SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 4, 1998
[ ] 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 0-22978
STIMSONITE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3718658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization ) Identification Number)
6565 West Howard Street
Niles, Illinois 60714-3373
(Address of principal executive offices) (Zip Code)
(847) 647-7717
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of October 30, 1998 was 8,346,377.
1
<PAGE>
STIMSONITE CORPORATION
Index
Page
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
Item 3. Quantitative and Qualitative Disclosures about Market Risks 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements.
STIMSONITE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
10/4/98 12/31/97
------------ ------------
(Unaudited) (Audited)
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $748 $337
Trade accounts receivable less allowance for
doubtful accounts of $550 (1998)
and $495 (1997) 25,704 14,864
Inventories 11,273 11,418
Prepaid expenses and other 1,011 1,272
Deferred tax assets 1,654 1,630
------------ ------------
Total current assets 40,390 29,521
Property, plant and equipment, net 15,013 11,829
Intangible assets, net 9,391 11,259
Deferred financing costs, net 206 251
Deferred tax assets and other 2,497 2,341
------------ ------------
Total assets $67,497 $55,201
============ ============
LIABILITIES
Current liabilities:
Accounts payable $7,982 $7,797
Current maturities of long-term debt 2,500 2,500
Other accrued expenses 7,975 2,218
------------ ------------
Total current liabilities 18,457 12,515
Accrued postretirement benefits 594 631
Long-term debt 18,325 15,575
------------ ------------
Total liabilities 37,376 28,721
STOCKHOLDERS' EQUITY
Total stockholders' equity 30,121 26,480
------------ ------------
Total liabilities and stockholders' equity $67,497 $55,201
============ ============
</TABLE>
See Accompanying Notes
3
<PAGE>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended Twelve Months Ended
--------------------------- ---------------------------- ---------------------------
10/4/98 9/28/97 10/4/98 9/28/97 10/4/98 9/28/97
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $28,043 $25,514 $67,332 $63,710 $84,985 $79,923
Cost of goods sold 17,629 15,704 43,333 41,071 56,220 54,664
------------ ------------ ------------ ------------ ------------ ------------
Gross profit 10,414 9,810 23,999 22,639 28,765 25,259
Operating expenses:
Selling and administrative 3,861 3,439 11,044 10,397 14,831 14,201
Research and development 518 390 2,027 1,404 2,709 2,105
Amortization of intangibles 656 654 2,006 2,073 2,663 2,789
Restructuring charge --- --- --- --- --- 4,000
------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses 5,035 4,483 15,077 13,874 20,203 23,095
------------ ------------ ------------ ------------ ------------- ------------
Operating income 5,379 5,327 8,922 8,765 8,562 2,164
Interest expense 470 620 1,359 1,863 1,798 2,469
------------ ------------ ------------ ------------ ------------- ------------
Income (loss) before provision for
income taxes 4,909 4,707 7,563 6,902 6,764 (305)
Provision for income taxes 2,041 1,966 3,178 2,959 2,693 130
------------ ------------ ------------ ------------ ------------- ------------
Net income (loss) $2,868 $2,741 $4,385 $3,943 $4,071 ($435)
============ ============ ============ ============ ============= ============
Comprehensive income:
Foreign exchange translation (11) (277) (100) (511) 147 (407)
------------ ------------ ------------ ------------ ------------- ------------
Comprehensive income (loss) $2,857 $2,464 $4,285 $3,432 $4,218 ($842)
============ ============ ============ ============ ============= ============
Earnings per common and common
equivalent share:
Net income (loss):
Basic $0.34 $0.32 $0.52 $0.46 $0.48 ($0.05)
Diluted $0.34 $0.32 $0.52 $0.45 $0.48 ($0.05)
Weighted average number of shares and
share equivalents outstanding :
Basic 8,364,310 8,549,202 8,371,305 8,580,907 8,406,381 8,625,306
Diluted 8,511,844 8,666,125 8,510,079 8,694,073 8,537,272 8,625,306
</TABLE>
See Accompanying Notes
4
<PAGE>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
---------------------------- ---------------------------
10/4/98 9/28/97 10/4/98 9/28/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net cash provided by operating activities: $3,867 $3,068 $12,495 $14,010
Cash flows from investing activities:
Purchase of property, plant and equipment (6,056) (1,734) (6,866) (2,642)
Sale of property, plant and equipment 751 5,802 699 5,802
Investment in joint venture partnership - - - 25
------------ ------------ ------------- -----------
Net cash (used in) provided by investing activities (5,305) 4,068 (6,167) 3,185
Cash flows from financing activities:
Proceeds from the issuance of common stock,
net of offering expenses 8 31 8 278
Payments to reacquire common stock (649) (1,226) (1,009) (1,847)
Principal payments under capital lease obligations (160) (210) (198) (244)
Proceeds from long-term debt 7,400 6,375 6,050 2,475
Payments on long-term debt (4,650) (11,600) (10,800) (17,508)
Financing fees paid in connection with debt refinancing - - - (107)
------------ ------------ ------------- -----------
Net cash provided by (used in) financing activities 1,949 (6,630) (5,949) (16,953)
Effect of exchange rate changes on cash (100) (511) 147 (407)
------------ ------------ ------------- -----------
Net increase (decrease) in cash and cash equivalents 411 (5) 526 (165)
Cash and cash equivalents, beginning of period 337 227 222 387
------------ ------------ ------------- -----------
Cash and cash equivalents, end of period $748 $222 $748 $222
============ ============ ============= ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $1,349 $1,607 $1,985 $2,547
Cash paid during the period for income taxes $979 $39 $1,881 $1,780
Capital lease for property, plant & equipment $469 597 $469 $597
</TABLE>
See Accompanying Notes
5
<PAGE>
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
Note 1 - Financial Information
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to, or as permitted by, such rules and
regulations. In the opinion of management, the financial information presented
reflects all adjustments (which are normal and recurring) that are necessary for
a fair statement of financial results for the interim periods presented. These
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K").
The Company's business is seasonal and, accordingly, comparative twelve month
trailing information is provided. The financial information included herein at
October 4, 1998 and for the periods ended October 4, 1998 and September 28, 1997
is unaudited and, in the opinion of the Company, reflects all adjustments (which
include only normal and recurring adjustments) necessary for the fair
presentation of financial position as of that date and the results of operations
for these periods. The information in the condensed consolidated balance sheet
at December 31, 1997 was derived from the Company's consolidated financial
statements included in the 1997 Form 10-K.
The results for the quarter ended October 4, 1998 are not necessarily indicative
of results that can be expected for the full year ending December 31, 1998.
Note 2 - Inventories
Inventories consist of the following:
October 4, December 31,
1998 1997
----------- ------------
($000) (Unaudited)
Raw materials $4,804 $5,323
Work in process 1,023 1,455
Finished goods 5,446 4,640
--------- ---------
$11,273 $11,418
========= =========
6
<PAGE>
Note 3 - Earnings Per Share
The computation of basic and diluted EPS, as prescribed by SFAS 128, is
presented below:
<TABLE>
<CAPTION>
Weighted
Net Income Average Shares Per Share
(Numerator) (Denominator) Amounts
----------- ------------- -------
Quarter ended October 4, 1998
- -----------------------------
Basic EPS
- ---------
<S> <C> <C> <C>
Income (loss) available to common stockholders $2,868,000 8,364,310 $0.34
Effect of dilutive options 147,534
----------------
Diluted EPS
- -----------
Income (loss) available to common stockholders
plus assumed conversions $2,868,000 8,511,844 $0.34
- ----------------------------------------------------------------------------------------------
Quarter ended September 28, 1997
- --------------------------------
Basic EPS
- ---------
Income (loss) available to common stockholders $2,741,000 8,549,202 $0.32
Effect of dilutive options 116,923
----------------
Diluted EPS
- -----------
Income (loss) available to common stockholders
plus assumed conversions $2,741,000 8,666,125 $0.32
- ----------------------------------------------------------------------------------------------
Nine months ended October 4, 1998
- ---------------------------------
Basic EPS
- ---------
Income available to common stockholders $4,385,000 8,371,305 $0.52
Effect of dilutive options 138,774
----------------
Diluted EPS
- -----------
Income available to common stockholders
plus assumed conversions $4,385,000 8,510,079 $0.52
- ----------------------------------------------------------------------------------------------
Nine months ended September 28, 1997
- ------------------------------------
Basic EPS
- ---------
Income (loss) available to common stockholders $3,943,000 8,580,907 $0.46
Effect of dilutive options 113,166
----------------
Diluted EPS
- -----------
Income (loss) available to common stockholders
plus assumed conversions $3,943,000 8,694,073 $0.45
- ----------------------------------------------------------------------------------------------
Twelve months ended October 4, 1998
- -----------------------------------
Basic EPS
- ---------
Income available to common stockholders $4,071,000 8,406,381 $0.48
Effect of dilutive options 130,891
----------------
Diluted EPS
- -----------
Income available to common stockholders
plus assumed conversions $4,071,000 8,537,272 $0.48
- ----------------------------------------------------------------------------------------------
Twelve months ended September 28, 1997
- --------------------------------------
Basic EPS
- ---------
Income (loss) available to common stockholders ($435,000) 8,625,306 ($0.05)
Effect of dilutive options 0
----------------
Diluted EPS
- -----------
Income (loss) available to common stockholders
plus assumed conversions ($435,000) 8,625,306 ($0.05)
- ----------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Note 4 - Impact of New Accounting Standards
In June 1997, the FASB issued a Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). This statement,
effective for fiscal years beginning after December 15, 1997, requires the
Company to report components of comprehensive income in a financial statement
that is displayed with the same prominence as other financial statements. The
Company's financial statements are prepared in accordance with SFAS No. 130.
The Company will implement the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). This statement, effective for fiscal years
beginning after December 15, 1997, specifies revised guidelines for determining
an entity's operating segments and the type and level of financial information
to be disclosed. The Company is currently evaluating the effect of adopting SFAS
No. 131.
The Company will implement the provisions of Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (SFAS No. 132). This statement, effective for fiscal
years beginning after December 15, 1997, standardizes the disclosure
requirements for pensions and other postretirement benefits, requires additional
information on changes in the benefit obligation and fair values of plan assets
and eliminates certain disclosures that are no longer useful. The Company does
not believe that the implementation of SFAS No. 132 will have a material impact
on its financial reporting.
The Company will implement the provisions of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). This statement, effective for fiscal years beginning
after June 15, 1999, provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The Company
does not believe that the implementation of SFAS No. 133 will have a material
impact on its financial reporting.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion and analysis of the consolidated financial
condition and results of operations of the Company for the nine months and
twelve months ended October 4, 1998 and September 28, 1997. The following should
be read in conjunction with the condensed consolidated financial statements and
related notes appearing elsewhere herein and the consolidated financial
statements and related notes contained in the Company's 1997 Form 10-K.
The Company manufactures and markets reflective highway safety products used in
a variety of applications where motorist and pedestrian guidance are important.
Seasonality and Quarterly Results
- ---------------------------------
The Company's sales are seasonal. The domestic highway maintenance and
construction season tends to reach its peak in the second and third quarters of
the year, and domestic sales of the Company's products are generally highest in
these quarters. While international sales are also seasonal, international
maintenance and construction seasons vary from the domestic season and tend to
offset somewhat the seasonality of domestic sales. International sales
constituted 12.7% and 13.2% of net sales in the third quarters of 1998 and 1997,
respectively, 14.9% and 14.0% of net sales in the first nine months of 1998 and
1997, respectively. Because the Company operates with little backlog, sales in
any given quarter generally result from orders booked and shipped in that
quarter. Accordingly, net sales and operating income are particularly sensitive
to the timing of domestic market demand and tend to be highest in the second and
third quarters, whereas net sales and operating income tend to be reduced during
the first and fourth quarters, resulting in either operating losses or reduced
earnings for those periods. In addition, the Company's performance in any given
quarter is affected by weather anomalies.
The Company's sales are dependent on the ability and willingness of the federal
and state governments to fund highway construction projects. Such sales may be
affected by real or perceived uncertainty concerning the level of government
funding for highway construction projects. Earlier this year, the U.S. Congress
approved a new federal highway spending bill. The Company expects that the new
federal highway bill will increase the number of new highway construction
projects, which, over an extended period of time, may benefit the sale of the
Company's products.
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, the percentage of net
sales of certain items in the Company's condensed consolidated statement of
operations and the percentage change in each item from the prior comparable
period.
9
<PAGE>
<TABLE>
<CAPTION>
Table. Percentage of Inc (Dec) Percentage of Inc (Dec) Percentage of Inc (Dec)
Net Sales % Change Net Sales % Change Net Sales % Change
Quarter Ended from Nine Months from Twelve Months Ended from
10/4/98 9/28/97 Prior Period 10/4/98 9/28/97 Prior Period 10/4/98 9/28/97 Prior Period
------- ------- ------------ ------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 9.9% 100.0% 100.0% 5.7% 100.0% 100.0% 6.3%
Cost of goods sold 62.9 61.6 12.3 64.4 64.5 5.5 66.2 68.4 2.8
Gross profit 37.1 38.4 6.2 35.6 35.5 6.0 33.8 31.6 13.9
Selling and 13.8 13.5 12.3 16.4 16.3 6.2 17.5 17.8 4.4
administrative
Research and 1.8 1.5 32.8 3.0 2.2 44.4 3.2 2.6 28.7
development
Amortization of 2.3 2.6 0.3 3.0 3.3 (3.2) 3.1 3.5 (4.5)
intangibles
Restructuring charge -- -- -- -- -- -- -- 5.0 n.a.
Operating income 19.2 20.9 1.0 13.3 13.8 1.8 10.1 2.7 295.7
Interest expense 1.7 2.4 (24.2) 2.0 2.9 (27.1) 2.1 3.1 (27.2)
Income (loss) before provision
for income taxes and
extraordinary item 17.5 18.4 4.3 11.2 10.8 9.6 8.0 (0.4) n.a.
Net income (loss) 10.2 10.7 4.6 6.5 6.2 11.2 4.8 (0.5) n.a.
</TABLE>
Quarter ended October 4, 1998
Compared to
Quarter ended September 28, 1997
- --------------------------------
Net sales of $28.0 million for the quarter ended October 4, 1998 increased $2.5
million or 9.9% from the comparable fiscal 1997 quarter. Net domestic sales of
highway delineation products increased 6.5% compared with the third quarter of
1997, and domestic sales of optical film products and international sales
increased by 52.7% and 6.3%, respectively. The 52.7% increase in domestic sales
of optical film reflected a continued acceptance of the Company's improved
products introduced in the fourth quarter of 1996.
Cost of goods sold for the third quarter of 1998 totaled $17.6 million compared
to $15.7 million for the 1997 period. As a percentage of net sales, cost of
goods sold increased from 61.6% in the third quarter of 1997 to 62.9% in 1998.
The related 1.3% decrease in gross margin reflected an unfavorable mix of
product sales partially offset by successful manufacturing cost reduction
programs.
Selling and administrative expenses for the third quarter of 1998 were $3.9
million compared to $3.4 million in the third quarter of 1997. As a percentage
of net sales, selling and administrative expenses were 13.8% in 1998 and 13.5%
in the 1997 period.
10
<PAGE>
Research and development expenses for the third quarter of 1998 were $0.5
million compared to $0.4 million in the third quarter of 1997.
Interest expense was $0.5 million in the third quarter of 1998, a decrease of
$0.1 million compared to the same period in 1997. The decrease was the result of
a lower level of debt primarily due to the repayment of debt with $5.8 million
in net proceeds from the sale of the Company's Waukegan, Illiois property on
August 1, 1997.
Provision for income taxes of $2.0 million in the third quarter of 1998
reflected an effective tax rate of 41.6% compared to a $2.0 million tax
provision and a 41.8% rate in the third quarter of 1997.
Nine months ended October 4, 1998
Compared to
Nine months ended September 28, 1997
- -------------------------------------
Net sales of $67.3 million for the nine months ended October 4, 1998 increased
$3.6 million or 5.7% from the comparable fiscal 1997 period. Net domestic sales
of highway delineation products decreased 0.3% compared with the same period in
1997, but was offset by strong domestic sales of optical film products (a 44.4%
increase compared to 1997) and international sales (a 12.6% increase compared to
1997). 1998 results were further enhanced by changes in the Company's fiscal
quarters which resulted in six more calendar days in 1998 than in 1997.
Cost of goods sold for the first nine months of 1998 totaled $43.3 million
compared to $41.1 million for the 1997 period. As a percentage of net sales,
cost of goods sold decreased from 64.5% in the 1997 period to 64.4% in 1998. The
positive effects achieved by the Company's aggressive manufacturing cost
reduction programs were largely negated by an unfavorable mix of product sales.
Selling and administrative expenses for the nine months ended October 4, 1998
were $11.0 million compared to $10.4 million in the same period of 1997. As a
percentage of net sales, selling and administrative expenses were 16.4% and
16.3% in the 1998 and 1997 period, respectively. Included in the nine months
ended October 4, 1998, as an offset to selling and administrative expense, is a
$0.2 million gain on involuntary conversion, resulting from the recording of
certain insurance proceeds and related loss of property at one of the Company's
production facilities earlier this year. Excluding the $0.2 million gain,
selling and administrative expenses, as a percentage of net sales, were 16.6%
during the first nine months of 1998.
Research and development expenses for the nine months ended October 4, 1998 were
$2.0 million compared to $1.4 million in the same period of 1997. The higher
expense level was in part due to the absence, in 1998, of $0.3 million of
expense absorption related to the sale of insert tooling to the automotive
industry. The Company sold its automotive-related insert tooling business during
1996, but certain carry over work
11
<PAGE>
continued into 1997. As a percentage of net sales, research and development
expenses were 3.0% in the 1998 period compared to 2.2% in the same period of
1997.
Interest expense was $1.4 million for the first nine months of 1998, a decrease
of $0.5 million compared to the same period in 1997. The decrease was the result
of a lower level of debt primarily due to the repayment of debt with $5.8
million in net proceeds from the sale of the Company's Waukegan, Illinois
property on August 1, 1997.
Provision for income taxes of $3.2 million for the nine months ended October 4,
1998 reflected an effective tax rate of 42.0% compared to a $3.0 million tax
provision and a 42.9% rate in the same period of 1997.
Twelve months ended October 4, 1998
Compared to
Twelve months ended September 28, 1997
- --------------------------------------
Net sales for the twelve months ended October 4, 1998 were $85.0 million, an
increase of $5.1 million or 6.3% compared to 1997. Net domestic sales of highway
delineation products decreased $0.5 million or 0.8% compared with the twelve
months ended September 28, 1997. Net international sales increased $2.2 million
or 18.8% and net domestic sales of optical film increased $3.3 million or 47.3%
compared with the twelve months ended September 28, 1997.
Cost of goods sold for the twelve months ended October 4, 1998 totaled $56.2
million (66.2% of net sales) compared to $54.7 million (68.4% of net sales) in
the comparable 1997 period. The corresponding 2.2% increase in gross margin is
largely attributable to increased productivity in the Company's manufacturing
processes, partly offset by an unfavorable mix of product sales and competitive
pricing primarily in the non-snowplowable markers product group.
Selling and administrative expenses for the twelve months ended October 4, 1998
totaled $14.8 million, an increase of $0.6 million or 4.4% compared to the
previous twelve month period. As a percentage of net sales, selling and
administrative expenses were 17.5% in 1998 and 17.8% in 1997.
Research and development expenses for the twelve months ended October 4, 1998
were $2.7 million (3.2% of net sales) compared to $2.8 million (2.6% of net
sales) in the previous twelve month period.
The Company incurred a $4.0 million restructuring charge in the fourth quarter
of 1996 relating principally to the planned sale of certain land and a building
under construction in Waukegan, Illinois. The restructuring charge is described
in detail in the 1997 Form 10-K under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Year Ended December
31, 1997 Compared to Year Ended December 31, 1996 - Restructuring Charge."
12
<PAGE>
Interest expense for the twelve months ended October 4, 1998 was $1.8 million,
compared to $2.5 million in the previous twelve month period. The decrease was
the result of a lower level of debt primarily due to the repayment of debt with
$5.8 million in net proceeds from the sale of the Company's Waukegan, Illinois
property on August 1, 1997.
Liquidity and Capital Resources
- -------------------------------
The Company finances working capital requirements and capital expenditures
through internally generated funds, revolving borrowings and lease financing.
During the nine month period ended October 4, 1998, the Company increased
borrowings under its long term credit facility by $2.8 million. The principal
inflows and outflows of cash during the nine months ended October 4, 1998 were
as follows:
Cash Flow Summary
Nine Months Ended October 4, 1998
---------------------------------
($millions)
Cash inflows
------------
Net cash provided by operating activities $3.9
Net borrowings under credit facility 2.8
-----
Total inflows 6.7
-----
Cash outflows
-------------
Repurchase of outstanding Company stock (0.6)
Capital expenditures (5.3)
All other (net) (0.4)
-----
Total outflows (6.3)
-----
Net change in cash balance $ 0.4
=====
The Company's sales are seasonal, with domestic revenues tending to be highest
in the second and third quarter of the year consistent with the domestic highway
maintenance and construction season. The Company builds working capital,
principally accounts receivable and inventory, during the second and third
quarters to support sales. Positive cash flow from operations is generally
realized in the third quarter as cash collections are higher than production
levels and in the fourth quarter of the year as production and related
expenditures seasonally decline and accounts receivable are collected.
Conversely, the Company generally experiences negative cash flow in the first
quarter, when sales are lower, and in the second quarter, when the Company is
building working capital but has not yet collected revenues from second quarter
sales.
13
<PAGE>
The Company has historically borrowed funds available under its revolving credit
facilities to fund working capital during its first and second quarters. During
the third and fourth quarters, the Company normally reduces its borrowings using
funds generated by normal operating activities. During the first nine months of
fiscal 1998, operating activities provided the Company with $3.9 million in
cash, compared to $3.1 million provided during the same period of 1997. The $0.8
million increase in cash flow from operating activities during the period was
the result of an increase in net earnings ($0.4 million) and a decrease in
working capital ($0.4 million). The Company realized $12.5 million from
operating activities in the twelve month period ended October 4, 1998, compared
to $14.0 million from operating activities in the twelve months ended September
28, 1997. The $1.5 million decrease in cash flow from operating activities
resulted largely from unfavorable net changes in working capital.
At October 4, 1998, the Company's outstanding borrowings under its credit
agreement consisted of $14.2 million of term loans and $6.6 million of revolving
loans. Under the terms of the agreement, $0.6 million of term loans will become
due during the remainder of 1998, and an additional $2.5 million of term loans
become due during 1999. At October 4, 1998, the additional amount available
under the revolving portion of the Company's credit agreement, after
consideration of all borrowing base limitations and outstanding loans, was $13.4
million.
The Company expects capital expenditures for additions and replacements to
approximate $6.5 million in 1998 and $4.0 million in 1999, with funding to be
provided principally from internally generated funds. Through October 4, 1998,
the Company had spent $5.3 million on capital expenditures.
On May 1, 1998, the Company began leasing an additional 78,000 square feet of
space in Niles, Illinois. These facilities will be principally used to expand
the Company's manufacturing capacity. The lease extends until April 30, 2008,
with an option to terminate the lease as of April 30, 2004. The Company also has
an option to purchase the building at a fixed price in 2004 or 2008.
In October 1995, the board of directors authorized the repurchase of up to
500,000 shares of the Company's common stock. In conjunction with the then
pending sale of the Waukegan facility, the board of directors in July 1997
authorized an expansion of the stock buyback program by 500,000 shares, raising
the total allowable purchases to 1,000,000 shares. Through October 4, 1998, the
Company had purchased 632,000 shares of its common stock at an average price of
$6.33 per share.
The Company expects that cash flow from operations and borrowings under the
credit facility will be sufficient to fund working capital needs, capital
expenditures and mandatory principal payments under the credit facility through
1999. From time to time, the Company considers possible acquisitions of
businesses complimentary to the Company's business. It is likely that any
significant acquisition would be funded with additional long term debt.
14
<PAGE>
Adoption of new accounting standards
- ------------------------------------
As described in Note 4 to the Notes to Condensed Financial Statements, the
Company is required to adopt the following new accounting standards:
o SFAS 131 -Disclosures about Segments of an Enterprise and Related Information.
o SFAS 132 -Disclosures about Pensions and Other Postretirement benefits.
o SFAS 133 -Accounting for Derivative Instruments and Hedging Activities.
Year 2000 issues
- ----------------
Some computers, software, and other equipment include programming code in which
calendar year data are abbreviated to two digits. As a result, some of these
systems could fail to operate, or fail to produce correct results, if dates are
not correctly interpreted. These problems are commonly referred to as the "Year
2000 Problem".
Since 1997, the Company has been working to identify and address the Year 2000
issues. The evaluation phase of the Company's Year 2000 readiness project is
intended to determine the readiness of internal systems and equipment as well as
third parties. The remediation phase includes (i) reprogramming of software,
(ii) replacing computer software, hardware and operating equipment, (iii)
testing specific modifications and (iv) idenitifying solutions to possible third
party noncompliance. The testing phase includes integrated testing of all
systems that were modified. As of November 10, 1998, the Company estimates that
the internal evaluation phase is substantially complete, but the assessment of
third parties described above has not yet begun. The Company has not yet
completed the remediation or testing phases, but each of the Company's Year 2000
readiness project is expected to be completed by the end of the fourth quarter
of 1999.
The related costs of compliance have not yet been determined. However,
preliminary estimates, which include costs attributable to the accelerated
purchase of replacement hardware and software, approximate $500,000, of which
$400,000 has been incurred through the end of the third quarter in addressing
Year 2000 issues. While the estimated cost of these efforts are not expect to be
material to the Company's financial position or any year's results of
operations, there can be no assurance as to this effect.
The Company believes that in the most likely worst case scenario, internal
remediation and testing of information technology and non-information technology
systems will be completed as indicated above and will have minimal unfavorable
impact on the Company's financial condition and results of operations. If any or
all of these efforts are delayed, however, there could be disruption of the
financial and operating systems at one or more of the Company's business units.
Additionally, as discussed above, the Company has not begun its assessment of
the third parties' readiness. The Company currently expects that certain
external parties providing materials and services to the Company will be
reluctant to disclose fully certain information about their readiness.
Accordingly, the Company cannot be assured that there will be no disruption of
operations because of vendors and service providers who are not fully Year 2000
compliant.
The company has not yet completed its contingency planning with respect to Year
2000 issues. The Company intends to complete its contingency planning by the end
of the third quarter of 1999 as part of the remediation and testing phases
described above.
15
<PAGE>
Forward Looking Statements
- --------------------------
This Form 10-Q contains "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including (without limitation)
statements as to expectations, beliefs and future financial performance and
assumptions underlying the foregoing related to product demand, the effect of
the federal appropriation bill, the ability to meet short and long term debt
requirements, expected cash flow from operations, projected capital spending
levels and compliance with Year 2000 issues. The actual results or outcomes
could differ materially from those discussed in the particular forward looking
statements based on a number of factors, including; (i) changes in economic
conditions; (ii) pricing and other actions taken by competitors; (iii)
government funding (or perceptions regarding such funding) of highway
construction projects; (iv) the Company's ability to develop and protect its
proprietary technology and to react to increased competition resulting from
expiring patents and (v) the ability of the Company, its vendors and its
customers to identify and remediate Year 2000 issues on a timely and cost
effective basis.
16
<PAGE>
Item 3 - Quantitative and Qualitative Disclosures about Market Risks.
Not required.
17
<PAGE>
Part II - Other Information
---------------------------
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits
27.1 Financial Data Schedule
(B) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended October 4, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
Dated: November 13, 1998 STIMSONITE CORPORATION
/s/THOMAS C. RATCHFORD
----------------------
Thomas C. Ratchford
Vice President-Finance, Treasurer,
Secretary and Chief Financial Officer
(Its Duly Authorized Officer and Principal
Financial and Accounting Officer)
19
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED OCTOBER 4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
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