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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-21737
ZIMMERMAN SIGN COMPANY
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(Exact name of Registrant as specified in its charter)
TEXAS 75-0864498
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(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)
903-535-7400
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(Telephone Number)
Securities registered pursuant to Section 12 (b) of the Act:
NONE
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Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
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(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 X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 or Regulation S-K is not contained herein, and will not be
contained, to the best of the 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. [ ]
1,854,692 shares of common stock were outstanding as of March 17, 1997.
The aggregate market value of the common stock held by non-affiliates of
the Registrant computed by reference to the average bid and asked prices of
such stock as of March 17, 1997 was $2,335,968.
The Exhibit Index is located on page 33 of this filing.
Documents Incorporated by Reference. Portions of the Proxy Statement for the
Annual Meeting of Stockholders scheduled for June 19, 1997 are incorporated
by reference into Part III of this filing.
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PART I
ITEM 1. BUSINESS
BUSINESS
GENERAL
Zimmerman Sign Company (hereinafter, "Zimmerman" or the "Company") operates
as a leading manufacturer of site identification products with a primary
focus on serving large, national and regional retailers. From its plant
locations in Texas, Zimmerman manufactures and sells a variety of signage
products which range from large highway-located site identification signs to
medium-sized brand and product identification signs and building fascia, and
smaller signs for automatic teller machines, gasoline pump toppers, and other
specialty purposes. Zimmerman also provides installation services. A
majority of Zimmerman's revenue is derived from sales to customers in the
petroleum marketing industry. Zimmerman also supplies customers in other
industries of which the automotive, financial services, and convenience store
industry groupings are the most significant.
Zimmerman's typical customer is a United States based retailer which
operates at least several hundred branded locations; many customers have
company-owned and/or independently-owned facilities numbering in the several
thousands. In addition to new store openings, demand for Zimmerman's
products and services is driven by same store maintenance, obsolescence,
facilities upgrading, and brand expansion. Most of Zimmerman's sales have
been to United States based customers; however, Zimmerman has sold product to
and managed installation for international customers.
Zimmerman's principal manufactured product is an exterior site and/or brand
identification sign which is double-faced, pole-mounted, and interior
illuminated. In addition, Zimmerman provides a full complement of related
services, including graphics design, production engineering, expedited
manufacturing and delivery, installation management and maintenance.
Zimmerman is a Texas based company with corporate headquarters in Tyler,
production facilities in Longview and Jacksonville, and a small office in
Dallas. Zimmerman began business as a partnership in 1901, was incorporated
in Texas in 1953, and has operated under its current name, Zimmerman Sign
Company, since 1987. The Company was a subsidiary of Independence Holding
Company from April, 1982 until December 31, 1996 at which time it became a
public company through Independence Holding Company's distribution of its
ownership of Zimmerman to Independence Holding Company's shareholders.
PRODUCTS AND SERVICES
Zimmerman's products include exterior illuminated signs, which vary from
high-rise site identification signs (100-250 square feet) to medium-sized,
on-site identification signs (40-100 square feet), as well as specialty
products such as building fascia, building mounted letters, gasoline pump
toppers and spandrels, and automatic teller machine signage. Zimmerman also
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produces steel poles for certain of its sign products. Typically,
Zimmerman's products carry underlying warranties from paint, plastic and
electrical component manufacturers together with a Zimmerman one-year
warranty covering workmanship defects. Zimmerman has not experienced any
material expense as a result of warranty claims.
Zimmerman provides design, engineering, and prototype development services,
as well as site survey and installation management services.
The Company carries product liability insurance and has not experienced any
material product liability claims.
INDUSTRY OVERVIEW
The United States sign and related products industry is large and highly
fragmented, consisting of over 4,000 participants. Management believes that,
depending on the amount of point of purchase product display and point of
purchase signage included, market size ranges from $4.0 billion to $6.0
billion in sales per annum.
Zimmerman's management believes that its target market, which consists of
large national retailers requiring either long run or short run production
quantity signage, generates sales of approximately $1.0 billion annually.
In addition, Zimmerman pursues special re-identification projects driven by
one-time corporate name changes; this business is often caused by an
acquisition or consolidation, involves very short lead times, and requires
high volume production sign applications.
In the high unit volume production market, customers generally demand
several hundred or more identical units annually. The Company's target
market retailing organizations also have custom production signage
requirements which normally entail delivery of much lower quantities of a
specific sign product over a given year, sometimes as low as five to ten
units. Specifications governing graphics and engineering consistency are
equally demanding in both the high unit volume production and the lower unit
volume custom-production markets. Most of Zimmerman's customers have annual
site identification requirements that span both market components.
COMPETITION
In serving the above markets, Zimmerman frequently competes with (compared
on the basis of estimated annual net sales) approximately four larger firms,
two to three firms of about the same size and approximately ten smaller
firms. In general, these competitors and Zimmerman are the only domestic
sign manufacturers that have the capacity or manufacturing applications to
satisfy the structural or graphics consistency demanded by production
quantity sign users. Zimmerman's principal competitors are Acme Wiley
Corporation, Collins Sign Company, Inc., Cummings Incorporated, Dualite,
Inc., Everbrite, Inc., Federal Sign Company, Milwaukee Sign Company, Inc.,
Mulholland Harper Co., Plasti-Line, Inc. and Young Electric Sign Company.
Zimmerman's competitors for the business of large, national and regional
retailing organizations
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have estimated annual sales up to $140 million, and some have greater
financial and manufacturing resources than Zimmerman. However, Zimmerman
believes that its products, contracts, terms, and warranty are consistent
with those standard in the industry and that it has the ability and resources
to compete effectively and expand in its markets. Management of Zimmerman
believes that sales growth will result from a combination of market
expansion, new customers and extension of product lines.
CUSTOMERS
In order to evaluate marketing effectiveness, customer service
requirements, and monitor other internal results, Zimmerman tracks its
customers by industry groupings. These industry groupings include petroleum
retailers, automobile manufacturers, convenience stores and financial
services organizations. In 1996, the petroleum retailing industry
constituted the Company's single largest industry grouping, as it has for
many years.
As a general rule, the Company's petroleum customers primarily rely on the
Company for product engineering, product production and delivery services.
Sign installation and maintenance services are most often provided by
independent contractors selected by the customer. Despite this general rule,
the Company does provide significant installation services to some of its
petroleum customers. Zimmerman believes its non-petroleum customers
outsource more of their facilities identification requirements than its
petroleum customers and, therefore, rely upon Zimmerman to manage sign
installation through subcontractors employed by Zimmerman.
PRINCIPAL CUSTOMERS
In 1996, the Company had one petroleum industry customer, Citgo, which
accounted for approximately 22% of net sales. The Company has provided sign
products to this customer since the 1970's and believes that, in all material
respects, it is the customer's sole sign supplier. Although no other major
customer accounted for more than 10% of sales in 1996, sales to two customers
accounted for 10% and 9% of net sales, respectively. These customers are a
petroleum retailer and an automotive company.
The Company contracts with its major customers under a variety of
arrangements which range from one to three year contracts. Most contracts
have thirty day cancellation provisions.
MARKETING
Zimmerman sells its products and services to large national and regional
retailers through its five person direct sales force. When appropriate,
Zimmerman's design, engineering, and prototyping services are utilized to
support sales and marketing efforts. Zimmerman believes that its customers
purchase Zimmerman's products and services on the basis of competitive
pricing, product quality, delivery schedules, and support services.
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MANUFACTURING
Zimmerman's manufacturing operations generally involve metal working,
plastic screening and molding, and electrical component installation and sign
assembly. Primary processes include metal cutting, bending, and welding.
Plastic face fabrication operations incorporate distortion screening of sign
graphics onto sheet plastic and vacuum molding of prescreened sign faces.
Electrical components are installed during sign assembly.
MATERIALS
The principal materials utilized in Zimmerman's manufacturing operations
are aluminum, plastic, steel, and electrical components. Most plastic and
aluminum components are customer specific. As a result, the majority of
Zimmerman's inventory purchases are made in conjunction with firm purchase
orders from its customers. Zimmerman believes that its sources of supply and
the availability of raw materials are adequate.
RESEARCH AND DEVELOPMENT
Sign advancements are made at each of Zimmerman's plants. Product
development and improvement involves periodic experimental work with new
paints, painting applications, plastics and composites, and electrical
apparatuses. Typically, product advancements entailing more than engineering
or structural improvements are made in a coordinated effort among the raw
material producer, Zimmerman and the end user. Historically, amounts spent
by Zimmerman on product development which have not been charged directly to
the customer have been immaterial.
EMPLOYEES
Zimmerman had, on average, 440 employees during 1996 of which 338 employees
were covered under collective bargaining agreements.
BACKLOG
As of December 31, 1996, Zimmerman's backlog of unshipped orders totaled
$20.7 million compared to $24.1 million as of December 31, 1995. Customer
commitments to order signs for shipment under blanket orders constitute a
major component of Zimmerman's backlog. Generally, management anticipates
all backlog will be shipped within twelve months. Zimmerman's customers
typically place orders for very large dollar amounts; therefore, backlog
statistics can change significantly within short periods of time. This fact,
coupled with project scheduling changes, decreases the reliability of backlog
as a business indicator.
SEASONALITY
Seasonal influences tend to negatively impact Zimmerman's sales in the
first and last quarter of the calendar year. Zimmerman ships its product
nationally and adverse weather typically impedes outside sign installation in
the first quarter. Adverse weather conditions and holidays
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often negatively impact fourth quarter shipments, particularly in the month
of December. Normal seasonal trends in Zimmerman's business are sometimes
offset, however, by large, special projects involving corporate
identification and/or brand name changes.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information relating to the executive
officers of the Company.
Name Age Position
- ---- --- --------
David E. Anderson 52 Chairman and Director
Tom E. Boner 58 President, Treasurer and Director
Michael W. Coppinger 50 Vice President - Sales
John T. Griggs 39 Vice President - Manufacturing
Jeffrey P. Johnson 35 Vice President, Chief Financial Officer and
Secretary
Michael St. Onge 50 Vice President - Customer Service
David E. Anderson has been Chairman of Zimmerman since November 1996 and a
Director since 1982. Mr. Anderson was Chairman of Zimmerman Holdings, Inc.
(formerly the immediate parent company of Zimmerman) for more than five years
prior to November 1996. From 1981 until 1986, he was Executive Vice
President and a Director of Independence Holding Company. Previously, Mr.
Anderson was a Vice President of The Dyson-Kissner-Moran Corporation and a
Vice President of Continental Illinois National Bank and Trust Company of
Chicago.
Tom E. Boner has been President, Treasurer and a Director of Zimmerman
since 1984, having joined Zimmerman in 1981 as Director of Sales and
Marketing. Mr. Boner has over 25 years of experience in the sign industry.
From 1970 to 1975, he was in sales with American Sign and Indicator, and from
1976 until 1981, was with American Bank Equipment Company. Mr. Boner served
as a Director of the International Sign Association from 1986 until 1995 and
was Chairman thereof in 1993.
Michael W. Coppinger has been Vice-President-Sales of Zimmerman since 1987,
having joined Zimmerman in 1982 as a Regional Sales Manager. From 1973 to
1981, he was with State Sign of Houston as a sales representative and was a
Branch Manger for Bajon Sign of Corpus Christi from 1981 to 1982.
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John T. Griggs has been Vice President-Manufacturing of Zimmerman since
1987. Previously, he was a National Sales Manager for Tenncon, Inc. and held
manufacturing and inventory management positions with Aladdin Industries.
Jeffrey P. Johnson has been Vice President and Chief Financial Officer of
Zimmerman since 1990 and Secretary of Zimmerman since December 1996. He
joined Zimmerman in 1985 as Controller. Previously, Mr. Johnson was employed
with Price Waterhouse. Mr. Johnson is a CPA and a member of the AICPA and
the Texas Society of CPAs. He is a Director of the Texas Sign Manufacturers
Association and a Director of the Southwest Sign Council of the International
Sign Association.
Michael F. St. Onge has been Vice President-Customer Service of Zimmerman
since January 1996. Mr. St. Onge has had 18 years of sign industry
experience. Mr. St. Onge was with Jim Pattison Sign Group's Pacific Northwest
Region for more than five years prior to joining Zimmerman serving most
recently as Executive Vice President and General Manager. He is a past
Chairman of the International Sign Association.
ENVIRONMENTAL MATTERS
Compliance with Federal, state and local laws regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment has not had, nor is it expected to have, a material effect upon
Zimmerman's capital expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to
Zimmerman's properties, all of which are located in Texas.
Location Function Square Feet Owned or Leased
- -------- -------- ----------- ---------------
Jacksonville Sign manufacturing 102,000 Leased
Pole manufacturing 10,000 Owned
Longview Sign manufacturing 75,000 Owned
Tyler Corporate Headquarters
and Customer Service 12,000 Leased
Dallas Sales and Administrative 1,000 Leased
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ITEM 3. LEGAL PROCEEDINGS
Zimmerman is party to various legal proceedings, all of which are of an
ordinary or routine nature incidental to the operations of Zimmerman.
Management believes that the final resolution of all matters currently
pending will not have a materially adverse effect on the Company's financial
position or result of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were approved by Zimmerman's shareholders' unanimous
written consent during the fourth quarter of 1996:
1. November 1, 1996 - the declaration of a special dividend in the
aggregate amount of $19,701,000 to the Company's shareholders
2. December 3, 1996 - a 3,863.94 for 1 stock split of the Company's
common stock, implementation of the Company's Stock Option Plan,
Amended and Restated Articles of Incorporation, and Amended and
Restated Bylaws
3. December 30, 1996 - the election of Carl A. Goldman and
Roy T.K. Thung as directors
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Zimmerman's common stock ("Common Stock") is traded under the symbol ZSCO
on the National Association of Securities Dealers, Inc. Over the Counter
Bulletin Board. The Company was a majority owned subsidiary of Independence
Holding Company until December 31, 1996 when Independence Holding Company
distributed all its investment in the Company to Independence Holding
Company's common shareholders. Accordingly, there was no public market for
the Company's Common Stock until January 1997.
During January and February 1997, based on information available from
market makers and NASDAQ, the Company believes the per share prices for the
Company's Common Stock were as follows:
Price Bid Asked
------------ ------------- -------------
High Low High Low High Low
----- ----- ----- ----- ----- -----
$4.50 $2.50 $3.25 $2.50 $4.50 $3.00
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ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data with respect to the
Company for each of the last five years. The selected financial data below
should be read in conjunction with the accompanying Financial Statements and
notes thereto, and Management's Discussion and Analysis of Financial
Condition and Results of Operation (see Item 7, below).
<TABLE>
Year Ended December 31,
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1996 1995 1994 1993 1992
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(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net Sales $41,275 $41,667 $36,427 $33,001 $23,941
Costs and Expenses:
Cost of goods sold 32,415 32,529 28,227 26,143 19,949
Selling, general and
administrative expenses 4,428 4,155 4,024 3,721 3,294
Management fees 600 600 600 600 600
Interest expense, net 996 782 433 291 365
Stock distribution costs 1,106 - - - -
------- ------- ------- ------- -------
Total costs and expenses 39,545 38,066 33,284 30,755 24,208
------- ------- ------- ------- -------
Income (loss before)
federal income taxes 1,730 3,601 3,143 2,246 (267)
Federal income taxes 588 1,224 1,069 768 (91)
------- ------- ------- ------- -------
Net income (loss) $ 1,142 $ 2,377 $ 2,074 $ 1,478 $ (176)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
BALANCE SHEET DATA:
Total assets $28,154 $25,957 $22,287 $18,097 $13,578
Current liabilities 9,462 7,839 8,129 6,287 3,970
Long-term debt, excluding
current installments 28,555 9,422 7,839 4,715 3,900
Stockholders' equity (deficit)(1) (9,863) 8,696 6,319 7,095 5,618
PER SHARE DATA(2)
Cash dividends declared per
common share $ 10.62 - $ 1.54 - -
Net income (loss)
per common share $ .62 $ 1.28 $ 1.12 $ .80 $ (.09)
Book value per
common share $ (5.32) $ 4.69 $ 3.41 $ 3.83 $ 3.03
</TABLE>
(1) Dividends of $2,850,000 and $19,701,000 were declared in 1994 and 1996,
respectively.
(2) 1,854,692 shares are outstanding all periods.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of Zimmerman's financial condition and results of
operations should be read in conjunction with the financial statements of
Zimmerman and the notes thereto included elsewhere herein.
GENERAL
Zimmerman began operations as a sign manufacturer in 1901. Privately owned
until its acquisition by Independence Holding Company in 1982, Zimmerman was,
throughout most of the 1980's, generally regarded as a regional manufacturer of
custom signs which had also established a small amount of national account
business.
In the 1980's, Zimmerman refocused its business to concentrate almost
exclusively on satisfying the site identification needs of large national and
regional retailers in the United States. It focused its marketing efforts on
several major retailing sectors and broadened its product line to provide both
standard long-production-run site identification products and more specialized
shorter-run items. During this period, Zimmerman also began to restructure and
expand its product design and installation service capabilities. In the 1980's,
sales to petroleum marketing companies produced much of Zimmerman's growth and
at times accounted for over 90% of Zimmerman's annual sales.
From 1991 through 1995, Zimmerman's sales grew significantly. This
growth was internally generated and resulted from expansion of several
customer relationships established in earlier periods, plus the addition of
several new large customers. Sales were essentially flat from 1995 to 1996,
decreasing 0.9% from $41.7 million to $41.3 million, primarily because the
Company did not add any new high volume customers in 1996 and several
projects contemplated by existing customers were delayed or not implemented.
In the 1990's, approximately 50% of Zimmerman's sales growth is attributable
to the petroleum retailing market. The other half is spread among several
retailing groupings, foremost of which are the automotive and financial
services groups. Most of Zimmerman's sales have been to United States based
customers; however, Zimmerman has sold product to and managed installation
for international customers. Sales to customers with headquarters located
outside of the United States accounted for less than 1% of total sales in
1996, and accounted for approximately 6% and 10% of total sales in 1995 and
1994, respectively. Since 1994, substantially all international sales have
been to financial institutions in Mexico. Management of Zimmerman believes
that through its established contacts in Mexico, Zimmerman is positioned to
obtain orders if the Mexican economy improves. Management of Zimmerman
intends to pursue international opportunities and continue to expand sales of
products and services to its domestic customers.
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RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain statement of operations items for the periods presented.
Year Ended December 31,
1996 1995 1994
---------- ---------- ---------
Net sales . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . 78.5 78.1 77.5
Selling, general and administrative 10.7 10.0 11.1
expenses . . . . . . . . . . . . .
Management fees . . . . . . . . . . 1.5 1.4 1.6
Interest expense, net . . . . . . . 2.4 1.9 1.2
Stock distribution costs . . . . . 2.7 - -
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Total costs and expenses . . . 95.8 91.4 91.4
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Income before federal
income taxes. . . . . . . . . . . 4.2 8.6 8.6
Federal income taxes . . . . . . . 1.4 2.9 2.9
---------- ---------- ---------
Net income . . . . . . . . . . . . 2.8% 5.7% 5.7%
---------- ---------- ---------
---------- ---------- ---------
1996 COMPARED TO 1995
Net sales for 1996 decreased $0.4 million, or 0.9%, from $41.7 million in
1995 to $41.3 million in 1996. The decline in net sales resulted primarily from
a decrease in sales to financial institutions of approximately $2.5 million,
$2.1 million of which was associated with a decline in sales to Mexican banking
institutions, and a decrease in sales to fast food customers of $0.8 million.
Declines in sales to these groups were partially offset by increases in sales to
the Company's automotive retailing and other retailing customers.
Cost of goods sold decreased $0.1 million, or 0.4% from $32.5 million in
1995 to $32.4 million in 1996. This decrease was primarily a result of the net
sales decrease as noted above. As a percentage of net sales, cost of goods sold
increased from 78.1% in 1995 to 78.5% in 1996. Manufacturing costs increased as
a percentage of net sales in 1996 because of higher costs incurred on certain
automotive account products and higher costs associated with discontinuing
certain products.
Selling, general, and administrative expenses increased $0.2 million, or
6.6%, from $4.2 million in 1995 to $4.4 million in 1996. This increase was
caused by general inflation and increased customer service personnel.
In 1996, the Company incurred $1.1 million of expense associated with its
financial restructuring and spin-off from its former parent, Independence
Holding Company. These expenses were primarily associated with payments in
consideration of cancellation of all outstanding options to purchase Zimmerman
Common Stock, a fee paid to an officer of Zimmerman in connection with the
refinancing of Zimmerman's indebtedness, and other consulting, legal and
accounting, and bank loan arrangement fees.
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Management fees remained unchanged at $0.6 million in 1996. The Company's
management fee arrangement terminated at December 31, 1996 when it was spun-off
from Independence Holding Company.
Interest expense increased $0.2 million or 27.4% from $0.8 million in 1995
to $1.0 million in 1996. Higher interest expense was incurred to finance
restructuring costs associated with the Company's spin-off from Independence
Holding Company and, to a lesser extent, to finance increased working capital
requirements in 1996.
Income before federal income taxes decreased $1.9 million or 51.9% from
$3.6 million in 1995 to $1.7 million in 1996. This decrease was primarily the
result of causes explained above, most notably expenses related to the Company's
restructuring and spin-off from Independence Holding Company, a lower gross
profit margin, and higher staffing expenses resulting from an increase in
personnel.
The Company's net income applicable to common shares was $1.1 million or
$0.62 per share for the year ended December 31, 1996 compared to $2.4 million or
$1.28 per share in 1995. In 1996, the Company incurred additional interest
expenses and stock distribution costs of approximately $1.4 million or, on an
after tax basis, $0.48 per share, in conjunction with its spin-off from
Independence Holding Company on December 31, 1996.
1995 COMPARED TO 1994
Net sales for 1995 increased by $5.2 million, or 14.4%, from $36.4
million in 1994 to $41.6 million in 1995. The increase in net sales resulted
primarily from an increase in sales to petroleum marketing customers, which
was offset, in part, by a $2.9 million decline in sales to financial
institutions, $2.3 million of which was associated with a decline in sales to
Mexican banking institutions. A broadened product line, increased sales to a
significant customer, and brand expansion activities with several petroleum
marketing customers contributed to increased sales to the petroleum sector of
Zimmerman's business. Sales to financial institutions in Mexico decreased
significantly in 1995 as a result of difficult economic conditions in Mexico.
Cost of goods sold increased $4.3 million, or 15.2%, from $28.2 million in
1994 to $32.5 million in 1995. This increase was primarily a result of net
sales increases as noted above. As a percentage of net sales, cost of goods
sold increased from 77.5% in 1994 to 78.1% in 1995. Manufacturing costs
increased as a percentage of net sales in 1995 because of higher costs incurred
on Mexican bank projects, and certain manufacturing cost overruns associated
with new products sold to petroleum marketing customers.
Selling, general and administrative expenses increased from $4.0 million in
1994 to $4.2 million in 1995, primarily as a result of an increased level of net
sales. Selling, general and administrative expenses, as a percent of net sales,
declined from 11.1% in 1994 to 10.0% in 1995.
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Interest expense, net, increased $0.4 million from $0.4 million in 1994 to
$0.8 million in 1995. The increase was primarily attributable to higher
interest rates and increased debt levels associated with expanded working
capital financing requirements.
Federal income taxes increased from $1.1 million in 1994 to $1.2 million in
1995. This increase is due to higher income levels in 1995. Zimmerman's
federal tax rate in 1994 and 1995 was 34%.
PRICING; VOLUME
Zimmerman believes that increases in costs have generally been recovered by
a combination of price and unit volume increases during each of the years
presented. Price increases have been small over the past several years;
however, changes in the cost of raw materials, which constitutes Zimmerman's
largest cost element, have not materially impacted manufacturing costs over the
periods presented.
LIQUIDITY; CAPITAL RESOURCES
Zimmerman's net sales have increased from $23.9 million in 1992 to $41.3
million in 1996. During periods of sales growth, Zimmerman typically
experiences increases in accounts receivable, inventories, trade payables and
backlog and, as a result, increases its investment in operating working capital
(defined as accounts receivable plus inventories, less accounts payable,
including accrued expenses and customer deposits).
Although backlog declined in 1996 and sales decreased slightly during 1996,
operating working capital increased $2.1 million to $16.5 million. Accounts
receivable increased $0.9 million primarily because of slower payments from one
customer. Inventories increased by $0.9 million, as a result of a planned
increase in certain finished goods inventories and, to a lesser extent, as a
result of customers postponing projects. Accounts payable declined by $0.3
million due to payments to vendors. As a result, operating working capital
increased by $2.1 million in 1996.
During 1995, operating working capital increased $4.2 million to $14.4
million. Accounts receivable increased $1.6 million primarily because of
increased net sales and slower payments from one customer. Inventories
increased by $2.2 million, primarily as a result of an increase in net sales
and, to a lesser extent, as a result of customers postponing projects from 1995
to 1996. Accounts payable declined by $0.4 million due to slight reductions in
accruals and payments to vendors. As a result, operating working capital
increased by $4.2 million in 1995.
Zimmerman's backlog, which consists primarily of blanket purchase orders
from customers for sign products which the customer has not yet released for
shipment to retail locations, decreased from $24.1 million at December 31, 1995
to $20.7 million at December 31, 1996. Approximately 4% of backlog consists of
orders for sign installation services, while most
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of the remainder consists of orders for manufactured products covered by
blanket purchase orders for which the customer has not yet requested delivery.
During 1996, Zimmerman's cash flows used in operations totaled $1.1
million. Zimmerman also utilized $0.6 million of cash flow on capital
expenditures and paid a $18.7 million cash dividend. These cash requirements
were provided by $20.0 million in increased borrowings and repayment of $0.4
million in notes receivable due the Company. As a result, cash remained
unchanged at $0.1 million.
During 1995, cash flows used in operations totaled $1.5 million. Zimmerman
spent $0.7 million on capital items and borrowed $1.7 million in long-term debt,
resulting in a net decrease in cash of $0.5 million.
Capital projects to reduce product costs, improve product quality,
increase manufacturing efficiency and operating flexibility and expand
production capacity resulted in expenditures of $0.6 million in 1996,
compared with $0.7 million in 1995. At December 31, 1996, there were no
material commitments for capital expenditures. Capital expenditures related
to environmental projects have not been significant in the past and are not
expected to be significant in the foreseeable future.
During the fourth quarter of 1996, the Company refinanced and
substantially increased its bank borrowings, declared a $19.7 million
dividend to its shareholders, of which $18.7 million was paid in cash and
$1.0 million is reflected as a deferred dividend payable, and was spun-off by
its former parent company, Independence Holding Company. In conjunction with
these transactions, Zimmerman entered into a $23.0 million credit facility
with one bank which consists of a $17.0 million Revolving Credit Facility and
a $6.0 million Term Loan. Additionally, the Company entered into a $10.0
million Subordinated Credit Agreement with another bank. The $10.0 million
term loan obtained under the Subordinated Credit Agreement is guaranteed by a
subsidiary of Independence Holding Company. Significant terms and conditions
of the credit facilities with both banks are described in the Company's
audited financial statements and accompanying footnotes incorporated herein.
Due to higher than anticipated borrowings and lower than anticipated 1996
earnings, the Company was not in compliance with certain covenants of its
credit agreements as of December 31, 1996. The Company's credit agreements
were amended, and the Company is in compliance with the modified terms.
At December 31, 1996, the Company had borrowed $13.7 million under its
$17.0 million Revolving Credit Facility. The full amounts of the $6.0 million
term loan and $10.0 million subordinated term loan were outstanding. Zimmerman
believes that its credit facilities will satisfy its planned operational
requirements for 1997. As it indicated in the Form 10A/2 filed with the
Securities and Exchange Commission on December 16, 1996, which document is
referenced as Exhibit 99.1 to this Form 10-K, the Company intends to explore the
possibility of obtaining equity from public or private financings, but there can
be no assurance that any such equity financing can be obtained on terms
acceptable to the Company.
14
<PAGE>
INFLATION
During the periods presented, inflation had a relatively minor effect on
Zimmerman's reported results of operations. In recent years, the U.S. rate of
inflation has been relatively low.
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 on beliefs of, and information currently available
to, the Company's management as well as estimates and assumptions made by the
Company's management. When used in SEC Filings, the words "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan" and similar
expressions as they relate to the Company or the Company's management, identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the industries served by the Company, the
costs of product development and other risks and uncertainties, including, in
addition to any uncertainties specifically identified in the text surrounding
such statements, uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory circumstances
and conditions and actions taken or omitted to be taken by third parties,
including the Company's stockholders, customers, suppliers, business partners,
competitors, and legislative, regulatory, judicial and other governmental
authorities and officials. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may vary significantly from those anticipated, believed, estimated,
expected, intended or planned.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Financial Statement Schedule
Page
----
Independent Auditors' Report 17
Financial Statements:
Balance Sheets at December 31, 1996 and 1995 18
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 19
Statements of Stockholders' Equity (Deficit) for
the years ended December 31, 1996, 1995 and 1994 20
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 21
Notes to Financial Statements 22
Financial Statement Schedule as of and for the years ended
December 31, 1996, 1995 and 1994:
Schedule II - Valuation and Qualifying Accounts 30
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Zimmerman Sign Company:
We have audited the financial statements of Zimmerman Sign Company as listed
in the accompanying index. In connection with our audits of the financial
statements, we also have audited the financial statement schedule as listed
in the accompanying index. 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 generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Zimmerman Sign Company as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
February 7, 1997
17
<PAGE>
ZIMMERMAN SIGN COMPANY
Balance Sheets
December 31, 1996 and 1995
Assets (note 4) 1996 1995
--------------- ---- ----
Current assets:
Cash $ 132,483 $ 107,756
Accounts receivable, net of
allowance for doubtful accounts
of $100,000 in 1996 and $100,288
in 1995 (note 11) 10,140,903 9,283,962
Inventories (note 2) 13,607,758 12,658,987
Prepaids and other current assets 356,372 282,228
Receivable from parent company (note 10) 126,453 74,925
Notes and accrued interest
receivable (note 10) - 400,313
----------- -----------
Total current assets 24,363,969 22,808,171
Property, plant and equipment, net
(note 3) 3,152,903 3,068,611
Other assets 637,069 80,313
----------- -----------
$28,153,941 $25,957,095
----------- -----------
----------- -----------
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------
Current liabilities:
Current installments of long-term
debt (note 4) $ 1,170,000 $ 266,750
Accounts payable 5,124,465 5,792,971
Accrued expenses 1,408,615 1,191,888
Dividend payable (note 5) 1,000,000 -
Customer deposits 758,637 587,101
----------- -----------
Total current liabilities 9,461,717 7,838,710
----------- -----------
Long-term debt, excluding current
installments (note 4) 28,555,000 9,422,188
----------- -----------
Stockholders' equity (deficit) (note 5):
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 (note 6) 18,547 18,547
Additional paid-in capital - 441,128
Retained earnings (accumulated
deficit) (9,881,323) 8,236,522
----------- -----------
Total stockholders' equity
(deficit) (9,862,776) 8,696,197
Commitments (notes 7, 9 and 12)
----------- -----------
$28,153,941 $25,957,095
----------- -----------
----------- -----------
See accompanying notes to financial statements.
18
<PAGE>
ZIMMERMAN SIGN COMPANY
Statements of Operations
Years ended December 31 1996, 1995 and 1994
<TABLE>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales (note 11) $41,275,477 $41,666,570 $36,426,651
Cost of goods sold 32,415,051 32,529,430 28,226,620
----------- ----------- -----------
Gross profit 8,860,426 9,137,140 8,200,031
Selling, general and
administrative expenses 4,427,911 4,154,690 4,023,721
Management fees (note 10) 600,000 600,000 600,000
Interest expense, net 996,253 781,516 433,482
Stock distribution costs
(note 1(a)) 1,105,917 - -
----------- ----------- -----------
Income before federal income taxes 1,730,345 3,600,934 3,142,828
Federal income taxes (note 8) 588,317 1,224,317 1,068,595
----------- ----------- -----------
Net income $ 1,142,028 $ 2,376,617 $ 2,074,233
----------- ----------- -----------
----------- ----------- -----------
Net income per share $ 0.62 $ 1.28 $ 1.12
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
19
<PAGE>
ZIMMERMAN SIGN COMPANY
Statements of Stockholders Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
<TABLE>
Preferred stock Common stock
------------------- --------------------- Retained Total
Additional earnings stockholders'
Number Par Number Par paid-in (accumulated equity
of shares value of shares value capital deficit) (deficit)
--------- ----- --------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 - $ - 1,854,692 $18,547 441,128 6,635,672 7,095,340
Dividends declared - - - - - (2,850,000) (2,850,000)
Net income - - - - - 2,074,233 2,074,233
--- --- --------- ------- -------- ----------- -----------
Balances at December 31, 1994 - - 1,854,692 18,547 441,128 5,859,905 6,319,580
Net income - - - - - 2,376,617 2,376,617
--- --- --------- ------- -------- ----------- -----------
Balances at December 31, 1995 - - 1,854,692 18,547 441,128 8,236,522 8,696,197
Dividends declared - - - - (441,128) (19,259,873) (19,701,001)
Net income - - - - - 1,142,028 1,142,028
--- --- --------- ------- -------- ----------- -----------
Balances at December 31, 1996 - $ - 1,854,692 $18,547 - (9,881,323) (9,862,776)
--- --- --------- ------- -------- ----------- -----------
--- --- --------- ------- -------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
ZIMMERMAN SIGN COMPANY
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,142,028 2,376,617 2,074,233
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 525,988 435,590 349,835
Provision (credit) for losses on accounts
receivable (288) (49,712) 5,000
Changes in operating assets and liabilities:
Accounts receivable (856,653) (1,507,427) (2,705,219)
Inventories (948,771) (2,161,980) (2,159,587)
Prepaids and other current assets (74,144) (131,884) 210,131
Receivable from/payable to parent company (51,528) (26,551) 1,557,947
Accrued interest receivable _ (10,346) (14,967)
Other assets (556,756) (17,127) 12,394
Customer deposits 171,536 (870,437) 456,366
Accounts payable and accrued expenses (451,779) 464,457 1,385,655
----------- ----------- -----------
Net cash provided by (used in)
operating activities (1,100,367) (1,498,800) 1,171,788
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (610,281) (693,581) (1,083,269)
Proceeds from notes receivable 400,313 - 125,000
----------- ----------- -----------
Net cash used in investing activities (209,868) (693,581) (958,269)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid (18,701,001) - (2,850,000)
Proceeds from revolving line of credit 5,075,000 2,200,000 2,275,000
Proceeds from subordinated debt 10,000,000 - 1,000,000
Proceeds from term loan 6,000,000 750,000 _
Principal payments on long-term debt (1,038,938) (1,250,750) (150,750)
----------- ----------- -----------
Net cash provided by financing activities 1,335,062 1,699,250 274,250
----------- ----------- -----------
Net increase (decrease) in cash 24,727 (493,131) 487,769
Cash at beginning of year 100,756 600,887 113,118
----------- ----------- -----------
Cash at end of year $ 132,483 107,756 600,887
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
December 31, 1996 and 1995
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL INFORMATION
Zimmerman Sign Company (the "Company") became a publicly owned company
on December 31, 1996. Prior to that date the Company was a majority-
owned subsidiary of Zimmerman Holdings, Inc. (Holdings). Holdings was
a subsidiary of Independence Holding Company (IHC). The Company is a
manufacturer of commercial exterior signs with its operations located
in east Texas. The Company's customers, consisting primarily of
petroleum retailers, automotive retailers and financial institutions,
are located principally in the United States and Mexico.
Effective December 31, 1996, IHC's 80.14% investment in the Company
was distributed to holders of record of IHC common stock as of
December 20, 1996. The Company's common stock is registered with the
Securities and Exchange Commission and quoted on the National
Association of Securities Dealers Over the Counter Bulletin Board.
Costs associated with the stock distribution aggregated approximately
$1,106,000 and have been charged to operations during the year ended
December 31, 1996.
(b) INVENTORIES
Inventories are recorded at the lower of cost (first-in, first-out) or
market (net realizable value).
(c) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Improvements are
capitalized and depreciated over the remaining life of the asset.
Repair and maintenance costs are charged to operations as incurred.
Property, plant and equipment are depreciated and amortized using the
straight-line method over the following estimated useful lives of the
respective assets or lease terms, if shorter:
Estimated Life
(in years)
----------
Building 25
Manufacturing equipment 5 - 8
Transportation equipment 3 - 7
Leasehold improvements 5 - 15
Office furniture and equipment 3 - 8
(d) OTHER ASSETS
Other assets are recorded at cost and consist primarily of
deposits and deferred loan costs. Such deferred loan costs are
amortized over the term of the loan using the interest method.
22
<PAGE>
ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
(e) REVENUE RECOGNITION
Revenue is recognized upon the shipment of product unless
installation is required, at which time revenue is recognized when
the installation is complete. Sales returns and allowances are
not significant.
(f) INCOME TAXES
Through December 31, 1996, the Company is included in the
consolidated federal income tax return filed by IHC. Under a tax
sharing agreement with Holdings, the Company is required to pay to
Holdings total income taxes (both current and deferred) computed
for financial reporting purposes as determined as if the Company
filed a separate income tax return.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities of Holdings are
calculated for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
(g) STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related interpretations. As such,
compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-
BASED COMPENSATION, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards
on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
(h) STATEMENTS OF CASH FLOWS
The Company paid $828,594, $730,958 and $458,341 for interest in
1996, 1995 and 1994, respectively. Additionally, the Company paid
$588,316, $1,224,317 and $1,068,595 for income taxes to Holdings
in 1996, 1995 and 1994, respectively.
(i) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, on
January 1, 1996. This Statement requires that long-lived assets
and certain identifiable
23
<PAGE>
ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this Statement did not
have a material impact on the Company's financial position, results
of operations or liquidity.
(j) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(k) NET INCOME PER SHARE
Net income per share is based on 1,854,688 weighted average shares
outstanding during each period presented after giving retroactive
effect to the common stock split described in note 5.
(2) INVENTORIES
A summary of inventories at December 31, 1996 and 1995 follows:
1996 1995
------------ ----------
Raw materials $ 5,594,473 5,375,196
Work in process 5,268,782 5,609,708
Finished goods 2,744,503 1,674,083
------------ ----------
$ 13,607,758 12,658,987
------------ ----------
------------ ----------
(3) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31, 1996 and 1995
follows:
1996 1995
---------- ---------
Land $ 343,730 343,730
Building 1,585,737 1,550,504
Manufacturing equipment 2,047,101 1,783,642
Transportation equipment 147,663 129,201
Leasehold improvements 1,294,508 1,252,646
Office furniture and equipment 1,821,307 1,580,412
---------- ---------
Less accumulated depreciation and 7,240,046 6,640,135
amortization 4,087,143 3,571,524
---------- ---------
$3,152,903 3,068,611
---------- ---------
---------- ---------
24
<PAGE>
ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
1996 1995
---- ----
Revolving line of credit to a bank, due
July 31, 1999, monthly interest at
prime plus .25% or LIBOR plus 2.75%
(8.41% at December 31, 1996) $13,725,000 8,650,000
Secured term note payable to a bank,
due September 1, 2004, monthly
payments ($79,000 through June 1,
1997, $116,000 through December 1,
1997, and $137,000 thereafter)
plus interest at prime plus 1.125%
or LIBOR plus 3.575% (9.16% at
December 31, 1996) 6,000,000 -
Subordinated notes, due October 31,
2001, quarterly payments of interest
at prime plus 0.5% or bank off-shore
rate plus 1.6875% (7.19% at
December 31, 1996) 10,000,000 -
Secured note payable to a bank, paid in
1996 - 68,000
Secured note payable to a bank, paid in
1996 - 320,938
Secured note payable to a bank, paid in
1996 - 650,000
----------- ---------
29,725,000 9,688,938
Less current installments 1,170,000 266,750
----------- ---------
$28,555,000 9,422,188
----------- ---------
----------- ---------
In connection with the distribution of the Company's common stock to IHC
shareholders, the Company entered into a loan agreement in October 1996
with a bank which provides for a $23,000,000 credit facility (in the form
of a $17,000,000 revolving line of credit, of which $3,275,000 was
available for additional borrowings at December 31, 1996, and a $6,000,000
term note) and entered into a subordinated note purchase agreement with
another bank under which the Company issued $10,000,000 of subordinated
notes which have been guaranteed by an affiliate of IHC in consideration of
a $475,000 fee by the Company. The proceeds from the loan agreement and
the subordinated notes were used to repay existing long-term debt, declare
a dividend of $19,701,000 to its shareholders and fulfill net contractual
obligations to senior officers of the Company in the amount of
approximately $700,000.
The credit agreements related to the senior facility and subordinated notes
contain certain restrictive covenants, including restrictions on additional
indebtedness, investments in or advances to others, acquisitions of other
businesses, declaration and payment of dividends and repurchase of capital
stock. The senior notes payable are secured by all of the Company's assets
including inventory and accounts receivable.
25
<PAGE>
ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
The estimated fair value of notes payable and long-term debt approximates
their carrying value at December 31, 1996 and 1995.
The aggregate maturities of long-term debt are as follows:
Year ending December 31:
1997 $ 1,170,000
1998 1,644,000
1999 15,058,000
2000 400,000
2001 10,400,000
Thereafter 1,053,000
-----------
Total $29,725,000
-----------
-----------
(5) STOCKHOLDERS' EQUITY (DEFICIT)
On December 3, 1996, the Board of Directors of the Company approved a
3,864-for-1 common stock split thereby increasing the Company's issued and
outstanding stock to 1,854,692 shares. The accompanying financial
statements have been retroactively restated to reflect the stock split. In
connection with the stock split, authorized common shares were increased
from 500 shares to 15,000,000 shares and the par value was reduced from
$100 to $.01 per share. In addition, the Company increased the number of
authorized shares of preferred stock from 500 to 2,000,000 shares and
reduced the par value from $100 to $.01 per share.
During the year ended December 31, 1996, the Company declared a dividend to
its shareholders of $19,701,000. At December 31, 1996, $1,000,000 of the
dividend was unpaid and included as a payable in the accompanying balance
sheet.
(6) STOCK OPTIONS
The Company had a stock option agreement which provided for the granting of
incentive stock options to certain key employees. The stock options were
exercisable for a period of eight years from date of grant (December 15,
1990) and became fully vested on December 15, 1995. In connection with the
transactions described in note 5, the options were terminated in November
1996.
In November 1996, Zimmerman adopted the Stock Option Plan (the "New Plan").
In connection with the establishment of the New Plan, 185,000 shares of
common stock are reserved for issuance at exercise prices which are
intended to equal the market value of the common stock at the date of
grant. The New Plan provides for the grant of incentive stock options to
employees, officers and directors. As of December 31, 1996, no options
have been granted under the New Plan.
(7) LEASES
The Company has several noncancellable operating leases, primarily for
office and plant facilities in Dallas, Jacksonville and Tyler, Texas, that
expire on various dates through 2000. The operating leases contain options
at the end of the lease terms to extend the leases at the then fair rental
value for a period of up to five years. The Company's former Dallas plant
is being subleased through the expiration of the primary lease term.
26
<PAGE>
ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
Approximate future minimum lease payments and rents and sublease receipts
under operating lease commitments with initial or noncancellable terms in
excess of one year as of December 31, 1996 follow:
Operating Operating
lease sublease
payments receipts
-------- --------
Year ending December 31:
1997 $ 296,511 64,800
1998 252,490 64,800
1999 125,975 64,800
2000 29,880 27,000
Total rental expense for operating leases was approximately $313,000 in
1996, $314,000 in 1995 and $254,000 in 1994. Total sublease rental income
for operating leases was approximately $65,000 in 1996, $54,000 in 1995 and
$68,000 in 1994.
(8) INCOME TAXES
Through December 31, 1996, the Company is included in the consolidated
federal income tax return filed by IHC. Under a tax sharing agreement with
Holdings, the Company is required to pay to Holdings total income taxes
computed for financial reporting purposes (see note 1) and, accordingly,
deferred tax assets and liabilities are maintained on the financial
accounting records of IHC.
Beginning in 1997, the Company will be required to file a separate federal
income tax return. Accordingly, existing deferred tax assets and
liabilities previously settled with IHC will be recognized in the financial
statements through a cumulative adjustment to accumulated deficit.
The provision for income taxes approximates statutory rates for 1996, 1995
and 1994 and was computed in all material respects as if the Company filed
a separate income tax return. Income tax expense consists of the
following:
1996 1995 1994
---- ---- ----
Current expense $ 622,456 1,209,294 1,144,043
Deferred expense (benefit) (34,139) 15,023 (75,448)
--------- --------- ---------
$ 588,317 1,224,317 1,068,595
--------- --------- ---------
--------- --------- ---------
27
<PAGE>
ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
Deferred federal income taxes result from temporary differences in
reporting income and expenses for financial and tax purposes. A summary of
the source and tax effect of these differences follows:
1996 1995 1994
-------- ------- -------
Excess tax depreciation over book
depreciation $ 21,332 36,197 4,410
Bad debt expense less (greater) than
actual write-offs allowable for tax
purposes 98 16,902 (1,700)
Costs capitalized for tax purposes
and expensed for financial reporting
purposes (55,569) (38,076) (78,158)
-------- ------- -------
Deferred expense (benefit) $(34,139) 15,023 (75,448)
-------- ------- -------
-------- ------- -------
(9) EMPLOYEE BENEFITS
The Company makes payments to a multi-employer retirement plan for certain
employees in accordance with the bargaining unit contracts. Under the
terms of the union contracts, the Company is obligated to contribute 3% of
gross wages paid to covered employees. Total expense paid for employees
represented by the bargaining units was approximately $160,200 in 1996,
$122,600 in 1995 and, $68,700 in 1994.
(10) RELATED PARTY TRANSACTIONS
Management fees paid to Holdings were $600,000 in each of the years 1996,
1995 and 1994. In addition, the Company pays federal income taxes, if any,
to Holdings (see note 8). The account balances are noninterest bearing.
Following is a summary of transactions included in the receivable from
parent company:
1996 1995
---------- ----------
Transfers of cash to Holdings $1,239,844 1,850,868
Federal income tax expense (588,316) (1,224,317)
Management fees (600,000) (600,000)
Receivable from parent company at
beginning of year 74,925 48,374
---------- ----------
Receivable from parent company at end
of year $ 126,453 74,925
---------- ----------
---------- ----------
Beginning January 1, 1997, the management fees previously paid to Holdings
will no longer be incurred; however, it is expected that the Company will
incur partially offsetting additional costs to replace the services
previously provided by Holdings.
On December 15, 1990, the Company entered into agreements to loan an
aggregate of $500,000 to four members of management. Interest charged on
these notes is computed at rates which approximate the prime rate
associated with the Company's revolving line of credit. Interest earned on
these notes was $25,781 in 1996, $25,313 in 1995 and $28,063 in 1994. The
outstanding balances of these notes were repaid on November 1, 1996.
28
<PAGE>
ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
(11) CONCENTRATIONS OF RISK
The Company has certain customers, primarily in the petroleum retailing
industry, that individually account for greater than 10% of net sales in
1996, 1995 and 1994. In 1996, the Company had one such customer accounting
for approximately $9,227,000 of net sales. Additionally, accounts
receivable from one customer exceeded 10% of total accounts receivable at
December 31, 1996. In 1995, the Company had three such customers,
accounting for approximately $9,668,000, $5,128,000 and $4,470,000 of net
sales. In 1994, there were two such customers, accounting for
approximately $7,012,000 and $4,062,000 of net sales. Ten percent of the
Company's net sales were to customers outside of the United States during
1994.
At December 31, 1996, the Company employed 416 people of which 153 are
covered under a collective bargaining agreement expiring November 30, 1997.
An additional 158 of these employees are covered under a collective
bargaining agreement expiring December 1, 1999.
(12) RETIREMENT PLAN
In August 1995, the Company began sponsoring a retirement plan in
accordance with Section 401(k) of the Internal Revenue Code which allows
substantially all employees to participate. The Company's contribution to
the retirement plan is determined based on 50% of each dollar an employee
contributes with a maximum of 3% of gross wages per employee.
Contributions were $52,915 in 1996 and $23,688 in 1995.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of accounts receivable, receivable from parent company
and accounts payable approximate fair value due to the short maturity of
these financial instruments.
29
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item is incorporated by reference from the
sections entitled "Election of Directors" and "Executive Officers" in the
Company's Proxy Statement for its 1997 Annual Meeting of Stockholders.
Information about Executive Officers of the Company is included in Item 1 of
Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the
section entitled "Executive Compensation" in the Company's Proxy Statement for
its 1997 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item is incorporated by reference from the
section entitled "Principal Stockholders" in the Company's Proxy Statement for
its 1997 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from the
section entitled "Principal Stockholders" in the Company's Proxy Statement for
its 1997 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements: See Index to Financial Statements and Financial
Statement Schedule on page 16.
(a)(2) Financial Statement Schedule: See Index to Financial Statements and
Financial Statement Schedule on page 16.
(a)(3) Exhibits: See Exhibit Index on page 33.
(b) Reports on Form 8-K: No report on Form 8-K was filed during the
quarter ended December 31, 1996. The Company filed a Form 8-K on
January 14, 1997 regarding the Company's spin-off from Independence
Holding Company.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 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, thereunto duly authorized, on
March 29, 1997.
ZIMMERMAN SIGN COMPANY
(REGISTRANT)
By: /s/ David E. Anderson
---------------------------------
Chairman
(Principal 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 indicated as of the 29th day of March, 1997.
/s/ Tom E. Boner
- ----------------------------------
Tom E. Boner
Director, President
/s/ Carl A. Goldman
- ----------------------------------
Carl A. Goldman
Director
/s/ Steven B. Lapin
- ----------------------------------
Steven B. Lapin
Director
/s/ Roy T.K. Thung
- ----------------------------------
Roy T.K. Thung
Director
31
<PAGE>
ZIMMERMAN SIGN COMPANY
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
<TABLE>
Additions
Balance at charged to Balance at
beginning of costs and end of
Allowance for doubtful accounts period expenses Deductions(A) period
------------------------------- ------- -------- ------------- -------
<S> <C> <C> <C>
Year ended December 31, 1996 $ 100,288 (96,124) 95,836 100,000
Year ended December 31, 1995 150,000 (40,000) (9,712) 100,288
Year ended December 31, 1994 145,000 24,693 (19,696) 150,000
</TABLE>
(A) Recovery (write-off) of uncollectible accounts.
32
<PAGE>
ZIMMERMAN SIGN COMPANY
EXHIBIT INDEX
All of the following exhibits have heretofore been filed with the Commission,
except as noted below, and are incorporated herein by reference:
Exhibit No. Title
- ----------- -----
3.1 Form of Amended and Restated Articles of Incorporation of Zimmerman Sign
Company.
3.2 Form of Amended and Restated Bylaws of Zimmerman Sign Company.
4.1 Distribution Agreement, dated as of November 26, 1996, by and between
Zimmerman Sign Company and Independence Holding Company.
4.2 Registration Rights Agreement, dated as of December 1, 1996, by and
between Zimmerman Sign Company and Geneve Holdings, Inc.
10.1 First Amended and Restated Revolving Credit and Term Loan Agreement, dated
as of October 31, 1996, by and between Zimmerman Sign Company and Comerica
Bank-Texas.
10.2 Subordinated Credit Agreement, dated as of October 31, 1996, between
Zimmerman Sign Company and Bank of America Illinois.
10.3 Stock Option Plan of Zimmerman Sign Company, dated as of December 1, 1996.
10.4 Form of Amended & Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and David E. Anderson.
10.5 Form of Amended and Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and Tom E. Boner.
10.6 Form of Amended and Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and Michael W. Coppinger.
10.7 Form of Amended and Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and Jeffrey P. Johnson.
10.8 Form of Amended and Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and John T. Griggs.
33
<PAGE>
10.9 First Amendment to Credit Agreement, dated December 31, 1996, between
Zimmerman Sign Company and Bank of America Illinois. (1)
10.10 First Amendment to Loan Agreement, dated December 31, 1996, between
Zimmerman Sign Company and Comerica Bank-Texas.(1)
27 Financial Data Schedule
99.1 Registration Statement on Form 10/A-2 filed by Zimmerman with the
Securities and Exchange Commission and declared effective on December 16,
1996.
- -------------------------
(1) Filed herewith
34
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of December 31, 1996
(this "AMENDMENT"), amends the Subordinated Credit Agreement, dated as of
October 31, 1996 (the "CREDIT AGREEMENT"), between Zimmerman Sign Company, a
Texas corporation (the "COMPANY") and Bank of America Illinois (the "Bank").
Terms defined in the Credit Agreement are, unless otherwise defined herein or
the context otherwise requires, used herein as defined therein.
WHEREAS, the parties hereto have entered into the Credit Agreement,
which provided for the Bank to make a loan to the Company; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective as of December 31, 1996, Section
7.15(d) of the Credit Agreement shall be amended to state in its entirety as
follows:
"(d) MAXIMUM SENIOR DEBT TO EBITDA RATIO. The Company shall
maintain as of the end of each quarter a ratio of Senior Debt to EBITDA
of not more than the following respective ratios:
PERIODS AMOUNT
------- ------
From December 31, 1996 4.75:1.0
through March 31, 1997
From June 30, 1997 through 4.0 :1.0
September 30, 1997
From December 31, 1997 through 3.75:1.0
September 30, 1998
From December 31, 1998 and thereafter 3.5 :1.0."
<PAGE>
SECTION 2 CONDITIONS PRECEDENT. This Amendment shall become effective
when each of the conditions precedent set forth in this SECTION 2 shall have
been satisfied.
SECTION 2.1 RECEIPT OF DOCUMENTS. The Bank shall have received all of
the following documents duly executed, dated the date hereof or such other
date as shall be acceptable to the Bank, and in form and substance
satisfactory to the Bank:
(a) AMENDMENT. This Amendment, duly executed by the Company
and the Bank.
(b) SENIOR CREDIT AGREEMENT. An amendment to the Senior
Credit Agreement causing the Company to be in compliance with the terms
thereof as of December 31, 1996.
(c) CONSENT. A consent of ICC in the form attached hereto.
SECTION 2.2 COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. After giving
effect to the effectiveness of this Amendment, the following statements by
the Company shall be true and correct (and the Company, by its execution of
this Amendment, hereby represents and warrants to the Bank that such
statements are true and correct as at such time):
(a) the representations and warranties set forth in Article
V of the Credit Agreement shall be true and correct with the same effect
as if then made (unless stated to relate solely to an earlier date, in
which case such representations and warranties shall be true and correct
as of such earlier date); and
(b) no Default or Event of Default shall have then occurred
and be continuing.
SECTION 3 REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter
into this Amendment, the Company hereby represents and warrants to the Bank
as follows:
SECTION 3.1 DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution,
delivery and performance by the Company of this Amendment are within the
Company's corporate powers, have been duly authorized by all necessary
corporate action, and do not
(a) contravene the Company's Organization Documents;
(b) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on or affecting
the Company; or
-2-
<PAGE>
(c) result in, or require the creation or imposition of, any Lien
on any of the Company's properties.
SECTION 3.2 GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body or other Person is required for
the due execution, delivery or performance by the Company of this Amendment.
SECTION 3.3 VALIDITY, ETC. This Amendment constitutes the legal, valid
and binding obligation of the Company enforceable in accordance with its
terms.
SECTION 4 MISCELLANEOUS.
SECTION 4.1 CONTINUING EFFECTIVENESS, ETC. This Agreement shall be
deemed to be an amendment to the Credit Agreement, and the Credit Agreement,
as amended hereby, shall remain in full force and effect and is hereby
ratified, approved and confirmed in each and every respect. After the
effectiveness of this Amendment in accordance with its terms, all references
to the Credit Agreement in the Loan Documents or in any other document,
instrument, agreement or writing shall be deemed to refer to the Credit
Agreement as amended hereby.
SECTION 4.2 PAYMENT OF COSTS AND EXPENSES. The Company agrees to pay
on demand all expenses of the Bank (including the fees and out-of-pocket
expenses of counsel to the Bank (which may be employees of the Bank)) in
connection with the negotiation, preparation, execution and delivery of this
Amendment.
SECTION 4.3 SEVERABILITY. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such provision
and such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Amendment or affecting the validity or enforceability of such provision in
any other jurisdiction.
SECTION 4.4 HEADINGS. The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment or any provisions hereof.
SECTION 4.5 EXECUTION IN COUNTERPARTS. This Amendment may be executed
by the parties hereto in several counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but one and the
same agreement.
-3-
<PAGE>
SECTION 4.6 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF ILLINOIS.
SECTION 4.7 SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
ZIMMERMAN SIGN COMPANY
By
------------------------------------
Title:
------------------------------
BANK OF AMERICA, ILLINOIS
By /s/ (ILLEGIBLE SIGNATURE)
------------------------------------
Title: SENIOR VICE PRESIDENT
------------------------------
-4-
<PAGE>
AGREEMENT AND CONSENT
The undersigned hereby agrees and consents to the terms and provisions
of the foregoing First Amendment to Credit Agreement, and agrees that the ICC
Guaranty executed by the undersigned shall remain in full force and effect
notwithstanding the provisions of the foregoing First Amendment to Credit
Agreement.
Dated as of December 31, 1996.
INDEPENDENCE CAPITAL CORP.
By /s/ Steven B. Lapin
------------------------------------
Title: President
------------------------------
-5-
<PAGE>
As of December 31, 1996
Jeffrey P. Johnson
Zimmerman Sign Company
9846 Highway 31 East
Tyler, Texas 75705
RE: First Amended and Restated Revolving Credit and Term Loan Agreement (as
amended from time to time, the "LOAN AGREEMENT") between Comerica
Bank-Texas ("LENDER") and Zimmerman Sign Company. ("BORROWER") dated
October 31, 1996
Dear Mr. Johnson:
Unless otherwise defined herein, capitalized terms used herein shall have
the meanings given such terms in the Loan Agreement. Effective as of the date
of this letter, Lender and Borrower agree as follows:
1. Subparagraph "(a)" of Section 9.5 of the Agreement is amended and
restated in its entirety as follows (with all other subparagraphs
remaining as originally written):
"(a) From the date of this Agreement $1,000,000
through December 31, 1996
From January 1, 1997 through March 31, 1997 $1,000,000
From April 1, 1997 through June 30, 1997 $1,250,000
From July 1, 1997 through September 30, 1997 $1,750,000"
2. Subparagraphs "(a)" and "(b)" of Section 9.6 of the Agreement are
amended and restated in their entirety as follows (with all other
subparagraphs remaining as originally written):
"(a) From the date of this Agreement 4.5:1.0
through December 31, 1996
From January 1, 1997 through March 31, 1997 4.5:1.0
From April 1, 1997 through June 30, 1997 3.75:1.0
From July 1, 1997 through September 30, 1997 3.75:1.0"
<PAGE>
The preceding modification is for the limited time and purpose herein
expressed. Such modification shall not adversely affect or impair any rights
or remedies available to Lender under the Loan Agreement, or otherwise, and
shall not constitute a waiver of any Defaults, Events of Default or other
violations of the provisions of the Agreement relating to events or time
periods not covered by this modification, and shall not imply that the Lender
will in the future grant any other waivers or modifications.
The preceding modification shall not be effective until Lender shall have
received a copy of this letter bearing the original signatures of Borrower.
This letter may be executed in one or more counterparts, which together shall
constitute one document.
Sincerely,
/s/ DAVID TERRY
- -----------------------------
David Terry
Assistant Vice President
ACKNOWLEDGED, ACCEPTED AND AGREED TO
AS OF THE DATE OF THE ABOVE LETTER:
BORROWER:
ZIMMERMAN SIGN COMPANY
By: /s/ JEFFREY P. JOHNSON
-----------------------------
Its: VP, CFO
-----------------------------
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1996 BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 132,483
<SECURITIES> 0
<RECEIVABLES> 10,240,903
<ALLOWANCES> 100,000
<INVENTORY> 13,607,758
<CURRENT-ASSETS> 24,363,969
<PP&E> 7,240,046
<DEPRECIATION> 4,087,143
<TOTAL-ASSETS> 28,153,941
<CURRENT-LIABILITIES> 9,461,717
<BONDS> 28,555,000
0
0
<COMMON> 18,547
<OTHER-SE> (9,881,323)
<TOTAL-LIABILITY-AND-EQUITY> 28,153,941
<SALES> 41,275,477
<TOTAL-REVENUES> 41,275,477
<CGS> 32,415,051
<TOTAL-COSTS> 38,548,879
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 996,253
<INCOME-PRETAX> 1,730,345
<INCOME-TAX> 588,317
<INCOME-CONTINUING> 1,142,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,142,028
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>