SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 0-22978
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)
7542 N. Natchez Avenue
Niles, Illinois 60714
(Address of principal executive offices) (Zip Code)
(847) 647-7717
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's common stock, $.01 par value,
held by nonaffiliates of the registrant as of March 1, 1998 was $29,433,382.
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of March 1, 1998 was 8,371,141.
Documents Incorporated by Reference:
Proxy Statement (to be filed) accompanying the notice of the annual meeting of
Stimsonite Corporation's stockholders to be held on May 21, 1998 (Part III).
<PAGE>
STIMSONITE CORPORATION
Form 10-K Annual Report--1997
Table of Contents
PART I Page
Item 1. Business................................................. 1
Item 2. Properties............................................... 9
Item 3. Legal Proceedings........................................ 10
Item 4. Submission of Matters to a Vote of Security Holders...... 10
Item 4A. Executive Officers of the Registrant..................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 12
Item 6. Selected Financial Data.................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 13
Item 7A Quantitative and Qualitative Disclosures About Market Risk 20
Item 8. Financial Statements and Supplementary Data.............. 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................... 40
PART III
Item 10. Directors and Executive Officers of the Registrant....... 41
Item 11. Executive Compensation................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 41
Item 13. Certain Relationships and Related Transactions........... 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................... 42
Signatures.......................................................... 46
<PAGE>
PART I
ITEM 1--BUSINESS
The Company
Stimsonite Corporation ("Stimsonite" or the "Company") is one of the
nation's leading manufacturers and marketers of reflective highway safety
products. The Company makes a range of high performance products which are
designed to offer enhanced visual guidance to vehicle operators and pedestrians
in a variety of driving conditions. These products include: highway delineation
products, such as raised reflective pavement markers, thermoplastic pavement
marking materials and related application equipment, construction work zone
markers and roadside and other delineators; and optical film products, such as
high performance reflective sheeting used in the construction of highway signs
and Protected Legend(TM) pre-printed sign faces, and precision embossed film,
which is used in internally illuminated airport runway signs, reflective truck
markings and a variety of other products that require optical grade film.
Stimsonite was organized in July 1990 as a Delaware corporation and
acquired substantially all of the assets of the Stimsonite Division of Amerace
Corporation ("Amerace") in August 1990. In May 1995 the Company acquired
substantially all of the assets of Pave-Mark Corporation ("Pave-Mark"), a
manufacturer and marketer of thermoplastic pavement marking materials and
related application equipment used primarily for highway marking.
Products
Highway Delineation Products
The Company is one of the nation's leading manufacturers and suppliers
of reflective highway delineation products. Reflective highway delineation
devices are installed on or near roadways to offer visual guidance in a variety
of driving conditions, such as night, fog and other inclement conditions. These
devices can be mounted horizontally on road surfaces, ramps and bridges to
demarcate traffic lanes and roadway surfaces, vertically on obstructions (such
as construction work zone barriers, bridge abutments and guard rails) within or
near the roadway to alert drivers that such obstructions exist, or mounted to
posts to outline the edge of the roadway and guide motorists through critical
locations and turns. Within this product line, the Company offers different
families of products to its customers designed specifically for use in a variety
of traffic, road and weather conditions.
The Company's highway delineation products are marketed to highway
contractors, and state and local highway departments and traffic engineers, to
address a number of delineation problems presented by different traffic and road
conditions. The Company's sales of highway delineation products totaled $72.2
million, $75.5 million and $59.4 million in 1997, 1996 and 1995, respectively.
Several of the Company's highway delineation products and its
manufacturing processes are patent protected which, together with its extensive
industry experience, the Company believes provide a competitive advantage to the
Company. The Company was the first to introduce successfully in the U.S.
cube-corner delineation devices, sign legends for interstate signs and raised
reflective pavement markers. The Company has also continuously introduced new
1
<PAGE>
and upgraded markers, including the first commercially successful snowplowable
marker and the first glass-faced marker. Over the past several years, the
Company has introduced new improvements and designs to increase product
durability, extend the product's effective life on the highway and enhance
reflectivity. These innovations have enabled the Company to enhance and maintain
its position as a recognized market leader in highway delineation products. See
"Patents and Proprietary Rights".
The Company's products, including its delineation devices, require
replacement over time. While highway marker life is dependent upon the type and
intensity of highway traffic activity, markers used in temperate climates
require replacement on average every three to four years. Snowplowable markers,
which are set in a protective metal casting designed to last the life of the
road (generally seven years), generally require that the reflective element be
replaced every two to three years.
Raised Reflective Pavement Markers. The Company's raised reflective
pavement markers are available in several variations and designs for use in a
variety of climatic conditions, forming a complete system for delineating lane
lines, center and edge lines, turns, curb dividers and other roadway structures.
These products incorporate a variety of innovative features that offer
significant performance and cost benefits over other raised reflective pavement
markers. These features sustain the higher reflectivity of the Company's
products resulting in lower maintenance costs and improved cost/benefit ratios
for customers. Markers are available in glass-faced, abrasion resistant models
featuring longer life and superior reflectivity. These models incorporate an
abrasion-resistant glass face on the reflex lens which prevents damage to the
lens caused by the presence of grit, sand and road particles that scar, cloud
and ultimately dim the signal of conventional markers. The Company is a leading
manufacturer of effective glass-faced raised reflective pavement markers.
The Company also offers a low-profile marker with a reduced overall
height, rounded design and smaller surface area that reduces impact forces from
vehicle tires and allows the marker to function longer on softer pavement. In
conjunction with its introduction of this marker, the Company also introduced
the use of flexible adhesives for pavement marker installation which improves
adhesion to the highway surface.
Historically, snowplow blades were a major source of damage to raised
reflective pavement markers which inhibited their use in certain areas. This led
to the Company's development of a "snowplowable" marker. The Company's
snowplowable marker consists of a replaceable reflector assembly protected by a
specially hardened metal casting. The casting is firmly embedded in the pavement
by an epoxy adhesive. The casting is designed with ramps which effectively
permit a traveling snowplow blade to ride up and over the reflector which is
protected by the casting, without damage to the reflector unit, casting or
snowplow blade. Snowplowable models offer Stimsonite's high brightness,
cube-corner reflectors and abrasion-resistant glass faces, and come in various
versions adaptable to areas where frequent high speed plowing or unusual traffic
conditions are encountered.
Thermoplastic Material for Highway Striping. The Company manufactures
and markets a line of thermoplastic material and related application equipment
primarily for highway striping. These products offer long-life and, unlike most
highway striping, do not result in the emission of volatile organic compounds
(VOCs) upon application. These characteristics are in high demand by the
Company's customers. Environmentally safe upon application and durable,
2
<PAGE>
thermoplastic material meets most federal, state and local specifications for
pavement markings. The material is easy to apply, and over its life-cycle is one
of the most cost-effective marking systems.
The Company makes two types of thermoplastic material, alkyd and
hydrocarbon. Alkyd thermoplastic, a maleic-modified glycerol ester resin, is
composed of a homogeneous blend of high quality, agriculturally-based resins ( a
renewable, natural resource), pigment, filler and glass reflectorizing spheres
which are resistant to the effects of oil and grease. Hydrocarbon thermoplastic
is primarily composed of petroleum-based resins, pigments, fillers and glass
spheres.
The Company also makes and sells a line of heat-fused preformed
thermoplastic pavement markings known as HotTape(R). This product is designed to
be applied with the use of a simple propane torch. HotTape(R) can be applied
quickly without use of extensive crews and equipment, resulting in a quicker
return to a normal traffic flow.
In conjunction with these products, the Company produces and markets a
broad line of application equipment. This equipment is designed to deliver a
combination of outstanding performance and ease of installation.
Construction Work Zone Delineation Products. The Company manufactures
and markets a Construction Work Zone or "CWZ" system as a coordinated grouping
of a number of work zone products, including raised reflective pavement markers,
delineators and sheeting for use in lane marking and identification of other
work zone hazards. The CWZ system's raised reflective pavement markers provide
positive day and night guidance through construction zones, and incorporate
design features which enable this product to perform better and, in particular,
to adhere better to pavement surfaces than competitive products. The Company has
also introduced a temporary overlay pavement marker which provides excellent day
and night visibility and installs easily with pressure-sensitive adhesive and
foot pressure. These overlay markers are also relatively easy to remove and,
after removal, do not leave a misleading indication that could confuse drivers.
The CWZ system also offers regular and fluorescent orange construction zone
sheeting, pre-striped barricade reflective sheeting panels, and a barricade
light lens.
Roadside and Other Delineation Products. The Company manufactures
several other types of permanent reflective devices used for highway delineation
purposes. These products include post, guardrail and barrier delineators.
Post-mounted delineators are reflective devices mounted at the side of the
roadway, in series, to indicate roadway alignment. They are primarily guidance
devices providing night visibility of roadway alignment and are particularly
useful during inclement weather conditions.
Optical Film
The Company's worldwide sales of optical film products totaled
$9.2 million, $7.2 million and $8.7 million in 1997, 1996 and 1995 respectively.
Highway Signing Material. The Company manufactures and sells a line of
high performance reflective sheeting for a variety of highway and specialty
uses, principally for use in highway traffic signs and construction work zone
3
<PAGE>
products. The Company's high performance sheeting is a thin, acrylic material
which incorporates microscopic cube-corner prisms to achieve its retroreflective
properties. This patented product provides improved day and night visibility at
greater distances than competitive sheeting products that employ glass bead
technology. Stimsonite also employs a patented production process for
manufacturing its high performance reflective sheeting which involves the
continuous formation of precision optical patterns in thin film.
The Company manufactures its reflective sheeting products using complex
patented processes and production equipment. In this process, a microscopic
cube-corner pattern is formed in thin film. This material is further processed
to create different sheeting constructions and impart different reflective or
diffusing properties necessary for the performance of the Company's different
sheeting products.
Stimsonite's high performance reflective sheeting meets federal
government and industry specifications for retroreflective sheeting.
Stimsonite's ability to produce sheeting which meets these specifications has
enabled the Company to market its line of sheeting products for highway
applications and has led to acceptance of this material.
Protected Legend Pre-Printed Sign Faces. The Company designs,
manufactures and sells ready-to-use Protected Legend(R) reflective sign faces
(e.g. stop signs) on rolls which can contain from a dozen to several hundred
sign faces per roll. The sign faces are sold with a pressure-sensitive adhesive
backing protected with an easily removable liner. The ready-to-use sign faces
thus offer not only the viewing efficiency and vivid colors of the Company's
high performance reflective sheeting, but also the convenience of a
ready-to-use, peel-and-stick product for easy application.
Non-Highway Applications. The Company also manufactures precision
embossed film that has non-highway applications in areas where optical
properties are important to product performance. Stimsonite's translucent
reflective sheeting is used to diffuse background lighting and also offers
reflective performance in the event of light source or power failure.
Applications include internally illuminated airport taxiway and runway signs,
and internally illuminated highway signs. The Company's diffusing film is used
to diffuse and disperse transmitted light for maximum efficiency and brightness.
Diffusing film is used to enhance the visibility of low voltage signs, including
exit signs and signs using long-life, low power elements such as light-emitting
diodes. Stimsonite is also marketing specialized film products for use as
reflective conspicuity markings for large truck trailers. Federal regulations
require conspicuity markings on large truck trailers manufactured after December
1, 1993.
Product Development and New Products
Working with its customers, the Company focuses its product development
efforts on products that serve a market need and seeks to identify highway
traffic and safety problems that present niche product opportunities. The
Company's product engineers and manufacturing personnel also actively work to
develop new and innovative production methods to increase efficiencies, lower
production costs and improve product quality.
The Company continues to investigate new product applications for its
highway delineation products, reflective sheeting and precision embossed film
material. The Company's expenditures on product research and development were
4
<PAGE>
$2.1 million, $2.8 million and $3.1 million in 1997, 1996 and 1995,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Patents and Proprietary Rights
The Company has 25 issued U.S. patents, which cover many of the
Company's current products and existing processes, and has nine U.S. patent
applications currently pending. The Company also has over 90 foreign patents
relating to many of its U.S. patents and has over 29 foreign patent applications
currently pending. Stimsonite's patents cover various design aspects of its
products as well as the processes used in their manufacture. The Company
believes that its patents and proprietary production methods, coupled with its
extensive industry experience, provide a key competitive advantage.
The Company has one U.S. patent, expiring in July 1999, covering the
use of glass as an abrasion resistant coating, and its application to the raised
reflective pavement marker face. The Company has obtained patents covering
various aspects of its snowplowable markers. Of these, four patents, which cover
certain design, placement and methods, expired between April 1996 and April
1997. Although the Company did not experience significant competition for
snowplowable markers in 1997, the Company expects that competition for
components of snowplowable markers will increase as a result of the expiration
of certain of these patents. The Company has recently obtained two new patents
pertaining to its new snowplowable markers. The Company also has obtained patent
coverage on two of its new markers. While the Company has applied for and
expects to receive additional patents relating to new or improved product
designs, there can be no assurance that such patents will issue, or if issued,
that such patents will be effective in protecting the Company from competitors.
The Company has obtained 11 U.S. patents (with certain corresponding
foreign patents) and has several patent applications pending covering
Stimsonite's reflective sheeting processes, manufacturing equipment and
products. These patents expire between 2001 and 2012. The Company also has
applications pending on other reflective sheeting and precision embossed film
products.
The Company is continuing to develop new, potentially patentable
products, product enhancements, product designs and manufacturing improvements.
The Company's ability to compete effectively with other companies will depend,
in part, on its ability to maintain the proprietary nature of its technology.
Although the Company is the owner of numerous patents in the United States and
foreign countries, there can be no assurance as to the degree of protection
offered by these patents, or the likelihood that pending patent applications
will be issued. Furthermore, there can be no assurance that others will not
independently develop the same or similar technology, develop around the
patented aspects of any of the Company's products or proposed products, or
otherwise obtain access to the Company's proprietary technology. As basic
patents in the highway delineation product line have expired, various
competitors or prospective competitors have sought to introduce competitive
products. The Company believes that its proprietary manufacturing know-how will
enable it to maintain significant market shares for these products and allow it
to continue to offer cost effective products.
The Company has registered Stimsonite(R) as a trademark in the U.S. and
in approximately 25 other countries. The Company believes that the highway
5
<PAGE>
safety industry associates the trade name Stimsonite with the industry leader in
reflective highway safety products.
Foreign Operations
The Company has U.K., Hong Kong and Australian subsidiaries (Stimsonite
Europa Limited, doing business in the U.K. as Simsco, Stimsonite Hong Kong
Limited and Stimsonite Australia Pty Limited, respectively) which act
principally as the Company's sales and marketing arms in these and other
countries. There are significant challenges to conducting business in foreign
countries, including, among other factors, regulatory compliance and approvals,
local acceptance of the Company's products, adaptation and design of products to
meet local requirements and criteria, and fluctuations in foreign exchange
rates. For sales and selected financial information by geographical area, see
Note 15 of "Notes to Consolidated Financial Statements."
Sales and Marketing
The Company sells its products through an extensive sales and
distribution network that markets the Company's full product line.
The Company's marketing strategy is developed by the Company's
management and is implemented in the U.S. by Stimsonite's national sales
managers and regional and district sales managers. The regional managers work
closely with customers and coordinate a distribution network that includes
manufacturers' representatives and approximately 50 distributors employing
collectively over 250 salespersons. The Company believes that this network and
the Company's relationships with key distributors are competitive strengths in
Stimsonite's business.
The Company markets its products to highway contractors and government
agencies for projects in all 50 states. In 1997, the Company had sales in excess
of $4 million in 5 states. The inability of the Company to do business in any of
these states could have a material adverse effect on the Company's business.
Stimsonite sells its products principally to highway contractors, sign
fabricators, state departments of transportation, and county and city road and
highway departments. Such sales may be to any of the established channels of
distribution or by direct sales depending on the size of the purchase,
competitive pressures in a particular market and other factors. Road and highway
pavement marking and signing requirements are established by each government
entity. The Company's sales force works closely with traffic engineers to
demonstrate the quality and effectiveness of Stimsonite's products and the
control and safety advantages of increased signing and highway pavement marking
use. The Company also works directly with state officials to enhance awareness
of the safety benefits and cost effectiveness of the Company's products.
Traffic engineers responsible for maintaining roads and highways are
faced with an array of issues relating to traffic safety and congestion. The
increasing number of visually impaired drivers and the continued pressure on
highway capacity continually force traffic engineers to reassess their
requirements and priorities. These engineers search for products that improve
highway capacity while maintaining appropriate safety levels and minimizing
initial installation and ongoing maintenance costs. The Company's sales and
marketing strategy is directed towards understanding these market dynamics,
working with, and responding to the needs of, its customers and demonstrating
the relative advantages of Stimsonite products.
6
<PAGE>
The Company's international sales and marketing is implemented by both
local sales office staffs, commissioned regional managers and exclusive sales
agents. Stimsonite's European sales and marketing are conducted through
Stimsonite Europa, which maintains sales offices in Bristol, England.
Commissioned regional sales managers coordinate the Company's sales and
marketing activities in the Middle East and Central and South America.
Stimsonite Australia Pty Ltd. coordinates the Company's sales and marketing
activities in the Southern Pacific Rim. Stimsonite Hong Kong Limited coordinates
sales and marketing activities in China and the Northern Pacific Rim. Stimsonite
also has approximately 40 exclusive agents situated throughout the international
markets that employ collectively over 150 sales persons.
Seasonality
The Company's sales are seasonal, with peak sales activity normally
occurring in the second and third fiscal quarters. For a discussion of quarterly
results of operations, backlog and the effects of seasonality on inventory
levels, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Competition
The Company believes its principal competitive advantages are its
long-standing reputation for quality and reliability, its proprietary and
patent-protected technology, its understanding of its markets and customer
needs, and its well-established sales and distribution networks. See "Patents
and Proprietary Rights" above.
The Company believes that it has a substantial U.S. market share in its
highway delineation product line due to its patented and proprietary technology
and its experience in its markets. The Company competes with one principal
competitor, Ray-O-Lite, a division of Pac-Tec Inc., in the U.S. market for
raised reflective pavement markers. While Ray-O-Lite competes through a network
of distributors, the Company emphasizes direct sales. The Company has two
significant competitors in the U.S. market for thermoplastic material, Cataphote
Inc., a subsidiary of Sovitec Cataphote Inc., and Swarco America, Inc. a
subsidiary of Swarco Holding AG. In situations where sealed bids are required by
government agencies, the Company competes on price. In other situations, the
Company primarily emphasizes product quality, performance and service in
addition to price. The Company competes with a number of other regional
companies in the international highway delineation market for raised reflective
pavement markers.
Stimsonite has one significant competitor in the market for highway
signing, Minnesota Mining and Manufacturing Company ("3M"), which the Company
believes holds dominant U.S. and international market share positions. The
Company competes in this area on the basis of product quality and performance,
7
<PAGE>
and price. In the precision embossed film material market, the Company competes
with 3M and Reflexite Corporation.
Raw Materials
The principal raw materials used by the Company to manufacture its
products are acrylic, resins, glass beads, sand, calcium carbonate, titanium
dioxide and cast iron. The Company obtains the raw materials it uses to
manufacture its products from commercial sources. Although the Company's
practice is to seek cost savings and enhance quality by purchasing from a
limited number of suppliers, substantially all of the raw materials needed to
manufacture the Company's products are readily available from alternate sources
of supply.
Environmental Matters
The Company is subject to environmental laws and regulations governing
emissions to the air, discharges to waterways, and generation, handling,
storage, transportation, treatment and disposal of waste materials. The Company
is also subject to other federal and state laws and regulations regarding health
and safety matters. The Company believes that it has complied with these laws in
all material respects.
Customers
Stimsonite sells its products in the U.S. principally to highway
contractors, sign fabricators, distributors, state departments of
transportation, and county and city road and highway departments. A significant
portion of the Company's U.S. sales are effected through fixed price contracts
awarded by competitive bids submitted to state and local agencies. The terms and
conditions of such sales and the contract procurement process are subject to
extensive regulation by various federal, state and local authorities in the U.S.
and by governmental authorities of other countries. Substantially all of these
contracts involve product shipment within one year of receipt of the order and
are not subject to renegotiation of profits. The Company sells its products
outside of the U.S. primarily to independent sales agents who resell to local
governmental authorities and their contractors. Highway delineation and sign
products may not be used on most highways unless they meet state and local
specifications which frequently incorporate relevant industry and federal
standards and testing guidelines. The Company's products, including its high
performance reflective sheeting, meet all significant industry and federal
procurement specifications.
Employees
As of March 1, 1998, the Company had approximately 360 full-time
employees, of which approximately 185 were hourly employees and 175 were
salaried employees. None of the Company's employees is represented by a labor
union or is the subject of a collective bargaining agreement.
8
<PAGE>
ITEM 2--PROPERTIES
The Company maintains its corporate headquarters and manufacturing,
administrative, sales and product development facilities in Niles, Illinois. The
Company also manufactures products in facilities located in Atlanta, Georgia;
Mount Prospect, Illinois; Adelanto, California and Kilsyth, Australia. The
Company's eight principal facilities, at December 31, 1997, all of which were
leased, were as follows:
<TABLE>
<CAPTION>
Approximate
Square
Location Footage Function Lease Expiration
- -------- ------- -------- ----------------
<S> <C> <C> <C>
Niles, Illinois 74,300 Administration, manufacture, sales, January 2007 renewable through
product development, engineering 2017
and warehouse
Atlanta, Georgia 100,000 Administration, manufacture, sales, August 2008
product development, engineering
and warehouse
Atlanta, Georgia 42,000 Manufacture and warehouse October 1998
Atlanta, Georgia 46,000 Manufacture and warehouse April 2004, renewable through
April 2009
Mount Prospect, Illinois 49,900 Manufacture, product development, December 2001 renewable
engineering and warehouse through December 2006
Adelanto, California 15,000 Manufacture and warehouse January 2001
Bristol, England 2,640 Sales and warehouse April 1998
Kilsyth, Australia 16,000 Manufacture, sales and warehouse June 1998
</TABLE>
In February 1998, the above listed 46,000 square feet facility in
Atlanta, GA, was damaged by fire. The Company entered into a lease agreement for
a 35,500 square feet substitute facility in Atlanta, GA. The new lease expires
in March 2003 and is renewable through March 2008.
The Company also leases public warehouse space in other U.S. locations.
The Company's manufacturing facilities are equipped with specialized
equipment and utilize extensive automation for the manufacture of its products.
9
<PAGE>
The Company currently uses the major portion of its manufacturing
capacity. The Company has committed to lease an additional 78,000 square feet of
manufacturing and office space in Niles, IL effective May 1, 1998. The Company
believes that, with this additional space, it will have adequate capacity to
handle currently anticipated product demand. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations---Liquidity and
Capital Resources."
ITEM 3--LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation that it
considers to be in the normal course of its business. No such litigation has
resulted in any material adverse loss to date and the Company is not engaged in
any legal proceedings, as of the date hereof, which the Company expects
individually or in the aggregate to have a material adverse effect on the
Company's financial condition or results of operations. The Company maintains
product liability insurance in amounts which it believes to be adequate for its
business.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of holders of the Company's common
stock during the fiscal quarter ended December 31, 1997.
ITEM 4A--EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and current position(s) of each executive officer of the
Company is as follows:
Present Principal Position
Name Age and Offices with the Company
---- --- ----------------------------
Robert E. Stutz................ 45 President and Chief Executive Officer
Michael A. Cherwin............. 41 Vice President-Human Resources
Lew C. Coffin.................. 42 Vice President-Operations
Clifford S. Deremo............. 41 Vice President-Sales and Marketing
Walter B. Finley............... 50 Vice President-Atlanta Operations
Robert M. Pricone.............. 53 Vice President-Engineering
Thomas C. Ratchford............ 49 Vice President-Finance, Chief Financial
Officer, Treasurer and Secretary
Robert E. Stutz became the President and Chief Executive Officer and a
director of the Company in March 1997. From 1991 to March 1997, Mr. Stutz was
Vice President and General Manager, Automotive Controls Division, of Cherry
Electrical Products, a Division of Cherry Corporation, a designer, manufacturer
and marketer of customer electrical, electronic and semi-conductor components in
automotive, computer and consumer and commercial markets. Prior to 1991, Mr.
Stutz was Vice President Worldwide Sales and Marketing for Carlingswitch, Inc.,
a manufacturer of specialty switches and circuit breakers.
10
<PAGE>
Michael A. Cherwin has served as Vice President - Human Resources since
1992. From 1990 to 1992, Mr. Cherwin served as Director of Human Resources of
the Company. Prior to 1990, Mr. Cherwin was the director of human resources at
the Stimsonite Products Division of Amerace.
Lew C. Coffin became Vice President - Operations on January 5, 1998. From
1996 until December 1997, Mr. Coffin was Vice President - Operations for TEC
Incorporated, a manufacturer of construction adhesives. From 1993 to 1996, Mr.
Coffin was a facility manager for TEC Incorporated.
Clifford S. Deremo has served as Vice President - Sales and Marketing
since February 1995. Prior to February 1995, Mr. Deremo served in various
positions with FMC Corporation, a diversified manufacturer of chemicals,
machinery and defense equipment. From 1992 to February 1995, Mr. Deremo was the
worldwide business manager for FMC's converting equipment division. From 1990 to
1992, he was the business manager for the FMC's palletizer products division.
Prior to 1990, Mr. Deremo was general sales manager of FMC's packaging systems
division.
Walter B. Finley has served as Vice President - Atlanta Operations since
January 1996. From June 1995 to December 1995, Mr. Finley served as the General
Manager of the Company's Atlanta operations. Prior to June 1995, Mr. Finley was
the Executive Vice President - CFO for Pave-Mark Corporation, substantially all
the assets of which were purchased by the Company in the second quarter of 1995.
Robert M. Pricone has served as Vice President - Engineering since April
1993. From 1990 to April 1993, Mr. Pricone served as Vice President of Research
and Development of the Company. Prior to 1990, Mr. Pricone was vice president
and project director of reflective sheeting at the Stimsonite Products Division
of Amerace.
Thomas C. Ratchford has served as Vice President - Finance, Chief
Financial Officer, Treasurer and Secretary since October 1993. From 1992 to
1993, Mr. Ratchford was executive vice president finance and administration for
American Communications Services, Inc., a development stage company in the
telecommunications service industry. Prior to 1992, Mr. Ratchford was employed
by The Paxall Group, Inc., a manufacturer of customized packaging machinery,
where he served as vice president - finance and administration.
Executive officers are elected annually and, subject to the terms of any
applicable employment agreements, serve at the pleasure of the Company's Board
of Directors.
11
<PAGE>
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Stimsonite's common stock is quoted on The Nasdaq Stock Market's National
Market System under the symbol STIM. As of March 1, 1998, there were
approximately 101 stockholders of record, including brokerage firms and other
nominees. The following table sets forth, for the fiscal quarters indicated, the
high and low bid prices for the common stock as quoted by the National Market
System.
1997 1996
---- ----
High Low High Low
---- --- ---- ---
First Quarter $ 6.625 $ 5.75 $10.00 $ 7.75
Second Quarter 6.50 5.44 9.75 7.75
Third Quarter 7.44 5.75 8.50 6.125
Fourth Quarter 6.75 4.50 6.75 5.375
Stimsonite has never declared or paid any cash dividends on its capital
stock. Stimsonite currently intends to retain its future earnings, if any, to
finance operations, expand its business and repay outstanding debt and does not
anticipate paying cash dividends on its common stock for the foreseeable future.
The Company's credit agreement limits the Company's ability to pay dividends.
See Note 6 of Notes to Consolidated Financial Statements.
ITEM 6--SELECTED FINANCIAL DATA.
Selected Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
Income Statement Data 1997 (d) 1996 (d) 1995 (c)(d) 1994 (d) 1993 (d)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $81,363 $82,712 $68,119 $55,941 $45,929
Gross Profit 27,405 26,877 26,494 28,565 23,816
Operating Income 8,405 1,971 (a) 7,441 12,168 9,395
Net Income (Loss) 3,629 (848) (b) 2,610 6,136 (1,286)
Net Income (Loss) per Share
Basic $0.42 ($0.10) $0.29 $0.69 ($0.17)
Diluted $0.42 ($0.10) $0.29 $0.67 ($0.17)
Weighted Average Shares Outstanding
Basic 8,576 8,823 8,912 8,892 7,470
Diluted 8,687 8,823 9,121 9,108 7,470
- --------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
- --------------------------------------------------------------------------------------------------------------------
Total Assets $55,201 $71,870 $67,596 $50,936 $48,878
Long-Term Debt 15,575 28,300 24,703 15,523 24,092
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
( a ) Includes a $4.0 million restructuring charge
( b ) Includes a $0.3 million extraordinary charge
( c ) Includes the operations of Pave-Mark Corporation after May 31, 1995,
the date of its acquisition by the Company
( d ) Net income (loss) per share has been restated based on FASB No. 128,
"Earnings Per Share".
12
<PAGE>
ITEM 7--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 years
December 31, 1997, 1996 and 1995. The following should be read in conjunction
with the consolidated financial statements and related notes appearing elsewhere
herein.
Overview
- --------
The Company manufactures and markets reflective highway safety products
used in a variety of applications where motorist and pedestrian guidance are
important. In May 1995, the Company acquired substantially all of the assets of
Pave-Mark Corporation ("Pave-Mark"). Pave-Mark manufactures and markets
thermoplastic pavement marking materials and related application equipment used
primarily for highway marking. The results of operations, assets, liabilities
and cash flows attributable to this acquisition have been included in the
Company's consolidated financial statements from the date of the acquisition.
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 15.6%, 12.5% and 14.2% of net sales in 1997, 1996 and 1995,
respectively. See Note 15 of Notes to Consolidated Financial Statements. 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.
Table 1 below sets forth unaudited data for each of the fiscal
quarters of 1997 and 1996. This information has been prepared on the same basis
as the annual consolidated financial statements and, in management's opinion,
contain all normal recurring adjustments necessary to state fairly the
information set forth therein. The operating results for any quarter are not
necessarily indicative of results for any future period.
13
<PAGE>
Table 1
Quarterly Results
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- ----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $14,602 $23,594 $25,514 $17,653 $13,425 $24,240 $28,834 $16,213
Cost of Goods sold 10,338 15,029 15,704 12,887 9,030 15,099 18,113 13,593
Gross Profit 4,264 8,565 9,810 4,766 4,395 9,141 10,721 2,620
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses
- ----------------------------------------------------------------------------------------------------------------------------------
Selling and Administrative 3,524 3,434 3,439 3,787 3,845 3,653 3,958 3,804
Research and Development 645 369 390 682 792 618 689 701
Amortization of Intangible Assets 711 708 654 657 709 710 711 716
Total Operating Expenses 4,880 4,511 4,483 5,126 5,346 4,981 5,358 5,221
Restructuring Charge 4,000
Operating Income (Loss) (616) 4,054 5,327 (360) (951) 4,160 5,363 (6,601)
Interest Expense 578 665 620 439 674 740 660 606
Income (Loss) Before Provision for
Income Taxes and Extraordinary Item (1,194) 3,389 4,707 (799) (1,625) 3,420 4,703 (7,207)
Provision (Benefit) for Income Taxes (418) 1,411 1,966 (485) (633) 1,356 1,913 (2,829)
Extraordinary Item,
Net of Tax Benefit ---- ---- ---- ---- ---- ---- 332 ----
Net Income (Loss) (776) 1,978 2,741 (314) (992) 2,064 2,458 (4,378)
Net Income (Loss) Per Common Share
- ----------------------------------
Basic ($0.09) $0.23 $0.32 ($0.04) ($0.11) $0.23 $0.28 ($0.50)
Diluted ($0.09) $0.23 $0.32 ($0.04) ($0.11) $0.23 $0.27 ($0.50)
</TABLE>
FORWARD LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
- -----------------------------------------------------------------------------
This document 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, and projected capital spending levels. 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
competitive and economic conditions; (ii) government funding (or perceptions
regarding such funding) of highway construction projects; and (iii) the
Company's ability to develop and protect its proprietary technology and to react
to increased competition resulting from expiring patents.
RESULTS OF OPERATIONS
- ---------------------
Table 2 below 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.
14
<PAGE>
<TABLE>
<CAPTION>
Table 2
Percent of Net Sales Percent Percent of Net Sales Percent
Year Ended Change From Year Ended Change From
--------------------- ---------------------
1997 1996 Prior Period 1996 1995 Prior Period
------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% (1.6)% 100.0% 100.0% 21.4%
Cost of Goods Sold 66.3 67.5 (3.4) 67.5 61.1 34.1
Gross Profit 33.7 32.5 2.0 32.5 38.9 1.4
Selling and Administrative 17.4 18.5 (7.1) 18.5 19.3 16.1
Research and Development 2.6 3.4 (25.5) 3.4 4.6 (9.4)
Amortization of Intangibles 3.4 3.4 (4.1) 3.4 4.1 1.1
Restructuring Charge --- 4.8 N/A 4.8 --- N/A
Operating Income 10.3 2.4 326.4 2.4 10.9 (73.5)
Interest Expense 2.8 3.2 (14.1) 3.2 3.8 2.8
Joint Venture Partnership Loss --- --- --- --- 0.2 N/A
Income before Provision for
Income Taxes and Extraordinary Item 7.5 (0.8) N/A (0.8) 6.9 N/A
Extraordinary Item,
Net of Tax Benefit --- 0.4 N/A 0.4 --- N/A
Net Income (Loss) 4.5 (1.0)% N/A (1.0)% 3.8% N/A
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales for 1997 were $81.4 million, which were $1.3
million, or 1.6%, lower than in 1996. Net domestic sales of highway delineation
products decreased $5.3 million or 8.0% compared with 1996 as a result of
competitive pressure, price reductions and inclement weather in certain markets,
particularly markets for non-snowplowable markers and thermoplastic products.
Uncertainty regarding federal funding of highway construction projects also
contributed to the reduction in sales in 1997. Domestic sales of optical film
increased 25.8% or $1.6 million compared to 1996 due to a favorable reception
for the Company's improved sheeting product which was introduced during the
fourth quarter of 1996. Net international sales increased $2.3 million or 22.8%
during the year, with particularly favorable sales trends into Latin American
markets. Four patents covering the Company's snowplowable markers expired
between April 1996 and 1997. Although the Company did not experience significant
competition for snowplowable markers in 1997, the Company expects that
competition for components of snowplowable markers will increase as a result of
the expiration of these and other patents. See "Business - Patents and
Proprietary Rights."
COST OF GOODS SOLD. Cost of goods sold in 1997 totaled $54.0 million,
compared to $55.8 million in 1996. The $1.8 million decline in cost of goods
sold during 1997 is attributable to a lower sales volume and an improvement in
gross margin due to overhead cost reductions initiated during the fourth quarter
of 1996.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expenses
in 1997 were $14.2 million, which is $1.1 million, or 7.1%, lower than the $15.3
million incurred in 1996. Decreases in expenses were largely the result of cost
reduction measures implemented during the fourth quarter of 1996.
15
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expenses in
1997 were $2.1 million in 1997, compared to $2.8 million in 1996. The $0.7
million or 25.0% reduction in expenses during 1997 is the result of cost
reduction measures implemented during the fourth quarter of 1996 and the
inclusion, as an offset to expense, of a relatively higher level of revenue from
the sale of insert tools used principally by the automotive industry. Excluding
the offset, research and development expense was 3.2% of sales during 1997
compared to 4.0% in 1996. Management believes current levels of research and
development expenditures are adequate for the Company's business.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
totaled $2.7 million in 1997 and $2.8 million in 1996. These intangible assets
relate primarily to the acquisition of principally all of the Company's assets
in 1990 and the acquisition of Pave-Mark in 1995. Intangible assets are being
amortized over varying useful lives, the longest of which is 40 years.
Accordingly, the Company has incurred and will continue to incur significant
non-cash expenses relating to the amortization of these assets. See Notes 2 and
5 of Notes to Consolidated Financial Statements.
RESTRUCTURING CHARGE. The Company incurred a $4.0 million restructuring
charge in the fourth quarter of 1996. Substantially all of the charge related to
anticipated losses in conjunction with the then proposed sale of land and a
building under construction in Waukegan, IL. The land and building were sold in
August 1997 at a price which approximated their book value, net of the
restructuring reserve. The restructuring charge also included certain other
costs associated with a series of actions to reduce expenses. Among these
actions were a 10% reduction in the salaried workforce and the consolidation
into the Niles, IL facility of several administrative functions that were
previously performed at one of the Company's Atlanta, GA locations.
OPERATING INCOME. Operating income was $8.4 million in 1997 compared to
$2.0 million in 1996, an increase of $6.4 million. Operating income as a
percentage of sales was 10.3% in 1997, compared to 2.4% in 1996. The increase in
operating income resulted from the absence of a $4.0 million restructuring
charge in 1997, $1.9 million in lower non-factory overhead expenses and an
additional $0.5 million in gross profit.
INTEREST EXPENSE. Interest expense in 1997 was $2.3 million compared to
$2.7 million in 1996. The decrease was the result of lower debt levels and more
favorable terms under the Company's current credit agreement, which replaced a
less advantageous agreement in July 1996 (see discussion under Liquidity and
Capital Resources).
INCOME TAXES. The Company recorded income tax expense of $2.5 million
in 1997 compared to a benefit of $0.2 million in 1996. The effective tax rate in
1997 was 40.5% compared to an effective tax benefit rate of 27.2% in 1996. The
tax rate in both years reflected an inability to realize tax benefits on certain
foreign net operating losses. Due to the larger relative size of the domestic
income in 1997, the percentage impact of such foreign net operating losses was
substantially less in 1997 than in 1996.
EXTRAORDINARY ITEM. As a result of the Company's refinancing its long
term debt in 1996, the Company recorded a $0.3 million after-tax extraordinary
charge attributable to the accelerated write-off of deferred financing fees
related to the Company's prior credit facility. There were no extraordinary
items recorded in 1997.
16
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales in 1996 were $82.7 million, an increase of $14.6
million or 21.4% compared to 1995. Excluding Pave-Mark, which was acquired in
May 1995, revenues increased by 2.9%. Domestic highway delineation product
sales, excluding Pave-Mark's products, increased by 6.4% due to greater market
demand as a result of an uninterrupted flow of federal funds for highway
projects in fiscal year 1996. Revenues for optical film fell by 15.3% due
principally to the loss of certain low bid contracts in 1996. In addition, the
Company believes many customers delayed optical film purchases in the first
three quarters of 1996 in anticipation of the Company's release in the fourth
quarter of an improved product. Sales to customers outside of the U. S.
increased by 6.7% due principally to sales of thermoplastic products
manufactured by Pave-Mark. Excluding Pave-Mark products, international sales
increased by 3.9%.
COST OF GOODS SOLD. Cost of goods sold increased 34% to $55.8 million
(67.5% of sales) in 1996 from $41.6 million (61.1% of sales) in 1995, primarily
due to the inclusion of twelve months of sales (vs. seven months of sales in
1995) of Pave-Mark products, which provide a lower gross margin than the
Company's other product lines. Excluding Pave-Mark, the cost of goods sold
totaled $29.8 million (56.9% of sales) compared to $27.0 million (53.0% of
sales) in 1995 or an increase of 10.4%. This increase in the cost of goods sold
was the result of higher manufacturing costs and an increase in the provision
for inventory obsolescence, particularly for optical film . The provision for
the optical film product was due to the Company's introduction of an improved
product in the fourth quarter of 1996.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expenses
in 1996 were $15.3 million, compared to $13.1 million in 1995. The $2.2 million
increase was principally attributable to the inclusion of a full year of
expenses for Pave-Mark in 1996, and to $0.5 million of additional commissions
paid to outside sales representatives.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was
$2.8 million in 1996 compared with $3.1 million in 1995. The decrease was
largely due to realization in 1996 of additional revenue from sales of insert
tools which offsets research and development expenses. As a percentage of net
sales, research and development expense totaled 3.4% in 1996 and 4.5% in 1995.
Excluding the offset for sales of insert tools, research and development expense
was $3.3 million in 1996 and $3.3 million in 1995.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
totaled $2.8 million in both 1996 and 1995. These intangible assets relate
primarily to the acquisition of principally all of the Company's assets in 1990.
OPERATING INCOME. Operating income was $2.0 million in 1996 compared to
$7.4 million in 1995, a decrease of $5.4 million. Operating income as a
percentage of sales was 2.4% in 1996, compared to 10.9% in 1995. The decrease as
a percent of sales was principally due to the $4.0 million restructuring charge
in 1996 and the inclusion of Pave-Mark (with its historically lower margin
products) for a full year. Excluding the 1996 restructuring charges, operating
income would have been $6.0 million in 1996, a decrease of $1.4 million from
1995.
17
<PAGE>
INTEREST EXPENSE. Interest expense for 1996 was $2.7 million, which was
$0.1 million higher than in 1995. In July 1996, the Company refinanced its long
term debt under a new credit agreement. Total borrowings (including current
maturities) increased from $27.9 million at December 31, 1995 to $30.8 million
at December 31, 1996.
INCOME TAXES. The Company incurred a loss in 1996. Accordingly, the
provision for income taxes in 1996 was a benefit of $0.2 million, representing
an effective tax benefit rate of 27.2% compared to a tax of $2.1 million,
representing an effective tax rate of 44.8% in 1995. The decrease in the
effective tax rate from 1995 to 1996 was the result of an inability to realize
tax benefits on certain foreign net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the two years ended December 31, 1997, the Company has relied on
internally generated funds and revolving credit borrowings to finance working
capital requirements and capital expenditures. During 1997, the Company reduced
borrowings under its long term credit facility by $12.7 million. The principal
inflows and outflows of cash during the year were as follows:
Cash Flow Summary
Year Ended December 31, 1997
----------------------------
(in millions)
Cash inflows
------------
Net income $3.6
Depreciation and amortization 6.0
Net proceeds from the sale of Waukegan, Illinois property 5.8
Net reduction in accounts receivable and inventory 2.8
-----
Total inflows 18.2
Cash outflows
-------------
Net repayment of long-term debt (12.7)
Repurchase of outstanding Company stock ( 1.6)
Capital expenditures (excluding Waukegan property) ( 2.5)
All other (net) ( 1.3)
-----
Total outflows (18.1)
Net change in cash balance $ 0.1
=====
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 the first and second quarters.
18
<PAGE>
The Company realized $11.7 million in cash flow from operating
activities in 1997 compared to $13.3 million in 1996. The $1.6 million decrease
in cash flow from operating activities resulted largely from relative changes in
working capital partially offset by realization of tax benefits in 1997 from the
sale of the Waukegan, IL property.
In July 1996, the Company refinanced its long term debt under an
unsecured credit agreement. The terms of the current credit agreement provide a
credit facility totaling $45.0 million, of which $20.0 million is revolving loan
due on June 30, 2000, bearing interest (at the Company's option) at (i) prime or
(ii) LIBOR plus a margin of 75 to 150 basis points depending on the Company's
debt to cash flow ratio for the preceding four quarters. Amounts available under
the revolving loan are subject to certain borrowing base limitations. The
balance of the credit facility is a $25.0 million term loan due in quarterly
installments of $0.625 million with a final payment of $2.95 million due on June
30, 2003 and bearing interest (at the Company's option) at (i) prime plus 25
basis points or (ii) LIBOR plus 180 basis points. (See Note 6 of Notes to
Consolidated Financial Statements for the interest rates in effect at December
31, 1997.) The credit agreement establishes certain financial covenants,
including covenants relating to the Company's funded debt to EBITDA ratio, cash
flow coverage ratio and leverage ratio. The Company's performance with respect
to these covenants will affect, among other things, the amounts available for
borrowing under the revolving portion of the facility.
At December 31, 1997, the Company's outstanding borrowings under its
credit agreement consisted of $16.1 million of term loans and $2.0 million of
revolving loans. During each of 1998 and 1999, $2.5 million of term loans will
mature. At December 31, 1997, 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 $13.6 million.
The Company has entered into interest rate protection agreements which
effectively provide ceiling rates of interest on all of its current obligations
under the credit agreement.
The Company expects capital expenditures for additions and replacements
to approximate $4.0 million in 1998 with funding to be provided principally from
internally generated funds. In 1997, the Company's capital expenditures were
$2.5 million. The increase in projected spending in 1998 results from
anticipated leasehold improvements in additionally leased manufacturing space
(see below) as well as increased investment in factory automation equipment. The
Company does not foresee any significant additional capital expenditures
associated with its Year 2000 compliance program. As of December 31, 1997, the
Company had commitments to disburse $1.5 million in capital expenditures.
The Company intends to expand its manufacturing capacity in 1998. In
that connection, the Company has committed to lease an additional 78,000 square
feet of manufacturing and office space in Niles, IL effective May 1, 1998. The
Company believes its production capacity will be adequate after the expansion.
19
<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 sale
of the Waukegan facility, the board of directors in July 1997 authorized an
expansion of the stock repurchase program by 500,000 shares, raising the total
allowable purchases to 1,000,000 shares. Through December 31, 1997, the Company
had purchased 508,400 shares of its common stock at an average price of $6.61
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 complementary to the Company's business. It is likely that any
significant acquisition would be funded with additional long term debt.
INFLATION
- ---------
Inflation has not had a significant effect on the Company's business
during the periods discussed.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
Reference is made to Note 2 of the Notes to Consolidated Financial
Statements.
YEAR 2000 ISSUES
- ----------------
The Company does not anticipate any material problems associated with
using computer programs or retrieving computerized information with respect to
Year 2000. The Company believes that its primary business control system is Year
2000 compliant. The Company has begun to communicate with its suppliers and
other service providers to determine whether they are actively involved in
projects to ensure that their products and business systems will be Year 2000
compliant.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
Not required for 1997 because the Company's market capitalization was
less than $2.5 billion as of January 28, 1997.
20
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page
The following consolidated financial statements of Stimsonite
Corporation and Subsidiaries are included in Part II, Item 8:
Report of Independent Auditors 22
Consolidated Balance Sheets as of December 31, 1997
and 1996. 23
Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995.
24
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995.
25
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995. 26
Notes to Consolidated Financial Statements. 27
The following consolidated financial statement schedule
of Stimsonite Corporation and subsidiaries is included in Part
IV, Item 14:
Schedule II - Valuation and Qualifying accounts 47
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Stimsonite Corporation
We have audited the consolidated financial statements and the financial
statement schedule of Stimsonite Corporation and Subsidiaries listed in Item 8
of this form 10-K. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Stimsonite
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion the schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
February 13, 1998
22
<PAGE>
<TABLE>
<CAPTION>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
ASSETS December 31,
--------------------------
Current assets: 1997 1996
- --------------- ---- ----
<S> <C> <C>
Cash and cash equivalents $ 337 $ 227
Trade accounts receivable, less
allowance for doubtful accounts
of $495 (1997) and $1,206 (1996) 14,864 17,130
Inventories 11,418 11,938
Prepaid expenses and other 1,272 3,157
Deferred tax assets 1,630 1,670
----- ------
Total current assets 29,521 34,122
Property, plant and equipment, net 11,829 18,907
Intangible assets, net 11,259 14,373
Deferred financing costs, net of
accumulated amortization
of $61 (1997) and $24 (1996) 251 287
Deferred tax assets 2,239 3,990
Other 102 191
------- -------
Total assets $55,201 $71,870
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: 1997 1996
- -------------------- ---- ----
Accounts payable $ 7,797 $ 13,848
Current maturities of long-term debt 2,500 2,500
Accrued employee benefits 926 1,012
Accrued warranty costs 631 909
Accrued income taxes 661 0
------ ------
Total current liabilities 12,515 18,269
Accrued postretirement benefits 631 631
Long-term debt 15,575 28,300
------ ------
Total liabilities 28,721 47,200
------ ------
Commitments and Contingencies
Stockholders' equity:
- ---------------------
Common Stock, $.01 par value--
15,000,000 shares authorized,
8,467,577 shares (1997) and
8,706,150 shares (1996)
issued and outstanding 90 90
Treasury stock, at cost (3,387) (1,801)
Additional paid-in capital 23,849 23,818
Retained earnings 5,943 2,314
Foreign currency translation adjustment (15) 249
------ -------
Total stockholders' equity 26,480 24,670
------- -------
Total liabilities and stockholders' equity $55,201 $71,870
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
<TABLE>
<CAPTION>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share amounts)
Year Ended December 31,
--------------------------------------------
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Net sales $ 81,363 $ 82,712 $ 68,119
Cost of goods sold 53,958 55,835 41,625
------ ------ ------
Gross profit 27,405 26,877 26,494
Operating expenses:
Selling and administrative 14,184 15,260 13,149
Research and development 2,086 2,800 3,089
Amortization of intangible assets 2,730 2,846 2,815
Restructuring charge -- 4,000 --
------ -- ------
Total operating expenses 19,000 24,906 19,053
------ ------ ------
Operating income 8,405 1,971 7,441
------ ------ ------
Other expense:
Interest expenses 2,302 2,680 2,606
Joint venture partnership loss -- -- 111
------ ------ ------
Income (loss) before provision (benefit)
for income taxes and extraordinary item 6,103 (709) 4,724
Provision (benefit) for income taxes 2,474 (193) 2,114
------ ------ ------
Income before extraordinary item 3,629 (516) 2,610
Extraordinary item, net of tax benefit -- 332 --
------ ------ ------
Net income (loss) $3,629 $(848) $2,610
====== ====== ======
Earnings (loss) per common and common
equivalent share:
Income (loss) before extraordinary item:
Basic $0.42 $(0.06) $0.29
Diluted $0.42 $(0.06) $0.29
------ ------- ------
Extraordinary item, net of tax benefit:
Basic -- (0.04) --
Diluted -- (0.04) --
------ -- ------
Net income (loss):
Basic $0.42 $(0.10) $0.29
===== ======= =====
Diluted $0.42 $(0.10) $0.29
===== ======== =====
Weighted average number of common and common
equivalent shares outstanding:
Basic 8,576,451 8,822,880 8,911,592
========= ========= =========
Diluted 8,686,822 8,822,880 9,121,009
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
<TABLE>
<CAPTION>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
----------------------------------
Cash flows from operating activities: 1997 1996 1995
------------------------------------- ----------------------------------
<S> <C> <C> <C>
Net income (loss) $ 3,629 $ (848) $ 2,610
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 3,170 3,166 2,566
Amortization of intangibles, deferred financing
costs and discount on long-term debt 2,791 3,124 3,212
Provision for uncollectible accounts 143 311 303
Deferred income taxes 1,791 (1,993) (1,204)
Extraordinary item -- 332 --
Restructuring charge -- 4,000 --
Joint venture partnership loss -- -- 111
Changes in assets and liabilities,
(net of effects of acquisitions):
Trade accounts receivables 2,123 703 1,319
Inventories 520 2,910 (4,369)
Prepaid expense and other 2,333 (2,236) (81)
Accounts payable (5,101) 4,945 (1,777)
Accrued employee benefits (86) 16 (875)
Accrued warranty (278) 399 210
Accrued income taxes 661 (1,527) (342)
------ ------ -------
Net cash provided by operating activities 11,696 13,302 1,683
------ ------ -------
Cash flows from investing activities:
-------------------------------------
Purchase of property, plant and equipment (2,544) (9,394) (3,752)
Sale of certain real estate property 5,750 -- --
Acquisition of Pave-Mark -- -- (7,961)
Investment in joint venture partnership -- -- (111)
Other -- -- (103)
------ ------ -------
Net cash provided by (used in) investing activities 3,206 (9,394) (11,927)
------ ------ -------
Cash flows from financing activities:
-------------------------------------
Net proceeds from the issuance of common stock 31 303 115
Payments to reacquire common stock (1,586) (1,307) (494)
Payments on notes receivable on common stock -- -- 61
Principal payments under capital lease obligation (248) (34) --
Proceeds from long term-debt 5,025 37,300 12,800
Payments on long term-debt (17,750) (40,154) (3,095)
Cash over draft -- -- 926
Financing fees paid in connection with debt refinancing -- (332) (151)
------- ------ -------
Net cash provided by (used in) financing activities (14,528) (4,224) 10,162
------- ------ -------
Effect of exchange rate changes on cash (264) 292 (30)
-------- ------ -------
Net increase (decrease) in cash and cash equivalents 110 (24) (112)
Cash and cash equivalents, beginning of year 227 251 363
------- ------ -------
Cash and cash equivalents, end of year $ 337 $ 227 $ 251
======= ====== =======
Supplemental disclosures:
-------------------------
Cash paid during the year for interest $ 2,243 $ 2,810 $ 2,228
Cash paid during the year for income taxes $ 941 $ 2,880 $ 3,732
Capital lease for property, plant & equipment $ 598 $ 724 --
Property, plant & equipment purchases included in accounts $ 136 $ 3,915 --
payable
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
<TABLE>
<CAPTION>
Stimsonite Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands except share data)
Common stock Treasury stock Notes Retained Foreign
----------------- ---------------- Additional Receivable Earnings Currency Total
Paid-In from (Accumulated Translation Stockholders'
Shares Amount Shares Amount Capital Stock Sale Deficit) Adjustment Equity
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 8,903,900 $89 0 $0 $23,401 ($61) $552 ($13) $23,968
----------------------------------------------------------------------------------------------------
Issuance of common stock 17,500 115 115
Repurchase of common stock (60,000) 60,000 (494) (494)
Payments on notes receivable 61 61
Aggregate adjustment from
translation of foreign
currency statements (30) (30)
Net income 2,610 2,610
----------------------------------------------------------------------------------------------------
Balance, December 31, 1995 8,861,400 89 60,000 (494) 23,516 0 3,162 (43) 26,230
----------------------------------------------------------------------------------------------------
Issuance of common stock 33,250 1 302 303
Repurchase of common stock (188,500) 188,500 (1,307) (1,307)
Aggregate adjustment from
translation of foreign
currency statements 292 292
Net loss (848) (848)
----------------------------------------------------------------------------------------------------
Balance, December 31, 1996 8,706,150 90 248,500 (1,801) 23,818 0 2,314 249 24,670
----------------------------------------------------------------------------------------------------
Issuance of common stock 21,327 31 31
Repurchase of common stock (259,900) 259,900 (1,586) (1,586)
Aggregate adjustment from
translation of foreign
currency statements (264) (264)
Net income 3,629 3,629
====================================================================================================
Balance, December 31, 1997 8,467,577 $90 508,400 ($3,387) $23,849 $0 $5,943 ($15) $26,480
====================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated finanical
statements.
26
<PAGE>
STIMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. Nature of Business:
Stimsonite Corporation and subsidiaries (the "Company") is a manufacturer and
marketer of highway safety products. These products include (i) highway
delineation products, such as raised reflective pavement markers, thermoplastic
pavement marking materials and related application equipment, construction work
zone markers, and roadside and other delineators; and (ii) optical film
products, such as high performance reflective sheeting used in the construction
of highway signs and pre-printed sign faces and precision embossed film, which
is used in internally illuminated airport runway signs, reflective truck
markings and a variety of other products that require optical grade film.
2. Summary of Significant Accounting Policies:
A summary of the significant accounting policies used in the preparation of the
accompanying consolidated financial statements follows:
Principles of Consolidation The consolidated financial statements include the
financial statements of Stimsonite Corporation and its subsidiaries. Significant
intercompany transactions have been eliminated in consolidation.
Foreign Currency Translation The financial statements of foreign operations are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52. Accordingly, all assets and liabilities are
translated at current and historical rates of exchange and operating
transactions are translated at weighted average rates during the year. The
translation gains and losses are accumulated as a component of stockholders'
equity.
Cash and Cash Equivalents Cash and cash equivalents include all highly liquid
debt instruments with an initial maturity date of three months or less.
Inventories Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out (FIFO) basis.
Property, Plant and Equipment Property, plant and equipment are stated at cost.
Depreciation is computed by use of the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are charged
to operations as incurred; major improvements are capitalized. Upon retirement
or sale, the cost of assets and related accumulated depreciation are removed
from the accounts and any resulting gains or losses upon disposition are
reflected in operations. The following is a summary of the estimated useful
lives utilized by the Company:
Equipment........................ 7 years
Furniture and fixtures........... 7 years
Automobiles...................... 5 years
Molds, dies and tools............ 3 years
Leasehold improvements........... Lesser of lease life or useful life
27
<PAGE>
Intangible Assets Intangible assets have been recorded at cost and are being
amortized on the straight-line basis over their respective amortization periods
(see Note 6). The Company periodically evaluates the carrying value of its
long-lived assets to determine whether an adjustment to the depreciation or
amortization period is warranted. Such evaluation is based on the projected
future cash flows (undiscounted and without interest charges) expected to result
from the utilization of the long-lived asset.
Income Taxes The Company accounts for income taxes under the principles of SFAS
No. 109 "Accounting for Income Taxes." In accordance with SFAS No. 109, deferred
income taxes are recorded to reflect the tax consequences on future years of
differences between the basis of assets and liabilities for income tax and for
financial reporting purposes. In addition, the amount of any future tax benefits
are reduced by a valuation allowance to the extent such benefits are not
expected to be fully realized.
Deferred Financing Costs Commitment fees and other costs incurred in connection
with the issuance of long-term debt are amortized as interest expense over the
life of the related debt.
Warranty Costs Estimated costs related to warranty of certain highway signing
products are charged to operations at the time of sale.
Financial Instruments The fair value of cash and cash equivalents is assumed to
approximate the carrying value of these assets due to the short duration of
these instruments. The fair value of the Company's debt, current and long-term,
is estimated to approximate the carrying value of these liabilities based upon
borrowing rates currently available to the Company for borrowings with similar
terms.
Revenue Recognition The Company recognizes revenue upon shipment of the product.
Earnings Per Share The Company has adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS No. 128), which requires the
disclosure of a basic and a diluted earnings per share computation. The
computation of basic earnings per share is based on the weighted average number
of common and common equivalent shares outstanding during each period. To arrive
at diluted earnings per share, all other stock options have been calculated
using the treasury stock method. Earnings per share computations for prior years
have been restated to reflect the new standard.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates made by the Company include warranty accruals
which are estimated based upon product performance experience, and it is
reasonably possible that this estimate could change in the near term.
Reclassifications Reclassifications have been made to the prior years' financial
statements to conform to the 1997 presentation.
Accounting Standards The Company has implemented the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130), which will be effective for interim and annual financial statements
issued for periods beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. The Company's financial
statements are prepared in accordance with SFAS No. 130.
28
<PAGE>
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), which will be effective for interim and annual
financial statements issued for periods beginning after December 15, 1997. SFAS
No. 131 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), which will be effective for fiscal
years beginning after December 15, 1997. SFAS No. 132 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.
3. Inventories:
Inventories are comprised of the following:
December 31,
1997 1996
----------------------
Raw materials................................ $ 5,323 $ 3,772
Work-in-process.............................. 1,455 1,601
Finished goods............................... 4,640 6,565
-------- --------
$11,418 $11,938
4. Property, Plant and Equipment:
Property, plant and equipment are comprised of the following:
December 31,
1997 1996
---------------------
Equipment.................................... $17,380 $16,163
Molds, dies and tools........................ 3,966 3,822
Leasehold improvements....................... 2,992 2,817
Furniture and fixtures....................... 966 786
Automobiles.................................. 398 462
Waukegan, Illinois facility costs............ -- 6,411
Construction in progress..................... 2,269 1,948
------- -------
27,971 32,409
Less accumulated depreciation ............... (16,706) (14,407)
------- -------
11,265 18,002
Capital leases............................... 933 986
Less accumulated amortization................ (369) (81)
------- -------
$11,829 $18,907
29
<PAGE>
5. Intangible Assets:
Intangible assets consist of the following:
Amortization December 31,
Period 1997 1996
------ ---- ----
Patents 6-17 years $15,633 $15,467
Covenants not to compete 3-10 years 6,994 6,994
Sales representative and distribution
organization acquired 7 years 2,298 2,298
Government product approvals acquired 15 years 2,148 2,148
Goodwill associated with Simsco acquisition 20 years 1,279 1,279
Goodwill associated with Pavemark acquisition 40 years 1,158 1,158
Trademarks and other 15 years 1,999 2,615
-------- --------
31,509 31,959
Less accumulated amortization (20,250) (17,586)
-------- --------
$11,259 $14,373
6. Long Term Debt:
Long term debt at December 31, 1997 and 1996, consisted of the following:
1997 1996
---- ----
Term loan $16,075 $24,375
Revolving loan 2,000 6,425
-------- --------
18,075 30,800
Less current maturities (2,500) (2,500)
-------- --------
Total long-term debt $ 15,575 $ 28,300
======== ========
The Company's current credit agreement, which was entered into in July 1996,
provides for a total credit facility of $45.0 million of which $25.0 million is
a term loan, and $20.0 million is a revolving loan. Interest is payable, at the
Company's option, in one, two, three or six month periods. Borrowings under the
new credit agreement may be repaid in whole or in part without penalty.
The term loan is repaid in quarterly principal installments of $0.6 million with
a final repayment of $3.0 million on June 30, 2003. The outstanding borrowings
under the term loan bear interest (at the Company's option) at either prime plus
.25% (8.75% at December 31, 1997) or LIBOR plus 1.8% (7.7375% at December 31,
1997). At December 31, 1997 all outstanding borrowings under the term loan were
under LIBOR contracts.
The principal balance outstanding for the revolving loan is due June 30, 2000.
Under the revolving loan, subject to compliance with certain borrowing base
requirements, the Company may borrow up to $20.0 million. At December 31, 1997,
$2.0 million was outstanding and $13.6 million was available for further
borrowing after considering borrowing base requirements. Unused amounts under
the revolving loan are subject to an annual commitment fee of 0.375%.
The outstanding borrowings under the revolving loan bear interest (at the
Company's option) at prime (8.50% at December 31, 1997) or LIBOR plus a LIBOR
margin ranging from 0.75% to 1.5% based on the ratio of debt to cash flow
30
<PAGE>
determined by the immediately preceding rolling four quarter performance. At
December 31, 1997, the LIBOR margin in effect was 1.25% and the all inclusive
LIBOR interest rate on the revolving loan was 7.25%. At December 31, 1997, $2.0
million of revolving loans were borrowed under LIBOR contracts and none was
borrowed at prime.
The credit facility establishes certain financial covenants, including covenants
relating to the Company's funded debt to EBITDA ratio, cash flow coverage ratio
and leverage ratio. In addition the new credit agreement imposes limitations on
the Company with respect to, among other things, (i) capital expenditures; (ii)
mergers, acquisitions and purchases and sales of assets; (iii) additional
indebtedness and liens; (iv) transactions with affiliates; and (v) the payment
of cash dividends and the repurchase of common stock. The Company's performance
with respect to these covenants will affect, among other things, the level of
additional borrowings available under the credit facility.
Future minimum principal payments of long term debt are as follows:
Year Total
---- -----
1998 $ 2,500
1999 2,500
2000 4,500
2001 2,500
2002 2,500
2003 3,575
-------
$18,075
=======
7. Common Stock:
In October 1995, the Board of Directors authorized the purchase of up to 500,000
shares of the Company's common stock. In July 1997, the Board of Directors
authorized an additional 500,000 shares of common stock to be repurchased,
raising the total allowable purchases to 1,000,000. The Company's management has
repurchased shares under this authorization as they believe that the stock is
currently undervalued. As of December 31, 1997, the Company had repurchase a
total of 508,400 shares at an average price of $6.61.
8. Stock Options:
The Company has stock option plans providing for the grant of options to
purchase common shares to outside directors, executives and certain key
employees. During 1997, the Company authorized an additional 410,500 shares for
grant. As of December 31, 1997, a total of 1,219,873 common shares have been
authorized for grant under these plans.
Stock options granted under the plans are exercisable at fair market value of
the stock at the date of grant, are for ten year terms and become exercisable
from one to five years from the date of grant. The following is a summary of the
activity in the Company's stock option plans for the years ended December 31,
1997, 1996 and 1995.
31
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 353,474 $5.00 305,724 $3.54 297,335 $3.18
Granted 110,500 $6.00 172,347 $9.00 67,856 $9.22
Exercised (21,327) $1.48 (33,250) $1.70 (17,500) $1.94
Canceled (26,612) $6.23 (91,347) $8.85 (41,967) $11.00
=========== ======== =========== ======== =========== ========
Outstanding at end of period 416,035 $5.31 353,474 $5.00 305,724 $3.54
=========== ======== =========== ======== =========== ========
Exercisable at end of period 162,214 161,286 172,252
Available for grant at end of period 803,838 477,226 547,726
</TABLE>
The following table summarizes information about options outstanding at December
31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ----------------------------
Weighted
Average Weighted
Number Remaining Average Number Weighted
Outstanding Contractual Exercise Exercisable Average
Range of exercise prices at 12/31/97 Life Price at 12/31/97 Exercise Price
- ------------------------ ----------- ----------- -------- ----------- --------------
<C> <C> <C> <C> <C> <C> <C>
$1.43 - $12.13 416,035 6.9 years $5.31 162,214 $2.58
</TABLE>
The Company applies the provision of APB 25 in accounting for its stock based
employee compensation arrangements. During 1996, the Company was required to
adopt Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123") which encourages entities to adopt a
fair value based method of accounting for stock-based compensation plans in
place of the provisions of Accounting Principles Board Opinion No. 25 Accounting
for Stock Issued to Employees ("APB No. 25") for all arrangements under which
employees receive shares of stock or other equity instruments of the employer or
the employer incurs liabilities to employees in amounts based on the price of
its stock.
The Company recognizes compensation cost for stock-based compensation awards
equal to the difference between the quoted market price of the stock at the date
of grant or award and the price to be paid by the employee upon exercise in
accordance with the provisions of APB No. 25. Based upon the terms of currently
outstanding options, the stock price on the date of grant and price paid upon
exercise are the same, thus no compensation charge is required to be recognized.
As allowed by SFAS No. 123, the Company will continue to apply the provisions of
APB No. 25 in accounting for its stock-based employee compensation arrangements
and has disclosed pro forma net income and earnings per share information in its
footnotes as if the fair value method suggested in SFAS No. 123 had been
applied.
32
<PAGE>
If compensation cost based on the fair value method of the options issued had
been used, the Company's net income and earnings per common share (EPS) would
have been as follows:
1997 1996 1995
---- ---- ----
Net income (loss) As reported $3,629 $ (848) $2,610
Pro Forma 3,537 (900) 2,603
Basic EPS As Reported $0.42 $(0.10) $0.29
Pro Forma 0.41 (0.10) $0.29
Diluted EPS As Reported $0.42 $(0.10) $0.29
Pro Forma 0.41 (0.10) $0.29
The fair value of each option was estimated as of the date of grant using the
Black-Scholes option pricing model based on the following assumptions for 1997,
1996 and 1995, respectively: volatility of 30.9%, 33.0% and 33.4%; expected
lives of 5, 7 and 6 years; risk-free interest rate of 6.1%, 5.4% and 7.7%; and
no payment of dividends expected during the life of the options. The weighted
average fair value of options granted were $2.24, $4.19 and $5.54 for 1997, 1996
and 1995 respectively.
9. Income Taxes:
The components of income (loss) before provision (benefit) for income taxes and
extraordinary item are as follows:
Year Ended December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
Domestic $6,802 $(175) $ 5,902
Foreign (699) (534) (1,178)
------ ------ ------
$6,103 $(709) $4,724
====== ====== ======
The provision (benefit) for income taxes on income (loss) before provision
(benefit) for income taxes and extraordinary item for the years ended December
31, 1997, 1996 and 1995 is comprised of the following:
Year Ended December 31,
-----------------------------
Current income tax expense: 1997 1996 1995
---- ---- ----
Federal $560 $1,485 $3,164
State 123 315 672
------ ------ ------
Total current $683 $1,800 $3,836
====== ====== ======
Deferred income tax (benefit) expense:
Federal $1,470 $(1,638) $(1,455)
State 321 (355) (267)
------ ------ ------
Total deferred 1,791 (1,993) (1,722)
----- ------ ------
Total (benefit) provision $2,474 $ (193) $ 2,114
====== ====== ======
33
<PAGE>
The provision (benefit) for income taxes differs from a provision (benefit)
computed at the U.S. statutory rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34.0% (34.0%) 34.0%
State income taxes (net of Federal benefit) 4.8% (5.6%) 5.0%
Inability to utilize foreign operating losses 4.0% 25.6% 6.8%
Foreign sales corporation -- (14.1%) --
Reversal of foreign valuation allowance -- -- (6.8%)
Provision for non-deductible expenses 1.2% 19.2% --
Other (3.5%) (18.3%) 5.8%
----- ----- -----
Total 40.5% (27.2%) 44.8%
===== ===== =====
</TABLE>
The consolidated balance sheet includes the following:
December 31, 1997
------------------------------------
Current Non-current Total
------- ----------- -----
Deferred income tax assets $1,630 $3,069 $4,699
Valuation allowance -- (830) (830)
------ ------ ------
Total $1,630 $2,239 $3,869
====== ====== ======
December 31, 1996
------------------------------------
Current Non-current Total
------- ----------- -----
Deferred income tax assets $1,670 $4,793 $6,463
Valuation allowance -- (803) (803)
------ ------ ------
Total $1,670 $3,990 $5,660
====== ====== ======
The components of the deferred tax asset balance (tax effected) are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------- ---------------------
Temporary Tax Temporary Tax
Difference Effect Difference Effect
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Property, plant and equipment $2,009 $784 $1,954 $761
Intangible assets 400 156 410 159
Allowance for doubtful accounts 338 132 905 353
Inventory obsolescence
reserve and capitalization 2,436 950 1,963 766
Accrued vacation 493 192 503 196
Accrued post-retirement benefits 631 246 405 158
Accrued warranty 632 246 910 354
Stock option compensation 909 355 925 364
Restructuring reserve -- -- 4,000 1,560
Other accruals 280 109 -- --
Inter-company profits 364 142 364 141
Foreign NOLs 4,202 1,387 3,302 1,651
------- ------ ------- ------
Subtotals 12,694 4,699 15,641 6,463
Less valuation allowance (2,514) (830) (1,651) (803)
------- ------ ------- ------
Total $10,180 $3,869 $13,990 $5,660
======= ====== ======= ======
</TABLE>
34
<PAGE>
As of December 31, 1997 and 1996, the Company had foreign net operating loss
carry forwards of approximately $4,209 and $3,302, respectively. The carry
forwards were generated principally in Europe and Australia and have no
expiration date. As of December 31, 1997 and 1996, the valuation allowance
relates to the European deferred tax assets.
10. Earnings Per Share:
The computation of basic and diluted EPS, as prescribed by SFAS 128, is
presented below:
<TABLE>
<CAPTION>
Weighted Average
Shares
Net Income (Denominator) Per Share Amounts
(Numerator)
----------- ---------------- -----------------
Year ended December 31, 1997
- ----------------------------
Basic EPS
- ---------
<S> <C> <C> <C>
Income available to common stockholders $3,629,000 8,576,451 $0.42
Effect of dilutive options 110,371
Diluted EPS
- -----------
Income available to common stockholders plus assumed
conversions $3,629,000 8,686,822 $0.42
- ------------------------------------------------------------- ----------------- ------------------ -----------------
Year ended December 31, 1996
- ----------------------------
Basic EPS
- ---------
Income (loss) available to common stockholders $(848,000) 8,822,880 $(0.10)
Effect of dilutive options 0
Diluted EPS
- -----------
Income available to common stockholders plus assumed
conversions $(848,000) 8,822,880 $(0.10)
- ------------------------------------------------------------- ----------------- ------------------ -----------------
Year ended December 31, 1995
- ----------------------------
Basic EPS
- ---------
Income available to common stockholders $2,610,000 8,911,592 $0.29
Effect of dilutive options 209,417
Diluted EPS
- -----------
Income available to common stockholders plus assumed
conversions $2,610,000 9,121,009 $0.29
- ------------------------------------------------------------- ----------------- ------------------ -----------------
</TABLE>
35
<PAGE>
11. Employee Benefit Plans:
The Company has a 401(k) savings plan covering substantially all of its salaried
employees. The Company matches 25% of certain employee's pretax contributions
under this plan. Contributions eligible for Company matching are limited to 6%
of eligible earnings. Company matching contributions vest immediately. The
Company also has a 401(k) capital accumulation plan covering most salaried and
hourly employees, under which the Company contributes 5% of eligible employee
earnings. Company contributions under the capital accumulation plan vest over a
5 year period. Total Company contributions under these plans for the years ended
December 31, 1997, 1996 and 1995 were approximately $550, $456 and $541,
respectively.
The Company has an agreement with a former executive officer that provides for
deferred compensation. The agreement provides for deferred payments based on
years of service. For the years ended December 31, 1997, 1996 and 1995, expenses
recorded under this plan were $0, $70 and $39, respectively.
12. Post-Retirement Benefits Other Than Pensions:
The Company provides post-retirement health care and life insurance benefits to
certain retired employees and their dependents.
Net periodic postretirement benefit costs for 1997, 1996 and 1995 included the
following components:
1997 1996 1995
------ ------ ------
Service cost $0 $0 $0
Interest expense 18 39 46
====== ====== ======
Net periodic benefit cost $18 $39 $46
====== ====== ======
The accumulated postretirement benefit obligation (APBO) under the plans at
December 31, 1997 was as follows:
Medical Life Total
------- ---- -----
Retirees and their dependents $261 $23 $284
Fully eligible active employees 33 5 38
Active employees not yet eligible 0 0 0
------- ----- -----
Total APBO: 294 28 322
------- ----- -----
Unrecognized net gain (loss) -- -- 309
Net postretirement benefit liability
recognized by the Company: -- -- $631
======= ===== =====
The discount rate used in determining the APBO as of December 31, 1997 was 7.0%.
The assumed health care cost trend rate used in measuring the APBO as of
December 31, 1997 varies by the age of the participant and the retirement date
and ranges from 5.0% to 7.5%.
Increasing the health care cost trend rates by one percentage point would not
have had a material effect on the December 31, 1997, APBO or the net periodic
postretirement expense.
36
<PAGE>
13. Commitments:
The Company leases its office, warehouse and manufacturing facilities under
non-cancelable operating leases which expire through 2008. The leases for these
facilities contain renewal options, escalation clauses and requirements that the
Company pay real estate taxes, insurance, utilities and maintenance.
Rent expense for the years ended December 31, 1997, 1996 and 1995 were
approximately $1,810, $1,926 and $1,412, respectively. Annual minimum future
payments under all lease commitments are as follows:
Year Ending
December 31,
------------
1998................................ $1,720
1999................................ 1,676
2000................................ 1,601
2001................................ 1,339
2002................................ 1,139
Thereafter.......................... 4,787
Annual minimum future capital lease payments are as follows:
Year Ending
December 31,
------------
1998................................ $297
1999................................ 297
2000................................ 72
2001................................ 0
2002................................ 0
Thereafter.......................... 0
14. Credit Risk:
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of trade receivables. The majority of the
Company's sales are made to independent contractors and state governments and
are related to highway construction and maintenance. The Company requires
prepayment or letters of credit for a substantial portion of foreign sales, and
payment bonds on most domestic contractor sales. The Company generally sells on
an unsecured basis to other customers including governmental agencies and
distributors.
37
<PAGE>
15. Geographic Segment Data:
The Company's operations consist of a single business segment which manufactures
and markets reflective highway safety products. Transfers between geographic
areas were at cost plus a negotiated mark-up. Sales and selected financial
information by geographic area for the years ended December 31, 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1997 United States International Eliminations Consolidated
---- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues..................... $77,325 $6,905 $(2,867) $81,363
Operating income (loss)...... 9,113 (708) -- 8,405
Net income (loss)............ 4,328 (699) -- 3,629
Total assets................. 57,487 6,189 (8,475) 55,201
1996 United States International Eliminations Consolidated
---- ------------- ------------- ------------ ------------
Revenues..................... $78,467 $6,492 $(2,247) $82,712
Operating income (loss)...... 2,499 (528) 1,971
Net income (loss)............ (252) (596) (848)
Total assets................. 74,488 5,739 (8,357) 71,870
1995 United States International Eliminations Consolidated
---- ------------- ------------- ------------ ------------
Revenues..................... $64,262 $6,833 $(2,976) $68,119
Operating income (loss)...... 8,619 (1,178) -- 7,441
Net income (loss)............ 3,788 (1,178) -- 2,610
Total assets................. 75,766 6,016 (14,186) 67,596
</TABLE>
International assets are principally trade receivables, inventory and goodwill
associated with the acquisition of Simsco. United States revenue includes export
sales to non-affiliates for the years ended December 31, 1997, 1996 and 1995 of
$5,806, $3,859 and $2,876, respectively.
16. Acquisition of Pave-Mark Corporation:
On May 31, 1995, the Company, through a wholly owned subsidiary, purchased
substantially all of the assets of Pave-Mark Corporation, a manufacturer of
thermoplastic materials and related application equipment used primarily for
highway marking. This acquisition was accounted for under the purchase method of
accounting. The operating results of Pave-Mark have been included in the
Company's consolidated results of operations since the acquisition date. The
final purchase price was $7.5 million. In addition to the purchase price, the
Company capitalized approximately $0.5 million of acquisition costs. Proforma
unaudited results of operations for the year ended December 31, 1995 assuming
the Pave-Mark acquisition had occurred on January 1, 1995 are as follows:
38
<PAGE>
Stimsonite Corporation and Subsidiaries
Proforma Condensed Combined Statement of Operations
For the Period Indicated
(Unaudited)
Year ended
December 31, 1995
-----------------
Net sales $77,405
Net income 2,628
Earnings per share data:
Net income:
Basic $0.29
=====
Diluted $0.29
=====
Weighted average number of common
and common equivalent shares
outstanding:
Basic 8,911,592
Diluted 9,121,009
17. Extraordinary Item:
In 1996, the Company recorded a pre-tax extraordinary loss of $554 resulting
from the write-off of the remaining deferred financing fees relating to the
repayment of the Company's prior indebtedness. A tax benefit of $222 was
allocated to the extraordinary loss.
18. Restructuring Charge:
The Company incurred a $4.0 million restructuring charge in the fourth quarter
of 1996. Substantially all of the charges related to anticipated losses from the
sale of land and a building under construction in Waukegan, IL. In April 1996,
the Company purchased 20 acres of undeveloped land in Waukegan, IL for the
purpose of constructing a new manufacturing and office complex. The Company
intended to relocate its principal manufacturing and office functions from
Niles, IL to the Waukegan site during 1997. The Company initiated the
construction of a 137,000 square foot building on the land in May 1996. In
December 1996, when the facility was partially completed, the Company decided to
remain in its Niles, IL facilities and not relocate any operations to Waukegan.
The Company subsequently sold the property in August of 1997. Net proceeds of
$5.8 million from the sale were used to pay down the Company's long-term debt.
There were no material charges to net income in fiscal year 1997 as a result of
the sale.
The restructuring charge also included certain other costs associated with a
series of actions to reduce expenses. Among these actions were a 10% reduction
in the salaried workforce and consolidation into the Niles, IL facility of
several administrative functions that were previously performed in other
domestic locations.
19. Subsequent Events (Unaudited):
In February 1998, one of the Company's Atlanta, Georgia facilities was damaged
by fire. The Company is in the process of analyzing the effect of such fire.
While the Company believes sales in the first quarter of 1998 will be reduced,
it does not currently believe the fire will have any material effect on the
Company's financial condition or results of operations for the 1998 fiscal year.
39
<PAGE>
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
40
<PAGE>
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors of the Company will be set forth under
the caption "Election of Directors" in Stimsonite's proxy statement related to
the Company's 1998 annual meeting of stockholders (the "Proxy Statement") and is
incorporated herein by reference. Information regarding executive officers of
the Company is included as Item 4A of Part I as required by Instruction 3 of
Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation
S-K will be set forth under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement and is incorporated herein by
reference.
ITEM 11--EXECUTIVE COMPENSATION.
Information required by this item will be set forth under the caption
"Executive Compensation" in the Proxy Statement and, except for the information
under the captions "Executive Compensation--Compensation Committee Report on
Executive Compensation" and "Executive Compensation--Performance Graph," is
incorporated herein by reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item will be set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement and is incorporated herein by reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding any disclosable relationships and related
transactions of directors and executive officers will be set forth under the
caption "Compensation Committee Interlocks and Insider Participation" in the
Proxy Statement and is incorporated herein by reference.
41
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Refer to Item 8 of this report for financial statements.
2. Refer to Item 8 of this report for financial statement
schedule.
3. Exhibits:
Exhibit
Number Description of Document
------ -----------------------
3.1 Certificate of Incorporation of the Company, incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993
(Commission File No. 0-22978)(the "1993 10-K").
3.2 By-laws of the Company, as amended to date, incorporated by
reference to Exhibit 3.2 to the 1993 10-K.
4.1 Specimen certificate for the Company's common stock, $.01
par value, incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1, as amended
(Commission File No. 33-70633) (the "Registration
Statement").
4.2 Registration Rights Agreement, dated as of October 19, 1993,
among the Company, Quad-C Partners, L.P., Quad-C Partners
C.V. and Commonwealth Investors, L.P., incorporated by
reference to Exhibit 4.7 to the Registration Statement.
4.3 Loan Agreement, dated July 23, 1996, among the Company as
borrower, and LaSalle National Bank as co-lender and Harris
Trust and Savings Bank as co-lender (the "Loan Agreement"),
incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1996.
4.4 First Amendment dated March 27, 1997 to the Loan Agreement,
incorporated by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended June 29,
1997 (Commission File No. 0-22978) (the "June 1997 10-Q").
4.5 Second Amendment dated July 1, 1997 to the Loan Agreement,
incorporated by reference to Exhibit 10.6 to the June 1997
10-Q.
42
<PAGE>
*10.1 Form of Employment Agreement, dated August 20, 1990, between
the Company and Robert Pricone, Michael A. Cherwin and
Charles Hulsey for minimum salaries of $78,800, $51,000 and
$71,100, respectively, incorporated by reference to Exhibit
10.2 to the Registration Statement.
*10.2 Employment Agreement, dated as of September 7, 1993, between
the Company and Thomas C. Ratchford, incorporated by
reference to Exhibit 10.3 to the Registration Statement.
*10.3 Stimsonite Corporation Executive Stock Option Plan,
incorporated by reference to Exhibit 10.5 to the
Registration Statement.
*10.4 Stimsonite Corporation 1993 Incentive Equity Plan,
incorporated by reference to Exhibit 10.6 to the
Registration Statement.
*10.5 Amended and Restated Stock Option Plan for Non-Employee
Directors, incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (Commission File No. 0-22978) (the
"1996 10-K").
*10.6 Non-qualified Stock Option Agreement, dated October 1, 1993,
between the Company and Thomas C. Ratchford, incorporated by
reference to Exhibit 10.7 to the Registration Statement.
*10.7 Non-qualified Stock Option Agreement, dated as of March 22,
1994, between the Company and Richard J. Cisek, incorporated
by reference to Exhibit 10.9 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994
(Commission File No. 0-22978)(the "1994 10-K").
*10.8 Non-qualified Stock Option Agreement, dated as of February
20, 1995, between the Company and Clifford S. Deremo,
incorporated by reference to Exhibit 10.10 to the 1994 10-K.
*10.9 Amerace Corporation Supplemental Executive Retirement Plan,
incorporated by reference to Exhibit 10.8 to the
Registration Statement.
*10.10 Form of Non-qualified Stock Option Agreement, dated February
13, 1996, between the Company and each of Michael A. Cherwin
for 4,000 shares, Richard J. Cisek for 5,000 shares,
Clifford S. Deremo for 7,000 shares, Walter Finley for 6,500
shares, Charles L. Hulsey for 5,000 shares, Robert M.
Pricone for 7,000 shares, Thomas C. Ratchford for 5,500
shares and Jay R. Taylor for 13,000 shares. Incorporated by
reference to Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995
(Commission File No. 0-22978)(the "1995 10-K").
10.11 Lease, dated December 12, 1986, between the Company (as
assignee of Amerace Corporation) and American National Bank
and Trust Company of Chicago, as trustee, incorporated by
reference to Exhibit 10.11 to the Registration Statement.
43
<PAGE>
10.12 Lease, dated December 12, 1986, between the Company (as
assignee of Amerace Corporation) and American National Bank
and Trust Company of Chicago, as trustee, incorporated by
reference to Exhibit 10.12 to the Registration Statement.
10.13 Lease, dated June 24, 1991, between the Company and OTR, an
Ohio general partnership as nominee for The State Teachers
Retirement System of Ohio, incorporated by reference to
Exhibit 10.13 to the Registration Statement.
10.14 Sublease Agreement, dated December 28, 1983, between
Southland Bonded Warehouse, Inc., Pave-Mark Corporation and
The Stephen W. Wright Company. Incorporated by reference to
Exhibit 10.16 to the 1995 10-K.
10.15 Commercial Lease Contract, dated August 18, 1993, between
John Chandler and Pave-Mark Corporation. Incorporated by
reference to Exhibit 10.17 to the 1995 10-K.
10.16 Commercial Lease Agreement, dated December 14, 1995, between
Selig Enterprises, Inc. and the Company (related to Plymouth
Road). Incorporated by reference to Exhibit 10.18 to the
1995 10-K.
10.17 Commercial Lease Agreement, dated December 14, 1995, between
Selig Enterprises, Inc. and the Company (related to
Chattahoochee Road). Incorporated by reference to Exhibit
10.19 to the 1995 10-K.
*10.18 Consulting Agreement dated November 14, 1996 between the
Company and Jay R. Taylor, incorporated by reference to
Exhibit 10.19 to the 1996 10-K.
10.19 Commercial Lease Agreement dated December 13, 1996 between
the Company and American National Bank and Trust Company of
Chicago, as trustee, incorporated by reference to Exhibit
10.20 to the 1996 10-K.
*10.20 Employment agreement dated as of March 22, 1997 between the
Company and Robert E. Stutz, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the Quarter Ended March 30, 1997 (Commission File No.
0-22978) (the "March 1997 10-Q").
*10.21 Non qualified stock option agreement dated as of March 22,
1997 between Robert E. Stutz and the Company, incorporated
by reference to Exhibit 10.2 to the March 1997 10-Q.
*10.22 Stimsonite Corporation Executive Officers 1998 Incentive
Compensation Plan.
10.23 Purchase Agreement dated July 18, 1997 between Stimsonite
Corporation (seller) and Kenneth Spungen (purchaser) for the
sale of the Company's facility in Waukegan, Illinois,
incorporated by reference to Exhibit 10.4 to the June 1997
10-Q.
10.24 Lease dated as of August 20, 1997 between the Company (as
tenant) and First Bank National Association, as trustee (as
landlord), incorporated by reference to Exhibit 10.1 to the
company's Quarterly report on Form 10-Q for the Quarter
Ended September 28, 1997 (Commission File No. 0-22798).
44
<PAGE>
21.1 List of subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand, L.L.P.
24.1 Powers of Attorney.
- ------------
* Management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter ended
December 31, 1997.
45
<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 March 27, 1998 STIMSONITE CORPORATION
/s/ Robert E. Stutz
-------------------
Robert E. Stutz
President and Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 27, 1998:
/s/ Robert E. Stutz /s/ Thomas C. Ratchford
- ------------------- -----------------------
Robert E. Stutz Thomas C. Ratchford
President and Chief Executive Vice President-Finance, Treasurer,
Officer and Director Secretary and Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting
Officer)
*_______________________ *_______________________
Terrence D. Daniels Anthony R. Ignaczak
Director Director
*_______________________ *_______________________
Lawrence S. Eagleburger Richard J.M. Poulson
Director Director
*_______________________ *_______________________
Donald H. Haider Jay R. Taylor
Chairman of the Board and Director Director
*_______________________
Edward T. Harvey, Jr.
Director
* The undersigned by signing his name hereunto has hereby signed this
report on behalf of the above-named officers and directors, on March 27, 1998,
pursuant to a power of attorney executed on behalf of each such director and
officer and filed with the Securities and Exchange Commission as Exhibit 24.1 to
this report.
By: /s/ Thomas C. Ratchford
-----------------------
Thomas C. Ratchford
46
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
STIMSONITE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1996 and 1997
(Dollars in thousands)
Balance at Charged to Charged Deductions Balance
Beginning Costs and to Other from at End
Description of Year Expenses Accounts Reserves of Year
- ----------- ------- -------- -------- -------- -------
Allowance for doubtful accounts
Year ended December 31,
<S> <C> <C> <C> <C>
1995 $502 $531 $138 (a) $895
1996 895 311 -- (a) 1,206
1997 1,206 143 889 (a) 460
Accrued warranty costs
Year ended December 31,
1995 300 619 409 (b) 510
1996 510 939 540 (b) 909
1997 909 1,019 1,297 (b) 631
</TABLE>
- -------------
(a) Uncollectible items written off.
(b) Change in accounting estimate.
47
<PAGE>
INDEX OF EXHIBITS
Page
Exhibit 10.22 Stimsonite Corporation Executive Officers
1998 Incentive Compensation Plan 49
Exhibit 21.1 List of subsidiaries of the Company 52
Exhibit 23.1 Consent of Coopers & Lybrand, L.L.P. 53
Exhibit 24.1 Powers of Attorney 54
48
EXHIBIT 10.22
STIMSONITE CORPORATION
EXECUTIVE OFFICERS
1998 INCENTIVE COMPENSATION PLAN
SUBJECT: Incentive Compensation Plan for the Executive
Officers of the Company for the time period of
January 1, 1998 through December 31, 1998.
PURPOSE: To institute a compensation package providing a
monetary incentive to meet and exceed
predetermined financial goals and personal
objectives. Nothing herein is meant to guarantee
or should be construed as guaranteeing employment
for a specific term or the payment of any bonus
(hereunder or otherwise).
INCENTIVE Each Executive Officer will be eligible for an
COMPENSATION: annual incentive bonus ("Target Bonus") equal to
a set percentage of the Executive Officer's 1998
year ending base salary ("Base Salary"). The
Target Bonus has two components: (i) Financial
Objective Component; Bonus plus (ii) Personal
Objective Component Bonus. The criteria for
earning the Financial Objective Component Bonus
and the Personal Objective Component Bonus are
customized for each Executive Officer and
approved by the Compensation Committee of the
Company's Board of Directors. Refer to Schedule A
for details of the Target Bonus and the
components and the calculation thereof for each
Executive Officer.
Financial Objectives - A Financial Objective
Component Bonus is based on the financial
performance of the Company on a consolidated
basis and/or certain product lines. It will
comprise 75% to 100% of the Target Bonus,
depending on the individual. Calculation of the
actual payout requires a comparison of actual
income for the Company on a consolidated basis
and/or for a particular product line against
pre-established Income targets ("Earnings
Targets"). Depending on the level of actual
income, "points" will be earned by the Executive
Officer. The points will be inserted in a
formula, defined in Schedule A, to compute the
bonus payment. If the actual income is equal to
the related Earnings Target, then the Executive
Officer would earn 100 points. If the actual
income is less than or more than the Earnings
Target, then the Executive Officer would earn
less than or more than 100 points, as the case
49
<PAGE>
may be. No points will be earned in 1998 unless
the actual level of income is equal to or more
than the actual level of income earned in 1997.
The maximum award is 200 points. The maximum
points are awarded if relevant earnings are at a
defined maximum achievement level.
Personal Performance Objectives - Personal
Objectives are measurable goals approved by the
Compensation Committee of the Company's Board of
Directors. Payment for the Personal Objective
Component Bonus will equal 0 to 25% of the Target
Bonus, depending upon the individual. Payment for
the Personal Objective Component Bonus is
calculated based on the percentage of completion
of each objective. Up to 100 points can be earned
for full achievement of all personal objectives.
EFFECTIVE This plan will be in effect during the 1998
DATES: fiscal year subject to the Company's right to
terminate or amend the plan upon thirty (30)
days' written notice. Participants who resign
from or are terminated from the Company during
the plan year or prior to the payout date will
not receive an award. The payout date will occur
when audited year end statements are available,
usually within 60 days of the end of the fiscal
year.
BENEFITS: Life insurance, long-term disability, the savings
and investment plan, and the capital accumulation
plan benefits will be based on the participant's
Base Salary only.
RESOLUTION In the event of any dispute as to the
DISPUTES: interpretation or application of the provisions
of this agreement, the decision of the
Compensation Committee of the Company's Board of
Directors shall be final and binding on all
parties.
COMPLETE This agreement amends, supersedes and entirely
AGREEMENT: replaces all previous agreements and
understandings, oral or written, with respect to
incentive compensation payments and shall
constitute the exclusive basis upon which such
payments shall be made during the period in which
this agreement remains in effect.
50
<PAGE>
Schedule A
<TABLE>
<CAPTION>
TARGET BONUS INFORMATION
Composition of Target Bonus
Target ----------------------------------
Executive Officer Title Bonus* Financial Personal Objectives
- ----------------- ----- ------ --------- -------------------
<S> <C> <C> <C>
Robert E. Stutz President 50% 100% 0%
Michael A. Cherwin VP-Human Resources 35% 75% 25%
Lew C. Coffin VP - Operations 35% 75% 25%
Clifford S. Deremo VP-Sales and Marketing 35% 75% 25%
Walter B. Finley VP- Atlanta Operations 35% 75% 25%
Robert M. Pricone VP - Engineering 35% 75% 25%
Thomas C. Ratchford VP-Finance 50% 75% 25%
</TABLE>
* expressed as a percentage of base salary
PAYMENT FORMULA
Total Incentive Compensation Payment equals A + B where:
A = Financial Objective Component Bonus, under which payment is calculated as:
(Points achieved / 100) x [75% to 100%, depending on the individual]
x (Target Bonus)
AND
B = Personal Objective Component Bonus, under which payment is calculated as:
(Points achieved / 100) x [0% to 25%, depending on the individual]
x (Target Bonus)
51
Exhibit 21.1
Subsidiaries
1. Stimsonite Australia Pty Limited, a corporation organized under the laws
of New South Wales, Australia
2. Stimsonite Europa Limited, a corporation organized under the laws of the
United Kingdom
3. Stimsonite Foreign Sales Corporation, a corporation organized under the
laws of Barbados
4. Stimsonite Hong Kong Limited, a corporation organized under the laws of
Hong Kong
5. Stimsonite International Corporation, a Delaware corporation
6. Stimsonite Paint Corporation, a Delaware Corporation
52
Exhibit 23.1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Stimsonite Corporation of Form S-8 (File Nos. 33-79506 and 33-79508) of our
report dated February 13, 1998 on our audits of the consolidated financial
statements and financial statement schedule of Stimsonite Corporation and
Subsidiaries as of December 31, 1997 and 1996, and for each of three years in
the period ended December 31, 1997, included in or incorporated by reference in
Stimsonite Corporation's Annual Report on Form 10-K for the year ended December
31, 1997.
/s/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 31, 1998
53
Exhibit 24.1
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of March 1998.
/s/ Terrence D. Daniels
Terrence D. Daniels
54
<PAGE>
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of March 1998.
/s/ Lawrence S. Eagleburger
Lawrence S. Eagleburger
55
<PAGE>
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of March 1998.
/s/ Donald H. Haider
Donald H. Haider
56
<PAGE>
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of March 1998.
/s/ Edward T. Harvey, Jr.
Edward T. Harvey, Jr.
57
<PAGE>
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of March 1998.
/s/ Anthony R. Ignaczak
Anthony R. Ignaczak
58
<PAGE>
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of March 1998.
/s/ Richard J.M. Poulson
Richard J.M. Poulson
59
<PAGE>
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of March 1998.
/s/ Robert E. Stutz
Robert E. Stutz
60
<PAGE>
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of March 1998.
/s/ Jay R. Taylor
Jay R. Taylor
61
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.
</LEGEND>
<CIK> 0000876400
<NAME> STIMSONITE CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 337
<SECURITIES> 0
<RECEIVABLES> 15,359
<ALLOWANCES> 495
<INVENTORY> 11,418
<CURRENT-ASSETS> 29,521
<PP&E> 28,904
<DEPRECIATION> 17,075
<TOTAL-ASSETS> 55,201
<CURRENT-LIABILITIES> 12,515
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 26,390
<TOTAL-LIABILITY-AND-EQUITY> 55,201
<SALES> 81,363
<TOTAL-REVENUES> 81,363
<CGS> 53,958
<TOTAL-COSTS> 53,958
<OTHER-EXPENSES> 19,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,302
<INCOME-PRETAX> 6,103
<INCOME-TAX> 2,474
<INCOME-CONTINUING> 3,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,629
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
