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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For the transition period                to               

Commission file number 0-7903

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

Registrant's telephone number including area code: (312) 467-6755

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock ($.01-2/3 Par Value)
(Title of Class)

        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 an accelerated filer as defined by Rule 12b-2 of the Securities Exchange Act of 1934.    Yes  ý    No  o

        State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of the last business day of the registrant's most recently completed second fiscal quarter.

$132,319,480 as of December 31, 2002

        Indicate the number of share outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

8,360,193 shares of the Company's Common Stock ($.01-2/3 par value) were outstanding as of September 16, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

        The Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 13, 2003 which will be filed with the Commission on or about October 1, 2003 is incorporated by reference at Part III.

TABLE OF CONTENTS

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PART I
THE COMPANY

        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. Unless otherwise indicated herein, the terms "Quixote" and the "Company" refer to Quixote Corporation and its subsidiaries.

Item 1.    Business

        Quixote Corporation and its subsidiaries develop, manufacture and market highway and transportation safety products to protect, direct and inform motorists and highway workers in both domestic and international markets. These products include energy-absorbing highway crash cushions, flexible post delineators, electronic wireless measuring and sensing devices, weather information systems and forecasting services, variable message signs, highway advisory radios, intelligent intersection control devices and other highway and transportation safety devices.

        As of June 30, 2003, Quixote Corporation and its subsidiaries employed approximately 1,250 people.

Description of Business

        The Company's operations are comprised of two reportable segments within the highway and transportation safety industry, concentrating on safety problems and designing products to provide solutions for the highways. The Company's two reportable segments are—the manufacture and sale of highway and transportation safety products which "Protect and Direct", and the manufacture and sale of products and services which "Inform" that are often referred to as Intelligent Transportation Systems (ITS) products. The Company's 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 Company's Inform segment provides solutions for improving traffic flow and safety on roads and runways by providing information. The Company's products are sold by both a direct sales force and a distribution network to customers in the highway construction and safety business, state departments of transportation and other governmental transportation agencies.

Protect and Direct Segment

        In the category of products which reduce the severity of crashes within the Protect and Direct segment, the Company's patented highway crash cushions were first conceived and developed in 1969 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 that time, 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.

        The Company develops, manufactures and markets lines of patented highway crash cushion systems 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. The Company also manufactures and sells 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

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(delineators) and a glare screen system. The guide posts are used to delineate a travel way, channel vehicles or mark the location of an object. The post features a patented, in-ground anchor system that permits inexpensive repair and replacement techniques. The glare screen system, also made from polyethylene, is installed on top of median barriers to eliminate the distraction of lights from oncoming vehicles. The Company's products within the Protect and Direct segment also include a crashworthy barrier arm for use at areas such as railroad crossings, tollroads and as security for access ways, driveways and parking lots. In addition, the Company markets 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 the Company's business within the highway and transportation safety industry, in 1998 the Company began acquiring companies that manufacture ITS products which provide information to prevent crashes from occurring, which comprise the Inform segment. Highway Information Systems, Inc. (HIS), acquired in April 1998, manufactures highway advisory radio systems that help control the flow of traffic by informing motorists of accidents and traffic delays. In December 1998, the Company acquired Nu-Metrics, Inc., which provides the Company with electronic wireless measuring and sensing devices that gather and use information to relieve traffic congestion. In January 2001, the Company acquired National Signal, Inc. With this acquisition, the Company acquired mobile variable message signs, directional displays and warning lights for the transportation industry. In August 2001, the Company acquired Surface Systems, Inc. This acquisition expands the Company's offering of pavement sensing equipment and specialized road and runway weather stations and also gained both road condition and weather forecasting services. Effective May 16, 2003, the Company acquired U.S. Traffic Corporation (UST). The UST business provided an extensive array of intelligent intersection control systems and other traffic control products.

        The Company's expanded highway and transportation safety products within the Inform segment include devices which can be used to measure distance and perform repetitive spacing to within one inch per mile and include portable or permanent sensors that record volume, speed, and length classification of vehicles. These sensors also collect, analyze and store traffic and road surface condition and freezing point data which can be relayed on a real-time basis for monitoring to a transportation department's base computer or control center via telephone, cellular link, fiber optic connection or a wireless link. The Company also manufactures and markets road/runway traffic and weather information systems. Using a tower equipped with weather instruments and special detectors, these systems can detect freezing conditions and provide valuable weather and traffic data to transportation departments or airports in order to dispatch salt trucks or automatically activate anti-icing systems.    The Company's products within the Inform segment also include traffic controllers, in-ground vehicle detectors, permanently-mounted and mobile variable message signs, directional displays, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, illuminated transportation signage and tunnel lighting. Traffic controllers and detectors are devices that control traffic signal operations at intersections either with preset timers or with detectors that enable the signals to change in response to variations in traffic. Permanently-mounted and mobile variable message signs provide advance warning and directional information to oncoming drivers to assist in diverting and controlling traffic around areas of potential hazard. These LED signs and displays can be electronic, solar or diesel powered. UPS is a power supply system with battery backup that keeps a lighted intersection operating either normally or in flash-mode during a power interruption. Traffic and pedestrian signals are LED or incandescent signals for intersection operations and pedestrian crossings which may include countdown warnings before a signal changes. The Company also provides specialty lighting solutions for roadway and pedestrian tunnels, subways and other areas. The Company is a leading manufacturer of highway advisory radio (HAR) systems that broadcast traffic information using an AM radio frequency. HAR systems, in conjunction with flashing lights and message signs, advise drivers to tune into a particular

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AM station to communicate messages about traffic, road conditions and weather with reception up to six miles from the unit. One of the Company's newly developed products is the Intellizone® system which is designed to provide real-time information to motorists who are approaching construction zones by connecting traffic and/or weather sensors and variable message signs through software.

        The Company also provides product education, selection and application assistance. The Company, in some cases, performs site preparation and installation services for its products. These services are primarily performed by the Company's distributor/contractor network.

        Financial information relating to industry segments appears in Note 16 of the notes to Company's consolidated financial statements included herein.

Competition and Marketing

        The Company's products are sold in all 50 U.S. states and internationally. Domestically, the Company sells either through a distribution network or through a direct sales force. The distribution network consists of regional managers which supervise 49 domestic distributors and also make direct sales in areas not covered by distributors. The Company sells its 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 made by state and local governmental agencies, the federal government is not a direct purchaser of the Company's domestic products. For certain products, the Company sells through catalogs and inside sales personnel.

        Many foreign governments are now beginning to recognize the need for crash cushions and the Company's other highway safety products as a method of reducing traffic congestion and fatalities. The Company's products are sold outside of the U.S through a network of 60 distributors who make sales to municipal and national governments and contractors who are responding to bids from their respective governments.

        The Company does experience competition in many of its product lines. The Company believes it is a leading U.S. manufacturer of transportation safety products, however many of the Company's competitors offer similar products to those supplied by the Company, and a few are better capitalized than the Company. Within the Protect and Direct segment, particularly in the sand barrel, QuadGuard®, REACT 350® and TMA product lines, the Company competes in the U.S. market for crash cushions with Syro, Inc., a subsidiary of Trinity Industries, Inc., (NYSE TRN), with TrafFix Devices, Inc. and with other smaller regional companies. 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 the Company. A number of other companies manufacture flexible sign and guide post systems. Within the Inform segment, the Company experiences rigorous competition in selling certain product lines as they are generally sold through a bidding process. These product lines may include the Company's road/runway traffic and weather information systems, permanently-mounted and mobile variable message signs, traffic and detection controllers, traffic and pedestrian signals and lighting products. There are a few companies that manufacture and sell highway advisory radio systems. The Company's traffic counters and sensors compete with many different companies which may sell sensors using different technologies including microwave and infra-red sensors and machine-vision (video) that each offer certain advantages.

        Competition may have an adverse effect on the selling prices and profit margins of certain product lines, and depending on the product mix sold, can adversely affect the Company's financial results. The Company believes that it has competed effectively through its own advanced product development and patent protection, quality and price, and the effectiveness of its strong distribution network. The awarding of large contract orders by state departments of transportation and the timing of those awards

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also has an effect on the Company's sales and may affect the Company's results in any one particular fiscal period.

Government Policies and Funding

        The domestic market for highway and transportation safety products is directly affected by federal, state and local governmental policies. A portion of the Company's 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. The current six-year federal highway bill (TEA-21) expires on September 30, 2003. The next highway bill (SAFETEA) is currently under consideration by the federal government. The current federal legislation currently includes, and is expected to include, a guaranteed amount of funding for highway safety programs. These federal funds are currently based on gasoline tax revenues. The states must currently set aside 10% of the federal funds received each year under TEA-21 for safety construction activities such as hazard elimination. Many of the Company's 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 approval is gained after a formal submission to the FHWA that makes the products eligible for federal funds for certain highway projects. The Company is obligated to seek such approval for improvements or upgrades to such devices and for any new devices. 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 the Company's financial results. In addition, the majority of states are currently operating at budget deficits.

        Foreign government policies and funding vary by country in regard to highway and transportation safety. In many cases, local additional testing of the Company's products may be required in order to obtain certification.

Backlog

        As of June 30, 2003, 2002 and 2001, the Company had a backlog of unfilled orders for highway safety devices of $28,364,000, $12,667,000, and $7,986,000, respectively. The backlog as of June 30, 2003 included $14,799,000 related to the UST acquisition. The Company can usually fill an order within two days to 8 weeks of receipt depending on the type of product.

Research and Development; Patents

        Many of the Company's products have patented features and the Company conducts its own research, development and testing of new products before introducing them to the marketplace. The expenditures for research and development activities were $2,356,000, $2,468,000 and $1,752,000 for the fiscal years 2003, 2002 and 2001, respectively. The Company maintains its own crash test facility in California.

        The Company develops new products by working with federal, state and local highway officials to determine highway traffic safety needs, and then designs products to satisfy those needs. The Company is 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 within the impact technology area, the Company is seeking to develop or to acquire new products which can be sold through its existing distribution networks to its existing customers.

        The Company owns a number of U.S. and foreign patents covering its major products. It actively seeks patent and trademark protection for new developments.

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Raw Materials

        The principal raw materials used in the production of highway 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. The Company believes that adequate supplies of these materials will continue to be available.

Major Customers

        No single customer of the Company represents a significant portion of total revenues. However, approximately 12% and 10% of the Company's consolidated revenues resulted from sales to customers in the states of Texas and California, respectively, in fiscal 2003. Customers may consist of distributors, contractors, departments of transportation, state agencies, local governments or municipalities. A change in policy in state spending could materially affect the Company's sales in that state.

Seasonality

        The Company's sales are seasonal. The domestic highway maintenance and construction season tends to reach its peak in the Company's fourth and first fiscal quarters. As a result, the Company's sales and earnings in these quarters are the strongest with weaker sales and earnings occurring in the second and third fiscal quarters.

Foreign and Domestic Operations and Revenues

        The Company's business is conducted principally in the United States, with sales outside of the United States as follows: $13,545,000, $8,596,000 and $9,489,000 in 2003, 2002 and 2001 respectively.

Other

Discontinued Operations

        In fiscal years 1996 and 1997, the Company sold substantially all of the assets and transferred significant operating liabilities of Disc Manufacturing, Inc. and its legal technologies businesses. During the year ended June 30, 2002, the Company recorded a gain of $927,000, or $0.11 per diluted share, which was net of income tax provisions of $521,000, due to the adjustment of certain accruals related to contingencies which the Company no longer believes are probable and from the favorable outcome of a legal settlement.

Available Information

        The Company files 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 SEC maintains an internet website at http://www.sec.gov that contains access to filings of issuers that file electronically with the SEC. The Company also maintains an internet website at http://www.quixotecorp.com that contains access to its public filings and other information regarding the Company. The Company makes its public filings available as soon as reasonably practicable after such material is filed, or furnished, to the SEC. A copy of the Company's filings will also be furnished free of charge upon request of the Company.

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Item 2.    Properties

**

Effective January 2004, the executive offices of the Company will relocate to 35 East Wacker Drive, Chicago, Illinois.

        The Company believes that its principal plants are suitable and adequate for the manufacturing and other activities performed at those plants. In addition to the principal facilities listed above, the Company has international locations used primarily for sales activities.

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Item 3.    Legal Proceedings

        In October 2002, Energy Absorption Systems, Inc. was served in a matter entitled Bedlinger v. The Mills Corporation, Gaylord Entertainment and Safe-Hit Corporation, State of Tennessee Circuit Court of Davidson County, No. 02C2832. The Complaint alleges that plaintiff was injured when she tripped over a surface mount twist-lock and post in a parking lot and seeks judgment for $1,000,000 in damages The case has been forwarded to the Company's insurance carrier and discovery is proceeding.

        The Company is involved in other legal proceedings and claims arising out of the conduct of its business. The Company believes, after consultation with counsel, that the outcome of such proceedings and claims will not have a material, adverse effect on the Company's consolidated financial condition or 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 2003.

PART II

Item 5.    Market for the Registrant's Common Equity and Related Stockholder Matters

        The Company's common stock is quoted on The Nasdaq Stock Market®, under the symbol QUIX. Set forth are the daily high and low sales prices for the Company's common stock for the periods indicated, as reported by the Nasdaq.

        The current quoted price of the stock is listed daily in The Wall Street Journal in the Nasdaq National Market System section. As of September 16, 2003, there were 1,163 shareholders of record.

Dividend Policy

        During 2003, the Company declared semi-annual cash dividends of sixteen cents per share and seventeen cents per share. During 2002, the Company declared semi-annual cash dividends of sixteen cents per share each declaration.

Equity Compensation Plan Information

        As of June 30, 2003, the Company has two outstanding stock option plans which were approved by the shareholders of the Company in November 2001. Additional information relating to the Company's stock option plans appears in Note 8 to the Company's consolidated financial statements included herein.

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        The following table details information regarding the Company's equity compensation plans as of June 30, 2003:

Recent Sales of Unregistered Securities

        Effective May 16, 2003, in connection with the acquisition of U.S Traffic Corporation (UST), the Company issued 558,534 shares of the Company's common stock to the sellers of UST. The Company registered the resale of those shares by filing a Form S-3 on July 9, 2003.

Item 6.    Selected Financial Data

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

2003 COMPARED TO 2002

        The Company's sales increased 27% to $114,310,000 in 2003 from $89,694,000 for 2002 due to organic sales growth for both segments as well as sales growth from an acquisition completed during the year. Organic sales for 2002 were unusually low as the Company believes it was affected by both generally weak economic conditions and state budgetary positions. Sales for the Protect and Direct segment for 2003 increased 15% to $77,243,000 from $67,225,000 for 2002. Sales increased across the Company's Protect and Direct product lines with the exception of sales of parts, sand-filled barrels and the FreezeFree™ anti-icing system. Sales of truck-mounted attenuator (TMA) products increased 66% and sales of permanent crash cushions increased 19%. Sales for the Inform segment for 2003 increased 65% to $37,067,000 from $22,469,000 for fiscal 2002 primarily due to the acquisition of U.S. Traffic (UST) in May 2003 and Surface Systems, Inc. (SSI) in August 2001. These two acquisitions added $6,891,000 of sales in fiscal 2003 not comparable to the prior year. Organic sales for this segment increased 34% due to higher sales across the Company's Inform product lines. The growth in sales of advanced sensing systems and variable message signs was due to shipments of two large contracts, including $2,800,000 in Ohio to supply weather and traffic sensing systems and $1,248,000 in variable message signs and arrowboards in California. Geographically, the Company's increase in sales was helped by strong international sales which increased $4,949,000, or 58%, to $13,545,000 in 2003 compared to $8,596,000 for 2002. Of the increase, $1,193,000 was due to an increase in sales of the Triton Barrier® product in Australia related to new legislation passed in Australia requiring positive protection for all highway work zones. Domestic sales increased 24% due principally to the acquisition of UST. Organic domestic sales increased 16% due to the sales increases across both segments mentioned earlier.

        The gross profit margin for 2003 was 40.5% compared to 40.1% for 2002. The modest increase in gross profit margin was due to an increase in gross profit margin for the Protect and Direct segment partially offset by a decrease in the gross profit margin for the Inform segment. The increase in the gross profit margin for the Protect and Direct segment was due to the volume efficiencies associated with the higher level of sales offset by an adverse change in product sales mix with higher sales of the lower margin TMA product line. The decrease in the gross profit margin for the Inform segment was primarily due to an adverse change in product sales mix with higher sales of lower margin large contract shipments. Also contributing to the decline in gross profit margin for the Inform segment was the impact of the acquisitions of UST and SSI as those gross profit margins are lower than the segment's historical gross profit margin. The Company estimates its consolidated gross profit margins to be in the range of 38% to 40% for fiscal 2004.

        Selling and administrative expenses for 2003 increased 20% or $4,755,000 to $28,730,000 from $23,975,000 for 2002. Selling and administrative expenses decreased as a percentage of sales to 25.1% of sales for 2003 from 26.7% of sales for 2002. The decrease in the percentage of sales was due to the fixed component of many of the Company's expenses. Also contributing to the decrease in percentage was the acquisition of UST with significantly lower selling and administrative expenses as a percentage of sales than the Company's historical percentage. The increase in dollars was due to the increase in sales and to the inclusion of selling and administrative expenses from UST and SSI which added approximately $1,452,000 in expenses for the year. The Company estimates selling and administrative expense as a percentage of sales to be in the range of 23% to 25% of sales for fiscal 2004.

        Research and development expenditures were $2,356,000 for 2003 compared to $2,468,000 for 2002. The Company continued with its work on new products as well as upgrades and modifications to existing products including enhancements to its existing line of FreezeFree™ anti-icing systems, TMA products and the Triton Barrier® product. The Company also successfully tested its QuadGuard® CEN

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family of crash cushions under European standards at speeds of 80, 100 and 110 km/h and at all hazard widths.

        Operating profit increased 60% to $15,154,000 in 2003 from $9,489,000 for 2002.

        Interest expense was $906,000 for 2003 compared to $1,184,000 for 2002. Interest expense decreased due to the lower weighted average level of long-term debt outstanding and to lower interest rates for 2003. The Company estimates interest expense to be less than $2 million for fiscal 2004.

        The Company's effective income tax rate for 2003 was 34% compared to an effective income tax rate of 36% for 2002. The decrease in the effective rate was due in part to the continued expected utilization of certain tax planning strategies. The Company estimates its effective income tax rate for fiscal year 2004 will increase to approximately 36% primarily due to higher state taxes related to the acquisition of UST.

        Earnings from continuing operations for 2003 were $9,472,000, or $1.17 per diluted share, compared to $5,897,000, or $0.73 per diluted share, for 2002. Net earnings were $9,472,000, or $1.17 per diluted share, for the year compared to $6,824,000, or $0.84 per diluted share, for 2002. Net earnings for 2002 included a gain from discontinued operations of $927,000, or $0.11 per diluted share, which was net of income tax provisions of $521,000.

2002 COMPARED TO 2001

        The Company's sales decreased 4% to $89,694,000 in 2002 from $93,554,000 for 2001 primarily due to the delay of highway safety construction spending for the Company's products by many states as a result of their revenue collection shortfalls and budget deficits. Sales for the Protect and Direct segment decreased 14% to $67,225,000 from $78,499,000 for 2001. Sales declined across the Company's Protect and Direct product lines with the exception of sales of parts, the Triton Barrier® product and the FreezeFree™ anti-icing system. Sales of the water-filled Triton Barrier product outpaced 2001 as interest grew in the product's functionality as a portable security barrier. The Company began to see interest in one of its newer products, the FreezeFree™ anti-icing system, with $768,000 in sales for fiscal 2002. Sales for the Inform segment increased 49% to $22,469,000 from $15,055,000 for fiscal 2001, primarily due to the acquisitions of SSI in August 2001 and National Signal, Inc. (NSI) in January 2001. These two acquisitions added $11,033,000 of sales in fiscal 2002 not comparable to the prior year. Organic sales for this segment decreased 24% as a result of decreased sales of advanced sensing products and highway advisory radios principally due to the more discretionary demand for these products. Geographically, international sales declined 9% to $8,596,000 in 2002 compared to $9,489,000 for 2001 due to lower sales of the Company's lines of permanent crash cushions and TMA products. Domestic sales decreased 5% and organic domestic sales decreased 16% due to the sales decreases across both segments mentioned earlier.

        The gross profit margin for 2002 was 40.1% compared to 47.0% for 2001. This decline in gross profit margin was principally due to volume inefficiencies associated with the lower level of organic sales for the Protect and Direct and for the Inform segments. The gross profit margin for the Protect and Direct segment declined to a lesser extent as a result of an adverse change in product sales mix with lower sales of the higher margin permanent crash cushions. Contributing to the decline in gross profit margin for the Inform segment was the impact of the acquisitions of SSI and NSI as those gross profit margins are lower than the segment's historical gross profit margin.

        Selling and administrative expenses for 2002 increased 3% or $676,000 to $23,975,000 from $23,299,000 for 2001. Selling and administrative expenses increased as a percentage of sales to 27% of sales for 2002 from 25% of sales for 2001. The increase in the percentage of sales was due to the fixed component of many of the Company's expenses. The increase in dollars was due to the inclusion of selling and administrative expenses from SSI and NSI which added approximately $3,329,000 in

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expenses for the year. Organic selling and administrative expenses for the year decreased $2,653,000, or 11%, due to the decline in both sales and amortization expense as well as cost containment initiatives.

        Research and development expenditures were $2,468,000 for 2002 compared to $1,752,000 for 2001. The increase was due to greater expenditures for upgrades and modifications to existing products like the recently introduced Safe-Stop® 180° TMA with an innovative, more compact design including a tilt feature for easy storage and the QuadGuard® HS crash cushion for impacts up to 70 mph. The Company also worked on developing other new products including wider models of the REACT 350® crash cushion and advanced pavement sensors and software to provide an integrated system solution for collecting and providing traffic information.

        Operating profit decreased to $9,489,000 in 2002 from $18,887,000 for 2001.

        Interest expense was $1,184,000 for 2002 compared to $1,479,000 for 2001. Interest expense decreased due to the lower interest rates for the current year, offset partially by the higher level of average long-term debt outstanding due to the acquisition of SSI.

        Other income was $830,000 for 2002 related to the gain on the sale of the Company's non-highway plastic product line.

        The Company's effective income tax rate for 2002 was 36% compared to an effective income tax rate of 38% for 2001. The decrease in the effective rate was due in part to the utilization of certain tax planning strategies.

        Earnings from continuing operations for 2002 were $5,897,000 compared to $10,843,000 for 2001. Net earnings were $6,824,000, or $0.84 per diluted share, for the year compared to $10,843,000, or $1.35 per diluted share, for 2001. Net earnings for 2002 included a gain from discontinued operations of $927,000, or $0.11 per diluted share, which was net of income tax provisions of $521,000, due to the adjustment of certain accruals related to contingencies which the Company no longer believes are probable of occurring and from the favorable outcome of a legal settlement.

LIQUIDITY AND CAPITAL RESOURCES

        The Company had cash and cash equivalents of $3,753,000 and access to additional cash of $22,756,000 as of June 30, 2003 under its bank credit facility as described in Note 7 to the consolidated financial statements. The Company believes that this three-year unsecured credit facility is an important source of liquidity. The credit agreement provides for a $50 million revolving credit facility and $20 million term loan agreement. The facility contains both fixed and floating interest rate options, at the prime rate or LIBOR rate, plus a margin. It contains affirmative and negative covenants including requirements that the Company maintain certain financial ratios and be profitable each year. The agreement may be renewed one additional year on each anniversary date upon mutual consent of the Company and the banks. The Company currently is in compliance with all covenants of this agreement.

        Operating activities were a source of cash for the Company for fiscal 2003 providing $16,156,000.

        Investing activities used cash of $22,660,000 during fiscal 2003 including $20,158,000 for the purchase of UST. Capital expenditures in 2003 were $2,257,000 and patent expenditures were $445,000. Offsetting these expenditures somewhat, the Company received payments on a note receivable in the amount of $200,000 related to the sale of the Company's non-highway plastic product line during fiscal 2002.

        Financing activities provided cash of $8,422,000 during 2003. The Company borrowed $20,000,000 on a term loan for the acquisition of UST. The Company made net payments of $6,000,000 against its outstanding revolving credit facility. The payment of the Company's semi-annual cash dividend used cash of $2,489,000. In addition, the Company used cash of $953,000 for the payment of notes payable due in connection with the acquisitions of Roadway Safety Service, Inc., Nu-Metrics, Inc. and NSI. The

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Company also paid $3,024,000 to repurchase 164,000 of its own common shares for the treasury under its share repurchase authorization program. Offsetting these cash payments, the Company received cash of $888,000 from the exercise of common stock options.

        For fiscal 2004, the Company anticipates needing approximately $5,000,000 in cash for capital expenditures. The Company may also need additional cash as it considers acquiring businesses that complement its existing operations. Also, the Company will require additional investments in working capital to maintain growth. The Company may also need additional funds to repurchase its own common stock from time to time. These expenditures will be financed either through the Company's invested cash, cash generated from its operations or from borrowings available under the Company's bank credit facility. The Company believes its existing cash, cash generated from operations and funds available under its existing credit facility are sufficient for all planned operating and capital requirements.

CRITICAL ACCOUNTING POLICIES

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Management's estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 to the Company's consolidated financial statements includes a summary of the significant accounting policies, methods and estimates used in the preparation of the Company's consolidated financial statements. In the opinion of management, the Company does not have any individual accounting policy and does not use any individual estimate that is critical to the preparation of its consolidated financial statements. In most instances, the Company must use an accounting policy or method because it is the only policy or method permitted under U.S. GAAP. The following is a summary of the more significant accounting policies and methods used by the Company:

        REVENUE RECOGNITION    Revenues are recognized when either services have been rendered or both title and risk of loss of products have been transferred to unaffiliated customers, with provision for estimated uncollectible amounts.

        LONG-LIVED ASSETS    Long-lived assets include such items as goodwill, patents, product rights and other intangible assets. Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the Company assesses the possibility of obsolescence, demand, new technology, competition, and other pertinent economic factors and trends that may have an impact on the value or remaining lives of these assets. Additionally, goodwill and other indefinite-lived intangible assets are tested for impairment at least annually using the discounted cash flow method. Patents and other finite-lived intangible assets are amortized on a straight-line basis over the life of the patent or agreement. Amortization expense of $595,000, $398,000, and $1,835,000 was recognized for the years ended June 30, 2003, 2002, and 2001 respectively. Effective July 1, 2001, with the adoption of Statement of Financial Accounting Standard (FAS) No. 142, the Company is no longer required to amortize goodwill and other indefinite-lived intangible assets.

        INCOME TAXES    The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In addition, the amount of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be fully realized.

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        In the preparation of the Company's financial statements, certain normal and recurring estimates are made including estimates in determining the allowance for doubtful accounts receivable, inventory valuation reserves, valuation allowance on deferred tax assets and health care liabilities. These estimates are made using management's best judgment given relevant factors and available data. These estimates may differ from actual results.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

        In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, "Consolidation of Variable Interest Entities," which establishes accounting standards for the consolidation of variable interest entities created after January 31, 2003. In April 2003, the FASB issued FAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities for contracts entered into or modified after June 30, 2003. In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for classification and measurement of certain financial instruments entered into or modified after May 31, 2003 with characteristics of both liabilities and equity. As of June 30, 2003, the Company did not have entities or instruments that apply to these statements. In addition, the Company does not expect that these statements will have a significant impact on fiscal 2004 financial results.

FUTURE OUTLOOK

        The Company has been affected by the general slowdown in U.S. highway safety construction spending for the Company's products. The Company believes this is due principally to revenue shortfalls and budget deficits at the state level where the majority of states are currently operating at a deficit. The current six-year federal highway bill (TEA-21) expires on September 30, 2003. The next highway funding bill is currently under consideration by the federal government and it is uncertain what the future federal governmental spending levels will be. Given the current uncertain economic conditions, the Company remains cautious about its prospects for 2004.

        The Company experiences fluctuation in its gross profit margin from quarter to quarter primarily due to sales volume related to seasonality, variability in product mix and changes in the competitive environment. In addition, the Company has acquired complementary businesses over the past several years and, as part of its strategy, may continue to acquire complementary businesses. The gross profit margins of certain acquired product lines are lower than the Company's historical gross profit margin, which is adversely affecting the Company's gross profit margin. Additional acquisitions may have a continuing adverse impact on the Company's gross profit margin. The Company is also experiencing rigorous competition in its variable message sign and weather sensing system product lines. The Company does not believe these trends will improve in the near future.

Item 7.A.    Quantitative and Qualitative Disclosures About Market Risk

        The Company's market risk is primarily the potential loss arising from adverse changes in interest rates. The Company's long-term debt obligations are primarily at variable LIBOR-associated rates and fixed interest rates and are denominated in U.S. dollars. In order to minimize the long-term costs of borrowing, the Company manages its interest rate risk by monitoring trends in rates as a basis for determining whether to enter into fixed rate or variable rate agreements. The Company does not have any derivative instruments associated with interest rates and is not a party to any transactions involving leveraged derivatives as of June 30, 2003. During July 2003, the Company entered into an interest rate swap agreement to set a fixed interest rate relating to $20 million of its outstanding debt at variable interest rates. As described in Note 7 to the consolidated financial statements, the amount of long-term debt outstanding as of June 30, 2003 and 2002 was $39,789,000 and $24,772,000, respectively. A

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hypothetical 1% increase in interest rates would have adversely affected the Company's 2003 and 2002 net earnings and cash flows by approximately $147,000 and $160,000, respectively.

        The majority of the Company's business is transacted in U.S. dollars and the U.S. dollar is considered the primary currency for the majority of the Company's operations. Although the Company continues to evaluate derivative financial instruments to manage foreign currency exchange rate changes, the Company did not hold such derivatives during 2003 or 2002. 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. However, there were no significant transaction gains or losses during 2003 or 2002 and the Company does not believe it is currently exposed to any material risk of loss from currency exchange fluctuations.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

        The Company is subject to certain debt obligations, guarantees, commitments and contingent liabilities further described in the notes to the consolidated financial statements. The following table presents the Company's contractual obligations to make future payments under contracts, such as debt and lease agreements, as of June 30, 2003:

FORWARD LOOKING STATEMENTS

        Various statements made within the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report constitute "forward-looking statements" for purposes of the SEC's "safe harbor" provisions under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934, as amended. Any statement that addresses expectations or projections about the future, including statements about the Company's strategy for growth, product development, market position, expenditures and expected financial results, are forward-looking statements.

        Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the Company's public filings with the SEC, news releases and other communications, which speak only as of the dates of those filings or communications. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. There can be no assurance that actual results will not differ materially from the Company's expectations. Factors which could cause materially different results include, among others, uncertainties related to continued federal and state funding for highways and risks related to reductions in government expenditures; the successful completion and integration of acquisitions; the introduction and acceptance of the Company's products and services; an unfavorable change in product sales mix; seasonality along with the extent and timing of the award of large contracts; the cyclical nature of the Company's governmental markets; competitive and pricing pressures; increasing raw material costs; excess manufacturing capacity; weather conditions; acts of war and terrorist activities; the possible impairment of intangible assets; and general economic conditions.

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Item 8.    Financial Statements and Supplementary Data

REPORT OF INDEPENDENT AUDITORS

To the board of directors and shareholders of Quixote Corporation:

        In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Quixote Corporation and its subsidiaries at June 30, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of the consolidated financial statements.

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QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the consolidated financial statements.

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QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

The accompanying notes are an integral part of the consolidated financial statements.

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QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of the consolidated financial statements.

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    NATURE OF BUSINESS

        Quixote Corporation and its subsidiaries (the Company) develop, manufacture and market, to both domestic and international markets, energy-absorbing highway crash cushions, flexible post delineators, electronic wireless measuring and sensing devices, weather forecasting stations, variable message signs, computerized highway advisory radio transmitting systems, intelligent intersection control devices and other highway and transportation safety products to protect, direct and inform motorists and highway workers.

2.    ACCOUNTING POLICIES

        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. The Company considers these short-term instruments to be cash equivalents.

        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.

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

        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 the Company's long-term debt is estimated to approximate the carrying value based upon borrowing rates currently available to the Company for borrowings with similar terms and maturity.

        INCOME TAXES    The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In addition, the amount of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be fully realized.

        INVENTORIES    Inventories are valued at the lower of cost (first-in, first-out method) or market.

        LONG-LIVED ASSETS    Long-lived assets include such items as goodwill, patents, product rights and other intangible assets. Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the Company assesses the possibility of obsolescence, demand, new technology, competition, and other pertinent economic factors and trends that may have an impact on the value or remaining lives of these assets. Additionally, goodwill and other indefinite-lived intangible assets are tested for impairment at least annually using the discounted cash flow method. Patents and other finite-lived intangible assets are amortized on a straight-line basis over the life of the patent or agreement.

        MANAGEMENT ESTIMATES    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires

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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.

        PROPERTY, PLANT AND EQUIPMENT    The Company capitalizes expenditures for major renewals and betterments and charges current earnings with the cost of maintenance and repairs. Provisions for depreciation have been computed on a straight-line or systematic method based on the expected useful lives of the assets as indicated below:

        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    The Company capitalizes certain costs incurred in connection with developing or obtaining internal use computer software. During 2003 and 2002, approximately $501,000 and $1,910,000, respectively, of computer software was capitalized relating to a new manufacturing and accounting system.

        RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS    In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, "Consolidation of Variable Interest Entities," which establishes accounting standards for the consolidation of variable interest entities created after January 31, 2003. In April 2003, the FASB issued Statement of Financial Accounting Standard (FAS) No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities for contracts entered into or modified after June 30, 2003. In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for classification and measurement of certain financial instruments entered into or modified after May 31, 2003 with characteristics of both liabilities and equity. As of June 30, 2003, the Company did not have entities or instruments that apply to these statements. In addition, the Company does not expect that these statements will have a significant impact on fiscal 2004 financial results.

        REVENUE RECOGNITION    Revenues are recognized when either services have been rendered or both title and risk of loss of products have been transferred to unaffiliated customers, with provision for estimated uncollectible amounts.

        SHIPPING AND HANDLING    Shipping and handling fees charged to customers are included in net sales, and shipping and handling costs incurred by the Company are included in cost of sales.

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

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        STOCK-BASED COMPENSATION    Stock option plans, more fully described in Note 8, are accounted for under the provisions of FAS No. 123, "Accounting for Stock-Based Compensation," which encourages entities to adopt a fair value based method of accounting for stock-based compensation plans in place of the provisions of Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," for all arrangements under which employees receive shares of stock or other equity instruments of the employer. As allowed by FAS No. 123, the Company applies the provisions of APB No. 25 in accounting for its stock-based employee compensation arrangements. No compensation expense has been recognized for stock option grants as all such grants had an exercise price not less than fair market value on the date of grant. The following table presents the pro forma effects on net earnings and earnings per share if the Company had applied the fair value recognition provisions of FAS No. 123 to stock-based compensation for the years ended June 30: