SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTELY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 4,1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-22978
STIMSONITE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3718658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6565 West Howard Street
Niles, Illinois 60714-3373
(Address of principal executive offices) (Zip Code)
(847) 647-7717
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of April 15,1999 was 8,343,877.
1
<PAGE>
STIMSONITE CORPORATION
Index
Page
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations
and Comprehensive Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index 18
2
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PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements.
STIMSONITE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
4/4/99 12/31/98
------------ ---------------
(Unaudited) (Audited)
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $599 $1,645
Trade accounts receivable less allowance for
doubtful accounts of $602 (1999)
and $737 (1998) 16,179 18,686
Inventories 12,809 11,921
Prepaid expenses and other 1,927 2,007
Deferred tax assets 1,261 1,261
------------ ---------------
Total current assets 32,775 35,520
Property, plant and equipment, net 15,628 14,604
Intangible assets, net 8,247 8,814
Deferred financing costs, net 176 191
Deferred tax assets and other 1,939 1,943
------------ ---------------
Total assets $58,765 $61,072
============ ===============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES
Current liabilities:
<S> <C> <C>
Accounts payable $7,901 $8,552
Current maturities of long-term debt 2,500 2,500
Other accrued expenses 1,121 1,412
------------ ---------------
Total current liabilities 11,522 12,464
Accrued postretirement benefits 556 556
Long-term debt 17,000 17,575
------------ ---------------
Total liabilities 29,078 30,595
STOCKHOLDERS' EQUITY
Total stockholders' equity 29,687 30,477
------------ ---------------
Total liabilities and stockholders' equity $58,765 $61,072
============ ===============
</TABLE>
See Accompanying Notes
3
<PAGE>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Twelve Months Ended
4/4/99 4/5/98 4/4/99 4/5/98
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $15,449 $13,857 $88,954 $80,618
Cost of goods sold 11,408 10,244 57,216 53,864
---------- ---------- ---------- ----------
Gross profit 4,041 3,613 31,738 26,754
Operating expenses:
Selling and administrative 3,813 3,474 15,998 14,134
Research and development 572 817 2,492 2,258
Amortization of intangibles 647 683 2,525 2,702
---------- ---------- ---------- ----------
Total operating expenses 5,032 4,974 21,015 19,094
---------- ---------- ---------- ----------
Operating income (loss) (991) (1,361) 10,723 7,660
Interest expense 394 430 1,705 2,154
Minority interest --- --- 41 ---
---------- ---------- ---------- ----------
Income (loss) before income tax
provision (benefit) (1,385) (1,791) 8,977 5,506
Income tax provision (benefit) (596) (742) 3,814 2,150
---------- ---------- --------- ----------
Net income (loss) ($789) ($1,049) $5,163 $3,356
---------- ---------- ---------- ----------
Other comprehensive income (loss) - net of tax:
Foreign exchange translation (1) (19) (128) (124)
---------- ---------- ---------- ----------
Comprehensive income (loss) - net of tax ($790) ($1,068) $5,035 $3,232
========== ========== ========== ==========
</TABLE>
Earnings (loss) per common and common
equivalent share:
<TABLE>
<CAPTION>
Net income (loss):
<S> <C> <C> <C> <C>
Basic ($0.09) ($0.12) $0.62 $0.39
Diluted ($0.09) ($0.12) $0.61 $0.39
Weighted average number of shares and
share equivalents outstanding :
Basic 8,343,877 8,498,442 8,356,540 8,498,442
Diluted 8,343,877 8,498,442 8,516,653 8,615,321
</TABLE>
See Accompanying Notes
4
<PAGE>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
----------------------------- -----------------------------
4/4/99 4/5/98 4/4/99 4/5/98
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities: $1,346 ($988) $8,669 $9,553
Cash flows from investing activities:
Purchase of property, plant and equipment (1,789) (802) (7,657) (2,881)
Proceeds from disposal of property, plant and equipment - - 751 5,750
------------- ------------- ------------- ------------
Net cash (used in) provided by investing activities (1,789) (802) (6,906) 2,869
Cash flows from financing activities:
Proceeds from the issuance of common stock - 8 - 34
Payments to reacquire common stock - (493) (165) (1,537)
Principal payments under capital lease obligations (27) (65) (164) (273)
Proceeds from long-term debt 3,050 3,000 9,350 6,725
Payments on long-term debt (3,625) (625) (10,300) (17,000)
------------- ------------- ------------- ------------
Net cash provided by (used in) financing activities (602) 1,825 (1,279) (12,051)
Effect of exchange rate changes on cash (1) (31) (226) (208)
------------- ------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents (1,046) 4 258 163
Cash and cash equivalents, beginning of period 1,645 337 341 178
------------- ------------- ------------- ------------
Cash and cash equivalents, end of period $599 $341 $599 $341
============= ============= ============= ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $389 $408 $1,749 $2,124
Cash paid during the period for income taxes - $222 $4,868 $1,029
</TABLE>
See Accompanying Notes
5
<PAGE>
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
Note 1 - Financial Information
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to, or as permitted by, such rules and
regulations. In the opinion of management, the financial information presented
reflects all adjustments (which are normal and recurring) that are necessary for
a fair statement of financial results for the interim periods presented. These
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K").
The Company's business is seasonal and, accordingly, comparative twelve month
trailing information is provided. The financial information included herein at
April 4, 1999 and for the periods ended April 4, 1999 and April 5, 1998 is
unaudited and, in the opinion of the Company, reflects all adjustments (which
include only normal and recurring adjustments) necessary for the fair
presentation of the financial position as of that date and the results of
operations for these periods. The information in the condensed consolidated
balance sheet at December 31, 1998 was derived from the Company's consolidated
financial statements included in the 1998 Form 10-K.
The results for the quarter ended April 4, 1999 are not necessarily indicative
of results that can be expected for the full year ending December 31, 1999.
Note 2 - Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
April 4, December 31,
1999 1998
---------------- ----------------------
($000) (Unaudited) (Audited)
<S> <C> <C>
Raw materials $5,447 $4,714
Work in process 1,931 1,465
Finished goods 5,431 5,742
--------- ---------
$12,809 $11,921
====== ======
</TABLE>
6
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Note 3 - Earnings Per Share
The computation of basic and diluted EPS, as prescribed by SFAS 128, is
presented below:
<TABLE>
<CAPTION>
Weighted
Net Income (Loss) Average Shares Per Share
(Numerator) (Denominator) Amounts
Quarter ended April 4, 1999
Basic EPS
<S> <C> <C> <C>
Income (loss) available to common stockholders ($789,000) 8,343,877 ($0.09)
Effect of dilutive options - - -
Diluted EPS
Income (loss) available to common stockholders
plus assumed conversions ($789,000) $8,343,877 ($0.09)
- ----------------------------------------------------------------------------------------------------------------
Quarter ended April 5, 1998
Basic EPS
Income (loss) available to common stockholders ($1,049,000) 8,498,442 ($0.12)
Effect of dilutive options - - -
Diluted EPS
Income (loss) available to common stockholders
plus assumed conversions ($1,049,000) $8,498,442 ($0.12)
- ----------------------------------------------------------------------------------------------------------------
Twelve months ended April 4, 1999
Basic EPS
Income available to common stockholders $5,163,000 8,356,540 $0.62
Effect of dilutive options - 160,113 $0.01
Diluted EPS
Income available to common stockholders
plus assumed conversions $5,163,000 8,516,653 $0.61
- ----------------------------------------------------------------------------------------------------------------
Twelve months ended April 5, 1998
Basic EPS
Income available to common stockholders $3,356,000 8,498,442 $0.39
Effect of dilutive options - 116,879 -
Diluted EPS
Income available to common stockholders
plus assumed conversions $3,356,000 8,615,321 $0.39
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
4. Operating Segments and Geographic data:
The Company is engaged in one line of business - the manufacture and sale of
highway safety products - which represents more than 90% of consolidated sales.
The Company's marketing strategy emphasizes a single sales force for all of its
products. Substantially all of the Company's customers are active in the highway
construction industry. Accordingly, financial results are reported as a single
industry segment. Sales and selected financial information by geographic area
for the three months ended April 4, 1999 and April 5, 1998 are as follows:
<TABLE>
<CAPTION>
Three months ending April 4, 1999 United States International Consolidated
--------------------------------- ------------- ----------------------------
<S> <C> <C> <C>
Revenues from external parties........................... $14,164 $1,285 $15,449
Operating loss........................................... (837) (154) (991)
Net loss................................................. (638) (151) (789)
Total assets............................................. 54,065 4,700 58,765
Long lived assets........................................ 22,605 1,270 23,875
Three months ending April 5, 1998 United States International Consolidated
--------------------------------- ------------- ----------------------------
Revenues from external parties........................... $12,063 $1,794 $13,857
Operating loss........................................... (1,307) (54) (1,361)
Net loss................................................. (995) (54) (1,049)
Total assets............................................. 49,293 5,574 54,867
Long lived assets........................................ 20,944 1,604 22,548
</TABLE>
Revenues from external parties, as noted above, are recognized based on point of
origin.
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 three months ended April 4, 1999 and April 5,
1998 of $1,736 and $1,220 respectively.
Note 5 - Impact of New Accounting Standards
The Company will implement the provisions of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivatives and Hedging Activities" (SFAS No.
133), which will be effective for fiscal years beginning after June 15, 1999.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments imbedded in other
contracts, and for hedging activities. Management is still assessing the effects
adoption of SFAS No. 133 will have on its financial position, results of
operations or cash flow, but does not expect the impact to be material.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion and analysis of the consolidated financial
condition and results of operations of the Company for the three months and
twelve months ended April 4, 1999 and April 5, 1998. The following should be
read in conjunction with the condensed consolidated financial statements and
related notes appearing elsewhere herein and the consolidated financial
statements and related notes contained in the Company's 1998 Form 10-K.
The Company manufactures and markets reflective highway safety products, which
are designed to offer enhanced visual guidance to vehicle operators and
pedestrians in a variety of driving conditions. The Company operates in one
business segment. Its products are sold primarily by a single sales force to
similar customers in the highway construction business.
Seasonality and Quarterly Results
The Company's sales are seasonal. The domestic highway maintenance and
construction season tends to reach its peak in the second and third quarters of
the year, and domestic sales of the Company's products are generally highest in
these quarters. While international sales are also seasonal, international
maintenance and construction seasons vary from the domestic season and tend to
offset somewhat the seasonality of domestic sales. International sales
constituted 19.6% and 21.8% of net sales in the first quarters of 1999 and 1998,
respectively, and 15.4% and 16.5% of net sales in the twelve month period ending
April 4, 1999 and April 5 1998, respectively. Because the Company operates with
little backlog, sales in any given quarter generally result from orders booked
and shipped in that quarter. Accordingly, net sales and operating income are
particularly sensitive to the timing of domestic market demand and tend to be
highest in the second and third quarters, whereas net sales and operating income
tend to be reduced during the first and fourth quarters, resulting in either
operating losses or reduced earnings for those periods. In addition, the
Company's performance in any given quarter is affected by weather anomalies.
The Company's sales are dependent on the ability and willingness of the federal
and state governments to fund highway construction projects. Such sales may be
affected by real or perceived uncertainty concerning the level of government
funding for highway construction projects. In 1998, the U.S. Congress approved a
new federal highway spending bill. The Company expects that the new federal
highway bill will increase the number of new highway construction projects,
which, over an extended period of time, may benefit the sale of the Company's
products.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of net
sales of certain items in the Company's condensed consolidated statement of
operations and the percentage change in each item from the prior comparable
period.
9
<PAGE>
<TABLE>
<CAPTION>
Table. Percentage of Inc (Dec) Percentage of Inc (Dec)
Net Sales % Change Net Sales % Change
Quarter Ended from Twelve Months Ended from
4/4/99 4/5/98 Prior Period 4/4/99 4/5/98 Prior Period
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 11.5 % 100.0 % 100.0 % 10.3 %
Cost of goods sold 73.8 73.9 11.4 64.3 66.8 6.2
Gross profit 26.2 26.1 11.9 35.7 33.2 18.7
Selling and administrative 24.7 25.1 9.8 18.0 17.5 13.2
Research and development 3.7 5.9 (30.0) 2.8 2.8 10.4
Amortization of intangibles 4.2 4.9 (5.3) 2.8 3.4 (6.6)
Operating income (loss) (6.4) (9.8) 27.2 12.1 9.5 40.0
Interest expense 2.6 3.1 (8.4) 1.9 2.7 (20.8)
Income (loss) before provision
for income taxes (9.0) (12.9) 22.7 10.1 6.8 63.0
Net income (loss) (5.1) (7.6) 24.8 5.8 4.2 53.8
</TABLE>
Quarter ended April 4, 1999
Compared to
Quarter ended April 5, 1998
Net sales of $15.4 million for the quarter ended April 4, 1999 increased $1.6
million or 11.5% from the comparable fiscal 1998 quarter. Net domestic sales of
highway delineation products increased 6.4% compared with the first quarter of
1998, while domestic sales of optical film products increased by 43.5%.
International sales in the first quarter were unchanged from last year. The
43.5% increase in domestic sales of optical film reflected a continued
acceptance of the Company's products among many of the large governmental
buyers.
Cost of goods sold for the first quarter of 1999 totaled $11.4 million compared
to $10.2 million for the 1998 period. The $1.2 million increase in cost of goods
sold is attributable to a higher sales volume. As a percentage of net sales,
cost of goods sold decreased slightly from 73.9% in the first quarter of 1998 to
73.8% in 1999.
Selling and administrative expenses for the first quarter of 1999 were $3.8
million compared to $3.5 million in the first quarter of 1998. The 9.8% increase
is largely due to the employment of additional sales personnel and higher sales
commission expenses associated with a higher sales volume. As a percentage of
net sales, selling and administrative expenses were 24.7% in 1999 and 25.1% in
the 1998 period.
Research and development expenses for the first quarter of 1999 were $0.6
million compared to $0.8 million in the first quarter of 1998.
10
<PAGE>
Interest expense was $0.4 million in the first quarter of 1999 and $0.4 million
in 1998.
Income tax benefit of $0.6 million in the first quarter of 1999 reflected an
estimated annual effective tax rate of 43.0% compared to a $0.7 million tax
benefit and a 41.4% rate in the first quarter of 1998.
Twelve months ended April 4, 1999
Compared to
Twelve months ended April 5, 1998
Net sales for the twelve months ended April 4, 1999 were $89.0 million, an
increase of $8.3 million or 10.3% compared to 1998. Net domestic sales of
highway delineation products increased $3.0 million or 5.1% compared with the
twelve months ended April 5, 1998. Net domestic sales of optical film increased
$4.9 million, or 60.3%, due to the receipt of several large supply contracts
from governmental buyers. Net international sales increased $0.4 million or 3.1%
compared with the twelve months ended April 5, 1998.
Cost of goods sold for the twelve months ended April 4, 1999 totaled $57.2
million (64.3% of net sales) compared to $53.9 million (66.8% of net sales) in
the comparable 1998 period. The corresponding 2.5% increase in gross margin is
largely attributable to improved productivity in the Company's manufacturing
processes.
Selling and administrative expenses for the twelve months ended April 4, 1999
totaled $16.0 million, an increase of $1.9 million or 13.2% compared to the
previous twelve month period. As a percentage of net sales, selling and
administrative expenses were 18.0% in 1999 and 17.5% in 1998. Increases in
expenses were largely the result of additional sales personnel for the optical
film product line and higher incentive compensation costs associated with
improved net income.
Research and development expenses for the twelve months ended April 4, 1999
were $2.5 million (2.8% of net sales) compared to $2.3 million
(2.8% of net sales) in the previous twelve month period.
Interest expense for the twelve months ended April 4, 1999 was $1.7 million,
compared to $2.2 million in the previous twelve month period. The decrease was
the result of a lower level of debt primarily due to the repayment of debt with
$5.8 million in net proceeds from the sale of the Company's Waukegan, Illinois
property on August 1, 1997.
Liquidity and Capital Resources
The Company finances working capital requirements and capital expenditures
through internally generated funds, revolving borrowings and lease financing.
During the three month period ended April 4, 1999, the Company decreased
borrowings under its long term credit facility by $0.6 million. The principal
inflows and outflows of cash during the three months ended April 4, 1999 were as
follows:
11
<PAGE>
Cash Flow Summary
Three Months Ended April 4, 1999
($millions)
Cash inflows
Net cash provided by operating activities $ 1.3
Other 0.1
-------
Total inflows 1.4
-------
Cash outflows
Capital expenditures (1.8)
Repayment of long term debt, net (0.6)
-------
Total outflows (2.4)
Net change in cash balance $(1.0)
-------
The Company's sales are seasonal, with domestic revenues tending to be highest
in the second and third quarter of the year consistent with the domestic highway
maintenance and construction season. The Company builds working capital,
principally accounts receivable and inventory, during the second and third
quarters to support sales. Positive cash flow from operations is generally
realized in the third quarter as cash collections are higher than production
levels and in the fourth quarter of the year as production and related
expenditures seasonally decline and accounts receivable are collected.
Conversely, the Company generally experiences negative cash flow in the first
quarter, when sales are lower, and in the second quarter, when the Company is
building working capital but has not yet collected revenues from second quarter
sales.
The Company has historically borrowed funds available under its revolving credit
facilities to fund working capital during its first and second quarters. During
the third and fourth quarters, the Company normally reduces its borrowings using
funds generated by normal operating activities. During the first three months of
fiscal 1999, operating activities provided the Company with $1.3 million in
cash, compared to $1.0 million used during the same period of 1998. The $2.3
million increase in cash flow from operating activities during the period was
the result of an increase in net earnings ($0.3 million) and relative changes in
working capital ($2.0 million). The Company realized $8.7 million from operating
activities in the twelve month period ended April 4, 1999, compared to $9.6
million from operating activities in the twelve months ended April 5, 1998. The
$0.9 million decrease in cash flow from operating activities resulted from
unfavorable relative changes in working capital ($2.7 million), partly offset by
increased net earnings ($1.8 million).
12
<PAGE>
At April 4, 1999, the Company's outstanding borrowings under its credit
agreement consisted of $13.0 million of term loans and $6.5 million of revolving
loans. Under the terms of the agreement, $1.9 million of term loans will become
due during the remainder of 1999, and an additional $2.5 million of term loans
become due during 2000. At April 4, 1999, 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 $9.4 million.
The Company expects capital expenditures for additions and replacements to
approximate $4.8 million in 1999 and $4.0 million in 2000, with funding to be
provided principally from internally generated funds. Through April 4, 1999, the
Company had spent $1.8 million on capital expenditures.
In October 1995, the Board of Directors authorized the repurchase 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 shares. Through
April 4, 1999, the Company had purchased 635,500 shares of its common stock at
an average price of $6.33 per share.
The Company expects that cash flow from operations and borrowings under the
credit facility will be sufficient to fund working capital needs, capital
expenditures and mandatory principal payments under the credit facility through
2000. 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.
Engagement of financial advisor
In February 1999, the Board of Directors engaged Merrill Lynch & Co. as a
financial advisor to assist the Board in analyzing strategic alternatives to
improve shareholder value. In this regard, the Board has agreed to explore a
possible sale of the Company and has authorized Merrill Lynch & Co. to provide
confidential information to a selected group of potential buyers. Such
activities are still in the early stages and there can be no assurance that a
sale of the Company will occur.
Adoption of new accounting standards
Reference is made to Note 4 of the Notes to Condensed Consolidated Financial
Statements.
Year 2000 issues
Some computers, software and other equipment include programming code in which
calendar year data are abbreviated to two digits. As a result, some of these
systems could fail to operate, or fail to produce correct results, if dates are
not correctly interpreted.
These problems are commonly referred to as the "Year 2000 Problem."
13
<PAGE>
Since 1997, the Company has been working to identify and address Year 2000
issues. The evaluation phase of the Company's Year 2000 readiness project is
intended to determine the readiness of internal systems and equipment as well as
third parties. The remediation phase includes (i) reprogramming of software,
(ii) replacing computer software, hardware and operating equipment, (iii)
testing specific modifications and (iv) identifying solutions to possible third
party noncompliance. The testing phase includes integrated testing of all
systems that were modified. As of April 4, 1999, the Company estimates that the
internal evaluation phase is substantially complete, but the assessment of third
parties described above has not yet begun. The Company has not yet completed the
remediation or testing phases, but each phase of the Company's Year 2000
readiness project is expected to be completed by the end of the fourth quarter
of 1999.
The related costs of compliance have not yet been determined. However,
preliminary estimates, which include costs attributable to the accelerated
purchase of replacement hardware and software, approximate $0.5 million, of
which $0.4 million has been incurred through the end of the first quarter of
1999, to address Year 2000 issues. While the estimated cost of these efforts are
not expected to be material to the Company's financial condition or any year's
results of operations, there can be no assurance as to this effect.
The costs of the Company's plans to assess and remediate Year 2000 issues in a
timely manner are based on management estimates. The inability of the Company or
its material suppliers and customers to effectuate solutions to their respective
Year 2000 issues on a timely and cost effective basis may have a material
adverse effect on the Company's business, financial condition or results of
operations.
The Company believes that in the most likely worst case scenario, internal
remediation and testing of information technology and non-information technology
systems will be completed as indicated above and will have minimal unfavorable
impact on the Company's financial condition and results of operations. If any or
all of these efforts are delayed, however, there could be disruption of the
financial and operating systems at one or more of the Company's business units.
Additionally, as discussed above, the Company has not begun its assessment of
third parties' readiness. The Company currently expects that certain external
parties providing materials and services to the Company will be reluctant to
disclose fully certain information about their readiness. Accordingly, the
Company cannot be assured that there will be no disruption of operations because
of vendors and service providers who are not fully Year 2000 compliant.
The Company has not yet completed its contingency planning with respect to Year
2000 issues. The Company intends to complete its contingency planning by the end
of the third quarter of 1999 as part of the remediation and testing phases
described above.
Forward Looking Statements
This Form 10-Q contains "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including (without limitation)
statements as to expectations,
14
<PAGE>
beliefs and future financial performance and assumptions underlying the
foregoing related to product demand, the effect of the federal appropriation
bill, the ability to meet short and long term debt requirements, expected cash
flow from operations, projected capital spending levels and compliance with Year
2000 issues. The actual results or outcomes could differ materially from those
discussed in the particular forward looking statements based on a number of
factors, including; (i) changes in economic conditions; (ii) pricing and other
actions taken by competitors; (iii) government funding (or perceptions regarding
such funding) of highway construction projects; (iv) the Company's ability to
develop and protect its proprietary technology and to react to increased
competition resulting from expiring patents and (v) the ability of the Company,
its vendors and its customers to identify and remediate Year 2000 issues on a
timely and cost effective basis.
Item 3 - Quantitative and Qualitative Disclosures about Market Risks.
The Company is exposed to market risk from changes in foreign exchange and
interest rates and, to a lesser extent, commodities. To reduce such risks, the
Company selectively uses financial instruments. All hedging transactions are
authorized and executed pursuant to clearly defined policies and procedures.
Currency Risk - The Company transacts business in multiple foreign currencies.
These transactions expose the Company to fluctuations in exchange rates, which
could impact the financial results of the Company.
The Company has identified two categories of currency risk:
o Transaction exposures relating to the denomination of cash flows
in a currency other than the functional currency of the operating
unit.
o Translation exposures relating to the conversion of a given
operating unit's financial statements into US Dollars at different
exchange rates at various points in time.
The Company identifies naturally occurring offsetting positions and periodically
purchases hedging instruments to protect anticipated exposures. The Company's
financial position is not materially sensitive to fluctuations in exchange rates
as any gains or losses on foreign currency exposures are generally offset by
gains and losses on underlying payables, receivables and investments in foreign
subsidiaries.
Interest Rate Risk - The Company occasionally enters into interest rate swaps to
stabilize financing costs by minimizing the effect of potential interest rate
increases on floating-rate debt in a rising interest rate environment. Under
these agreements, the Company contracts with a counter-party to exchange the
difference between a fixed rate and a floating rate applied to the notional
amount of the swap. The Company's existing contracts expire in 2001. The
differential to be paid or received on interest rate swap agreements is
recognized in net income as an adjustment to interest expense.
Commodity Prices - The Company is exposed to fluctuations in market price for
plastic, resins and iron. The Company has not entered into any arrangements to
minimize the effects of price fluctuations for these commodities.
15
<PAGE>
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits
27.1 Financial Data Schedule
(B) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended April 4, 1999.
16
<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: May 7, 1999 STIMSONITE CORPORATION
/s/THOMAS C. RATCHFORD
----------------------
Thomas C. Ratchford
Vice President-Finance, Treasurer,
Secretary and Chief Financial Officer
(Its Duly Authorized Officer and Principal
Financial and Accounting Officer)
17
<PAGE>
Exhibit Index
Sequential
Exhibit Page
Number Description Number
27.1 Financial Data Schedule 19
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q FOR THE
QUARTER ENDED APRIL 4, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000876400
<NAME> STIMSONITE CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-04-1999
<EXCHANGE-RATE> 1.000
<CASH> 599
<SECURITIES> 0
<RECEIVABLES> 16,781
<ALLOWANCES> 602
<INVENTORY> 12,809
<CURRENT-ASSETS> 32,775
<PP&E> 34,839
<DEPRECIATION> 19,211
<TOTAL-ASSETS> 58,765
<CURRENT-LIABILITIES> 11,522
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 29,597
<TOTAL-LIABILITY-AND-EQUITY> 58,765
<SALES> 15,449
<TOTAL-REVENUES> 15,449
<CGS> 11,408
<TOTAL-COSTS> 11,408
<OTHER-EXPENSES> 5,032
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 394
<INCOME-PRETAX> (1,385)
<INCOME-TAX> (596)
<INCOME-CONTINUING> (789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (789)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
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