<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended March 31, 1998
Commission File Number: 0-21737
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)
Registrant's telephone number, including area code: (903) 535-7400
NOT APPLICABLE
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
Common Stock Outstanding as of April 30, 1998
<PAGE>
ZIMMERMAN SIGN COMPANY
INDEX
<TABLE>
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
<S> <C>
Item 1. Financial Statements
Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997 1
Statements of Operations (unaudited) for the three months
ended March 31, 1998 and 1997 2
Statements of Cash Flows (unaudited) for the three months
ended March 31, 1998 and 1997 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 6. Exhibits and Reports on Form 8-K 7
Signatures 7
Exhibit Index 8
</TABLE>
<PAGE>
ZIMMERMAN SIGN COMPANY
Balance Sheets
March 31, 1998 and December 31, 1997
<TABLE>
1998 1997
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 22,174 $ 129,678
Accounts receivable, net of allowance for doubtful
accounts of $113,060 in 1998 and $100,000 in 1997 9,519,658 10,386,830
Inventories 14,973,241 14,595,234
Prepaids and other current assets 352,098 325,418
Deferred tax assets 585,857 540,547
----------- -----------
Total current assets 25,453,028 25,977,707
Property, plant and equipment, net 2,883,070 3,005,662
Other assets 430,145 463,562
Deferred tax assets 34,000 34,000
----------- -----------
$28,800,243 $29,480,931
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt $ 1,644,000 $ 1,644,000
Accounts payable 6,806,974 6,593,422
Accrued expenses 1,360,035 1,513,384
Income taxes payable 306,380 78,695
Dividend payable 1,000,000 1,000,000
Customer deposits 901,569 1,026,834
----------- -----------
Total current liabilities 12,018,958 11,856,335
Long-term debt, excluding current installments 24,975,000 26,011,000
Stockholders' deficit:
Preferred stock, $.01 par value. Authorized 2,000,000
shares; none issued -- --
Common stock, $.01 par value. Authorized 15,000,000
shares; 1,854,692 shares issued and outstanding 18,547 18,547
Accumulated deficit (8,212,262) (8,404,951)
----------- -----------
Total stockholders' deficit (8,193,715) (8,386,404)
----------- -----------
$28,800,243 $29,480,931
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
1
<PAGE>
ZIMMERMAN SIGN COMPANY
Statements of Operations
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $10,827,260 $10,143,941
Cost of goods sold 8,611,776 7,900,207
----------- -----------
Gross profit 2,215,484 2,243,734
Selling, general and administrative
expenses 1,329,836 1,375,485
Interest expense, net 589,585 606,879
----------- -----------
Income before federal income taxes 296,063 261,370
Federal income taxes 103,375 88,818
----------- -----------
Net income $ 192,688 $ 172,552
----------- -----------
----------- -----------
Net income per share $ 0.10 $ 0.09
----------- -----------
----------- -----------
Weighted average number of shares
outstanding 1,854,692 1,854,692
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
ZIMMERMAN SIGN COMPANY
Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 192,688 $ 172,552
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 179,992 178,034
Provision (credit) for losses on accounts receivable 13,060 (4,002)
Deferred income tax expense (benefit) (45,310) 35,340
Changes in operating assets and liabilities:
Accounts receivable 854,112 2,194,864
Inventories (378,007) (1,029,386)
Prepaids and other current assets (72,373) (362,946)
Other assets (33,417) (10,295)
Customer deposits (125,265) (26,253)
Accounts payable and accrued expenses 287,888 718,242
----------- -----------
Net cash provided by operating activities 940,202 1,866,150
----------- -----------
Cash flows used in investing activities:
Purchases of property, plant and equipment (11,706) (103,197)
Proceeds on sales of property, plant and equipment -- 80,839
----------- -----------
Net cash used in investing activities (11,706) (22,358)
----------- -----------
Cash flows from financing activities:
Payments of revolving line of credit (625,000) (1,675,000)
Principal payments on long-term debt (411,000) (237,000)
----------- -----------
Net cash used in financing activities (1,036,000) (1,912,000)
----------- -----------
Net decreases in cash (107,504) (68,208)
Cash at beginning of period 129,678 132,483
----------- -----------
Cash at end of period $ 22,174 $ 64,275
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying financial statements have been prepared by Zimmerman Sign
Company (the Company), without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in
cash flows at March 31, 1998 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, 1998 are not necessarily
indicative of the operating results for the full year.
4
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE ATTACHED
UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO, AND WITH ZIMMERMAN SIGN
COMPANY'S (THE COMPANY) ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997, INCLUDING AUDITED FINANCIAL STATEMENTS AND NOTES THERETO
FOR THE YEAR ENDED DECEMBER 31, 1997.
The Company's net sales for the three month period ended March 31, 1998
increased $683,000 or 6.7% to $10,827,000 from $10,144,000 for the same period
last year. The net sales increase is primarily due to increased sales to
automotive customers.
The Company's gross profit margin for the three months ended March 31, 1998
decreased to 20.5% from 22.1% for the same period in 1997. The decrease is
primarily due to higher factory overhead expenses.
Selling, general and administrative expenses were $1,330,000 or 12.3% as a
percentage of sales for the quarter ended March 31, 1998 compared to
$1,375,000 or 13.6% as a percentage of sales for the same period in the prior
year. The decrease is primarily the result of lower administrative expenses
related to office payroll and related costs, lower travel expenses, lower
property and casualty insurance costs and reductions in costs related to being
a public company.
Net interest expense decreased to $590,000 for the three month period ended
March 31, 1998 from $607,000 for the same period in the prior year. This
was primarily the result of a lower average debt balance in the 1st quarter
of 1998.
Income before federal income taxes was $296,000 for the three month period
ended March 31, 1998 compared to $261,000 for the same period in the prior
year, an increase of $35,000. This increase primarily resulted from higher
sales volume and lower selling, general and administrative expenses as noted
above.
LIQUIDITY AND CAPITAL RESOURCES
Operating working capital (defined as accounts receivable plus inventories,
less accounts payable, including accrued expenses and customer deposits)
decreased $424,000 to $15,424,000 at March 31, 1998 from $15,848,000 at
December 31, 1997. The decrease in operating working capital resulted from
decreased accounts receivable and increased accounts payable being partially
offset by increased inventories. Funds of $940,000 were provided by
operating activities for the three months ended March 31, 1998 compared to
$1,866,000 for the three months ended March 31, 1997. Increases in accounts
payable and accrued expenses as well as a decrease in net receivables were
the primary sources of funds, which were partially offset by increases in
inventory and decreases in customer deposits.
Investing activities used $12,000 for the first three months of 1998 as a
result of property and equipment purchases. Financing activities used
$1,036,000 as a result of decreased net borrowings under the Company's line
of credit and repayments of bank term loans.
5
<PAGE>
The Company's future capital expenditures will relate principally to the
acquisition of new machinery and equipment 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 1998.
SEASONALITY
The Company's sales exhibit limited seasonality, with sales in the first
quarter generally being the lowest of the four calendar quarters. First
quarter sales tend to be relatively lower because of weather constraints which
may restrict customers' construction activities and may reduce their sign
purchases.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share", which specifies the computation, presentation
and disclosure requirements for earnings per share for entities with publicly
held common stock for both interim and annual periods ending after December 15,
1997. The impact from adopting the provisions of Statement No. 128 in fiscal
year 1997 was not 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 6. Exhibits and Reports on Form 8-K:
(a) See Exhibit Index on page 8.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on May 11, 1998.
ZIMMERMAN SIGN COMPANY
REGISTRANT
/s/ Jeffrey P. Johnson
----------------------------------------------------
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(AUTHORIZED OFFICER AND PRINCIPAL FINANCIAL OFFICER)
7
<PAGE>
EXHIBIT INDEX
All of the following exhibits have heretofore been filed with the Commission
and are incorporated herein by reference:
EXHIBIT NO.
- -----------
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 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 Sign Company
with the Securities and Exchange Commission and declared effective on
December 16, 1996. **
- --------------------
* 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).
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 22,174
<SECURITIES> 0
<RECEIVABLES> 9,632,718
<ALLOWANCES> 113,060
<INVENTORY> 14,973,241
<CURRENT-ASSETS> 25,453,028
<PP&E> 7,632,341
<DEPRECIATION> 4,749,271
<TOTAL-ASSETS> 28,800,243
<CURRENT-LIABILITIES> 12,018,958
<BONDS> 24,975,000
0
0
<COMMON> 18,547
<OTHER-SE> (8,212,262)
<TOTAL-LIABILITY-AND-EQUITY> 28,800,243
<SALES> 10,827,260
<TOTAL-REVENUES> 10,827,260
<CGS> 8,611,776
<TOTAL-COSTS> 9,941,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 589,585
<INCOME-PRETAX> 296,063
<INCOME-TAX> 103,375
<INCOME-CONTINUING> 192,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,688
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
