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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997
COMMISSION FILE NUMBER 0-21737
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ZIMMERMAN SIGN COMPANY
(Exact name of Registrant as specified in its charter)
TEXAS 75-0864498
(State of Incorporation) (I.R.S. Employer Identification
No.)
9846 HIGHWAY 31 EAST, TYLER, TEXAS 75705
(Address of Principal Executive Offices) (Zip Code)
903-535-7400
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. / /
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 February 27, 1998 was $2,533,117.
1,854,692 shares of common stock were outstanding as of March 6, 1998.
The Exhibit Index is located on page 31 of this filing.
DOCUMENTS INCORPORATED BY REFERENCE. PORTIONS OF THE PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS SCHEDULED FOR MAY 22, 1998 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
and general industry groupings are the most significant.
Zimmerman's typical customer is a United States based retailer which
operates at least several hundred branded locations; however, 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 internally
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 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 $4.5 billion to $6.5 billion
in sales per annum.
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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 $1.1 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 Chandler Signs Incorporated,
Collins Sign Company, Inc., Cummings Incorporated, Dualite, Inc., Everbrite,
Inc., Federal Sign Company, Milwaukee Sign Company, Inc., Heath and Company,
Inc., Plasti-Line, Inc., Plastolite, Inc. and Young Electric Sign Company.
Zimmerman's competitors for the business of large, national and regional
retailing organizations each have estimated annual sales of 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 1997,
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 1997, 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. The Company also had one
automotive manufacturing customer, Ford Motor Company, which accounted for
approximately 13% of net sales. Although no other major customer accounted for
more than 10% of sales in 1997, two petroleum retail customers each accounted
for 9% of net sales.
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The Company contracts with its major customers under a variety of
arrangements which range from one to three year contracts. Many 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.
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
During 1997, Zimmerman had, on average, 493 employees of which 389 employees
were covered under collective bargaining agreements.
BACKLOG
As of December 31, 1997, Zimmerman's backlog of unshipped orders totaled
$23.9 million compared to $20.7 million as of December 31, 1996. 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 quarters 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 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.
4
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information relating to the executive
officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
David E. Anderson............................ 53 Chairman and Director
Tom E. Boner................................. 59 President, Treasurer and Director
Michael W. Coppinger......................... 51 Vice President, Sales
John T. Griggs............................... 40 Vice President, Manufacturing
Jeffrey P. Johnson........................... 36 Vice President, Chief Financial Officer and
Secretary
Michael St. Onge............................. 51 Vice President, Corporate Services
</TABLE>
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. 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
Manager for Bajon Sign of Corpus Christi from 1981 to 1982. He is a past
President of the Texas Sign Association.
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 and Officer of the Texas Sign Association and a
Director of the Southwest Sign Council of the International Sign Association.
Michael F. St. Onge has been Vice President, Corporate Services of Zimmerman
since January 1996. Mr. St. Onge was with Jim Pattison Sign Group for more than
five years prior to joining Zimmerman and most recently served 5 years as
Executive Vice President and General Manager of the Group's Pacific Northwest
Region. He is a former Director and 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.
5
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ITEM 2. PROPERTIES
The following table sets forth certain information with respect to
Zimmerman's properties, all of which are located in Texas.
<TABLE>
<CAPTION>
LOCATION FUNCTION SQUARE FEET OWNED OR LEASED
- ------------- ----------------------------------------------- ----------- ----------------
<S> <C> <C> <C>
Jacksonville Sign manufacturing 102,000 Leased
Pole manufacturing 10,000 Owned
Longview Sign manufacturing 75,000 Owned
Sign manufacturing 160,000 Leased
Tyler Corporate Headquarters and Customer Service 15,000 Leased
Dallas Sales and Administrative 1,000 Leased
</TABLE>
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 the Company.
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
No matters were submitted to a vote of Zimmerman's shareholders during the
fourth quarter of 1997.
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.
Based on information available from the NASDAQ Trading and Market Services
OTC Bulletin Board Daily Trade and Quote Summary Report, the Company believes
that the table below sets forth the range of high and low bid prices for the
Company's Common Stock:
<TABLE>
<CAPTION>
BID PRICE
--------------------
FOR THE QUARTER ENDED: HIGH LOW
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
March 31, 1997.......................................................... $ 3.3750 $ 2.7500
June 30, 1997........................................................... 3.6250 3.3750
September 30, 1997...................................................... 3.6875 3.6250
December 31, 1997....................................................... 3.7500 3.6875
</TABLE>
The above OTC market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
The Company had approximately 2,610 holders of record of its common stock as
of March 6, 1997. A dividend of $19,701,000 was declared in 1996 in conjunction
with the Company's spin-off from its former parent, Independence Holding
Company. No further dividends are anticipated in the foreseeable future. The
Company has determined that it will utilize any earnings to expand its business
and to reduce its indebtedness.
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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>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net Sales...................................... $ 44,047 $ 41,275 $ 41,667 $ 36,427 $ 33,001
Costs and Expenses:
Cost of goods sold............................. 34,692 32,415 32,529 28,227 26,143
Selling, general and administrative expenses... 5,470 4,428 4,155 4,024 3,721
Management fees................................ -- 600 600 600 600
Interest expense, net.......................... 2,419 996 782 433 291
Stock distribution costs....................... -- 1,106 -- -- --
--------- --------- --------- --------- ---------
Total costs and expenses....................... 42,581 39,545 38,066 33,284 30,755
--------- --------- --------- --------- ---------
Income before federal income taxes............... 1,466 1,730 3,601 3,143 2,246
Federal income taxes............................. 517 588 1,224 1,069 768
--------- --------- --------- --------- ---------
Net income....................................... $ 949 $ 1,142 $ 2,377 $ 2,074 $ 1,478
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Total assets................................... $ 29,481 $ 28,154 $ 25,957 $ 22,287 $ 18,097
Current liabilities............................ 11,856 9,462 7,839 8,129 6,287
Long-term debt, excluding current
installments................................. 26,011 28,555 9,422 7,839 4,715
Stockholders' equity (deficit)(1).............. (8,386) (9,863) 8,696 6,319 7,095
PER SHARE DATA(2)
Cash dividends declared per common share....... -- $ 10.62 -- $ 1.54 --
Net income per common share-basic and
diluted...................................... $ .51 $ .62 $ 1.28 $ 1.12 $ .80
Book value per common share.................... $ (4.52) $ (5.32) $ 4.69 $ 3.41 $ 3.83
</TABLE>
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(1) Dividends of $2,850,000 and $19,701,000 were declared in 1994 and 1996,
respectively.
(2) 1,854,692 common shares are outstanding in all periods.
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 ("IHC") 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.
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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 concentrated 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. From 1995 to 1996, sales were essentially flat, 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. Although project delays
continued to negatively effect sales growth in 1997, sales increased 6.7% in
1997, from $41.3 million in 1996 to $44.0 million in 1997, primarily because of
continued volume strength in the petroleum marketing and automotive retailing
companies, along with a significant new account and a project for an existing
customer. During 1997, the Company added several new customers; however, most of
these customers were added late in 1997 and did not contribute to 1997 sales.
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 1997, and
accounted for approximately 1% and 6% of total sales in 1996 and 1995,
respectively. Since 1994, substantially all international sales have been to
financial institutions in Mexico. Management of Zimmerman intends to pursue
international opportunities and continue to expand sales of products and
services to its domestic customers.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain statement of operations items for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of goods sold............................................ 78.8 78.5 78.1
Selling, general and administrative expenses.................. 12.4 10.7 10.0
Management fees............................................... -- 1.5 1.4
Interest expense, net......................................... 5.5 2.4 1.9
Stock distribution costs...................................... -- 2.7 --
----- ----- -----
Total costs and expenses.................................... 96.7 95.8 91.4
----- ----- -----
Income before federal income taxes............................ 3.3 4.2 8.6
Federal income taxes.......................................... 1.2 1.4 2.9
----- ----- -----
Net income.................................................... 2.1% 2.8% 5.7%
----- ----- -----
----- ----- -----
</TABLE>
1997 COMPARED TO 1996
Net sales for 1997 increased $2.7 million, or 6.7%, from $41.3 million in
1996 to $44.0 million in 1997. The increase in net sales resulted primarily from
an increase in sales to petroleum marketing customers of
8
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approximately $1.3 million and an increase in sales to automotive retailers of
approximately $1.5 million. A broadened product line, increased sales to current
customers, along with sales to a significant new customer, and brand expansion
activities with several petroleum marketing customers contributed to increased
sales to the petroleum sector of Zimmerman's business. Increased sales to a
significant customer accounted for the increase in sales to automotive
retailers.
Cost of goods sold increased $2.3 million, or 7.0% from $32.4 million in
1996 to $34.7 million in 1997. The increase was primarily a result of the net
sales increase as noted above. As a percentage of net sales, cost of goods sold
increased from 78.5% in 1996 to 78.8% in 1997. Manufacturing costs increased
slightly as a percentage of net sales in 1997 because of higher overhead expense
related to labor and benefits for direct plant employees.
Selling, general, and administrative expenses (including management fees for
1996), increased $0.5 million, or 8.8%, from $5.0 million in 1996 to $5.5
million in 1997. The increase was primarily a result of amortization of certain
costs associated with the Company's 1996 recapitalization, ongoing costs of
being a public company and general inflation.
The Company's management fee arrangement terminated at December 31, 1996,
when the Company was spun-off from IHC. Services previously provided to the
Company by the former parent are now performed by the Company. The costs
associated with these services are reflected in selling, general and
administrative expenses in 1997.
Interest expense increased $1.4 million or 142.8% from $1.0 million in 1996
to $2.4 million in 1997. Higher interest expense was incurred primarily as the
result of higher debt balances associated with the Company's restructuring and
spin-off from IHC at December 31, 1996.
Income before federal income taxes decreased $0.2 million or 15.2% from $1.7
million in 1996 to $1.5 million in 1997. This decrease was primarily the result
of causes explained above, most notably expenses related to the Company's
restructuring and spin-off from IHC, particularly increased interest expense.
The Company's net income applicable to common shares was $0.9 million or
$0.51 per share for the year ended December 31, 1997 compared to $1.1 million or
$0.62 per share in 1996. In 1997, the Company incurred additional interest
expense and amortization of deferred financing costs of approximately $1.7
million or, on an after tax basis, $0.59 per share, in conjunction with its
spin-off from IHC on December 31, 1996. In 1996, the Company incurred additional
interest expense and stock distribution costs of approximately $1.4 million or,
on an after tax basis, $0.48 per share, in conjunction with the above noted
spin-off.
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.
9
<PAGE>
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, IHC. 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.
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 IHC.
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 IHC 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 IHC, 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 IHC on
December 31, 1996.
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 $44.0
million in 1997. 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).
While backlog increased in 1997 by $3.2 million, or 15.4%, and sales
increased $2.7 million, or 6.7%, during 1997, operating working capital
decreased $0.6 million to $15.8 million. Accounts receivable increased $0.2
million primarily because of higher sales volume. Inventories increased by $1.0
million, as a result of higher volume, several new customer start-ups and to a
lesser extent, as a result of a current customer's postponing a project.
Accounts payable increased by $1.8 million due to timing of payments to vendors
and a small increase in customer deposits.
In 1996, although backlog declined and sales decreased slightly, 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 in 1996, 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.
10
<PAGE>
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, increased from $20.7 million at December 31, 1996
to $23.9 million at December 31, 1997. Approximately 6% of backlog consists of
orders for sign installation services, while most of the remainder consists of
orders for manufactured products covered by blanket purchase orders for which
the customer has not yet requested delivery.
During 1997, Zimmerman's cash flows provided by operations totaled $2.5
million. Zimmerman spent $0.4 million of cash flow on capital expenditures, net
of $0.1 million in proceeds from the sale of land. Zimmerman also paid down $2.1
million in long-term debt resulting in cash remaining unchanged at $0.1 million.
During 1996, cash flows used in operations totaled $1.1 million. Zimmerman
also utilized $0.6 million 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.
Capital projects to reduce product costs, improve product quality, increase
manufacturing efficiency and operating flexibility and expand production
capacity resulted in expenditures of $0.4 million in 1997 (net of $0.1 million
in proceeds from the sale of land), compared with $0.6 million in 1996. At
December 31, 1997, 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 dividend payable, and was spun-off by its former parent company,
IHC. 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 IHC. 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.
At December 31, 1997, the Company had borrowed $12.8 million under its $17.0
million Revolving Credit Facility. At December 31, 1997, $4.8 million of the
$6.0 million senior term loan and the full $10.0 million of the subordinated
term loan were outstanding. Zimmerman believes that its credit facilities will
satisfy its planned operational requirements for 1998. 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 intended to explore the possibility of obtaining equity from public or
private financings. The Company has examined and continues to explore
alternative capital sources; however, there can be no assurance that any such
equity financing can be obtained on terms acceptable to the Company.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130, REPORTING COMPREHENSIVE INCOME, which establishes standards
for reporting and display of comprehensive income and its components in
financial statements. Also, in June 1997, the FASB issued Statement No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which
requires that public companies report certain information about operating
segments, products, services, geographic areas in which the Company operates and
its major customers in its financial statements. Statements No. 130 and 131 are
effective for the Company's 1998 fiscal year, at which time the Company will
assess the impact of adoption of these Statements on the presentation of its
financial statements.
11
<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.
12
<PAGE>
ZIMMERMAN SIGN COMPANY
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... 14
Financial Statements:
Balance Sheets at December 31, 1997 and 1996............................................................. 15
Statements of Operations for the years ended December 31, 1997, 1996 and 1995............................ 16
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1997, 1996 and 1995........ 17
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995............................ 18
Notes to Financial Statements............................................................................ 19
Financial Statement Schedule as of and for the years ended December 31, 1997, 1996 and 1995:
Schedule II--Valuation and Qualifying Accounts........................................................... 28
</TABLE>
13
<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, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1997, 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 6, 1998
14
<PAGE>
ZIMMERMAN SIGN COMPANY
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS (NOTE 4)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash............................................................................. $ 129,678 132,483
Accounts receivable, net of allowance for doubtful accounts of $100,000 in 1997
and 1996 (note 11)............................................................. 10,386,830 10,140,903
Inventories (note 2)............................................................. 14,595,234 13,607,758
Prepaids and other current assets................................................ 325,418 356,372
Receivable from Holdings (note 10)............................................... -- 126,453
Deferred tax assets (note 8)..................................................... 540,547 --
------------- -------------
Total current assets........................................................... 25,977,707 24,363,969
Property, plant and equipment, net (note 3)........................................ 3,005,662 3,152,903
Other assets....................................................................... 463,562 637,069
Deferred tax assets (note 8)....................................................... 34,000 --
------------- -------------
$ 29,480,931 28,153,941
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt (note 4).................................. $ 1,644,000 1,170,000
Accounts payable................................................................. 6,593,422 5,124,465
Accrued expenses................................................................. 1,513,384 1,408,615
Income taxes payable (note 8).................................................... 78,695 --
Dividend payable (note 5)........................................................ 1,000,000 1,000,000
Customer deposits................................................................ 1,026,834 758,637
------------- -------------
Total current liabilities...................................................... 11,856,335 9,461,717
------------- -------------
Long-term debt, excluding current installments (note 4)............................ 26,011,000 28,555,000
------------- -------------
Stockholders' 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
Accumulated deficit.............................................................. (8,404,951) (9,881,323)
------------- -------------
Total stockholders' deficit.................................................... (8,386,404) (9,862,776)
------------- -------------
Commitments and contingencies (notes 7, 9, 12 and 13).............................. $ 29,480,931 28,153,941
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
ZIMMERMAN SIGN COMPANY
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales (note 11)................................................. $ 44,047,109 41,275,477 41,666,570
Cost of goods sold.................................................. 34,691,459 32,415,051 32,529,430
------------- ------------- -------------
Gross profit...................................................... 9,355,650 8,860,426 9,137,140
Selling, general and administrative expenses........................ 5,469,949 4,427,911 4,154,690
Management fees (note 10)........................................... -- 600,000 600,000
Interest expense, net............................................... 2,419,178 996,253 781,516
Stock distribution costs (note 1(a))................................ -- 1,105,917 --
------------- ------------- -------------
Income before federal income taxes................................ 1,466,523 1,730,345 3,600,934
Federal income taxes (note 8)....................................... 517,186 588,317 1,224,317
------------- ------------- -------------
Net income........................................................ $ 949,337 1,142,028 2,376,617
------------- ------------- -------------
------------- ------------- -------------
Net income per share--basic and diluted............................. $ .51 .62 1.28
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
ZIMMERMAN SIGN COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RETAINED TOTAL
-------------------------- -------------------- ADDITIONAL EARNINGS STOCKHOLDERS'
NUMBER OF NUMBER OF PAID-IN (ACCUMULATED EQUITY
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT) (DEFICIT)
------------- ----- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
--- ----- --------- --------- ----------- ------------ ------------
Contribution of deferred tax
assets (note 8)............... -- -- -- -- -- 527,035 527,035
Net income...................... -- -- -- -- -- 949,337 949,337
--- ----- --------- --------- ----------- ------------ ------------
Balances at December 31, 1997... -- $ -- 1,854,692 $ 18,547 -- (8,404,951) (8,386,404)
--- ----- --------- --------- ----------- ------------ ------------
--- ----- --------- --------- ----------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
ZIMMERMAN SIGN COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 949,337 1,142,028 2,376,617
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization................................... 862,375 525,988 435,590
Credit for losses on accounts receivable........................ -- (288) (49,712)
Deferred income taxes........................................... (47,512) -- --
Changes in operating assets and liabilities:
Accounts receivable........................................... (245,927) (856,653) (1,507,427)
Inventories................................................... (987,476) (948,771) (2,161,980)
Prepaids and other current assets............................. 30,954 (74,144) (131,884)
Receivable from Holdings...................................... 126,453 (51,528) (26,551)
Accrued interest receivable................................... -- -- (10,346)
Other assets.................................................. (132,360) (556,756) (17,127)
Customer deposits............................................. 268,197 171,536 (870,437)
Accounts payable and accrued expenses......................... 1,652,421 (451,779) 464,457
-------------- -------------- -------------
Net cash provided by (used in) operating activities......... 2,476,462 (1,100,367) (1,498,800)
-------------- -------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment...................... (497,929) (610,281) (693,581)
Proceeds on sales of property, plant and equipment.............. 88,662 -- --
Proceeds from notes receivable.................................. -- 400,313 --
-------------- -------------- -------------
Net cash used in investing activities....................... (409,267) (209,968) (693,581)
-------------- -------------- -------------
Cash flows from financing activities:
Dividends paid.................................................. -- (18,701,001) --
Proceeds from revolving line of credit.......................... 21,525,000 5,075,000 2,200,000
Proceeds from subordinated debt................................. -- 10,000,000 --
Proceeds from term loan......................................... -- 6,000,000 750,000
Payments on revolving line of credit............................ (22,425,000) -- --
Principal payments on long-term debt............................ (1,170,000) (1,038,937) (1,250,750)
-------------- -------------- -------------
Net cash provided by (used in) financing activities......... (2,070,000) 1,335,062 1,699,250
-------------- -------------- -------------
Net increase (decrease) in cash................................... (2,805) 24,727 (493,131)
Cash at beginning of year......................................... 132,483 107,756 600,887
-------------- -------------- -------------
Cash at end of year............................................... $ 129,678 132,483 107,756
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(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 North
America.
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 were 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:
<TABLE>
<CAPTION>
ESTIMATED LIFE
(IN YEARS)
---------------
<S> <C>
Building....................................................................... 25
Manufacturing equipment........................................................ 5 - 8
Transportation equipment....................................................... 3 - 7
Leasehold improvements......................................................... 5 - 15
Office furniture and equipment................................................. 3 - 8
</TABLE>
(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.
(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.
19
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(f) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized 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.
Through December 31, 1996, the Company was included in the consolidated
federal income tax return filed by IHC. Under a tax sharing agreement with
Holdings, the Company was required to pay to Holdings total income taxes
(both current and deferred) computed for financial reporting purposes as
determined as if the Company had filed a separate income tax return.
(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 $2,335,890, $828,594 and $730,958 for interest in 1997,
1996 and 1995, respectively. Additionally, the Company paid $486,000 for
income taxes in 1997 and $588,316 and $1,224,317 for income taxes to
Holdings in 1996 and 1995, 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 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 exceed the fair value of the assets.
20
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties. Financial instruments in the accompanying financial
statements include cash, accounts receivable, accounts payable and debt. The
carrying values of accounts receivable and accounts payable approximate fair
value due to the short maturity of these financial instruments.
(k) 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.
(l) NET INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE, during the fourth quarter of 1997 and restated earnings
per share (EPS) for all periods presented. The Statement requires basic EPS
to be computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in
earnings of the entity.
Net income per share is based on 1,854,692 weighted average shares
outstanding during each period presented after giving retroactive effect to
the common stock split described in note 5. For the year ended December 31,
1997, the Company had approximately 1,200 incremental shares of potentially
dilutive common stock which were not sufficiently dilutive to warrant
presentation of diluted per share amounts.
(2) INVENTORIES
A summary of inventories at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Raw materials.................................................. $ 5,756,112 5,594,473
Work in process................................................ 5,589,542 5,268,782
Finished goods................................................. 3,249,580 2,744,503
------------- -------------
$ 14,595,234 13,607,758
------------- -------------
------------- -------------
</TABLE>
21
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(3) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31, 1997 and 1996
follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land.............................................................. $ 262,930 343,730
Building.......................................................... 1,587,312 1,585,737
Manufacturing equipment........................................... 2,316,847 2,047,101
Transportation equipment.......................................... 112,310 147,663
Leasehold improvements............................................ 1,425,171 1,294,508
Office furniture and equipment.................................... 1,916,065 1,821,307
------------ ------------
7,620,635 7,240,046
Less accumulated depreciation and amortization.................... 4,614,973 4,087,143
------------ ------------
$ 3,005,662 3,152,903
------------ ------------
------------ ------------
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Revolving line of credit to a bank, due July 31, 1999, monthly
interest at prime plus .25% or LIBOR plus 2.75% (8.75% at
December 31, 1997)........................................... $ 12,825,000 $ 13,725,000
Secured term note payable to a bank, due September 1, 2004,
monthly payments of $137,000 plus interest at prime plus
1.125% or LIBOR plus 3.575% (9.625% at December 31, 1997).... 4,830,000 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% (7.5% at December 31, 1997)...... 10,000,000 10,000,000
------------- -------------
27,655,000 29,725,000
Less current installments...................................... 1,644,000 1,170,000
------------- -------------
$ 26,011,000 $ 28,555,000
------------- -------------
------------- -------------
</TABLE>
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 $4,175,000 was available for
additional borrowings at December 31, 1997, and a $6,000,000 term note). The
Company also 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. The Company
incurred a $475,000 fee to such affiliate of IHC in connection with such
subordinated note purchase agreement. The proceeds from the loan agreement
and the subordinated notes were used to
22
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(4) LONG-TERM DEBT (CONTINUED)
repay existing long-term debt, pay a dividend of $18,701,000 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.
The estimated fair value of notes payable and long-term debt
approximates their carrying value at December 31, 1997 and 1996.
The aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998......................................................... $1,644,000
1999......................................................... 14,158,000
2000......................................................... 400,000
2001......................................................... 10,400,000
2002......................................................... 1,053,000
----------
Total...................................................... $27,655,000
----------
----------
</TABLE>
(5) STOCKHOLDERS' 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, 1997 and 1996,
$1,000,000 of the dividend was unpaid due to restrictive covenants of the
subordinated notes and, accordingly, has been presented 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
23
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(6) STOCK OPTIONS (CONTINUED)
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. During 1997, the Company
granted options to acquire 87,279 shares of common stock at $3.42 per share.
Such options are fully vested and can be exercised at any time through 2005.
No options were exercised during 1997.
The per share weighted-average fair value of stock options granted
during 1997 was $1.27 on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
risk-free interest rate of 6.59%, an expected life of eight years and an
expected volatility of 21% over the life of the options.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options
in the financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income and earnings per share for the year ended
December 31, 1997 would have been reduced to the pro forma amount indicated
below:
<TABLE>
<S> <C>
Net income:
As reported..................................................... $ 949,337
Pro forma....................................................... 876,180
Net income per share:
As reported..................................................... $ .51
Pro forma....................................................... .47
</TABLE>
(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.
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, 1997 follow:
<TABLE>
<CAPTION>
OPERATING OPERATING
LEASE SUBLEASE
PAYMENTS RECEIPTS
---------- -----------
<S> <C> <C>
Year ending December 31:
1998................................................................ $ 293,300 $ 64,800
1999................................................................ 167,800 64,800
2000................................................................ 50,100 27,000
</TABLE>
24
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(7) LEASES (CONTINUED)
Total rental expense for operating leases was approximately $346,000 in
1997, $313,000 in 1996 and $314,000 in 1995. Total sublease rental income
for operating leases was approximately $65,000 in 1997 and 1996 and $54,000
in 1995.
(8) INCOME TAXES
Through December 31, 1996, the Company was included in the consolidated
federal income tax return filed by IHC. Under the tax sharing agreement with
Holdings, the Company was required to pay to Holdings total income taxes
computed for financial reporting purposes (see note 1) and, accordingly,
deferred tax assets and liabilities were maintained on the financial
accounting records of IHC.
In conjunction with the spin-off of the Company from its former parent,
Holdings, on December 31, 1996, deferred tax assets of $527,035, formerly
recorded by Holdings on their financial statements became available to the
Company and were recorded as reduction of accumulated deficit on January 1,
1997.
Income tax expense for the years ended December 31, 1997, 1996 and 1995
differed from the amounts computed by applying the U.S. federal income tax
rate of 34% to income before federal income taxes as a result of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense........................... $ 498,618 588,317 1,224,317
Nondeductible meals and entertainment expenses............ 8,206 -- --
Other..................................................... 10,362 -- --
---------- --------- ----------
$ 517,186 588,317 1,224,317
---------- --------- ----------
---------- --------- ----------
</TABLE>
The components of federal income tax expense for the years ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Current expense........................................... $ 564,698 622,456 1,209,294
Deferred expense (benefit)................................ (47,512) (34,139) 15,023
---------- --------- ----------
$ 517,186 588,317 1,224,317
---------- --------- ----------
---------- --------- ----------
</TABLE>
25
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(8) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1997 are presented
below:
<TABLE>
<S> <C>
Deferred income tax assets:
Current:
Accounts receivable, principally due to allowance for doubtful
accounts.................................................... $ 34,000
Inventories, principally due to differences of inventory
capitalization for tax purposes............................. 433,216
Accrued vacation.............................................. 73,331
---------
540,547
Noncurrent:
Property, plant and equipment, principally due to differences
in depreciation............................................. 34,000
---------
Total deferred income tax assets............................ $ 574,547
---------
---------
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers projected future taxable income and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it
is more likely than not that the Company will realize the benefits of these
deductible differences.
(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 $180,400 in 1997,
$160,200 in 1996 and $122,600 in 1995.
(10) RELATED PARTY TRANSACTIONS
Management fees paid to Holdings were $600,000 in 1996 and 1995. In
addition, the Company paid federal income taxes, if any, to Holdings for the
years ended 1996 and 1995 (see note 8). The
26
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(10) RELATED PARTY TRANSACTIONS (CONTINUED)
account balances are noninterest bearing. Following is a summary of
transactions included in the receivable from Holdings:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Transfers of cash to (from) Holdings............................... $ (126,453) $ 1,239,844
Federal income tax expense......................................... -- (588,316)
Management fees.................................................... -- (600,000)
Receivable from Holdings at beginning of year...................... 126,453 74,925
----------- ------------
Receivable from Holdings at end of year............................ $ -- $ 126,453
----------- ------------
----------- ------------
</TABLE>
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 was at rates which approximated the prime rate associated with
the Company's revolving line of credit. Interest earned on these notes was
$25,781 in 1996 and $25,313 in 1995. The outstanding balances of these notes
were repaid on November 1, 1996.
(11) CONCENTRATIONS OF RISK
The Company has certain customers, primarily in the petroleum retailing
and automotive manufacturing industries, that individually account for
greater than 10% of net sales in 1997, 1996 and 1995. In 1997, the Company
had two such customers accounting for approximately $9,500,000 and
$5,800,000 of net sales. In 1996, the Company had one such customer
accounting for approximately $9,200,000 of net sales. In 1995, the Company
had three such customers, accounting for approximately $9,700,000,
$5,100,000 and $4,500,000 of net sales. Additionally, accounts receivable
from one customer exceeded 10% of total accounts receivable at December 31,
1996.
At December 31, 1997, the Company employed 493 people of which 193 are
covered under a collective bargaining agreement expiring December 1, 1999.
An additional 193 of these employees are covered under a separate collective
bargaining agreement expiring December 1, 2000.
(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 not covered by collective bargaining agreements
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 $63,291 in
1997 and $52,915 in 1996.
(13) CONTINGENCIES
The Company is a party to various legal proceedings arising in the
ordinary course of business. While any proceeding or litigation has an
element of uncertainty, management believes that the final outcome will not
have a materially adverse effect on the Company's financial position or
results of operations.
27
<PAGE>
ZIMMERMAN SIGN COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
(REDUCTIONS)
CHARGED
BALANCE AT (CREDITED) BALANCE AT
BEGINNING OF TO COSTS AND END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD EXPENSES DEDUCTIONS (A) PERIOD
- ------------------------------------------------------ ------------ --------------- --------------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997.......................... $ 100,000 7,965 (7,965) 100,000
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
</TABLE>
- ------------------------
(A) Recovery (write-off) of uncollectible accounts.
28
<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 1998 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 1998 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 1998 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from the
section entitled "Related Party Transactions" in the Company's Proxy Statement
for its 1998 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(A)(1) Financial Statements: See Index to Financial Statements and Financial Statement
Schedule on page 13.
(A)(2) Financial Statement Schedule: See Index to Financial Statements and Financial
Statement Schedule on page 13.
(A)(3) Exhibits: See Exhibit Index on page 31.
(B) Reports on Form 8-K: No report on Form 8-K was filed during the quarter ended
December 31, 1997. The Company filed a Form 8-K on January 14, 1997 regarding the
Company's spin-off from Independence Holding Company.
</TABLE>
29
<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
23, 1998.
<TABLE>
<S> <C> <C>
ZIMMERMAN SIGN COMPANY
(REGISTRANT)
By: /s/ DAVID E. ANDERSON
-----------------------------------------
David E. Anderson
CHAIRMAN
(PRINCIPAL EXECUTIVE OFFICER)
</TABLE>
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 23rd day of March, 1998.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ TOM E. BONER
- ------------------------------ Director, President March 23, 1998
Tom E. Boner
/s/ CARL A. GOLDMAN
- ------------------------------ Director March 23, 1998
Carl A. Goldman
/s/ STEVEN B. LAPIN
- ------------------------------ Director March 23, 1998
Steven B. Lapin
/s/ ROY T.K. THUNG
- ------------------------------ Director March 23, 1998
Roy T.K. Thung
30
<PAGE>
ZIMMERMAN SIGN COMPANY
EXHIBIT INDEX
All of the following exhibits have heretofore been filed with the Commission
and are incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
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.*
10.9 First Amendment to Credit Agreement, dated December 31, 1996, between Zimmerman Sign Company and Bank
of America Illinois.*
10.10 First Amendment to Loan Agreement, dated December 31, 1996, between Zimmerman Sign Company and
Comerica Bank-Texas.*
27.1 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.**
</TABLE>
- ------------------------
* Previously filed as an exhibit to the Company's Registration Statement on
Form 10 (No. 000-21737) and incorporated herein by reference.
** Previously filed (No. 000-21737).
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE DECEMBER 31, 1997 BALANCE SHEET AND INCOME STATEMENT AND IS
QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 129,678
<SECURITIES> 0
<RECEIVABLES> 10,486,830
<ALLOWANCES> 100,000
<INVENTORY> 14,595,234
<CURRENT-ASSETS> 25,977,707
<PP&E> 7,620,635
<DEPRECIATION> 4,614,973
<TOTAL-ASSETS> 29,480,931
<CURRENT-LIABILITIES> 11,856,335
<BONDS> 26,011,000
0
0
<COMMON> 18,547
<OTHER-SE> (8,404,951)
<TOTAL-LIABILITY-AND-EQUITY> 29,480,931
<SALES> 44,047,109
<TOTAL-REVENUES> 44,047,109
<CGS> 34,691,459
<TOTAL-COSTS> 40,161,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,419,178
<INCOME-PRETAX> 1,466,523
<INCOME-TAX> 517,186
<INCOME-CONTINUING> 949,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 949,337
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
