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 July 5, 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 July 31, 1998 was 8,373,477.
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 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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>
7/5/98 12/31/97
------------ ---------------
(Unaudited) (Audited)
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $576 $337
Trade accounts receivable less allowance for
doubtful accounts of $448 (1998)
and $495 (1997) 23,266 14,864
Inventories 12,996 11,418
Prepaid expenses and other 1,336 1,272
Deferred tax assets 1,630 1,630
------------ ---------------
Total current assets 39,804 29,521
Property, plant and equipment, net 14,264 11,829
Intangible assets, net 9,983 11,259
Deferred financing costs, net 221 251
Deferred tax assets and other 2,342 2,341
------------ ---------------
Total assets $66,614 $55,201
============ ===============
LIABILITIES
Current liabilities:
Accounts payable $7,452 $7,797
Current maturities of long-term debt 2,500 2,500
Other accrued expenses 6,923 2,218
------------ ---------------
Total current liabilities 16,875 12,515
Accrued postretirement benefits 594 631
Long-term debt 21,725 15,575
------------ ---------------
Total liabilities 39,194 28,721
STOCKHOLDERS' EQUITY
Total stockholders' equity 27,420 26,480
------------ ---------------
Total liabilities and stockholders' equity $66,614 $55,201
============ ===============
</TABLE>
3
<PAGE>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Twelve Months Ended
---------------------------- ---------------------------- ----------------------------
7/5/98 6/29/97 7/5/98 6/29/97 7/5/98 6/29/97
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $25,433 $23,594 $39,290 $38,196 $82,457 $83,243
Cost of goods sold 15,460 15,029 25,704 25,367 54,295 57,073
------------- ------------ ------------- ------------ ------------- ------------
Gross profit 9,973 8,565 13,586 12,829 28,162 26,170
Operating expenses:
Selling and administrative 3,710 3,434 7,184 6,958 14,410 14,720
Research and development 692 369 1,509 1,014 2,581 2,404
Amortization of intangibles 668 708 1,351 1,419 2,662 2,846
Restructuring charge --- --- --- --- --- 4,000
------------- ------------ ------------- ------------ ------------- ------------
Total operating expenses 5,070 4,511 10,044 9,391 19,653 23,970
------------- ------------ ------------- ------------ ------------- ------------
Operating income 4,903 4,054 3,542 3,438 8,509 2,200
Interest expense 459 665 889 1,243 1,948 2,509
------------- ------------ ------------- ------------ ------------- ------------
Income (loss) before provision for
income taxes and extraordinary item 4,444 3,389 2,653 2,195 6,561 (309)
Provision for income taxes 1,878 1,411 1,136 993 2,617 77
------------- ------------ ------------- ------------ ------------- ------------
Income before extraordinary item 2,566 1,978 1,517 1,202 3,944 (386)
Extraordinary item, net of tax benefit --- --- --- --- --- 332
------------- ------------ ------------- ------------ ------------- ------------
Net income (loss) $2,566 $1,978 $1,517 $1,202 $3,944 ($718)
============= ============ ============= ============ ============= ============
Earnings per common and common
equivalent share:
Income (loss) before extraordinary item:
Basic $0.31 $0.23 $0.18 $0.14 $0.47 ($0.04)
Diluted $0.30 $0.23 $0.18 $0.14 $0.46 ($0.04)
Extraordinary item, net of tax benefit:
Basic --- --- --- --- --- ($0.04)
Diluted --- --- --- --- --- ($0.04)
Net income (loss):
Basic $0.31 $0.23 $0.18 $0.14 $0.47 ($0.08)
Diluted $0.30 $0.23 $0.18 $0.14 $0.46 ($0.08)
Weighted average number of shares and
share equivalents outstanding :
Basic 8,374,527 8,570,027 8,374,802 8,609,598 8,449,565 8,830,153
Diluted 8,537,611 8,693,643 8,509,360 8,735,508 8,576,365 8,830,153
</TABLE>
See Accompanying Notes
4
<PAGE>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
--------------------------- ---------------------------
7/5/98 6/29/97 7/5/98 6/29/97
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities: ($1,427) ($499) $10,768 $11,617
Cash flows from investing activities:
Purchase of property, plant and equipment (3,818) (1,424) (4,938) (4,833)
Sale of property, plant and equipment - - 5,750 -
Investment in joint venture partnership - - - 25
------------ ----------- ------------ -----------
Net cash provided by (used in) investing activities (3,818) (1,424) 812 (4,808)
Cash flows from financing activities:
Proceeds from the issuance of common stock,
net of offering expenses 8 5 34 252
Payments to reacquire common stock (493) (1,030) (1,049) (1,899)
Principal payments under capital lease obligations (92) (80) (260) (114)
Proceeds from long-term debt 7,400 5,650 6,775 36,650
Payments on long-term debt (1,250) (2,275) (16,725) (41,399)
Financing fees paid in connection with debt refinancing - - - (332)
------------ ----------- ------------ -----------
Net cash provided by (used in) financing activities 5,573 2,270 (11,225) (6,842)
Effect of exchange rate changes on cash (89) (379) 26 (13)
------------ ----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents 239 (32) 381 (46)
Cash and cash equivalents, beginning of period 337 227 195 241
------------ ----------- ------------ -----------
Cash and cash equivalents, end of period $576 $195 $576 $195
============ =========== ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $828 $614 $2,457 $2,220
Cash paid during the period for income taxes $288 $5 $1,224 $2,727
Capital lease for property, plant & equipment $537 - $537 $724
Property, plant & equipment purchases
included in accounts payable $602 $866 $602 $866
</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
July 5, 1998 and for the periods ended July 5, 1998 and June 29, 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 July 5, 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:
July 5, December 31,
1998 1997
----------- ---------------
($000) (Unaudited)
Raw materials $5,764 $5,323
Work in process 1,002 1,455
Finished goods 6,230 4,640
------ ------
$12,996 $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 July 5, 1998
- --------------------------
Basic EPS
- ---------
<S> <C> <C> <C>
Income (loss) available to common stockholders $2,566,000 8,374,527 $0.31
Effect of dilutive options 163,084
----------------
Diluted EPS
- -----------
Income (loss) available to common stockholders
plus assumed conversions $2,566,000 8,537,611 $0.30
- -------------------------------------------------------------------------------------------------
Quarter ended June 29, 1997
- ---------------------------
Basic EPS
- ---------
Income (loss) available to common stockholders $1,978,000 8,570,027 $0.23
Effect of dilutive options 123,616
----------------
Diluted EPS
- -----------
Income (loss) available to common stockholders
plus assumed conversions $1,978,000 8,693,643 $0.23
- -------------------------------------------------------------------------------------------------
Six months ended July 5, 1998
- -----------------------------
Basic EPS
- ---------
Income available to common stockholders $1,517,000 8,374,802 $0.18
Effect of dilutive options 134,558
----------------
Diluted EPS
- -----------
Income available to common stockholders
plus assumed conversions $1,517,000 8,509,360 $0.18
- ------------------------------------------------------------------------------------------------
Six months ended June 29, 1997
- ------------------------------
Basic EPS
- ---------
Income (loss) available to common stockholders $1,202,000 8,609,598 $0.14
Effect of dilutive options 125,910
----------------
Diluted EPS
- -----------
Income (loss) available to common stockholders
plus assumed conversions $1,202,000 8,735,508 $0.14
- ------------------------------------------------------------------------------------------------
Twelve months ended July 5, 1998
- --------------------------------
Basic EPS
- ---------
Income available to common stockholders $3,944,000 8,449,565 $0.47
Effect of dilutive options 126,800
----------------
Diluted EPS
- -----------
Income available to common stockholders
plus assumed conversions $3,944,000 8,576,365 $0.46
- ------------------------------------------------------------------------------------------------
Twelve months ended June 29, 1997
- ---------------------------------
Basic EPS
- ---------
Income (loss) available to common stockholders ($718,000) 8,830,153 ($0.08)
Effect of dilutive options 0
----------------
Diluted EPS
- -----------
Income (loss) available to common stockholders
plus assumed conversions ($718,000) 8,830,153 ($0.08)
- ------------------------------------------------------------------------------------------------
</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 is
currently evaluating the effect of adopting SFAS No. 132.
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
is currently evaluating the effect of adopting SFAS No. 133.
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 six months and twelve
months ended July 5, 1998 and June 29, 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 13.6% and 13.2% of net sales in the second quarters of 1998 and
1997, respectively, 16.5% and 14.6% of net sales in the first six months of 1998
and 1997, respectively and 15.6% of net sales in the year ended December 31,
1997. 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 further 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. A new federal highway spending bill
was recently approved by the U.S. Congress. 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 Six Months Ended from Twelve Months Ended from
7/5/98 6/29/97 Prior Period 7/5/98 6/29/97 Prior Period 7/5/98 6/29/97 Prior Period
------ ------- ------------ ------ ------- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 7.8 % 100.0 % 100.0 % 2.9 % 100.0 % 100.0 % (0.9) %
Cost of goods sold 60.8 63.7 2.9 65.4 66.4 1.3 65.8 68.6 (4.9)
Gross profit 39.2 36.3 16.4 34.6 33.6 5.9 34.2 31.4 7.6
Selling and 14.6 14.6 8.0 18.3 18.2 3.2 17.5 17.7 (2.1)
administrative
Research and 2.7 1.6 87.5 3.8 2.7 48.8 3.1 2.9 7.4
development
Amortization 2.6 3.0 (5.6) 3.4 3.7 (4.8) 3.2 3.4 (6.5)
of intangibles
Restructuring charge -- -- -- -- -- -- -- 4.8 n.m.
Operating income 19.3 17.2 20.9 9.0 9.0 3.0 10.3 2.6 286.8
Interest expense 1.8 2.8 (31.0) 2.3 3.3 (28.5) 2.4 3.0 (22.4)
Income (loss) before provision
for income taxes and
extraordinary item 17.5 14.4 31.1 6.8 5.7 20.9 8.0 (0.4) n.m.
Extraordinary item, net of
tax benefit -- -- -- -- -- -- -- 0.4 n.m.
Net income 10.1 8.4 29.7 3.9 3.1 26.2 4.8 (0.9) n.m.
(loss)
</TABLE>
Quarter ended July 5, 1998
Compared to
Quarter ended June 29, 1997
- ---------------------------
Net sales of $25.4 million for the quarter ended July 5, 1998 increased $1.8
million or 7.8% from the comparable fiscal 1997 quarter. Net domestic sales of
highway delineation products increased 1.2% compared with the second quarter of
1997, and domestic sales of optical film products and international sales
increased by 60.7% and 11.6%, respectively. The 60.7% increase in domestic sales
of optical film reflected growing acceptance of the Company's improved products
introduced in the fourth quarter of 1996. International revenues increased by
11.6% compared to the first quarter of 1997, due primarily to strong sales
growth in Latin America.
Cost of goods sold for the second quarter of 1998 totaled $15.5 million compared
to $15.0 million for the 1997 period. As a percentage of net sales, cost of
goods sold decreased from 63.7% in the second quarter of 1997 to 60.8% in 1998.
The related 2.9% increase in gross margin reflected the success of aggressive
manufacturing cost reduction programs.
10
<PAGE>
Selling and administrative expenses for the second quarter of 1998 were $3.7
million compared to $3.4 million in the second quarter of 1997. As a percentage
of net sales, selling and administrative expenses were 14.6% in both the 1998
and 1997 period. Included in the second quarter 1998, as an offset to selling
and administrative expense, is a $0.2 million gain on involuntary conversion,
resulting from the accounting treatment of certain insurance proceeds and
related loss of property at one of the Company's production facilities earlier
this year. As a percentage of net sales, selling and administrative expenses
excluding the $0.2 million gain, were 15.5% in the second quarter of 1998.
Research and development expenses for the second quarter of 1998 were $0.7
million compared to $0.4 million in the first quarter of 1997. The higher
expense level resulted from the absence, in 1998, of $0.3 million 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 continued into 1997. As a percentage of net sales,
research and development expenses were 2.7% in the 1998 period compared to 1.6%
in the 1997 period.
Interest expense was $0.5 million in the second quarter of 1998, a decrease of
$0.2 million compared to the comparable 1997 period, due principally 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 $1.9 million in the second quarter of 1998
reflected an effective tax rate of 42.3% compared to a $1.4 million tax
provision and a 41.6% rate in the second quarter of 1997. The increase in the
effective tax rate resulted from a change in the mix of domestic and
international income. The Company does not record tax benefits on losses
incurred in certain international operations.
Six months ended July 5, 1998
Compared to
Six months ended June 29, 1997
- ------------------------------
Net sales of $39.3 million for the six months ended July 5, 1998 increased $1.1
million or 2.9% from the comparable fiscal 1997 period. Net domestic sales of
highway delineation products decreased 5.1% compared with the same period in
1997, but was offset by strong domestic sales of optical film products (a 40.5%
increase compared to 1997) and international sales (a 16.3% increase compared to
1997).
Cost of goods sold for the first six months of 1998 totaled $25.7 million
compared to $25.4 million for the 1997 period. As a percentage of net sales,
cost of goods sold decreased from 66.4% in the 1997 period to 65.4% in 1998. The
resulting 1.0% improvement of gross margin is attributable to the success of the
Company's aggressive manufacturing cost reduction programs, partly offset by an
unfavorable mix of product sales.
11
<PAGE>
Selling and administrative expenses for the six months ended July 5, 1998 were
$7.2 million compared to $7.0 million in the same period of 1997. As a
percentage of net sales, selling and administrative expenses were 18.3% and
18.2% in the 1998 and 1997 period respectively. Included in the six months ended
July 5, 1998, as an offset to selling and administrative expense, is a $0.2
million gain on involuntary conversion, resulting from the accounting treatment
of certain insurance proceeds and related loss of property at one of the
Company's production facilities earlier this year. As a percentage of net sales,
selling and administrative expenses excluding the $0.2 million gain, were 18.8%
during the first six months of 1998.
Research and development expenses for the six months ended July 5, 1998 were
$1.5 million compared to $1.0 million in the same period of 1997. The higher
expense level was largely due to the absence, in 1998, of $0.4 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 continued into 1997. As a percentage of net
sales, research and development expenses were 3.8% in the 1998 period compared
to 2.7% in the same period of 1997.
Interest expense was $0.9 million for the first six months of 1998, a decrease
of $0.4 million compared to the same period in 1997. The decrease was due
principally 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 $1.1 million for the six months ended July 5, 1998
reflected an effective tax rate of 42.8% compared to a $1.0 million tax
provision and a 45.2% rate in the same period of 1997.
Twelve months ended July 5, 1998
Compared to
Twelve months ended June 29, 1997
- ---------------------------------
Net sales for the twelve months ended July 5, 1998 were $82.5 million, a
decrease of $0.8 million or 0.9%. Net domestic sales of highway delineation
products decreased $6.4 million or 9.7% compared with the twelve months ended
June 29, 1997. Net international sales increased $2.9 million or 27.5% and net
domestic sales of optical film increased $2.6 million or 38.2% compared with the
twelve months ended June 29, 1997.
Cost of goods sold for the twelve months ended July 5, 1998 totaled $54.3
million (65.8% of net sales) compared to $57.1 (68.6% of net sales) million in
the comparable 1997 period. The corresponding 2.8% increase in gross margin is
largely attributable to increased productivity in the Company's manufacturing
processes, partly offset by competitive pricing primarily in the
non-snowplowable markers product group.
12
<PAGE>
Selling and administrative expenses for the twelve months ended July 5, 1998
totaled $14.4 million, a decrease of $0.3 million or 2.1% compared to the
previous twelve month period.
Research and development expenses for the twelve months ended July 5, 1998 were
$2.6 million compared to $2.4 million in the previous twelve month period. The
higher expense level was largely due to a reduction in the 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 continued into 1997. As a percentage of net sales, research and
development expenses were 3.1% for the twelve months ended July 5, 1998 compared
to 2.9% for 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."
Interest expense for the twelve months ended July 5, 1998 was $1.9 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 six month period ended July 5, 1998, the Company increased borrowings
under its long term credit facility by $6.2 million. The principal inflows and
outflows of cash during the six months ended July 5, 1998 were as follows:
Cash Flow Summary
Six Months Ended July 5, 1998
-----------------------------
($millions)
Cash inflows
------------
Net borrowings under credit facility $6.2
----
Total inflows 6.2
----
Cash outflows
-------------
Cash used in operating activities (1.4)
13
<PAGE>
Repurchase of outstanding Company stock (0.5)
Capital expenditures (3.8)
All other (net) (0.3)
-----
Total outflows (6.0)
-----
Net change in cash balance $ 0.2
=====
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.
The Company has historically borrowed funds available under its revolving credit
facilities to fund working capital during its first and second quarters. The
Company used $1.4 million of cash in operating activities during the first six
months of fiscal 1998, compared to $0.5 million used in operating activities
during the same period of 1997. The $0.9 million decrease in cash flow from
operating activities during the period resulted largely from increased working
capital. The Company realized $10.8 million from operating activities in the
twelve month period ended July 5, 1998, compared to $11.6 million from operating
activities in the twelve months ended June 29, 1997. The $0.8 million decrease
in cash flow from operating activities resulted largely from unfavorable net
changes in working capital.
At July 5, 1998, the Company's outstanding borrowings under its credit agreement
consisted of $14.8 million of term loans and $9.4 million of revolving loans.
Under the terms of the agreement, $1.3 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 July 5, 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 $10.6 million.
The Company expects capital expenditures for additions and replacements to
approximate $5.5 million in 1998 and $4.0 million in 1999, with funding to be
provided principally from internally generated funds. Through July 5, 1998, the
Company had spent $3.8 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.
14
<PAGE>
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 July 5, 1998, the
Company had purchased 604,850 shares of its common stock at an average price of
$6.37 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.
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:
SFAS 131 - Disclosures about Segments of an Enterprise and Related
Information.
SFAS 132 - Disclosures about Pensions and Other Postretirement benefits.
SFAS 133 - Accounting for Derivative Instruments and Hedging Activities.
Year 2000 issues
- ----------------
In response to the Year 2000 problem, the Company is in the process of
evaluating the Year 2000 compliance of its business systems. The Company
believes that its primary business control system is Year 2000 compliant. In
addition, the Company has initiated a program to communicate with its vendors,
other service providers and customers to determine whether they are actively
involved in projects to ensure that their products and business systems will be
Year 2000 compliant. The inability of the Company or its material vendors,
service providers or customers to effectuate solutions to their respective Year
2000 issues on a timely and cost effective basis could have a material adverse
effect on the Company.
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, 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
15
<PAGE>
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.
Item 3 - Quantitative and Qualitative Disclosures about Market Risks.
Not required.
16
<PAGE>
Part II - Other Information
---------------------------
Item 6-Exhibits and Reports on Form 8-K
(A) Exhibits
27.1 Financial Data Schedule
(B) Reports from Form 8-K
The Company did not file any Current Reports on Form 8-K
during the quarter ended July 5, 1998
17
<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: August 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)
18
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REFERENCE TO SUCH FORM 10-Q.
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