<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 30, 1997
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Commission File Number: 0-21737
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Zimmerman Sign Company
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(Exact name of Registrant as specified in its charter)
TEXAS 75-0864498
- ------------------------------ ---------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
9846 HIGHWAY 31 EAST, TYLER, TEXAS 75705
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (903) 535-7400
NOT APPLICABLE
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Former name, former address and fiscal year, if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes X . No .
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1,854,692 SHARES OF COMMON STOCK, $0.01 PAR VALUE
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Common Stock Outstanding as of August 1, 1997
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ZIMMERMAN SIGN COMPANY
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996 . . . . . . . . . . . . . . . . 1
Statements of Operations (unaudited) for the three
months ended June 30, 1997 and 1996. . . . . . . . . . 2
Statements of Operations (unaudited) for the six months
ended June 30, 1997 and 1996 . . . . . . . . . . . . . 3
Statements of Cash Flows (unaudited) for the six months
ended June 30, 1997 and 1996 . . . . . . . . . . . . . 4
Notes to Financial Statements. . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . 6
PART II - OTHER INFORMATION
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Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . . . 8
Item 2 Changes in Securities. . . . . . . . . . . . . . . . . . 8
Item 3 Default Upon Senior Securities . . . . . . . . . . . . . 8
Item 4 Submission of Matters to a Vote of Security Holders. . . 8
Item 5 Other Information. . . . . . . . . . . . . . . . . . . . 8
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 8
Signatures. . . . . . . . . . . . . . . . . . . . . . . 9
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ZIMMERMAN SIGN COMPANY
Balance Sheets
June 30, 1997 and December 31, 1996
1997 1996
ASSETS ------------ ------------
(UNAUDITED)
Current assets:
Cash $ 11,449 $ 132,483
Accounts receivable, net of allowance for
doubtful accounts of $108,184 in 1997 and
$100,000 in 1996 8,295,704 10,140,903
Inventories 14,545,232 13,607,758
Prepaids and other current assets 613,175 482,825
Deferred tax assets 451,398 --
------------ ------------
Total current assets 23,916,958 24,363,969
Property, plant and equipment, net 3,014,713 3,152,903
Other assets 564,584 637,069
------------ ------------
$27,496,255 $28,153,941
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt $ 1,518,000 $ 1,170,000
Accounts payable 6,715,285 5,124,465
Accrued expenses 1,265,467 1,408,615
Dividend payable 1,000,000 1,000,000
Customer deposits 1,040,190 758,637
------------ ------------
Total current liabilities 11,538,942 9,461,717
------------ ------------
Long-term debt, excluding current installments 24,883,000 28,555,000
------------ ------------
Stockholders' deficit:
Preferred stock, $.01 par value. Authorized
2,000,000 shares; none issued
Common stock, $.01 par value. Authorized 15,000,000
shares; 1,854,692 shares issued and outstanding 18,547 18,547
Accumulated deficit (8,944,234) (9,881,323)
------------ ------------
Total stockholders' deficit (8,925,687) (9,862,776)
------------ ------------
$27,496,255 $28,153,941
============ ============
See accompanying notes to financial statements
1
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ZIMMERMAN SIGN COMPANY
Statements of Operations
Three Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
------------ ------------
Net sales $ 11,211,504 $ 10,467,271
Cost of goods sold 8,731,402 8,120,209
------------ ------------
Gross profit 2,480,102 2,347,062
Selling, general and administrative
expenses 1,467,343 1,009,088
Management fees -- 150,000
Interest expense, net 584,329 177,105
------------ ------------
Income before federal income taxes 428,430 1,010,869
Federal income taxes 190,929 343,695
------------ ------------
Net income $ 237,501 $ 667,174
============ ============
Net income per share $ 0.13 $ 0.36
============ ============
Weighted average number of shares outstanding 1,854,692 1,854,692
============ ============
See accompanying notes to financial statements
2
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ZIMMERMAN SIGN COMPANY
Statements of Operations
Six Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
------------ ------------
Net sales $ 21,355,445 $ 19,527,349
Cost of goods sold 16,631,609 15,357,617
------------ ------------
Gross profit 4,723,836 4,169,732
Selling, general and administrative
expenses 2,842,828 2,151,573
Management fees -- 300,000
Interest expense, net 1,191,208 346,439
------------ ------------
Income before federal income taxes 689,800 1,371,720
Federal income taxes 279,747 466,384
------------ ------------
Net income $ 410,053 $ 905,336
============ ============
Net income per share $ 0.22 $ 0.49
============ ============
Weighted average number of shares outstanding 1,854,692 1,854,692
============ ============
See accompanying notes to financial statements
3
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ZIMMERMAN SIGN COMPANY
Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 410,053 $ 905,336
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 356,974 242,671
Provision for losses on accounts receivable 8,184 7,303
Changes in operating assets and liabilities:
Accounts receivable 1,837,015 115,531
Inventories (937,474) (1,123,410)
Prepaids and other current assets (130,350) 334,244
Deferred tax assets 75,638 --
Other assets (21,495) (4,497)
Customer deposits 281,553 282,832
Accounts payable and accrued expenses 1,447,672 (581,625)
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Net cash provided by operating activities 3,327,770 178,385
----------- ------------
Cash flows used in investing activities - Purchases of
property, plant and equipment, net (124,804) (417,218)
----------- ------------
Cash flows from financing activities:
Payments of revolving line of credit (2,850,000) 325,000
Principal payments on long-term debt (474,000) (150,375)
----------- ------------
Net cash provided by (used in) financing activities (3,324,000) 174,625
----------- ------------
Net decreases in cash or (121,034) (64,208)
Cash at beginning of period 132,483 107,756
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Cash at end of period $ 11,449 $ 43,548
=========== ============
</TABLE>
See accompanying notes to financial statements
4
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ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements have been prepared by Zimmerman Sign
Company (the Company), without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in
cash flows at June 30, 1997 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should
be read in conjunction with the financial statements and notes thereto
included in the Company's 1996 Annual Report to Stockholders. The results of
operations for the periods ended June 30, 1997 are not necessarily indicative
of the operating results for the full year.
2. In conjunction with the spin-off of the Company from its parent,
Independence Holding Company (IHC), on December 31, 1996, deferred tax
assets formerly recorded by IHC on its financial statements are available to
the Company and were recorded as an increase to retained earnings on January
1, 1997.
5
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE ATTACHED
UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO, AND WITH ZIMMERMAN SIGN
COMPANY'S (THE COMPANY) AUDITED FINANCIAL STATEMENTS AND NOTES THERETO FOR THE
YEAR ENDED DECEMBER 31, 1996.
The Company's net sales for the three month period ending, June 30, 1997
increased $745,000 or 7.1% to $11,212,000 from $10,467,000 for the same period
last year. Net sales for the six months ended June 30, 1997 increased $1,828,000
or 9.4% to $21,355,000 compared to $19,527,000 for the same period in 1996.
The net sales increase for the six month period is primarily due to increased
sales to petroleum customers.
The Company's gross profit percentage for the three months ended June 30,
1997 decreased slightly to 22.1% from 22.4% for the same period in 1996. For
the six months ended June 30, 1997, the gross profit percentage increased to
22.1% from 21.4% in 1996. The increase for the six month period is due to
higher sales and lower product manufacturing costs.
Selling, general and administrative expenses were $1,467,000 or 13.1% as a
percentage of sales for the quarter ended June 30, 1997 compared to $1,159,000
or 11.1% as a percentage of sales for the same period in the prior year. For
the six months ended June 30, 1997, selling, general and administrative expenses
increased $391,000 to $2,843,000 or 13.3% as a percentage of sales as compared
to $2,452,000 or 12.6% as a percentage of sales for the six months ended June
30, 1996. The increase for the six month period is primarily the result of
amortization of certain costs associated with the Company's 1996
recapitalization, ongoing costs of being a public company, including the
obtaining of services previously provided by its former parent, Independence
Holding Company (IHC), and incurrence of higher health insurance and other
personnel related costs during the first six months of 1997.
The Company's management fee arrangement terminated at December 31, 1996 when
the Company was spun-off from IHC. Services previously provided to the Company
by the parent are now performed by the Company. The costs associated with these
services are reflected in selling, general and administrative expenses in the
1997 quarter and year to date.
Net interest expense increased to $584,000 for the quarter ended June 30, 1997
from $177,000 for the same period in the prior year. Interest expense for the
six months ended June 30, 1997 increased to $1,191,000 from $346,000 for the six
months ended June 30, 1996. This was primarily the result of higher debt
incurred in association with the Company's restructuring and spin-off from IHC.
Income before federal income taxes was $428,000 for the quarter ended June 30,
1997 compared to $1,011,000 for the same period in the prior year, a decrease of
$583,000. Income before federal income taxes for the six months ended June 30,
1997 decreased $682,000 to $690,000 from $1,372,000 for the same period in 1996.
This decrease primarily resulted from expenses related to the Company's
restructuring and spin-off from IHC.
6
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LIQUIDITY AND CAPITAL RESOURCES
Operating working capital (defined as accounts receivable plus inventories, less
accounts payable, including accrued expenses and customer deposits) decreased
$2,637,000 to $13,820,000 at June 30, 1997, compared to operating working
capital of $16,457,000 at December 31, 1996. The decrease in operating working
capital was due to decreased accounts receivable and increased accounts payable
being partially offset by increased inventories. Funds of $3,328,000 were
provided by operating activities for the six months ended June 30, 1997 compared
to $178,000 for the six months ended June 30, 1996. Increases in accounts
payable and accrued expenses and customer deposits as well as a decrease in net
receivables were the primary sources of funds, which were partially offset by
increases in inventory.
Investing activities used $125,000 for the first six months of 1997 as a result
of property and equipment purchases. Financing activities used $3,324,000
primarily as a result of decreased net borrowings under the Company's line of
credit.
The Company's future capital expenditures will relate principally to the
acquisition of new machinery and equipment and furniture and fixtures designed
to increase productivity and factory efficiency. The Company believes its cash
generated from operations and funds available under the existing line of credit
are sufficient for its planned requirements during 1997.
SEASONALITY
The Company's sales exhibit limited seasonality, with sales in the first quarter
generally being the lowest of the four calendar quarters. First quarter sales
tend to be relatively lower because of weather constraints which may restrict
customers' construction activities and may reduce their sign purchases.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, 'Earnings Per Share', which specifies the computation, presentation and
disclosure requirements for earnings per share for entities with publicly held
common stock for both interim and annual periods ending after December 15, 1997.
Management of the Company does not expect the impact from adopting the
provisions of Statement No. 128 in fiscal year 1997 to be material.
FORWARD-LOOKING INFORMATION
This report and other reports and statements filed by the Company from time to
time with the Securities and Exchange Commission (collectively, 'SEC Filings')
contain or may contain certain forward-looking statements and information that
are based upon beliefs of, and information currently available to the Company's
management. When used in SEC Filings, the words 'anticipate', 'believe',
'estimate', 'future', 'intend', 'plan', and similar expressions with prospective
connotations as they relate to the Company and its business identify forward-
looking statements. All forward-looking statements reflect the current views of
the Company with respect to future events and are subject to various risks,
uncertainties and assumptions relating to the Company and its operating
environment which may cause the actual results to vary significantly from those
anticipated. Specific factors that may cause the Company's actual results to
differ from those anticipated in forward-looking statements are discussed in the
Company's most recently filed Form 10-K.
7
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable.
Item 3. Default Upon Senior Securities:
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders:
The Annual Meeting of Shareholders of the Company was held on June 19,
1997. The following proposals were voted upon and approved at the
Annual Meeting:
(1) Election of Directors for a term to be completed at the
Annual Meeting of Shareholders in 1998 or until their
respective successors are duly elected and qualified.
Votes Votes
Cast For Withheld
-------- --------
David E. Anderson 1,550,926 1,480
Tom E. Boner 1,550,946 1,460
Carl A. Goldman 1,550,945 1,461
Steven B. Lapin 1,550,844 1,562
Roy T. K. Thung 1,550,854 1,552
(2) Ratification of the selection of KPMG Peat Marwick LLP as the
Company's auditors for the 1997 fiscal year.
Votes Votes Votes
Cast For Against Abstaining
--------- ------- ----------
1,550,693 870 843
Item 5. Other Information:
Not applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit no. Description
----------- -----------
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on August 6, 1997.
ZIMMERMAN SIGN COMPANY
REGISTRANT
/s/ Jeffrey P. Johnson
------------------------------
VICE PRESIDENT OF FINANCE
(AUTHORIZED OFFICER AND PRINCIPAL FINANCIAL OFFICER)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1997 BALANCE SHEET AND SIX MONTHS ENDED JUNE 30, 1997 INCOME
STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,449
<SECURITIES> 0
<RECEIVABLES> 8,403,888
<ALLOWANCES> 108,184
<INVENTORY> 14,545,232
<CURRENT-ASSETS> 23,916,958
<PP&E> 7,364,849
<DEPRECIATION> 4,350,136
<TOTAL-ASSETS> 27,496,255
<CURRENT-LIABILITIES> 11,538,942
<BONDS> 24,883,000
0
0
<COMMON> 18,547
<OTHER-SE> (8,944,234)
<TOTAL-LIABILITY-AND-EQUITY> 27,496,255
<SALES> 21,355,445
<TOTAL-REVENUES> 21,355,445
<CGS> 16,631,609
<TOTAL-COSTS> 19,474,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,191,208
<INCOME-PRETAX> 689,800
<INCOME-TAX> 279,747
<INCOME-CONTINUING> 410,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 410,053
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
