<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 Quarter Period Ended: March 31, 1997
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)
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 __.
1,854,692 SHARES OF COMMON STOCK, $0.01 PAR VALUE
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Common Stock Outstanding as of May 9, 1997
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ZIMMERMAN SIGN COMPANY
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Interim Financial Statements
Balance Sheets as of March 31, 1997 (unaudited)
and December 31, 1996 ...................................... 1
Statements of Operations (unaudited) for the three months ended
March 31, 1997 and 1996...................................... 2
Statements of Cash Flows (unaudited) for the three months ended
March 31, 1997 and 1996...................................... 3
Notes to Financial Statements................................... 4
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition............................................. 5
PART II - OTHER INFORMATION
Item 1 Legal Proceedings................................................. 7
Item 2 Changes in Securities............................................. 7
Item 3 Default Upon Senior Securities.................................... 7
Item 4 Submission of Matters to a Vote of Security Holders............... 7
Item 5 Other Information................................................. 7
Item 6 Exhibits and Reports on Form 8-K.................................. 7
Signatures........................................................ 7
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ZIMMERMAN SIGN COMPANY
Balance Sheets
March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ----------- -----------
(Unaudited)
Current assets:
<S> <C> <C>
Cash $ 64,275 $ 132,483
Accounts receivable, net of allowance for doubtful accounts
of $95,992 in 1997 and $100,000 in 1996 7,950,047 10,140,903
Inventories 14,637,144 13,607,758
Prepaids and other current assets 845,765 482,825
Deferred tax assets 491,696 --
----------- -----------
Total current assets 23,988,927 24,363,969
Property, plant and equipment, net 3,043,765 3,152,903
Other assets 600,827 637,069
----------- -----------
$27,633,519 $28,153,941
=========== ===========
Liabilities and Stockholders' Deficit
--------------------------------------
Current liabilities:
Current installments of long-term debt $ 1,323,000 $ 1,170,000
Accounts payable 6,057,791 5,124,465
Accrued expenses 1,193,531 1,408,615
Dividend payable 1,000,000 1,000,000
Customer deposits 732,385 758,637
----------- -----------
Total current liabilities 10,306,707 9,461,717
----------- -----------
Long-term debt, excluding current installments 26,490,000 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 (9,181,735) (9,881,323)
----------- -----------
Total stockholders' deficit (9,163,188) (9,862,776)
Commitments
----------- -----------
$27,633,519 $28,153,941
=========== ===========
</TABLE>
See accompanying notes to financial statements.
1
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ZIMMERMAN SIGN COMPANY
Statements of Operations
Three Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
----------- ----------
Net sales $10,143,941 $9,060,078
Cost of goods sold 7,900,207 7,237,408
----------- ----------
Gross profit 2,243,734 1,822,670
Selling, general and administrative
expenses 1,375,485 1,142,485
Management fees -- 150,000
Interest expense, net 606,879 169,334
----------- ----------
Income before federal income taxes 261,370 360,851
Federal income taxes 88,818 122,689
----------- ----------
Net income $ 172,552 $ 238,162
=========== ==========
Net income per share $ 0.09 $ 0.13
=========== ==========
Weighted average number of shares 1,854,692 1,854,692
=========== ==========
See accompanying notes to financial statements
2
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ZIMMERMAN SIGN COMPANY
Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 172,552 $ 238,162
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 178,034 120,700
Provision (credit) for losses on accounts receivable (4,008) 92,114
Changes in operating assets and liabilities:
Accounts receivable 2,194,864 1,173,362
Inventories (1,029,386) (1,675,724)
Prepaids and other current assets (362,946) 49,015
Deferred tax assets 35,340 --
Other assets (10,295) (7,289)
Customer deposits (26,253) 521,035
Accounts payable and accrued expenses 718,242 (291,780)
----------- -----------
Net cash provided by operating activities 1,866,150 291,595
----------- -----------
Cash flows used in investing activities - Purchases of
property, plant and equipment (22,358) (289,442)
----------- -----------
Cash flows from financing activities:
Payments of revolving line of credit (1,675,000) --
Principal payments on long-term debt (237,000) (75,188)
----------- -----------
Net cash used in financing activities (1,912,000) (75,188)
----------- -----------
Net decreases in cash (68,208) (73,035)
Cash at beginning of period 132,483 107,756
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Cash at end of period $ 64,275 $ 34,721
=========== ===========
Supplemental disclosures of cash flow information -
Cash paid during the year for:
Interest $ 577,143 $ 190,760
Income taxes -- --
=========== ===========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
1. Basis of Presentation
The balance sheet as of March 31, 1997, the statements of operations for the
three months ended March 31, 1997 and March 31, 1996, and statements of cash
flows for the three months ended March 31, 1997 and March 31, 1996 have been
prepared by 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 March 31, 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 1997 Annual Report to Stockholders.
The results of operations for the period ended March 31, 1997 are not
necessarily indicative of the operating results for the full year.
2. Deferred Tax Assets
In conjunction with the spin-off of Zimmerman Sign Company (the Company) from
its former parent, Independence Holding Company, on December 31, 1996,
deferred tax assets of $527,000, formerly recorded by Independence Holding
Company on their financial statements are available to the Company and were
recorded as an increase to retained earnings on January 1, 1997.
4
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE ATTACHED
UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO, AND WITH THE COMPANY'S AUDITED
FINANCIAL STATEMENTS AND NOTES THERETO FOR THE YEAR ENDED DECEMBER 31, 1996.
The Company's net sales for the three month period ending March 31, 1997
increased 12.0% to $10,144,000 from $9,060,000 for the same period last year.
The net sales increase is primarily due to increased sales to petroleum
customers.
The Company's gross profit for the three months ended March 31, 1997 increased
to 22.1% from 20.1% for the same period in 1996 due to increased sales and lower
product manufacturing costs.
Selling, general and administrative expenses were $1,375,000 or 13.6% as a
percentage of sales for the quarter ended March 31, 1997 compared to $1,142,000
or 12.6% as a percentage of sales for the same period in the prior year. The
increase is primarily the result of amortization of certain costs associated
with the Company's 1996 restructuring and ongoing costs of being a public
company, along with obtaining services previously provided by the former
parent, Independence Holding Company.
The Company's management fee arrangement terminated at December 31, 1996 when
the Company was spun-off from Independence Holding Company. 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 quarter ended March 31, 1997.
Net interest expense increased to $607,000 for the quarter ended March 31, 1997
from $169,000 for the same period in the prior year. This was primarily the
result of higher debt incurred in association with the Company's restructuring
and spin-off from Independence Holding Company.
Income before federal income taxes was $261,000 for the quarter ended March 31,
1997 compared to $361,000 for the same period in the prior year, a decrease of
$100,000. This decrease was the result of causes explained above, most notably
expenses related to the Company's restructuring and spin-off from Independence
Holding Company.
5
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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 $1,853,000 to $14,603,000 at March 31, 1997, compared to
operating working capital of $16,457,000 at December 31, 1996. The decrease
was due to decreased accounts receivable and increased accounts payable
offset by increased inventories. Funds of $1,866,000 were provided by
operating activities for the three months ended March 31, 1997 compared to
$292,000 for the three months ended March 31, 1996. Increases in accounts
payable and accrued liabilities 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 $22,000 as a result of property and equipment
purchases. Financing activities used $1,912,000 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 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.
6
<PAGE>
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:
Not applicable
Item 5. Other Information:
Not applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit no. Description
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27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
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 on May 15,
1997 by the undersigned thereunto duly authorized.
ZIMMERMAN SIGN COMPANY
Registrant
/s/ Jeffrey P. Johnson
----------------------------------------
Jeffrey P. Johnson,
Vice President of Finance
(Authorized Officer and Principal Financial Officer)
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1997 BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 64,275
<SECURITIES> 0
<RECEIVABLES> 8,046,039
<ALLOWANCES> 95,992
<INVENTORY> 14,637,144
<CURRENT-ASSETS> 23,988,927
<PP&E> 7,262,403
<DEPRECIATION> 4,218,638
<TOTAL-ASSETS> 27,633,519
<CURRENT-LIABILITIES> 10,306,707
<BONDS> 26,490,000
0
0
<COMMON> 18,547
<OTHER-SE> (9,181,735)
<TOTAL-LIABILITY-AND-EQUITY> 27,633,519
<SALES> 10,143,941
<TOTAL-REVENUES> 10,143,941
<CGS> 7,900,207
<TOTAL-COSTS> 9,275,692
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 606,879
<INCOME-PRETAX> 261,370
<INCOME-TAX> 88,818
<INCOME-CONTINUING> 172,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,552
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
