries (the Company, we, our or us) develop, manufacture and market, to both domestic and international markets, energy-absorbing highway crash
cushions, flexible post delineators, electronic wireless measuring and sensing devices, computerized highway advisory radio transmitting systems and other highway and transportation safety products to
protect, direct and inform motorists and highway workers.

2. ACCOUNTING POLICIES

CONSOLIDATION

The
consolidated financial statements include the accounts of Quixote Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.

DISCONTINUED
OPERATIONS AND ASSETS HELD FOR SALE

We
consider businesses to be held for sale when management approves and commits to a formal plan to actively market a business for sale. Upon designation as held for sale, the carrying
value of the assets of the business are recorded at the lower of their carrying value or their estimated fair value, less costs to sell. Results of operations of a business classified as held for sale
are reported as discontinued operations when (a) the operations and cash flows of the business will be eliminated from ongoing operations as a result of the sale and (b) the Company will
not have any significant continuing involvement in the operations of the business after the sale.

At
June 30, 2008, the Intersection Control business is classified as held for sale and as a discontinued operation.

MANAGEMENT
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. Actual results could differ from those estimates.

CASH
AND CASH EQUIVALENTS

Cash
in excess of operating requirements is invested in income-producing investments generally having initial maturities of three months or less. These investments are stated at cost,
which approximates market value. We consider these short-term instruments to be cash equivalents.

INVENTORIES

Inventories
are valued at the lower of cost (first-in, first-out method) or market. Actual costs are used to value raw materials and supplies. Standard costs,
which approximate actual costs, are used to value finished goods and work-in-process. Standard costs include raw materials, direct labor and manufacturing overhead. Provision
for potentially obsolete or slow-moving inventory is made based on management's analysis of inventory levels, ages and salability.

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACCOUNTING POLICIES (Continued)

PROPERTY,
PLANT AND EQUIPMENT

We
capitalize expenditures for major renewals and improvements and charge current earnings with the cost of maintenance and repairs. Provisions for depreciation have been computed on a
straight-line or other systematic methods based on the expected useful lives of the assets as indicated below:

Buildings and improvements

10 to 40 yearsMachinery and equipment

3 to 12 yearsFurniture and fixtures

3 to 10 yearsComputer equipment and software

3 to 7 yearsLeasehold improvements

5 to 10 years


The
cost and accumulated depreciation relating to assets retired or otherwise disposed of are eliminated from the respective accounts at the time of retirement or other disposition with
the gain or loss credited or charged to earnings.

COMPUTER
SOFTWARE

We
capitalize certain costs incurred in connection with developing computer software which will be used in our products once we achieve technological feasibility. During 2008 and 2007,
approximately $679,000 and $406,000, respectively, of computer software was capitalized, relating to software embedded in new products being developed by the Inform segment.

LONG-LIVED
ASSETS

Long-lived
assets include such items as goodwill, patents, product rights, other intangible assets and property, plant and equipment. For purposes of evaluating the
recoverability of long-lived assets, we assess 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. In performing our impairment assessments, we first assess our indefinite-lived intangibles; second, assess our amortized long-lived assets
(including amortized intangible assets and property, plant and equipment); and third, assess our goodwill. Additionally, we reassess the remaining useful lives of our amortized long-lived
assets.

Amortized
long-lived assets (including amortized intangible assets and property, plant and equipment) held and used by us are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable in relation to future undiscounted cash flows of underlying asset groups. The net carrying value of assets
not recoverable is reduced to fair value. Fair values of amortized long-lived assets are determined based upon the performance of a fair value appraisal. Patents and other finite-lived
intangible assets are amortized on a straight-line or systematic method over the life of the patent or intangible asset.

Goodwill
and other indefinite-lived intangible assets are tested for impairment annually in the fourth quarter or when a triggering event occurs. The indefinite-lived intangible asset
impairment test is performed by comparing the fair value of the intangible asset to its carrying value in a one-step analysis. If the fair value of the intangible asset is less than its
carrying value, the intangible asset is written-down to its fair value. The goodwill impairment test is performed at the reporting unit level and is a two-step analysis. First,
the fair value of the reporting unit is compared to its book value. If the fair value of the reporting unit is less than its book value, we perform a hypothetical purchase price

39

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACCOUNTING POLICIES (Continued)

allocation
based on the reporting unit's fair value to determine the implied fair value of the reporting unit's goodwill. If the implied fair value of the goodwill is less than its carrying value, the
goodwill is written-down to its implied fair value. Fair values are determined using discounted cash flow methodologies.

The
impairment review is highly judgmental and involves the use of significant estimates and assumptions. These estimates and assumptions have a significant impact on the amount of any
impairment charge recorded. Estimates of fair value are primarily determined using discounted cash flow methods and are dependent upon assumptions of future sales trends, market conditions and cash
flows of each reporting unit over several years. Actual cash flows in the future may differ significantly from those previously forecasted. Other significant assumptions include growth rates and the
discount rate applicable to future cash flows.

INCOME
TAXES

We
recognize 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 assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. To the extent that any future tax benefits are not expected to be fully realized, such future tax benefits are reduced by a valuation allowance. Realization
of deferred tax assets assumes that we will be able to generate sufficient future taxable income so that the assets will be realized. The factors that we consider in assessing the likelihood of
realization include the forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. We expect the deferred tax assets
currently recorded to be fully realizable, however there can be no assurance that an increased valuation allowance would not need to be recorded in the future.

FINANCIAL
INSTRUMENTS

The
fair value of cash and cash equivalents approximates the carrying value of these assets due to the short-term maturity of these instruments. The fair value of our
long-term debt is estimated to approximate the carrying value based upon borrowing rates currently available to us for borrowings with similar terms and maturity.

DERIVATIVES

Until
the issuance of fixed rate convertible debt in the third quarter of fiscal 2005, we managed our 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 was to fix the interest rate on certain variable rate debt to stabilize interest rates and to more effectively
balance our long-term borrowing costs and interest rate risk. During July 2003, we entered into a five-year 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 matched the terms of the underlying debt. In addition, the Agreement was designated
as, and was effective as, a cash-flow hedge of an outstanding debt obligation. Changes in fair value of the Agreement were reported as other comprehensive income and were recognized into
earnings when the hedge transaction affected earnings. Our derivative instrument was liquidated during February 2005 and we received $394,000 in cash. The current market value of the

40

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACCOUNTING POLICIES (Continued)

interest
rate swap arrangement as of the date of liquidation was included in accumulated other comprehensive income was amortized over the remaining life of the originally forecasted transaction.

CONCENTRATION
OF CREDIT RISK

Our
customers consist of distributors, contractors, departments of transportation, state agencies, local governments or municipalities. No single customer represents a significant
portion of our total revenues. In fiscal 2008, approximately 7%, 7% and 6% of revenues were from customers in the states of New York, Texas and California, respectively. In fiscal 2007, approximately
9%, 8% and 7% of revenues were from customers in the states of Texas, Illinois and New York, respectively. In fiscal 2006, approximately 8%, 4% and 4% of revenues were from customers in the states of
Texas, New York and California, respectively. As of June 30, 2008, one customer represented 19% of our consolidated net accounts receivable.

REVENUE
RECOGNITION

Revenues,
net of discounts and allowances, are recognized when either services have been rendered or both title and risk of loss of products have been transferred to unaffiliated
customers. We ensure that collection of the resulting receivable is probable, persuasive evidence that an arrangement exists, and the revenue is fixed or determinable. The majority of our sales are
for standard products and services with customer acceptance occurring upon shipment of the product or performance of the service. We also enter into agreements that contain multiple elements (such as
equipment, installation and service) or non-standard terms and conditions. For multiple-element arrangements, we recognize revenue for a delivered element when it has stand-alone value to
the customer, the fair values of undelivered elements are known, customer acceptance of the delivered element has occurred and there are only customary refund or return rights related to the delivered
element. In addition, equipment revenue is not recorded until the installation has been completed if equipment acceptance is dependent upon installation, or if installation is essential to the
functionality of the equipment. Provision for estimated uncollectible amounts and credits is made base upon management's analysis of bad debts, credit and returns.

SHIPPING
AND HANDLING

Shipping
and handling fees charged to customers are included in net sales, and shipping and handling costs incurred by us are included in cost of sales.

RESEARCH
AND DEVELOPMENT

Research
and development (R&D) costs are expensed as incurred.

SHARE-BASED
COMPENSATION

We
adopted the provisions of SFAS No. 123 (revised 2004) (SFAS No. 123(R)), "Share-Based Payment" as of July 1, 2005 using the modified prospective method. Under
this transition method, share-based compensation cost recognized in the fiscal year ended June 30, 2008 includes compensation cost for all share-based awards which were unvested as of
July 1, 2005 as well as compensation cost for all share-based awards granted subsequent to July 1, 2005, based on the grant date fair value estimated in
accordance with the provisions of SFAS No. 123(R). 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. Additional information is included in the footnote on share-based compensation.

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACCOUNTING POLICIES (Continued)

RESTRUCTURING
CHARGES

We
account for restructuring activities in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Generally, costs associated with the
exit or disposal activity are recognized when the liability is incurred. Costs related to employee separation arrangements requiring future service beyond a specified minimum retention period are
recognized over the service period.

EARNINGS
PER SHARE

Basic
earnings per share (EPS) are computed by dividing net earnings available to holders of common stock by the weighted average number of shares of common stock outstanding. Diluted
EPS are computed assuming the exercise of all stock options that are profitable to the recipients and are dilutive to results of operations. Under this assumption, the weighted average number of
shares is increased accordingly.

RECLASSIFICATIONS

Certain
prior year balances have been reclassified to conform to current year presentations.

RECENT
ACCOUNTING PRONOUCEMENTS

In
September 2006, the 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). FAS No. 157 is effective for our fiscal year beginning July 1, 2008. FSP 157-2
delays the effective date for certain items to July 1, 2009. We do not expect the adoption of FAS No. 157 to have a material 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 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
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

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACCOUNTING POLICIES (Continued)

has
been elected are reported in earnings at each subsequent reporting date. FAS No. 159 is effective for our fiscal year beginning July 1, 2008. We do not expect the adoption of this
statement to have a material effect on our results of operations or financial position.

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 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.

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, if any, that the adoption of FSP APB 14-1 will
have on our results of operations and financial position.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACCOUNTING POLICIES (Continued)

In
June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities."
FSP EITF 03-6-1 provides that unvested share-based payment awards that
contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share
pursuant to the two-class method. The two-class method is an earnings allocation method for computing earnings per share when an entity's capital structure includes either two
or more classes of common stock or commons stock and participating securities. It determines earnings per share based on dividends declared on common stock and participating securities
(i.e., distributed earnings) and participation rights of participating securities in any undistributed earnings. The effective date for FSP EITF 03-6-1 is the
beginning of fiscal 2010. We are currently evaluating the impact, if any, that the adoption of FSP EITF 03-6-1 will have on our results of operations and financial
position.

3. DISPOSITIONS

On
July 25, 2008, subsequent to our fiscal 2008 year end, we sold our Intersection Control segment to Signal Group, Inc. for $20 million in cash. The
Intersection Control segment sells products including traffic controllers, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, video detection equipment, toll road
monitoring systems and parking detection devices. Accordingly, we have reflected the results of those operations as discontinued operations for all periods presented. The assets and liabilities of the
divested segment are classified as assets and liabilities held for sale within our consolidated balance sheets for all periods.

In
conjunction with classifying the assets as held for sale, we recognized a loss of $1,326,000, net of income taxes, as of June 30, 2008 to write down the related carrying
amounts to their fair values less estimated costs to sell. The sale of this segment allowed us to strengthen our balance sheet and improve financial flexibility as we focus on international sales
growth for our Protect and Direct and Inform segments.

The
results of discontinued operations for fiscal years 2008, 2007 and 2006, consist of the following:

(Dollar amounts in thousands)

2008

2007

2006Net sales

$
32,031

$
29,704

$
56,194Loss from operations of discontinued operations before income taxes

$
(2,044
)
$
(2,286
)
$
(3,211
)Restructuring and impairment charges





(11,275
)

(19,149
)Loss from write-down of assets held for sale


(2,138
)Loss before taxes


(4,182
)

(13,561
)

(22,360
)Income tax benefit


(1,534
)

(5,167
)

(7,733
)Loss from discontinued operations, net of income tax benefit

$
(2,648
)
$
(8,394
)
$
(14,627
)


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. DISPOSITIONS (Continued)

Assets
and liabilities expected to be sold were reclassified to assets and liabilities of business held for sale, respectively, and consist of the following as of June 30:

(Dollar amounts in thousands)

2008

2007Current assets of business held for saleReceivables

$
6,270

$
5,518Inventories


13,134


7,665Other current assets


757


440Total current assets


20,161


13,623Property, plant and equipment


2,474


1,437Other assets


1,635


3,364Total assets of business held for sale

$
24,270

$
18,424Total liabilities of business held for sale

$
5,520

$
4,606


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. DISPOSITIONS (Continued)

During the fourth quarter of fiscal 2006, our Board of Directors approved a restructuring plan for our Intersection Control segment in order to reduce costs through the reduction of
overhead by closing two facilities and through the reduction of headcount. Under the plan, we divested and discontinued some
product lines and moved production of other lines to other existing facilities. The implementation of the restructuring plan was completed during the second quarter of fiscal 2007. Activity related to
the restructuring plan was as follows:

(Dollar amounts in thousands)

Employee
Severance
and Related
Costs

Lease
Obligations

Asset Sales
and
Write-offs

Facility Exit
Costs, Legal
and Other

TotalAccrual balance July 1, 2005

$


$


$


$


$
Costs incurred


179


90


4,571


935


5,775Cash proceeds (payments)


(179
)

(90
)

1,500


(601
)

630Non-cash charges








(5,908
)




(5,908
)Accrual balance June 30, 2006








163


334


497Costs incurred


1,792


1,903


3,620


3,960


11,275Cash proceeds (payments)


(1,688
)

(1,213
)

(163
)

(4,176
)

(7,240
)Non-cash charges








(3,620
)




(3,620
)Accrual balance June 30, 2007


104


690





118


912Costs incurredCash proceeds (payments)


(104
)

(690
)




(118
)

(912
)Non-cash chargesAccrual balance June 30, 2008

$


$


$


$


$
Remaining expected plan costs

$


$


$


$


$
Total expected plan costs

$
1,971

$
1,993

$
8,191

$
4,895

$
17,050


During
our impairment review in the fourth quarter of fiscal 2006, we determined that the carrying amounts of certain long-lived assets of the Intersection Control segment
were no longer recoverable based on estimated future operating cash flows to be generated by those assets, which were lower than previously projected as a result of the poor performance of the
Intersection Control business in fiscal 2006. We recorded asset impairment charges in the segment of $13,374,000, or $8,723,000 net of income tax benefits. The charges included $10,225,000 for
goodwill and $3,149,000 for fixed assets.

During
the first quarter of fiscal 2007, we sold a former captive manufacturing facility of the Protect and Direct segment located in South Bend, Indiana to Elkhart Plastics, Inc.
Since June 30, 2005, we had been renting the facility to the buyer. Our net proceeds from the sale of this facility were $1,423,000 and we recognized a gain on the sale of assets of $236,000.

Effective
June 30, 2006, we sold our weather forecasting product line within the Inform segment for a sale price of $1,848,000, including $1,566,000 in cash received during fiscal
2006 and $282,000 in contingent payments received in fiscal 2007. We sold contracts, intellectual property, allocated goodwill, software, equipment and inventory and recorded a net gain on the sale of
$846,000 in fiscal 2006 and $282,000 in fiscal 2007.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. INVENTORIES

Inventories, net, consist of the following at June 30:

(Dollar amounts in thousands)

2008

2007Finished goods

$
10,439

$
8,833Work-in-process


5,007


4,524Raw materials


3,943


4,569$
19,389

$
17,926


5. INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following as of June 30:

2008

2007(Dollar amounts in thousands)

Gross Carrying Amount

Accumulated Amortization

Net Intangible Assets

Gross Carrying Amount

Accumulated Amortization

Net Intangible AssetsAmortized intangible assets:Patents and licenses

$
3,746

$
2,160

$
1,586

$
3,664

$
1,942

$
1,722Technology and installed base


1,271


849


422


1,271


783


488Customer relationships


200


200


0


200


200


0Trade names


330


132


198


330


99


231Other


20


20


0


20


20


0Total

$
5,567

$
3,361

$
2,206

$
5,485

$
3,044

$
2,441


We
paid $82,000 for patents and licenses during fiscal 2008. We paid $529,000 for patents and licenses during fiscal 2007, including $494,000 for a patent relating to a sensor product
line in the Inform segment. Intangible amortization expense was $317,000, $291,000 and $324,000 for the years ended June 30, 2008, 2007 and 2006, respectively. The estimated amortization
expense for the five fiscal years subsequent to 2008 is as follows: $321,000 in 2009, $321,000 in 2010, $321,000 in 2011, $312,000 in 2012 and $310,000 in 2013. Intangible assets are amortized over
their useful lives, which is four to seventeen years for patents and licenses, five to fifteen years for technology and installed base, five to ten years for customer relationships, ten years for
trade names and one to two years for other intangible assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. INTANGIBLE ASSETS AND GOODWILL (Continued)

The
following table displays a roll-forward of the carrying amount of goodwill from July 1, 2006 to June 30, 2008 by business segment:

2008

2007(Dollar amounts in thousands)

Protect and Direct Segment

Inform Segment

Protect and Direct Segment

Inform SegmentBeginning balance

$
8,139

$
9,246

$
8,139

$
9,246AcquiredAdjustmentsSale of product linesEnding balance

$
8,139

$
9,246

$
8,139

$
9,246


6. LONG-TERM DEBT

Long-term debt consists of the following at June 30:

(Dollar amounts in thousands)

2008

2007Convertible debt 7% interest rate due February 15, 2025

$
40,000

$
40,000Revolving credit note due February 1, 2010, interest at variable rates, ranging between 3.7% and 5.0%


17,600


7,000Subordinated promissory note





5,000Note payable, net of discount of $32007





122Total long-term debt


57,600


52,122Less current portion


17,600


5,122Long-term debt, net

$
40,000

$
47,000


During
February 2005, we sold $40,000,000 of 7% Convertible Senior Subordinated Notes due February 15, 2025 in a private placement and received net proceeds of $37,395,000. Debt
issue costs representing direct costs incurred related to the issuance of the Notes in the amount of $2,605,000 were recorded in other assets and are being amortized into interest expense over five
years, the effective term of the Notes. The net proceeds were used to pay off our bank term loan and reduce the amount of our revolving credit agreement. The conversion price is $25.90 per share,
which represented a 40% premium over the closing price of our stock on the close of the transaction. The Notes are fully redeemable by us at any time after February 20, 2008 at 100% of the
principal amount plus accrued and unpaid interest. The investors may require us to repurchase the notes in cash at a price equal to 100% of the principal amount of the notes plus accrued and unpaid
interest, if any, on February 15, 2010, 2015 or 2020. Interest is payable semi-annually on February 15 and August 15 of each year.

During
November, 2007, we amended our bank credit agreement. The amended credit agreement provides for a $40 million secured revolving credit facility. The credit agreement
includes both fixed and floating interest rate options, at the prime rate or LIBOR rate, plus a margin. The credit agreement 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

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6. LONG-TERM DEBT (Continued)

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 fiscal 2008. We used the proceeds from the sale of the Intersection Control
segment, discussed in Note 3, to pay down substantially all of our bank debt subsequent to June 30, 2008 and accordingly we reclassified the amount outstanding against the revolving
credit facility as current as of June 30, 2008.

The
subordinated promissory note was a five-year note, which was paid at the end of its term in April 2008. It was entered into in May 2003 in connection with the acquisition
of the assets of U.S. Traffic Corporation (UST), part of the discontinued Intersection Control segment, and was payable to the former owners of that business. The note payable was entered into in
connection with the acquisition of Roadway Safety Service, Inc. and was payable to a former owner of that business. The final payment on the note payable was made in September 2007.

The
aggregate amount of maturities of long-term debt for the years subsequent to 2008, assuming the effective maturity of the convertible debt, is as follows: $17,600,000 in
2009 and $40,000,000 in 2010.

7. SHARE-BASED COMPENSATION

We adopted the provisions of SFAS No. 123 (revised 2004) (SFAS No. 123(R)), "Share-Based Payment") as of July 1, 2005 using the modified prospective method. Under
this transition method, share-based compensation cost recognized in the fiscal year ended June 30, 2008 includes compensation cost for all share-based awards which were unvested as of
July 1, 2005 as well as compensation cost for all share-based awards granted subsequent to July 1, 2005, based on the grant date fair value estimated in accordance with the provisions of
SFAS No. 123(R). 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. We have
two current share-based compensation plans, which are described below.



Our 2001 Employee Stock Incentive Plan (the Plan), which is shareholder-approved, permits the grant of share options and restricted
shares to our employees for up to 1,125,000 shares, of which 150,000 shares were reserved for the grant of restricted stock awards. We believe that grants of stock options and restricted stock to
employees generate an increased incentive for the employees to contribute to our future success and prosperity, thus enhancing the value of the Company for the benefit of our stockholders. The Plan
provides for grants of stock options and restricted stock for employees as may be determined by the Compensation Committee of the Board of Directors. No grantee may receive awards, which include
option grants and restricted stock awards, in excess of 100,000 shares per year. The stock options are granted with an exercise price equal to or greater than the fair market value of our stock at the
time of grant. Employee options granted under the current plan expire not more than ten years from the grant date with vesting to be determined by the Committee. For grants currently outstanding,
vesting is over a three year period, with one-third of the grant becoming exercisable at the end of each of the three years. Option and restricted stock awards provide for accelerated
vesting if there is a change in control, as defined in the Plan.

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7. SHARE-BASED COMPENSATION (Continued)

Our
2001 Non-Employee Directors Stock Option Plan (the Director Plan), which is also shareholder-approved, permits the grant of share options to our non-employee
directors for up to 235,000 shares. We believe that grants of stock options to non-employee directors encourage the directors to acquire a long term proprietary interest in the growth and
performance of the Company, and generate an increased incentive for the directors to contribute to our future success and prosperity, thus enhancing the value of the Company for the benefit of our
stockholders. The Director Plan provides for an annual grant of stock options for directors based on a fixed amount, which is currently 5,000 stock options per each non-employee director
annually. The stock options are granted with an exercise price equal to the fair market value of our stock at the time of grant. Options granted under the Director Plan expire not more than seven
years from the grant date. Vesting occurs after a six-month period. Option awards provide for accelerated vesting if there is a change in control, as defined in the Director Plan, or upon
the death of a director optionee.

A
summary of the principal features of our current stock incentive plans, as well as copies of those plans are provided in our Proxy Statement for the Annual Meeting of Stockholders on
November 18, 2004. Shares issued as a result of stock option exercises or restricted stock grants may be issued as new shares, funded from treasury stock or may be shares purchased on the open
market. We believe that we currently have adequate treasury and authorized unissued shares to meet any requirements to issue shares during fiscal 2009. The authorization for issuance will terminate on
November 1, 2011 for both the Plan and the Director Plan.

We
also have a retirement stock award program for certain of our key executives that was authorized under the 1993 Long-Term Stock Ownership Incentive Plan, which has since
been replaced by the Plan. The award consists of shares of our common stock and cash ending with the fiscal year in which each executive attains his or her 62nd birthday. In order
to receive each year's stock award, the executive must remain employed with us through the end of fiscal year, unless excused by reason of death or other involuntary termination. Participants are also
required to retain the shares awarded for as long as they are employed by us or until age 65. The size of each participant's annual award is determined under accepted actuarial principles to provide a
retirement income based upon a percentage of the executive's projected compensation and length of service at retirement, but only if our stock price appreciates at a sustained target rate. The
retirement stock award program resulted in a charge to share-based compensation expense of $103,000 in 2008, $340,000 in 2007 and $357,000 in 2006. On July 25, 2008, the Compensation Committee
of the Board of Directors approved the issuance of the 32,362 shares remaining in the retirement stock award program, resulting in a charge to share-based compensation expense of $269,000 in 2009.
There are no other outstanding retirement award obligations or participants under the retirement stock award program.



The share-based compensation cost that has been charged to Selling and Administrative expense for stock options and restricted stock
awards under the Plan and the Director Plan was $773,000, $970,000 and $1,027,000 for the years ended June 30, 2008, 2007 and 2006, respectively. The total income tax benefit recognized in the
income statement for share-based compensation arrangements was $190,000, $191,000 and $215,000 for those periods, respectively, and the net expense recorded was $583,000, $779,000 and $812,000, which
was $0.06 per basic and diluted share outstanding in 2008 and $0.09 per basic and diluted share outstanding in 2007 and 2006.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. SHARE-BASED COMPENSATION (Continued)

As
of June 30, 2008, the total compensation cost related to unvested share-based awards granted under our stock option plans not yet recognized was approximately $561,000. This
cost will be amortized on a straight-line basis over a weighted average period of approximately 1.7 years and will be adjusted for subsequent changes in estimated forfeitures. The
120,158 unvested options outstanding at June 30, 2008 have a weighted-average fair value of $5.15. The 29,100 shares of restricted stock unvested at June 30, 2008 had a fair value of
$19.52.



The fair value of stock options granted is estimated using the Black-Scholes option-pricing model that uses the assumptions noted below
for fiscal years 2008, 2007 and 2006. 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. The following summarizes the assumptions used in determining the fair value of stock options for the
years ended June 30:

2008

2007

2006Risk free interest rate


3.8%


4.5 - 4.8%


4.0 - 4.5%Expected dividend yield


2.11%


2.28%


1.73%Weighted average expected volatility


37%


39%


42%Expected term


6.0 years


3.9 - 5.8 years


3.7 - 6.0 yearsWeighted average expected term


6.0 years


4.4 years


4.5 yearsWeighted average grant-date fair value

$
6.35

$
4.95

$
7.32


We
apply a forfeiture rate, estimated based on historical data, of up to 5% to the option fair value calculated by the Black-Scholes option pricing model. This estimated forfeiture rate
may be revised in subsequent periods if actual forfeitures differ from this estimate.

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7. SHARE-BASED COMPENSATION (Continued)



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, 2005


1,009,971

$
18.19Granted


114,200

$
21.02Exercised


(165,036
)
$
15.41Cancelled or expired


(14,233
)
$
20.77Outstanding at June 30, 2006


944,902

$
18.98

3.1 Years

$
1,660,000Granted


187,000

$
18.65Exercised


(82,500
)
$
11.99Cancelled or expired


(190,199
)
$
23.65Outstanding at June 30, 2007


859,203

$
18.54

3.2 Years

$
1,451,000Granted


20,000

$
18.93Exercised


(20,000
)
$
8.34Cancelled or expired


(28,533
)
$
20.88Outstanding at June 30, 2008


830,670

$
18.72

2.4 Years


Vested at June 30, 2008


710,512

$
18.62

2.3 Years





Options
outstanding at June 30, 2008 are exercisable as follows: 710,512 currently, 72,825 within one year and 47,333 in two years. Options outstanding as of June 30, 2007
and 2006 included 608,870 and 714,013 which were exercisable as of those dates, respectively. As of June 30, 2008, we have 611,996 common shares reserved for our option and award plans
available for future grants.

The
following stock option activity occurred during the last three fiscal years:

(Dollar amounts in thousands)

2008

2007

2006Total intrinsic value of stock options exercised

$
153

$
686

$
1,267Total fair value of stock options vested

$
874

$
750

$
1,143


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. SHARE-BASED COMPENSATION (Continued)

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





Granted


29,100

$
19.52Vested





Cancelled or expired





Outstanding at June 30, 2008


29,100

$
19.52


8. INCENTIVE SAVINGS PLAN

We have an incentive savings plan covering substantially all of our employees. The plan allows qualified employees to make tax deferred contributions pursuant to Internal Revenue Code
Section 401(k). We contribute a matching contribution based upon a percentage of the participants' contributions which is invested directly in our common stock. During fiscal 2005, we began
contributing most of our matching contributions under the incentive savings plan by issuing common stock from our treasury stock. Additional discretionary company contributions may be made at the
option of our Board of Directors. The expense for the plan was $1,120,000 in 2008, $1,160,000 in 2007 and $1,224,000 in 2006.

9. INCOME TAXES

The income tax provision (benefit) consists of the following:

(Dollar amounts in thousands)

2008

2007

2006Current:Federal and international

$
729

$
(1,219
)
$
3,224State


225


(186
)

371954


(1,405
)

3,595Deferred:Federal and international


254


4,280


(1,085
)State


17


89


(249
)271


4,369


(1,334
)Total income tax provision from continuing operations


1,225


2,964


2,261Total income tax benefit from discontinued operations


(1,534
)

(5,167
)

(7,733
)Total income tax provision (benefit)

$
(309
)
$
(2,203
)
$
(5,472
)


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. INCOME TAXES (Continued)

The
components of the net deferred tax asset (liability) are as follows:

(Dollar amounts in thousands)

2008

2007Deferred tax assets:Accounts receivable allowance

$
265

$
551Warranty reserve


311


330Goodwill and intangible assets


8,001


7,085Inventory valuation


734


758Compensated absences and medical claims


354


358Stock option expense


499


374Other liabilities and reserves


457


713Net operating loss and R&D credits


7,877


7,702Valuation allowance


(1,262
)

(1,115
)17,236


16,756Deferred tax liabilities:Book over tax basis of fixed assets


(1,257
)

(1,143
)Net deferred tax assets

$
15,979

$
15,613


At
June 30, 2008, we have approximately $11,163,000 of federal and $14,298,000 of state net operating losses that can be carried forward for tax purposes. These carryforwards
expire in years from 2009 through 2027. We received approximately $2.6 million of income tax refunds in fiscal 2008. Limitations on the future utilization of certain foreign, state and acquired
federal net operating loss carryforwards are present and realization of a portion of the carryforwards is uncertain. The valuation allowance relates principally to deferred tax assets relating to
these carryforwards that we estimate may not be realizable. Based on management's assessment, it is more likely than not that the net deferred tax assets will be realized through future taxable
earnings or implementation of tax planning strategies.

The
net deferred tax assets from continuing operations consist of the following at June 30:

(Dollar amounts in thousands)

2008

2007Current deferred tax assets

$
2,608

$
2,798Noncurrent deferred tax assets


13,371


12,815Total net deferred tax assets

$
15,979

$
15,613


54

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. INCOME TAXES (Continued)

The
income tax provision (benefit) from continuing operations differed from the taxes calculated at the statutory federal tax rate as follows:

(Dollar amounts in thousands)

2008

2007

2006Taxes at statutory rate

$
1,477

$
2,645

$
2,307State income taxes


144


193


371R & D credits


(476
)

(190
)

(381
)Goodwill








736Change in valuation allowance


147


670Other


(67
)

(354
)

(772
)Income tax benefit

$
1,225

$
2,964

$
2,261


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. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements
in accordance with FASB Statement No. 109, "Accounting for Income Taxes". FIN 48 prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. Before a position can be recognized in the financial statements, it must first be determined that the position is more likely than not to be
sustained upon examination. The tax benefit for each position that meets this threshold is then measured as the largest amount that is at least 50% likely of being realized when ultimately settled.
Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.

The
cumulative effect of adopting FIN 48 resulted in a $110,000 reduction of beginning retained earnings. A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:

(Dollar amounts in thousands)

2008Unrecognized tax benefits at July 1, 2007

$
327AdditionsCurrent year tax positions


Prior year tax positions


Reductions for prior year tax positions


Lapses of statutes of limitations


(100
)Settlements


Unrecognized tax benefits at June 30, 2008

$
227


At
July 1, 2007, we had gross unrecognized tax benefits of $327,000, of which $289,000, if recognized, would favorably affect our effective income tax rate. Included in the
$227,000 balance of gross unrecognized tax benefits at June 30, 2008 are $189,000 of tax benefits that, if recognized, would favorably affect the effective income tax rate.

55

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. INCOME TAXES (Continued)

Consistent
with prior practice, we will continue to 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, were recorded as part of selling and administrative expense prior to adoption of FIN 48, but are now recorded as part of the income tax
expense during the period incurred. We recorded $37,000 and $5,000, respectively for the potential payment of interest and penalties at June 30, 2008, and $47,000 and $8,000, respectively for
the potential payment of interest and penalties at July 1, 2007. The liabilities under FIN 48 are recorded in accrued expenses.

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 2004 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.

10. ACCUMULATED COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) consists of the following as of June 30:

(Dollar amounts in thousands)

2008

2007Unrealized gain on derivative instrument (Note 2):Beginning balance

$
109

$
227Amortization to earnings and other


(109
)

(118
)Ending balance





109Accumulated comprehensive incomeJune 30

$


$
109


The
market value of the interest rate swap arrangement liquidated during fiscal 2005 was amortized over the remaining life of the originally forecasted transaction.

56

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. EARNINGS (LOSS) PER SHARE

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

(Dollar amounts in thousands, except share data)

2008

2007

2006Numerator:Earnings from continuing operations

$
3,119

$
4,815

$
4,525Loss from discontinued operations


(1,322
)

(8,394
)

(14,627
)Loss on write-down of assets held for sale


(1,326
)Net earnings (loss)

$
471

$
(3,579
)
$
(10,102
)Denominator:Weighted average shares outstandingbasic


9,092,139


8,945,855


8,850,884Effect of dilutive securitiescommon stock options


28,964





Weighted average shares outstandingdiluted


9,121,103


8,945,855


8,850,884Earnings (loss) per share of common stockbasic:Continuing operations

$
0.34

$
0.54

$
0.51Earnings (loss) from discontinued operations


(0.14
)

(0.94
)

(1.65
)Loss on write-down of assets held for sale


(0.15
)Net earnings (loss)

$
0.05

$
(0.40
)
$
(1.14
)Earnings (loss) per share of common stockbasic:Continuing operations

$
0.34

$
0.54

$
0.51Loss from discontinued operations


(0.14
)

(0.94
)

(1.65
)Loss on write-down of assets held for sale


(0.15
)Net earnings (loss)

$
0.05

$
(0.40
)
$
(1.14
)


Employee
stock options totaling 80,491 shares for the year ended June 30, 2007 and 126,399 shares for the year ended June 30, 2006 were not included in the diluted weighted
average shares calculation because the effects of these securities were anti-dilutive.

There
were outstanding options to purchase common stock at prices that exceeded the average market price for the statement of operations period. These options have been excluded from the
computation of diluted loss per share and are as follows:

2008

2007

2006Average exercise price per share

$
19.98

$
21.40

$
24.22Number of shares


675,670


486,867


350,800


As
discussed in Note 6, if the Convertible Senior Subordinated Notes are fully converted at the conversion price of $25.90 per share, the Notes would convert into approximately
1,544,000 shares of our common stock. The shares are not included in earnings per share as they are currently anti-dilutive until earnings per share reach approximately $1.20 per share.

12. GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES

Disclosures about each group of similar guarantees and commitments are provided below.

57

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

LEASE
COMMITMENTS

We
use various leased facilities and equipment in our operations. The terms for these leased assets vary depending on the lease agreements. Aggregate rental
expense under operating leases, principally for office and manufacturing facilities, was $1,681,000 in 2008, $1,623,000 in 2007 and $1,427,000 in 2006 for our continuing operations. These operating
leases include options for renewal. Annual minimum future rentals for non-cancellable leases are approximately $1,461,000 in 2009, $2,004,000 in 2010, $43,000 in 2011 and $16,000 in 2012.
These lease commitments do not include commitments for leases entered into by our discontinued operations which were sold on July 25, 2008.

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 varies (30 days to 5 years) 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 years ended June 30 is as follows:

(Dollar amounts in thousands)

2008

2007Beginning balance

$
231

$
155Warranties issued


159


270Repairs, replacements and settlements


(210
)

(194
)Changes in liability for pre-existing warranties, including expirations


(50
)Ending balance

$
130

$
231


The
amount of $50,000 for fiscal 2008 includes amounts previously reserved for claims from customers which were resolved favorably or warranty exposures which expired during the year.

LEGAL

We
record loss contingencies where appropriate within the guidelines established by FASB Statement No. 5 "Accounting for Contingencies". We are involved
in several pending judicial proceedings for product liability and other damages arising out of the normal conduct of our business. We have indemnified the purchaser of the Intersection Control
business against losses that may be incurred, including certain health, environmental, state and local tax and other matters. We have also indemnified the purchaser against losses that might be
incurred relative to existing litigation. While the outcome of litigation and other matters 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

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

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 a 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 $1.9 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 our 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 facilities, we have agreed to indemnify our lenders under such facilities against costs or losses resulting from changes in laws and
regulations which would increase the lenders' costs, and from any legal action brought against the lenders related to the use of loan proceeds. These indemnifications generally extend for the term of
the credit facilities 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 $2,684,000 as of June 30, 2008. Historically, we have not
made significant payments on bid
and performance bonds, and no amount has been accrued in the accompanying consolidated financial statements.

OTHER
COMMITMENTS

We
have standby letters of credit primarily covering potential workers' compensation liabilities. The total standby exposure at June 30, 2008 was
$1,012,000. We have included $757,000 in accrued liabilities for potential workers' compensation liabilities as of June 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 $151,000
in accrued liabilities for royalties as of June 30, 2008.

13. SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES

Cash paid for interest was $4,075,000 in 2008, $4,384,000 in 2007 and $4,226,000 in 2006. Net cash received from income taxes was $2,638,000 in 2008, $243,000 in 2007 and $774,000 in
2006. We

59

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES (Continued)

declared
dividends that were payable at year end of $1,829,000 in 2008, $1,715,000 in 2007 and $1,688,000 in 2006.

14. INDUSTRY SEGMENT INFORMATION

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, subsequent to our fiscal 2008 year end, 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 3 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 as follows: $24,642,000 in 2008, $20,432,000 in 2007, and $16,914,000
in 2006. Inter-company sales between segments represented less than one percent of consolidated net sales in fiscal 2008, 2007 and 2006.

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.

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. INDUSTRY SEGMENT INFORMATION (Continued)

The
following table presents financial information about our continuing operations by segment as of and for the years ended June 30, 2008, 2007 and 2006 comprising the totals
reported in the consolidated financial statements.

(Dollar amounts in thousands)

2008

2007

2006Revenues:Protect and Direct

$
80,523

$
83,593

$
80,806Inform


21,283


24,181


24,134Total

$
101,806

$
107,774

$
104,940Depreciation and amortization:Protect and Direct

$
2,431

$
2,592

$
2,601Inform


769


680


746Total segment depreciation and amortization


3,200


3,272


3,347Unallocated corporate


461


540


538Total

$
3,661

$
3,812

$
3,885Income (loss) before income taxes:Protect and Direct

$
14,165

$
16,965
(1)
$
15,539Inform


1,441


3,445
(2)

3,403
(3)Total segment operating profit


15,606


20,410


18,942Unallocated corporate


(7,262
)

(8,172
)

(7,510
)Total operating profit (loss)


8,344


12,238


11,432Unallocated interest and other


(4,000
)

(4,459
)

(4,646
)Total

$
4,344

$
(7,779
)
$
6,786Identifiable assets:Protect and Direct

$
57,455

$
57,228

$
55,415Inform


22,384


23,121


22,301Total segment identifiable assets


79,839


80,349


77,716Assets held for sale


24,270


18,424


27,581Unallocated corporate


17,434


20,601


19,906Total

$
121,543

$
119,374

$
125,203Capital expenditures:Protect and Direct

$
2,029

$
1,642

$
1,538Inform


1,342


501


801Total segment capital expenditures


3,371


2,143


2,339Unallocated corporateTotal

$
3,371

$
2,143

$
2,339


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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. LEGAL SETTLEMENTS

During the fourth quarter of fiscal 2006, we settled all outstanding litigation with the sellers of UST, part of the Intersection Control segment. The sellers paid us $3 million
in cash, and the parties agreed to waive all claims arising from the original purchase and related agreements dated in May 2003. We also terminated some of these agreements and modified the
terms of the non-competition covenant with the sellers. Specifically, the sellers agreed to refrain from selling uninterruptible power supply products for use in intersection control to
the cities of New York and Chicago until May 2008. We guaranteed payments pursuant to the lease of the Tecate, Mexico facility, although we were released from that obligation during
fiscal 2007 when the facility was leased to a third party. During the fourth quarter of fiscal 2006, we recorded a gain of $2,348,000, net of legal and other directly related expenses of which
$336,000 were recorded in fiscal 2006 prior to the fourth quarter. The gain on this legal settlement is included in discontinued operations.

During
the first quarter of fiscal 2006, we settled all claims arising from our 2003 acquisition of Peek Traffic Corporation (Peek Traffic), part of the Intersection Control segment, by
releasing all claims arising under the purchase agreement. As part of the settlement, the sellers of that business paid us $627,000 in cash, net of legal expenses, and sold to us 150,603 shares of our
common stock that they initially acquired as part of the purchase price for $3,105,000, or $20.62 per share. The gain on this legal settlement is included in discontinued operations. We had claimed
damages from the sellers of Peek Traffic arising from the sellers' breaches of representations and warranties in the asset purchase agreement and from certain liabilities of Peek Traffic that we did
not specifically assume or were misrepresented to us.

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Table of Contents

QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized unaudited quarterly financial data for fiscal years 2008 and 2007 follows:

Three months ended(Dollar amounts in thousands, except per share data)

9/30

12/31

3/31

6/30FISCAL 2008Net sales(1)

$
24,504

$
25,879

$
22,869

$
28,554Gross profit(1)


8,419


9,985


7,149


11,286Operating profit(1)


2,017


2,693


(323
)

3,957Earnings (loss) from continuing operations


574


961


(655
)

2,239Loss from discontinued operations, net of income taxes


(104
)

(202
)

(509
)

(1,833
)(2)Net earnings (loss)


470


759


(1,164
)

406Basic earnings (loss) per share:Continuing operations


.06


.10


(.07
)

.24Net earnings (loss)


.05


.08


(.13
)

.04Diluted earnings (loss) per share:Continuing operations


06


.10


(.07
)

.24Net earnings (loss)


.05


.08


(.13
)

.04




9/30

12/31

3/31

6/30FISCAL 2007Net sales(1)

$
24,772

$
23,466

$
24,705

$
34,831Gross profit(1)


10,230


9,213


9,424


14,652Operating profit(1)


2,288


2,415


1,784


5,751Earnings (loss) from continuing operations


747


759


425


2884Loss from discontinued operations, net of income taxes


(6,642
)

(1,270
)

(127
)

(355
)Net earnings (loss)


(5,895
)

(511
)

298


2,529Basic earnings (loss) per share:Continuing operations


.09


.08


.05


.32Net earnings (loss)


(.66
)

(.06
)

.03


.28Diluted earnings (loss) per share:Continuing operations


09


.08


.05


.32Net earnings (loss)


(.66
)

(.06
)

.03


.28


---

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Table of Contents

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated
the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this
Annual Report on Form 10-K (the "Evaluation Date"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure
controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance, as opposed to absolute assurance, of achieving their internal control objectives.

Our
management assessed the effectiveness of our internal control over financial reporting as of June 30, 2008. In making this assessment, our management used the criteria set
forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -Integrated Framework. Based on our assessment, we believe that, as of June 30, 2008 our internal control over
financial reporting is effective based on those criteria.

The
effectiveness of our internal control over financial reporting as of June 30, 2008 has been audited by Grant Thornton, LLP, the independent registered public accounting firm that
also audited our consolidated financial statements. Grant Thornton's attestation report on our internal control over financial reporting is included herein.

64

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Table of Contents

Attestation of Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board
of Directors and Shareholders
Quixote Corporation

We
have audited Quixote Corporation's (a Delaware corporation) and Subsidiaries (the "Company") internal control over financial reporting as of June 30, 2008 based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Report on Internal
Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Quixote Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2008, based on criteria established in
Internal ControlIntegrated Framework issued by COSO.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of
June 30, 2008 and 2007 and the related consolidated statements of income, shareholders' equity, and cash flows for the three years in the year ended June 30, 2008 and the accompanying
Schedule IIValuation and Qualifying Accounts as of June 30, 2008, 2007, and 2006, and our report dated September 15, 2008 expressed an unqualified opinion on those
financial statements and schedule.

/s/
GRANT THORNTON LLP
Chicago, Illinois
September 15, 2008

Item 9B.    Other Information

None.

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Table of Contents

PART III

Item 10.    Directors, Executive Officers and Corporate Governance

Some of the information required in response to this item regarding our Directors is set forth in the section "Corporate Governance",
"Information Concerning Nominees for Director and Directors Continuing in Office" and "Compliance with Section 16 of the Securities Exchange Act of 1934" of our Definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on November 13, 2008 and is incorporated herein by reference.

We
maintain a Code of Conduct, which is applicable to all employees and directors, and is available on our website atwww.quixotecorp.comby clicking "Investor Info" and then "Corporate Governance". Any
amendment or waiver to the Code of Conduct that applies to our directors or executive officers will be posted on our website or in a report filed with the SEC on Form 8-K. The Code
of Conduct is available free of charge in print to any stockholder who requests a copy by writing to Joan R. Riley, Vice President and General Counsel, at 35 East Wacker Drive, Suite 1100,
Chicago Illinois 60601.

The
executive officers of the Company, their ages and offices held by each are as follows:

Leslie J. Jezuit


62

Chairman & Chief Executive OfficerDaniel P. Gorey


57

Chief Financial Officer, Vice President & TreasurerJoan R. Riley


55

Vice President, General Counsel & Secretary


Mr. Jezuit
joined the Company as President and Chief Operating Officer of Quixote Corporation in 1996. Prior to that time, Mr. Jezuit served as President and Chief
Operating Officer of Robert Shaw Controls Company. In October, 1999 Mr. Jezuit assumed the position of Chief Executive Officer and in July 2001 was elected Chairman of the Board of Directors.

Mr. Gorey
joined the Company as Manager of Corporate Accounting in July 1985. He was made Controller of the Company in 1987, elected Vice President in 1994, and was elected Chief
Financial Officer and Treasurer in November 1996. In August 2001, Mr. Gorey was elected to the Board of Directors.

Ms. Riley
joined the Company as Assistant General Counsel and Assistant Secretary in 1991, was elected General Counsel and Secretary in 1997 and a Vice President in 1999.

There
is no family relationship between any of the officers described above.

None
of the officers described above are party or otherwise involved in any legal proceedings adverse to the Company or its subsidiaries.

Item 11.    Executive Compensation

The information required in response to this item is set forth under the caption "Executive Compensation" of our Definitive Proxy
Statement for the Annual Meeting of
Stockholders to be held on November 13, 2008 and is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Some of the information required in response to this item is set forth under the caption "Stock Ownership of Certain Beneficial Owners"
of our Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 13, 2008 and is incorporated herein by reference.

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Equity Compensation Plan Information

As of June 30, 2008, we have two outstanding stock option plans which were approved by our shareholders in November 2001.
Additional information relating to our stock option plans appears in Note 7 to our consolidated financial statements included herein.

The
following table details information regarding our equity compensation plans as of June 30, 2008:

(a)

(b)

(c)Plan Category

Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities remaining
for future issuance under equity
plans (excluding securities
reflected in column (a))Equity compensation plans approved by security holders


830,670

$
18.72


611,996Equity compensation plans not approved by security holders








830,670

$
18.72


611,996


Item 13.    Certain Relationships, Related Transactions and Director Independence

The information required in response to this item is set forth under the caption "Certain Transactions and Business Relationships" and
the subsections entitled "Director Independence" and "Related Person Transactions" under the caption "Corporate Governance" of our Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on November 13, 2008 and is incorporated herein by reference.

Item14.    Principal Accountant Fees and Services

The information required in response to this item is set forth under the caption "Audit and Other Fees Paid to Grant
Thornton LLP" of our Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 13, 2008 and is incorporated herein by reference.

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PART IV

Item 15.    Exhibits and Financial Statement Schedule

Item
Number



Page Number in
This Report(a).1.

Financial StatementsReports of Independent Registered Public Accounting Firm

33Consolidated Statements of Operations for the years ended June 30, 2008, 2007 and 2006

34Consolidated Balance Sheets as of June 30, 2008 and 2007

35Consolidated Statements of Shareholders' Equity for the years ended June 30, 2008, 2007 and 2006

36Consolidated Statements of Cash Flows for the years ended June 30, 2008, 2007 and 2006

37Notes to Consolidated Financial Statements

38-63(a).2.

Financial Statement ScheduleThe financial statement schedule listed under Item 15(d) is filed as part of this annual report. All other schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or
because they are not applicable or not required.(b).

Exhibits*

Management contract or compensatory plan or agreement2.1

Stock Purchase Agreement by and among Signal Group, Inc., Quixote Corporation and Quixote Transportation Safety, Inc. relating to the purchase and sale of all of the issued and outstanding capital stock of Quixote Traffic Corporation,
U.S. Traffic Corporation and Peek Traffic Corporation dated July 25, 2008, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated July 24, 2008 and filed on July 28, 2008, File No. 001-08123, and
incorporated herein by reference.3.(a)

Restated Certificate of Incorporation as amended November 22, 2005 filed as Exhibit 3(a) to the Company's Form 10-Q Report for the quarter ended December 31, 2005, File No. 001-08123, and incorporated herein by reference;
Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock dated July 24, 1998, filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated July 23, 1998, File
No. 001-08123, and incorporated herein by reference.(b)

Amended and Restated By-Laws of the Company as amended through July 24, 2008, filed as Exhibit 3 to the Company's Current Report on Form 8-K dated July 24, 2008 and filed on July 28, 2008, File No. 001-08123, and
incorporated herein by reference.4.(a)

Indenture dated as of February 9, 2005 between Quixote Corporation and LaSalle Bank National Association, as Trustee, filed on February 10, 2005 as Exhibit 4(a) to the Company's Current Report on Form 8-K, File No. 001-08123,
dated February 9, 2005, and incorporated herein by reference.


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Table of Contents

Item
Number4.(b)

Form of 7% Convertible Senior Subordinated Note Due 2025, filed on February 10, 2005 as Exhibit 4(b) to the Company's Current Report on Form 8-K, File No. 001-08123, dated February 9, 2005 and
incorporated herein by reference.4.(c)

Registration Rights Agreement dated as of February 9, 2005 by and among Quixote Corporation, and the Buyers as defined therein, filed on February 10, 2005 as Exhibit 4(c) to the Company's Current Report on Form 8-K, dated
February 9, 2005, File No. 001-08123, and incorporated herein by reference.10(a)

Amended and Restated Credit Agreement dated as of April 20, 2005 among Quixote Corporation as the borrower (the "Borrower") and LaSalle Bank National Association as lender (the "Lender"); Revolving Loan Note dated April 20, 2005 from
Borrower to the Lender; and the following additional auxiliary documents all dated as of April 20, 2005: Reaffirmation and Amendment of California Deed of Trust between Energy Absorption Systems, Inc. and Lender; Reaffirmation and Amendment
of Pennsylvania Mortgage between Nu-Metrics, Inc. and Lender; Reaffirmation and Amendment of Alabama Mortgage between Energy Absorption Systems (AL) LLC and Lender; Reaffirmation and Amendment of Security Agreement in favor of the Lender by
certain identified subsidiaries of the Borrower; Reaffirmation and Amendment of Trademark Security Agreement in favor of Lender by Energy Absorption Systems, Inc.; Reaffirmation and Amendment of Patent Security Agreement in favor of Lender by
Energy Absorption Systems, Inc.; and Reaffirmation and Amendment of Subsidiary Stock Pledge Agreements in favor of Lender by the Company, Quixote Transportation Safety, Inc., TranSafe Corporation and Energy Absorption Systems, Inc.
filed as Exhibit 10(a) to the Company's Form 10-Q for the quarter ended March 31, 2005, File No. 001-08123, and incorporated herein by reference; First Amendment to Amended and Restated Credit Agreement and Reaffirmation of
Guaranties dated as of December 1, 2006 filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended December 31, 2006, File No. 001-08123, and incorporated herein by reference; Second Amendment to Amended
and Restated Credit Agreement and Reaffirmation of Guaranties dated as of March 15, 2007 and Revolving Loan Note dated as of March 15, 2007 filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended
March 31, 2007, File No. 001-08123, and incorporated herein by reference; Third Amendment to Amended and Restated Credit Agreement and Reaffirmation of Guaranties dated as of November 7, 2007 by and between Quixote Corporation and
certain Subsidiaries thereof and LaSalle Bank National Association and Revolving Loan Note dated as of November 7, 2007 from Quixote Corporation to LaSalle Bank National Association filed as Exhibit 10(a) to the Company's Form 10-Q
Report for the quarter ended September 30, 2007, File No. 001-08123, and incorporated herein by reference.(b)*

1991 Director Stock Option Plan, as amended through August 16, 2000, filed as Exhibit 10(b) to the Company's Form 10-K Report for the fiscal year ended June 30, 2000, File No. 001-08123, and incorporated herein by
reference.(c)*

2001 Employee Stock Incentive Plan, as amended November 18, 2004 and filed as Exhibit F to the Company's DEF Schedule 14A Proxy Statement, File No. 001-08123, filed on October 6, 2004 and incorporated herein by reference;
Form of Employee Stock Option Agreement and Form of Restricted Stock Award Agreement, filed as Exhibits 99(d) and 99(e), respectively, to the Company's Form S-8, File No. 333-120852, filed on November 30, 2004 and incorporated
herein by reference.


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Table of Contents

Item
Number(d)*

2001 Non-Employee Directors Stock Option Plan as amended November 22, 2007 and filed as Appendix B to the Company's DEF Schedule 14A Proxy Statement, File No. 001-08123, filed on October 3, 2007
and incorporated herein by reference; Form of Director Non-Qualified Stock Option Agreement filed on November 19, 2004 as Exhibit 10(c) to the Company's Current Report on Form 8-K, File No. 001-08123, dated November 18, 2004,
and incorporated herein by reference.(e)

Office Lease between the Company and TDC Canada, Inc. and Wacker GP, Inc. (collectively "Landlord") dated August 30, 2003, filed as Exhibit 10(f) to the Company's Form 10-Q Report for the quarter ended March 31,
2004, File No. 001-08133, and incorporated herein by reference; First Amendment to Office Lease dated as of July 1, 2004 between the Company and Landlord, filed as Exhibit 10(f) to the Company's Form 10-K Report for the fiscal
year ended June 30, 2004, File No. 001-08123, and incorporated herein by reference; Second Amendment to Office Lease dated as of July 30, 2007, filed herewith; Lease Agreement between TBC Place Partners, LLC and Highway
Information Systems, Inc. dated August 9, 1999, filed as Exhibit 10(d) to the Company's Form 10-K Report for the fiscal year ended June 30, 1999, File No. 001-08123, and incorporated herein by reference; Office/Warehouse
Lease dated August, 2002 between Teduke Investment Company c/o Bakewell Corporation and Surface Systems, Inc., filed as Exhibit 10 (f) to the Company's 10-K Report for the fiscal year ended June 30, 2002, File No. 001-08123,
and incorporated herein by reference.(f)*

Amended and restated Change of Control Agreement between Quixote Corporation and Leslie J. Jezuit dated July 25, 2008, Amended and restated Change of Control Agreement between Quixote Corporation and Daniel P. Gorey dated July 25,
2008 and Amended and restated Change of Control Agreement between Quixote Corporation and Joan R. Riley dated July 25, 2008, filed as Exhibits 10.1, 10.2 and 10.3, respectively, to the Company's Current Report on Form 8-K dated
July 24, 2008 and filed on July 28, 2008, File No. 001-08123, and incorporated herein by reference; Severance and Non-Competition Agreement between Quixote Corporation and Leslie J. Jezuit dated July 25, 2008, Severance and
Non-Competition Agreement between Quixote Corporation and Daniel P. Gorey dated July 25, 2008, Severance and Non-Competition Agreement between Quixote Corporation and Joan R. Riley, filed as Exhibits 10.4, 10.5 and 10.6,
respectively, to the Company's Current Report on Form 8-K dated July 24, 2008 and filed on July 28, 2008, File No. 001-08123, and incorporated herein by reference.(g)

Exclusive License Agreement made October 10, 1997, and effective October 1, 1997, by and between Robert A. Mileti, Roadway Safety Systems, Inc., Quixote Corporation and TranSafe Corporation, filed as Exhibit 2.2 to the
Company's Form 8-K Report dated October 10, 1997, File No. 001-08123, and incorporated herein by reference.21.

Subsidiaries of the Company23.

Consent of Grant Thornton LLP as an Independent Registered Public Accounting Firm31.

Certifications of the Chief Executive Officer and Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.32.

Certifications of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.Schedule:IIValuation and Qualifying Accounts


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SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunder duly authorized.

|                          |  |                                      |  |                                                            
|------------------------- |  | ------------------------------------ |  | -----------------------------------------------------------
|                          |  | QUIXOTE CORPORATION
    (Registrant)
|Dated: September 15, 2008 |  | By:                                  |  | /s/LESLIE J. JEZUITLeslie J. Jezuit Chief Executive Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Signature

Title

Date/s/LESLIE J. JEZUITLeslie J. Jezuit

Chairman and Director
(President, Chief Executive Officer)

September 15, 2008/s/DANIEL P. GOREYDaniel P. Gorey

Vice President, Chief Financial
Officer, Treasurer and Director

September 15, 2008/s/JOAN R. RILEYJoan R. Riley

Vice President, General Counsel
and Secretary

September 15, 2008/s/JAMES H. DEVRIESJames H. DeVries

Director

September 15, 2008/s/LAWRENCE C. MCQUADELawrence C. McQuade

Director

September 15, 2008/s/DUANE M. TYLERDuane M. Tyler

Director

September 15, 2008/s/ROBERT D. VAN ROIJEN, JR.Robert D. van Roijen, Jr.

Director

September 15, 2008


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QUIXOTE CORPORATION AND SUBSIDIARIES  SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  For the years ended June 30, 2008, 2007 and 2006

Column A

Column B

Column C

Column D(a)

Column EDescription

Balance at
Beginning of
Period

Additions
Charged to
Costs and
Expenses

Deductions

Balance at
End of
PeriodReserve for Doubtful Accounts and Credit Memos:Year ended June 30, 2008

$
957,000

$
(539,000
)
$


$
418,000Year ended June 30, 2007

$
985,000

$
508,000

$
(536,000
)
$
957,000Year ended June 30, 2006

$
804,000

$
181,000

$


$
985,000


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NOTE:

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EXHIBIT INDEX

EXHIBIT
NUMBER

EXHIBITS10
(e)
Second Amendment to Office Lease dated as of July 30, 200721

Subsidiaries of the Company23

Consent of Independent Registered Public Accounting Firm31

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)/15d-14(a))32

Certifications Pursuant to 18 U.S.C. Section 1350


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