<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the period ended March 31, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____________________
to ____________________
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)
(903) 535-7400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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. /X/ Yes / / No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest praticable date.
1,269,549 SHARES OF COMMON STOCK, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Common Stock Outstanding as of April 30, 2000
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ZIMMERMAN SIGN COMPANY
INDEX
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<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 2000 and December 31, 1999............... 1
Statements of Operations for the three months ended
March 31, 2000 and 1999............................................ 2
Statements of Cash Flows for the three months ended March 31, 2000
and 1999 ........................................................ 3
Notes to Financial Statements ........................................ 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................... 5
Item 3. Quantitative and Qualitative Disclosure about Market Risk.................. 7
PART II - OTHER INFORMATION
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
March 31, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------ -------------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 12,189 $113,914
Accounts receivable, net of allowance for doubtful accounts
of $100,000 in 2000 and 1999 10,228,927 10,139,711
Inventories 16,080,632 16,081,386
Prepaids and other current assets 155,464 147,828
Deferred tax assets 692,951 529,911
------------------ -------------------
Total current assets 27,170,163 27,012,750
------------------ -------------------
Property, plant and equipment, net 3,365,358 3,353,990
Other assets 198,468 234,140
------------------ -------------------
$30,733,989 $30,600,880
================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt $1,219,000 $1,219,000
Accounts payable 6,100,733 6,179,551
Accrued expenses 1,277,899 1,610,358
Income taxes payable 187,826 81,228
Customer deposits 1,475,480 789,452
------------------ -----------------
Total current liabilities 10,260,938 9,879,589
------------------ -----------------
Deferred tax liability 48,824 40,318
Long-term debt, excluding current installments:
Bank debt 17,923,195 18,083,695
Subordinated notes 3,936,435 3,933,546
------------------ -----------------
Total long-term debt 21,859,630 22,017,241
------------------ -----------------
Redeemable preferred stock:
8% Series A, $.01 par value, redemption value of
$5,250,000; 52,500 shares authorized, issued and
outstanding 4,625,907 4,601,904
6% Series B, $.01 par value, redemption value of $700,000;
7,000 shares authorized, issued and outstanding 700,000 700,000
6% Series C, $.01 par value, redemption value of $625,000;
6,250 shares authorized, issued and outstanding 625,000 625,000
------------------ -----------------
Total redeemable preferred stock 5,950,907 5,926,904
------------------ -----------------
Stockholders' deficit:
Common stock, $.01 par value. Authorized 15,000,000
shares; issued 1,854,692 shares; outstanding 1,269,549
Shares 18,547 18,547
Additional paid in capital 454,644 478,647
Accumulated deficit (5,811,501) (5,712,366)
Treasury stock, at cost, 585,143 common shares (2,048,000) (2,048,000)
------------------ -----------------
Total stockholders' deficit (7,386,310) (7,263,172)
------------------ -----------------
$30,733,989 $30,600,880
================== =================
</TABLE>
See accompanying notes to financial statements.
1
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ZIMMERMAN SIGN COMPANY
Statements of Operations
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 12,008,268 $ 12,005,898
Cost of goods sold 9,825,597 9,549,537
------------ ------------
Gross profit 2,182,671 2,456,361
Selling, general and administrative expenses 1,553,576 1,494,506
Interest expense, net 570,093 583,941
------------ ------------
Income before income taxes 59,002 377,914
Income taxes 33,261 132,214
------------ ------------
Net income 25,741 245,700
Preferred stock dividend and accretion 148,879 124,004
------------ ------------
Net income (loss) applicable to
common stock $ (123,138) $ 121,696
============ ============
Basic and diluted net income (loss)
Per common share $ (0.10) $ 0.10
============ ============
</TABLE>
See accompanying notes to financial statements.
2
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ZIMMERMAN SIGN COMPANY
Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net Income $ 25,741 $245,700
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 127,315 149,560
Provision for losses on accounts receivable - 12,420
Deferred income tax benefit (154,534) (31,260)
Changes in operating assets and liabilities:
Accounts receivable (89,216) 316,829
Inventories 754 (824,479)
Prepaids and other current assets (7,636) (149,593)
Other assets 21,132 36,778
Accounts payable and accrued expenses (304,679) (196,681)
Customer deposits 686,028 669,814
--------- ---------
Net cash provided by operating activities 304,905 229,088
--------- ---------
Cash flows used in investing activities - purchases of property, plant
And equipment (121,255) (167,249)
--------- ---------
Cash flows from financing activities:
Net borrowings (payments) on revolving line of credit (100,000) 950,000
Principal payments on long-term debt (60,500) (291,750)
Dividends paid (124,875) (100,000)
Purchase of treasury stock - (723,000)
--------- ---------
Net cash used in financing activities (285,375) (164,750)
--------- ---------
Net decreases in cash (101,725) (102,911)
Cash at beginning of period 113,914 126,339
--------- ---------
Cash at end of period $12,189 $23,428
========= =========
</TABLE>
See accompanying notes to financial statements.
3
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ZIMMERMAN SIGN COMPANY
Notes to Financial Statements
March 31, 2000
(Unaudited)
1. Basis of Presentation
The accompanying financial statements have been prepared by Zimmerman Sign
Company (the "Company"), without audit. In the opinion of management, all
adjustments (which consist only of normal recurring adjustments) necessary
to present fairly the financial position, results of operations and changes
in cash flows at March 31, 2000 and for the three months ended March 31,
2000 and 1999 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 1999 Annual Report to Stockholders. The
results of operations for the period ended March 31, 2000 are not
necessarily indicative of the operating results for the full year.
2. Long-Term Debt
Long-term debt consists of the following at March 31, 2000 and December 31,
1999:
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<CAPTION>
2000 1999
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<S> <C> <C>
Revolving line of credit with a bank, due September 30, 2001,
monthly interest at prime plus .25% or LIBOR plus 2.75%
(9.25% to 8.14% at March 31, 2000) $14,825,000 $14,925,000
Secured term notes payable to a bank, due between October
1, 2002, and October 1, 2005, monthly payments of
$101,583 plus interest at prime plus .25% to 1.5%
or LIBOR plus 2.75% to 4.0% (9.25% to 10.10% at
March 31, 2000) 4,317,195 4,377,695
Subordinated notes, $4,000,000 principal amount, due
September 30, 2005, interest payable quarterly at 12%,
quarterly payments of principal of $500,000 due beginning
September 30, 2003, net of discount of $63,565 at March
31, 2000 and $66,454 at December 31, 1999 3,936,435 3,933,546
----------- -----------
23,078,630 23,236,241
Less current installments 1,219,000 1,219,000
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$21,859,630 $22,017,241
=========== ===========
</TABLE>
3. Net Income Per Share
Basic earnings per share (EPS) is computed by dividing income available to
common stockholders 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. Income
applicable to common stock gives effect to preferred stock dividends and
accretion of preferred stock for the difference between carrying value and
liquidation preference.
4
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Shares used in calculating basic and diluted net income (loss) per share
are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
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<S> <C> <C>
Weighted average common shares outstanding 1,269,549 1,269,549
Dilutive securities - common stock options -- 4,936
------------ -----------
Weighted average common and potentially dilutive
shares outstanding 1,269,549 1,274,485
============= ===========
</TABLE>
Stock options and warrants totaling 1,003,338 and 916,059 were excluded
from the three months ended March 31, 2000 and 1999 net income (loss) per
share calculations, respectively, as they were antidilutive.
4. Capital Stock Transactions
During January 1999, the Company purchased 357,143 shares of its common
stock from its largest stockholder at a cost of $625,000 in cash and 6,250
shares of the Company's 6% Series C Preferred Stock, which has a
liquidation and redemption value of $625,000. Additionally, the Company
purchased 228,000 shares of its common stock from an officer of the Company
at a cost of $98,000 in cash and 7,000 shares of the Company's 6% Series B
Preferred Stock, which has a liquidation and redemption value of $700,000.
The Series B and Series C Preferred Stock are subordinate to the Company's
Series A Preferred Stock. The Company had 1,269,549 shares of common stock
outstanding immediately following the above stock purchases. In connection
with the above transactions, the Company cancelled 343,655 of its
outstanding warrants. Common shares outstanding assuming exercise of the
outstanding options (including 35,921 options which have not yet been
granted) and warrants would be 2,308,808.
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 THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, INCLUDING AUDITED
FINANCIAL STATEMENTS AND NOTES THERETO FOR THE YEAR ENDED DECEMBER 31, 1999.
The Company's net sales for the three-month period ended March 31, 2000
increased slightly to $12,008,000 from $12,006,000 for the same period last
year. This small net sales increase was due primarily to increased sales to
automotive customers offset by decreased sales to petroleum and convenience
store customers.
The Company's gross profit margin for the three months ended March 31, 2000
decreased to 18.2% from 20.5% for the same period in 1999. The decrease for the
three-month period is primarily due to higher direct manufacturing costs
including a larger portion of sales related to subcontracted installation
efforts which have a lower direct contribution margin along with increased costs
related to several large health insurance claims for plant personnel.
Selling, general and administrative expenses were $1,566,000 or 13.0% of net
sales for the quarter ended March 31, 2000 compared to $1,495,000 or 12.5% of
net sales for the same period in the prior year. The increase is primarily the
result of payroll and related cost increases along with health insurance
increases associated with several large claims. Such costs were partially offset
by lower selling costs and lower
5
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depreciation and amortization.
Interest expense decreased slightly to $570,000 for the three-month period ended
March 31, 2000 from $584,000 for the same period in the prior year. The decrease
was due primarily to lower borrowings offset by higher rates under the Company's
revolving line of credit.
Income before income taxes decreased $332,000 to $46,000 for the three month
period ended March 31, 2000 compared to $378,000 for the same period in the
prior year. This decrease resulted primarily from higher direct cost of sales
and 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, income taxes payable and customer
deposits) decreased $293,000 to $17,268,000 at March 31, 2000 from $17,561,000
at December 31, 1999. The decrease in operating working capital resulted almost
entirely from larger customer deposits which were partially offset by increased
accounts receivable, and decreases in accounts payable and accrued expenses. Net
cash of $302,000 was provided by operating activities for the three months ended
March 31, 2000 compared to $229,000 for the three months ended March 31, 1999.
Increased customer deposits were the primary source of cash provided by
operating activities, which were partially offset by increases in accounts
receivable and decreases in accounts payable and accrued expenses.
Investing activities used $121,000 for the first three months of 2000 as a
result of net property and equipment purchases. Financing activities used
$282,000 as a result of preferred dividends and net repayments of debt.
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 senior credit facilities are sufficient for its
planned requirements during 2000.
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
The Company is assessing the reporting and disclosure requirements of Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. This
statement requires that all derivatives be recognized as either assets or
liabilities in the balance sheet and measured at fair value. The accounting for
changes in fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and resulting designation. This statement amends
and supersedes a number of existing SFAS's, and nullifies or modifies a number
of the consensuses reached by the Emerging Issues Task Force. As amended by SFAS
No. 137, this statement is effective for financial statements for fiscal years
beginning after June 15, 2000. At the present time, the Company has not
quantified the effect of adoption or the continuing impact of such adoption. The
Company will adopt the provisions of SFAS No. 133 in the first quarter of fiscal
year 2001.
6
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YEAR 2000 CONSIDERATIONS
The Company uses and relies on a wide variety of information technologies,
computer systems and manufacturing equipment containing computer-related
components. The Company did not experience any business interruptions related to
the Year 2000 Issue. The Company is continuing to monitor its computer systems
and equipment and expects that the Year 2000 Issue will not have a material
adverse effect on its business, financial condition or results of operations.
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 for
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 development 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 shareholders, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The principal market risk (i.e. the risk of loss arising from adverse changes in
market rates and prices) to which the Company is exposed is interest rates on
its outstanding debt. At March 31, 2000, the Company has $19.1 million of debt
outstanding under its senior credit facilities which provide for interest to be
charged at the prime rate plus a margin of 0.25% to 1.5% or at a LIBOR rate plus
a margin of 2.75% to 4.0%. Based on the Company's level of outstanding debt, a
1.0% change in the interest rate would result in a $0.2 million annual change in
interest expense. The Company does not own nor is it obligated for other
significant debt or equity securities that would be affected by fluctuations in
market risk.
The Company has limited involvement with derivative financial instruments and
uses them to manage well-defined interest rate risks. Interest rate collar
agreements are used to reduce the potential impact of fluctuations in interest
rates on floating-rate long-term debt. At March 31, 2000, the Company has a
one-year interest rate collar agreement for notional amounts aggregating
$15,000,000.
7
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PART II
OTHER INFORMATION
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 March
31, 2000.
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 5, 2000.
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 are being or have heretofore been filed with
the Commission and are incorporated herein by reference:
Exhibit No. Title
- ----------- -----
3.1 Amended and Restated Articles of Incorporation of Zimmerman Sign
Company. (1)
3.2 Amended and Restated Bylaws of Zimmerman Sign Company, amended and
restated as of September 29, 1998. (1)
4.1 Distribution Agreement, dated as of November 26, 1996, by and between
Zimmerman Sign Company and Independence Holding Company. (2)
4.2 Registration Rights Agreement, dated as of September 30, 1998, by and
between Zimmerman Sign Company, Continental Illinois Venture
Corporation, MIG Partners VIII and certain shareholders. (1)
4.3 Stockholders Agreement, dated as of September 30, 1998, by and between
Zimmerman Sign Company and certain shareholders. (1)
10.1 Second Amended and Restated Revolving Credit and Term Loan Agreement,
dated as of September 30, 1998, by and between Zimmerman Sign Company
and Comerica Bank-Texas. (1)
10.2 Senior Subordinated Note, Preferred Stock and Warrant Purchase
Agreement, dated as of September 30, 1998, by and between Zimmerman
Sign Company, Continental Illinois Venture Corporation, MIG Partners
VIII and certain management purchasers. (1)
10.3 Stock Option Plan of Zimmerman Sign Company, dated as of December 1,
1996. (2)
10.9 Share Option Purchase Agreement, dated as of September 30, 1998, by
and between Zimmerman Sign Company and certain shareholders. (1)
10.10 Purchase Agreement, dated as of September 30, 1998, by and between
Zimmerman Sign Company and David E. Anderson. (1)
10.11 Letter Agreement, dated as of September 30, 1998, by and between
Zimmerman Sign Company and certain shareholders. (1)
10.12 Form of 12% Senior Subordinated Note issued by Zimmerman Sign Company
in connection with the Senior Subordinated Note, Preferred Stock and
Warrant Purchase Agreement, dated as of September 30, 1998. (1)
10.13 Form of Stock Purchase Warrants issued by Zimmerman Sign Company in
connection with the Senior Subordinated Note, Preferred Stock and
Warrant Purchase Agreement, dated as of September 30, 1998. (1)
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. (3)
----------------------
(1) Previously filed as an exhibit to the Company's Form 10-Q for the
quarter ended September 30, 1998 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Registration Statement
on Form 10 (No. 000-21737) and incorporated herein by reference.
(3) 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 MARCH
31, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,189
<SECURITIES> 0
<RECEIVABLES> 10,328,927
<ALLOWANCES> 100,000
<INVENTORY> 16,080,632
<CURRENT-ASSETS> 27,170,163
<PP&E> 8,568,700
<DEPRECIATION> 5,203,342
<TOTAL-ASSETS> 30,733,989
<CURRENT-LIABILITIES> 10,260,938
<BONDS> 21,859,630
5,950,907
0
<COMMON> 18,547
<OTHER-SE> (7,404,857)
<TOTAL-LIABILITY-AND-EQUITY> 30,733,989
<SALES> 12,008,268
<TOTAL-REVENUES> 12,008,268
<CGS> 9,825,597
<TOTAL-COSTS> 11,379,173
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 570,093
<INCOME-PRETAX> 59,002
<INCOME-TAX> 33,261
<INCOME-CONTINUING> 25,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,741
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
