<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 30, 1998
Commission File Number: 0-21737
Zimmerman Sign Company
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(Exact name of Registrant as specified in its charter)
TEXAS 75-0864498
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(State of Incorporation) (I.R.S. Employer Identification No.)
9846 HIGHWAY 31 EAST, TYLER, TEXAS 75705
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (903) 535-7400
NOT APPLICABLE
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Former name, former address and fiscal year, if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes __X__ No _____.
1,854,692 SHARES OF COMMON STOCK, $0.01 PAR VALUE
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Common Stock Outstanding as of July 31, 1998
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ZIMMERMAN SIGN COMPANY
INDEX
<TABLE>
PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 1
Statements of Operations (unaudited) for the three and six months
ended June 30, 1998 and 1997 2
Statements of Cash Flows (unaudited) for the six months
ended June 30, 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 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 8
Exhibit Index 9
</TABLE>
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ZIMMERMAN SIGN COMPANY
Balance Sheets
June 30, 1998 and December 31, 1997
<TABLE>
1998 1997
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Assets (Unaudited)
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<S> <C> <C>
Current assets:
Cash $ 23,949 $ 129,678
Accounts receivable, net of allowance for doubtful accounts
of $125,638 in 1998 and $100,000 in 1997 8,698,365 10,386,830
Inventories 15,102,508 14,595,234
Prepaids and other current assets 382,671 325,418
Deferred tax assets 629,702 540,547
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Total current assets 24,837,195 25,977,707
Property, plant and equipment, net 2,857,187 3,005,662
Other assets 438,603 463,562
Deferred tax assets 34,000 34,000
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$28,166,985 $29,480,931
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Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Current installments of long-term debt $ 1,644,000 $ 1,644,000
Accounts payable 6,228,548 6,593,422
Accrued expenses 1,533,700 1,513,384
Income taxes payable 155,560 78,695
Dividend payable 1,000,000 1,000,000
Customer deposits 729,862 1,026,834
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Total current liabilities 11,291,670 11,856,335
Long-term debt, excluding current installments 24,664,000 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 (7,807,232) (8,404,951)
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Total stockholders' deficit (7,788,685) (8,386,404)
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$28,166,985 $29,480,931
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</TABLE>
See accompanying notes to financial statements
1
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ZIMMERMAN SIGN COMPANY
Statements of Operations
Three and Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net sales $12,640,692 $11,211,504 $23,467,952 $21,355,445
Cost of goods sold 9,926,359 8,731,402 18,538,135 16,631,609
----------- ----------- ----------- -----------
Gross Profit 2,714,333 2,480,102 4,929,817 4,723,836
Selling, general and administrative
expenses 1,518,201 1,467,343 2,848,037 2,842,828
Interest expense, net 573,767 584,329 1,163,352 1,191,208
----------- ----------- ----------- -----------
Income before federal income taxes 622,365 428,430 918,428 689,800
Federal income taxes 217,335 190,929 320,710 279,747
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Net income $ 405,030 $ 237,501 $ 597,718 $ 410,053
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----------- ----------- ----------- -----------
Net income per share $ 0.22 $ 0.13 $ 0.32 $ 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding 1,854,692 1,854,692 1,854,692 1,854,692
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</TABLE>
See accompanying notes to financial statements
2
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ZIMMERMAN SIGN COMPANY
Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 597,718 $ 410,053
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 357,419 356,974
Provision for losses on accounts receivable 25,638 8,184
Deferred income tax expense (benefit) (89,155) 75,638
Changes in operating assets and liabilities:
Accounts receivable 1,662,827 1,837,015
Inventories (507,273) (937,474)
Prepaids and other current assets (145,918) (130,350)
Other assets 24,959 (21,495)
Customer deposits (296,972) 281,553
Accounts payable and accrued expenses (267,693) 1,447,672
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Net cash provided by operating activities 1,361,550 3,327,770
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Cash flows used in investing activities:
Purchases of property, plant and equipment (120,279) (205,643)
Proceeds on sales of property, plant and equipment -- 80,839
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Net cash used in investing activities (120,279) (124,804)
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Cash flows from financing activities:
Payments of revolving line of credit (525,000) (2,850,000)
Principal payments on long-term debt (822,000) (474,000)
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Net cash used in financing activities (1,347,000) (3,324,000)
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Net decreases in cash (105,729) (121,034)
Cash at beginning of period 129,678 132,483
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Cash at end of period $ 23,949 $ 11,449
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</TABLE>
See accompanying notes to financial statements
3
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ZIMMERMAN SIGN COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by Zimmerman Sign
Company (the Company), without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in
cash flows at June 30, 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 June 30, 1998 are not necessarily indicative
of the operating results for the full year.
4
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE ATTACHED
UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO, AND WITH ZIMMERMAN SIGN
COMPANY'S (THE COMPANY) 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 June 30, 1998
increased $1,429,000 or 12.7% to $12,641,000 from $11,212,000 for the same
period last year. Net sales for the six months ended June 30, 1998 increased
$2,113,000 or 9.9% to $23,468,000 compared to $21,355,000 for the same period
in 1997. The net sales increase for the six month period is due to increased
sales to general retailing, automotive and financial services customers.
The Company's gross profit margin for the three months ended June 30, 1998
decreased to 21.5% from 22.1% for the same period in 1997. For the six
months ended June 30, 1998, the gross profit percentage decreased to 21.0%
from 22.1% in 1997. The decreases for the six month period is primarily due
to higher factory overhead expenses.
Selling, general and administrative expenses were $1,518,000 or 12.0% as a
percentage of sales for the quarter ended June 30, 1998 compared to
$1,467,000 or 13.1% as a percentage of sales for the same period in the prior
year. For the six months ended June 30, 1998, selling, general and
administrative expenses increased $5,000 to $2,848,000 or 12.1% as a
percentage of sales as compared to $2,843,000 or 13.3% as a percentage of
sales for the six months ended June 30, 1997. The decrease as a percentage
of sales for the six month period 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 $574,000 for the three month period ended
June 30, 1998 from $584,000 for the same period in the prior year. Interest
expense for the six months ended June 30, 1998 decreased to $1,163,000 from
$1,191,000 for the six months ended June 30, 1997. This was primarily the
result of a lower average debt balance in the first half of 1998.
Income before federal income taxes was $622,000 for the three month period
ended June 30, 1998 compared to $428,000 for the same period in the prior
year, an increase of $194,000. Income before federal income taxes for the six
months ended June 30, 1998 increased $228,000 to $918,000 from $690,000 for
the same period in 1997. This increase primarily resulted from higher sales
volume and lower interest expenses, along with lower selling, general and
administrative expenses as a percentage of sales, 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 $539,000 to $15,309,000 at June 30, 1998 from $15,848,000 at
December 31, 1997. The decrease in operating working capital resulted almost
entirely from decreased accounts receivable being partially offset by
increased inventories and decreased accounts payable. Funds of
5
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$1,362,000 were provided by operating activities for the six months ended
June 30, 1998 compared to $3,328,000 for the six months ended June 30, 1997.
Decreases in net receivables were the primary sources of funds, which were
partially offset by increases in inventory and decreases in customer deposits
and accounts payable and accrued expenses.
Investing activities used $120,000 for the first six months of 1998 as a
result of property and equipment purchases. Financing activities used
$1,347,000 as a result of decreased net borrowings under the Company's line
of credit and repayments of bank term loans.
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 (FASB) 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 Company believes the impact from adopting the
provisions of Statement No. 128 in fiscal year 1997 was not material.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components in financial statements. The Company
believes the impact from adopting the provisions of Statement No. 130 on the
Financial Statements was not material.
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year in the
date field. These programs, if not corrected could fail or create erroneous
results by or at the Year 2000. This 'Year 2000' issue is believed to affect
virtually all companies and organizations, including the Company. The Company
has undertaken an assessment of the effect of the Year 2000 issue on the
Company's operations. In connection therewith, the Company has sought, and
continues to seek, identify and evaluate Year 2000-related compliance issues,
develop proposed solutions, and estimate the costs of the implementation of
such solutions. The Company does not believe that the Year 2000 issues
(including the costs of the Company's compliance program) will have a
material adverse effect on the Company's financial position or results of
operations, though no assurance can be given in this regard.
6
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FORWARD-LOOKING INFORMATION
This report and other reports and statements filed by the Company from time
to time with the Securities and Exchange Commission (collectively, "SEC
Filings") contain or may contain certain forward-looking statements and
information that are based upon beliefs of, and information currently
available to the Company's management. When used in SEC Filings, the words
"anticipate", "believe", "estimate", "future", "intend", "plan", and similar
expressions with prospective connotations as they relate to the Company and
its business identify forward-looking statements. All forward-looking
statements reflect the current views of the Company with respect to future
events and are subject to various risks, uncertainties and assumptions
relating to the Company and its operating environment which may cause the
actual results to vary significantly from those anticipated. Specific
factors that may cause the Company's actual results to differ from those
anticipated in forward-looking statements are discussed in the Company's most
recently filed Form 10-K.
7
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PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
The Annual Meeting of Shareholders of the Company was held on May 22,
1998. The following proposals were voted upon and approved at the
Annual Meeting:
(1) Election of Directors for a term to be completed at the Annual
Meeting of Shareholders in 1999 or until their respective
successors are duly elected and qualified.
<TABLE>
Votes Votes
Cast For Withheld
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<S> <C> <C>
David E. Anderson 1,719,986 1,953
Tom E. Boner 1,719,987 1,952
Carl A. Goldman 1,719,975 1,964
Steven B. Lapin 1,720,005 1,934
Roy T. K. Thung 1,719,805 2,134
</TABLE>
(2) Ratification of the selection of KPMG Peat Marwick LLP as the
Company's auditors for the 1998 fiscal year.
<TABLE>
Votes Votes Votes
Cast For Against Abstaining
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<S> <C> <C>
1,712,241 9,367 331
</TABLE>
Item 6. Exhibits and Reports on Form 8-K:
(a) See Exhibit Index on page 9.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 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 August 10, 1998.
ZIMMERMAN SIGN COMPANY
REGISTRANT
/s/ Jeffrey P. Johnson
----------------------------------------------------
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(AUTHORIZED OFFICER AND PRINCIPAL FINANCIAL OFFICER)
8
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EXHIBIT INDEX
All of the following exhibits have heretofore been filed with the Commission
and are incorporated herein by reference:
<TABLE>
EXHIBIT NO.
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<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 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. **
</TABLE>
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* 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).
9
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 23,949
<SECURITIES> 0
<RECEIVABLES> 8,824,003
<ALLOWANCES> 125,638
<INVENTORY> 15,102,508
<CURRENT-ASSETS> 24,837,195
<PP&E> 7,740,914
<DEPRECIATION> 4,883,727
<TOTAL-ASSETS> 28,166,985
<CURRENT-LIABILITIES> 11,291,670
<BONDS> 24,664,000
0
0
<COMMON> 18,547
<OTHER-SE> (7,807,232)
<TOTAL-LIABILITY-AND-EQUITY> 28,166,985
<SALES> 23,467,952
<TOTAL-REVENUES> 23,467,952
<CGS> 18,538,135
<TOTAL-COSTS> 21,386,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,163,352
<INCOME-PRETAX> 918,428
<INCOME-TAX> 320,710
<INCOME-CONTINUING> 597,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 597,718
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
