SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                      For quarter ended September 29, 1996

                 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
                   15(d) OF THE SECURITIES ACT OF 1934 (NO FEE
                    REQUIRED) 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)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

The number of shares of the  registrant's  common  stock,  $.01 par value,  
outstanding  as of  October  31,  1996 was 8,773,150.
<PAGE>


<TABLE>
<CAPTION>
                             STIMSONITE CORPORATION

                                      Index

<S>      <C>                                                          <C>    
                                                                      Page
Part I.  Financial Information

Item 1.  Condensed Consolidated Financial Statements
           Condensed Consolidated Statements of Operations              3
           Condensed Consolidated Balance Sheets                      4-5
           Consolidated Statement of Cash Flows                         6
           Notes to Condensed Consolidated Financial Statements       7-8

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                          9-16

Part II. Other Information

Item 6.  Exhibits and Reports on Form 8-K                               17

         Signatures                                                     18

</TABLE>
<PAGE>

                     STIMSONITE CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (Dollars in Thousands Except Per Share Information)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                         Quarter Ended                  Nine Months Ended                   Year Ended
                                  -----------------------------   ------------------------------   ------------------------------
                                  September 29,    October 1,     September 29,     October 1,     September 29,     October 1,
                                      1996            1995             1996            1995             1996            1995

<S>                                     <C>            <C>               <C>            <C>               <C>            <C>
Net sales                               $28,834        $26,298           $66,499        $50,320           $84,298        $64,652
Cost of goods sold                       18,113         15,722            42,242         29,344            54,523         36,516
                                  --------------   ------------   ---------------   ------------   ---------------   ------------

Gross profit                             10,721         10,576            24,257         20,976            29,775         28,136

Operating expenses:
     Selling and administrative           3,958          3,910            11,456          9,787            14,818         13,140
     Research and development               689            803             2,099          2,345             2,843          3,005
     Amortization of intangibles            711            704             2,130          2,103             2,842          2,791
                                  --------------   ------------   ---------------   ------------   ---------------   ------------

Total operating expenses                  5,358          5,417            15,685         14,235            20,503         18,936
                                  --------------   ------------   ---------------   ------------   ---------------   ------------

Operating income                          5,363          5,159             8,572          6,741             9,272          9,200

Joint venture partnership loss              ---             19               ---            108                 3            187
Interest expense                            660            756             2,074          1,888             2,792          2,416
Other income                                ---            ---               ---            ---               ---           (206)
                                  --------------   ------------   ---------------   ------------   ---------------   ------------

Income before provision for income
  taxes and extraordinary item            4,703          4,384             6,498          4,745             6,477          6,803

Provision for income taxes                1,913          1,750             2,636          1,898             2,852          2,899


Income before extraordinary item          2,790          2,634             3,862          2,847             3,625          3,904

Loss from extraordinary item,
   net of tax benefit                       332            ---               332            ---               332            ---
                                  --------------   ------------   ---------------   ------------   ---------------   ------------

Net income                               $2,458         $2,634            $3,530         $2,847            $3,293         $3,904
                                  ==============   ============   ===============   ============   ===============   ============


Income per common and
common equivalent shares
------------------------

Income before extraordinary item          $0.31          $0.29             $0.43          $0.31             $0.40          $0.43

Loss from extraordinary item,
   net of tax benefit                     $0.04           ---              $0.04           ---              $0.04           ---
                                  --------------   ------------   ---------------   ------------   ---------------   ------------

Net income                                $0.27          $0.29             $0.39          $0.31             $0.36          $0.43
                                  ==============   ============   ===============   ============   ===============   ============

Average number of common and
common equivalent shares          
outstanding                           8,971,462      9,125,636         9,007,052      9,125,818         9,029,517      9,115,698
</TABLE>

See Accompanying Notes

<PAGE>

                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)


<TABLE>
<CAPTION>
                                                                   9/29/96              12/31/95
                                                                 (Unaudited)            (Audited)
                                  ASSETS
<S>                                                                    <C>                  <C>    
Current assets
      Cash and cash equivalents                                          $387                 $251

      Trade accounts receivable less allowance for doubtful
          account of $1,276 and $895                                   28,713               18,144

      Inventories                                                      13,076               14,848

      Prepaid expenses and other                                          955                  901

      Deferred tax assets                                               1,365                1,365
                                                                --------------         ------------

                        Total current assets                           44,496               35,509

Property, plant and equipment, net                                     17,909               11,890

Intangible assets, net                                                 14,849               16,884

Deferred financing costs, net                                             402                  892

Long term deferred tax assets and other                                 2,543                2,421
                                                                --------------         ------------

                        Total Assets                                  $80,199              $67,596
                                                                ==============         ============
</TABLE>

See Accompanying Notes
<PAGE>
                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                               9/29/96          12/31/95
                                                             (Unaudited)       (Audited)

                             LIABILITIES
<S>                                                                <C>              <C>   

Current liabilities:
      Accounts payable                                             $6,363           $7,008

      Current maturities of long-term debt                          2,500            3,243

      Accrued income taxes                                          4,106            1,527

      Other accrued expenses                                        4,881            4,254
                                                            --------------    -------------

              Total current liabilities                            17,850           16,032

Accrued postretirement benefits                                       631              631

Long-term debt                                                     32,400           24,703
                                                            --------------    -------------

              Total liabilities                                    50,881           41,366



                         STOCKHOLDERS' EQUITY

      Total stockholders' equity                                   29,318           26,230
                                                            --------------    -------------

              Total Liabilities and Stockholders' Equity          $80,199          $67,596
                                                            ==============    =============
</TABLE>

See Accompanying Notes

<PAGE>

                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                              (Dollars in Thousand)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                        Nine Months Ended                  Year Ended
                                                                   -------------------------      -------------------------
                                                                     9/29/96         10/1/95        9/29/96         10/1/95
<S>                                                                 <C>             <C>            <C>              <C>   
Cash flows from operating activities:
  Net income                                                        $3,530          $2,847         $3,293           $3,904
      Adjustments to reconcile net income (loss) to net
         cash provided by operating activities:
           Depreciation                                              2,370           1,737          3,199            2,231
           Amortization of intangibles, deferred financing
              costs and discount on long term debt                   2,750           1,071          4,891            1,678
           Provision for uncollectible accounts                        481              96            688              259
           Deferred income taxes                                         -               -         (1,204)            (145)
           Extraordinary item                                          332               -              -               -
           Joint venture partnership loss                                -             108              3              187

           Changes in assets and liabilities:
               Trade account receivables                           (11,050)         (4,672)        (5,059)          (4,093)
               Inventories                                           1,772          (4,292)         1,695           (4,009)
               Prepaid expense and other                               (54)            137           (272)            (124)
               Accounts payable                                     (1,483)            608         (3,324)             680
               Other accrued expenses                                   (6)            550           (768)           3,053
               Accrued income taxes                                  3,097             692          2,063              437
               Accrued employee benefits                               519             359           (715)          (1,105)
               Accrued warranty                                        102             177            135             (210)
                                                               ------------    ------------   ------------    -------------
                    Net cash provided by (used in) 
                      operating activities                           2,360            (582)         4,625            2,743
                                                               ------------    ------------   ------------    -------------

Cash flows from investing activities:
  Purchase of property, plant and equipment                         (8,389)         (3,892)        (8,249)          (4,411)
  Acquisition of  Pave-Mark                                            (97)         (6,949)        (1,109)          (6,949)
  Investment in joint venture partnership                              (25)            (83)           (53)            (159)
  Other                                                                  -             472           (575)             184
                                                               ------------    ------------   ------------    -------------
                    Net cash used in investing activities           (8,511)        (10,452)        (9,986)         (11,335)

Cash flows from financing activities:
  Proceeds from the issuance of common stock, net of 
     offering expenses                                                  56              23            148               23
  Payment to reacquire common stock                                   (686)              -         (1,180)               -
  Payments on notes receivable on common stock                           -              61              -               61
  Proceeds from long-term debt                                      41,200          12,800         41,200           13,300
  Payments on long-term debt                                       (34,246)         (1,736)       (35,605)          (5,916)
  Cash overdraft                                                         -               -            926                -
  Financing fees paid in connection with debt refinancing             (225)              -           (376)              69
                                                               ------------    ------------   ------------    -------------
                    Net cash provided by (used in) financing
                      activities                                     6,099          11,148          5,113            7,537
                    Effect of exchange rate changes on cash            188            (124)           282

Net increase (decrease) in cash and cash equivalents                   136             (10)            34           (1,055)
Cash and cash equivalents, beginning of year                           251             363            353            1,408
                                                               ------------    ------------   ------------    -------------
Cash and cash equivalents, end of period                              $387            $353           $387             $353
                                                               ============    ============   ============    =============

Supplemental disclosure of cash flow information:
  Cash paid during the period for interest                          $1,870          $1,888         $2,210           $2,329
                                                               ============    ============   ============    =============
  Cash paid during the period for income taxes                      $1,139          $1,316         $3,555           $2,777
                                                               ============    ============   ============    =============
</TABLE>

See Accompanying Notes
<PAGE>

                         Notes to Condensed Consolidated
                              Financial Statements
               (Dollars in thousands except per share information)
                                   (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,  although the Company believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management, the
financial information presented reflects all adjustments that are necessary to a
fair statement of 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, 1995 (the "1995 Form 10-K").

The  Company's  business  is  seasonal  and  accordingly  comparative  full year
information is provided.  The financial information included herein at September
29, 1996 and for the  periods  ended  September  29, 1996 and October 1, 1995 is
unaudited and, in the opinion of the Company,  reflects all  adjustments  (which
include normal  recurring  adjustments)  necessary for the fair  presentation of
financial  position as of those dates and the  results of  operations  for those
periods. The information in the condensed consolidated balance sheet at December
31,  1995 was  derived  from the  Company's  consolidated  financial  statements
included in the 1995 Form 10-K.


Note 2 - Inventories

Inventories consist of the following:

                                    September 29, 1996    December 31, 1995
                                       (Unaudited)            (Audited)
Raw materials                             $3,956               $4,735
Work in process                            1,985                4,062
Finished goods                             7,135                6,051
                                         -------              -------
                                         $13,076              $14,848
                                          ======               ======
<PAGE>

Note 3 - Income Taxes

The differences  between the statutory federal income tax rate and the effective
tax rates for the quarters,  nine months and years ended  September 29, 1996 and
October 1, 1995 are as follows:
<TABLE>
<CAPTION>
                                                  Nine Months                                        Nine Months
                                   Qtr Ended        Ended       Year Ended             Qtr Ended       Ended        Year Ended
                                               September 29, 1996                                 October 1, 1995
                                   -----------------------------------------          -----------------------------------------
<S>                                   <C>           <C>             <C>                 <C>            <C>             <C>
Federal statutory rate                34.0%         34.0%           34.0%               34.0%          34.0%           34.0%

State income taxes                     4.8           4.8             4.8                 5.0            5.0             5.0

Inability to utilize foreign
     operating losses                                 1.0            6.8                                                1.2

Provision for contingencies                                          5.8

Reversal of opening domestic
     valuation allowance                                            (6.8)

Other items                            1.9           0.8            (0.6)                0.9            1.0             2.4
                                   -------       -------         -------             -------        -------         -------

                                      40.7%         40.6%           44.0%               39.9%          40.0%           42.6%
                                   =======       =======         =======             =======        =======         =======

</TABLE>
See Accompanying Notes

<PAGE>
            
                         Notes to Condensed Consolidated
                              Financial Statements
                                   (Unaudited)
                                                                                
Note 4 - Refinancing of Long Term Debt                                          
                                                                                
                                                                                
On July 23,  1996,  the Company  refinanced  its long  term  debt  under  a  new
unsecured  credit  agreement.  The terms of the new credit  agreement  provide a
credit  facility  totaling  $45.0  million,  of which $20.0 million is revolving
credit due on June 30, 2000 bearing interest at prime or LIBOR (at the Company's
option) plus a margin of 75 to 150 basis points based on the  Company's  debt to
cash flow ratio for the preceding  four  quarters.  At September 29, 1996,  this
loan bore interest at the rate of LIBOR plus 125 basis points. 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 $8.75 million due on June
30, 2003 bearing  interest at prime plus 25 basis points or LIBOR plus 180 basis
points (at the Company's option).  The new credit facility  establishes  certain
financial  covenants,  including covenants relating to the Company's funded debt
to EBIDTA ratio,  cash flow coverage ratio,  and leverage  ratio.  The Company's
performance  with respect to these  covenants will affect among other things the
level of funding  available  under the agreement.  On July 23, 1996, the Company
borrowed $25.0 million of term debt and $9.5 million of revolving debt under the
new credit  facility to repay $30.6 million owed under its prior secured  credit
facility,  $2.8  million  in  debt  related  to the  land  purchase  for the new
headquarters  facility,  and  $1.1  million  to  fund  certain  working  capital
requirements and closing costs related to the new credit facility. In connection
with the debt refinancing, the company recorded a $0.3 million ($0.04 per share)
extraordinary  charge in the third quarter of 1996 attributable to the write-off
deferred financing fees related to the Company's prior credit facility.
                                                                                
Note 5 - New Headquarters and Manufacturing Facility                            
                                                                                
In  May  1996,  the  Company   broke  ground  on   the  construction  of  a  new
headquarters  and  manufacturing  facility in  Waukegan,  Illinois,  a suburb of
Chicago.  The  Company  previously  purchased  the 20 acre  land  site  for $3.5
million.  The  additional  cost  of  completing  the  facility  is  expected  to
approximate  $10.5  million.  The  facility is expected to be  completed  by the
middle of 1997. As of September 29, 1996,  the Company had incurred $2.0 million
in  construction  costs  related  to the  facility.  The  Company  expects  that
construction  costs will be financed by advances  under the new credit  facility
and cash flow from operations.
                                                                                
Note 6 - Subsequent Events                                                      
                                                                                
On October 28, 1996, it was announced that the Company will begin a search for a
successor  for Jay R.  Taylor,  President  and Chief  Executive  Officer  of the
Company.  The Company expects that a successor will be recruited within the next
few months.  At that time, Mr. Taylor will retire but is expected to remain as a
consultant and a member of the Board of Directors of the Company. It is expected
that Mr.  Taylor's  duties as a consultant  would include  implementation  of an
orderly  transfer of the CEO  position and  representing  the Company in matters
affecting highway legislation at the federal and state levels.                  

<PAGE>

                      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 quarters, nine months
and years ended September 29, 1996 and October 1, 1995. The following  should be
read in conjunction  with the condensed  consolidated  financial  statements and
related  notes  appearing   elsewhere   herein  and  in  conjunction   with  the
consolidated  financial  statements and notes thereto contained in the 1995 Form
10-K.

The Company  manufactures  and markets highway safety products used in a variety
of applications where motorist guidance is important.


Seasonality and Quarterly Results
The  Company's  sales  are  seasonal.   The  domestic  highway  maintenance  and
construction  season tends to reach its peak in the second and third quarters of
the year, and domestic sales of the Company's  products are generally highest in
these  quarters.  While  international  sales are also  seasonal,  international
maintenance and  construction  seasons vary from the domestic season and tend to
offset  somewhat  the  seasonality  of  domestic  sales.   International   sales
constituted  11.5% and 14.1% of net sales in the first  nine  months of 1996 and
1995, respectively,  and 14.2% of net sales in the year ended December 31, 1995.
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 the level of government
highway funding and weather anomalies.


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  statements of
operations and the percentage change in each item from the prior period.


<PAGE>

<TABLE>
<CAPTION>
                              Percentage of                       Percentage of                       Percentage of
                                Net Sales        Percentage         Net Sales        Percentage         Net Sales        Percentage
                              Quarter Ended      Change from    Nine Months Ended    Change from       Year Ended        Change from
                            9/29/96    10/1/95   Prior Period   9/29/96   10/1/95    Prior Period   9/29/96   10/1/95   Prior Period

<S>                           <C>        <C>             <C>      <C>       <C>             <C>       <C>       <C>            <C> 
Net sales                     100.0%     100.0%          9.6%     100.0%    100.0%          32.2%     100.0%    100.0%         30.4%

Cost of goods sold             62.8       59.8          15.2       63.5      58.3           44.0       64.7      56.5          49.3

Gross profit                   37.2       40.2           1.4       36.5      41.7           15.6       35.3      43.5           5.8

Selling and administrative     13.7       14.9           1.2       17.2      19.4           17.1       17.6      20.3          12.8

Research and development        2.4        3.1         (14.2)       3.2       4.7          (10.5)       3.4       4.6          (5.4)

Amortization of intangibles     2.5        2.7           1.0        3.2       4.2            1.3        3.4       4.3           1.8

Operating income               18.6       19.6           4.0       12.9      13.4           27.2       11.0      14.2           0.8

Interest expense                2.3        2.9         (12.7)       3.1       3.8            9.9        3.3       3.7          15.6

Joint venture partnership 
  loss                          N/A        0.1            NM        N/A       0.2             NM        N/A       0.3            NM

Income before provision
  for income taxes and
  extraordinary item           16.3       16.7           7.3        9.8       9.4           36.9        7.7      10.5          (4.8)

Extraordinary item,
  net of tax benefit            1.2        N/A            NM        0.5       N/A             NM        0.4       N/A            NM

Net income                      8.5       10.0          (6.7)       5.3       5.7           24.0        3.9       6.0         (15.7)
</TABLE>


See Accompanying Notes

<PAGE>

Quarter Ended September 29, 1996
Compared to
Quarter Ended October 1, 1995

Net  sales of  $28.8   million   for  the   quarter  ended  September  29,  1996
increased  $2.5  million or 10 % compared  with the third  quarter of 1995.  Net
sales of domestic highway delineation products including thermoplastic increased
13 % compared  with the third quarter of 1995.  Optical film  domestic  revenues
decreased  12% while  international  sales  decreased 7% compared with the third
quarter of 1995.  The  continuation  of soft market  demand in some European and
Asian markets adversely impacted international sales during the quarter.

Cost of goods sold for  the  third  quarter  of  1996 was $18.1 million compared
to $15.7  million in the third  quarter of 1995.  As a percentage  of net sales,
cost of goods sold increased from 59.8% in the third quarter of 1995 to 62.8% in
1996. The corresponding 3.0 percentage point decline in gross margin was largely
attributable  to a sales mix which  favored  lower  margin  products,  including
thermoplastic   and  competitive   pricing  for  certain   product  lines.   The
thermoplastic   business   consists   mostly  of  commodity   products  and  has
historically  generated a  substantially  lower gross  margin than  Stimsonite's
other operations;  cost of goods for thermoplastic products are approximately 30
percentage points higher than Stimsonite's other operations.

Selling  and  administrative  expenses  for the third  quarter of 1996 were $4.0
million, an increase of $0.1 million. As a percentage of net sales,  selling and
administrative  expenses were 13.7% in the 1996 period  compared to 14.9% in the
1995 period.

Research  and  development  expenses  for the  third  quarter  of 1996 were $0.7
million  compared to $0.8 million in the third quarter of 1995. The decrease was
largely due to  realization  of revenue  from sales of insert  tools which is an
offset to research  and  development  expenses.  As a  percentage  of net sales,
research and development  expenses were 2.4 % in the 1996 period compared to 3.1
% in 1995.

Interest  expense was $0.7  million in the third  quarter of 1996, a decrease of
$0.1  million  compared  to  1995,  principally  due  to  lower  interest  rates
associated  with the new  credit  agreement.  See  Note 4 of Notes to  Condensed
Consolidated Financial Statements.



Nine Months Ended September 29, 1996
Compared to
Nine Months Ended October 1, 1995

Net sales  for  the  nine months ended  September 29, 1996  were $66.5  million,
an  increase  of $16.2  million or 32.2 % compared  to the fiscal  1995  period.
Increases of $3.7  million in domestic  highway  delineation  revenues and $12.8
million in domestic  thermoplastic revenues were partially offset by a reduction
of $0.3 million in optical film revenues.

Cost of goods  sold for the nine  months  ended  September  29,  1996 were $42.2
million compared to $29.3 million in the 1995 period. The cost increase consists
of $10.9 million in  thermoplastics  operations and $2.0 million in higher costs
associated with higher sales of other products.

Selling and administrative expenses for the nine months ended September 29, 1996
totaled $11.5 million,  an increase of $1.7 million or 17.1 % compared to a year
earlier.  The  increase  is largely  related  to the  acquired  business  and an
increase in  commissions  related to product  mix.  Selling  and  administrative
expenses were offset  favorably by income of $0.3 million  arising from the sale
of a product line which generated approximately 1% of the Company's revenues.

Research and  development  expenses for the nine months ended September 29, 1996
were $2.1  million,  a decrease  of 10.5 %  compared  to the 1995  period.  As a
percentage  of net sales,  research and  development  expenses were 3.2 % in the
1996 period  compared to 4.7% in 1995.  The net decrease in spending  is related
to lower tooling  expenses offset by increased  spending  related to new product
development and quality improvements in an existing product line.

Interest  expense  was  $2.1  million  for  the nine months ended  September 29,
1996, an increase of $0.2 million or 9.9 % compared to 1995. The net increase is
primarily  related to  increased  debt  resulting  from the  acquisition  of the
thermoplastic  business partially offset by lower interest rate costs associated
with the new credit agreement.


Year Ended September 29, 1996
Compared to
Year Ended October 1, 1995

Net sales for the year ended September 29, 1996 were $84.3 million,  an increase
of $19.6 million or 30.4 % compared to the year ended October 1, 1995. Excluding
the effect of the thermoplastic acquisition, net sales increased $2.2 million or
4.1%.   The  Company's   proprietary   products,   including  domestic   highway
delineation   products   experienced   sales  growth  while   optical  film  and
international sales declined slightly due to aggressive  competitive pricing and
soft market demand in certain foreign markets. Sales of proprietary products are
affected by patents  covering  certain highway snow plowable  products.  Certain
current patents covering these products will expire between 1997 and 2000.

Cost of goods sold for the  year  ended  September 29, 1996  were  $54.5 million
compared to $36.5  million in 1995.  The 49.3 % increase was due to higher sales
of lower margin products,  particularly  thermoplastic  products.  Excluding the
effect of the thermoplastic  acquisition,  cost of goods sold were $29.4 million
in 1996 vs. $26.5 million in 1995.

Selling  and  administrative  expenses  for the year ended  September  29,  1996
totaled $14.8 million,  an increase of $1.7 million or 12.8 % compared to a year
earlier.  The increase was largely the result of the thermoplastic  acquisition,
offset by $0.3 million in income arising from the sale of a minor product line.

Research and  development  expenses for the year ended  September  29, 1996 were
$2.8 million  compared to $3.0 million a year  earlier.  As a percentage  of net
sales, research and development expenses were 3.4 % for the year ended September
29, 1996 compared to 4.6 % for the previous year.

Interest expense for the year ended the September 29, 1996 was $2.8 million,  an
increase of $0.4 million or 15.6 % compared to a year earlier.  The net increase
is largely related to increased indebtedness used to fund the acquisition of the
thermoplastic  operations and the  acquisition  of  land  and construction costs
to date related to a new  headquarters  and  manufacturing  facility,  partially
offset by lower interest costs associated with the new credit agreement.


Liquidity and Capital Resources

The   Company   finances  working  capital   expenditures  principally   through
internally  generated funds and revolving credit  borrowings.  On July 23, 1996,
the  Company  refinanced  its  long  term  debt  under  a new  unsecured  credit
agreement.  The terms of the new  credit  agreement  provide  a credit  facility
totaling $45.0 million,  of which $20.0 million is revolving  credit due on June
30, 2000 and bearing interest at prime or LIBOR (at the Company's option) plus a
margin of 75 to 150 basis points based on the Company's  debt to cash flow ratio
for the preceding four  quarters.  At September 29, 1996, the loan bore interest
at the  rate of  LIBOR  plus 125  basis  points.  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 $8.75 million due on June 30, 2003 and
bearing  interest at prime plus 25 basis  points or LIBOR plus 180 basis  points
(at the Company's option). The new credit facility establishes certain financial
covenants,  including  covenants relating to the Company's funded debt to EBIDTA
ratio,  cash flow coverage ratio, and leverage ratio. The Company's  performance
with  respect to these  covenants  will affect  among other  things the level of
funding  available under the agreement.  On July 23, 1996, the Company  borrowed
$25.0  million  of term debt and $9.5  million of  revolving  debt under the new
credit  facility  to repay $30.6  million  owed under its prior  secured  credit
facility,  $2.8  million in debt  related to the land  purchase for the new head
quarters facility, and $1.1 million to fund certain working capital requirements
and closing costs  related to the new credit  facility.  In connection  with the
debt  refinancing,  the  company  recorded  a $0.3  million  ($0.04  per  share)
extraordinary  charge in the third quarter of 1996 attributable to the write-off
off deferred  financing  fees related to the  Company's  prior credit  facility.
During the nine months ended  September 29, 1996,  the Company's  long term debt
increased $7.0 million as a result of borrowings in connection with the purchase
of land and  construction costs to date on a  new headquarters and manufacturing
facility in Waukegan, Illinois and to fund current working capital requirements.

At September 29, 1996, the Company's outstanding borrowings under the new credit
facility  consisted of $25.0 million of term loans and $9.9 million of revolving
loans. During the fourth quarter of 1996, $0.6 million of term loans are due and
an additional $2.5 million of term loans are due in 1997. At September 29, 1996,
the  additional  amount  available  under the revolving  loan portion of the new
credit  agreement  after  consideration  of all borrowing base  limitations  and
outstanding loans was $10.1 million.

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 and fourth  quarters 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 these quarters.  As a result of
the seasonal  fluctuations,  the Company  realized  $2.3 million from  operating
activities in the first nine months of 1996  compared to expending  $0.6 million
in the first  nine  months of 1995.  The  Company  realized  $4.6  million  from
operating  activities  in the year ended  September  29, 1996,  compared to $2.7
million from operating activities in the year ended October 1, 1995.

In May 1996, the Company broke ground on the  construction of a new headquarters
and  manufacturing  facility in  Waukegan,  Illinois,  a suburb of Chicago.  The
Company  previously  purchased  the  20  acre  land site for $3.5  million.  The
additional  cost of  completing  the facility is expected to  approximate  $10.5
million.  The facility is expected to be completed by the middle of 1997.  As of
September 29, 1996, the Company had incurred $2.0 million in construction  costs
on the facility. The Company expects that additional  construction costs will be
financed  by  advances  under  the  new  credit  facility  and  cash  flow from 
operations.

Excluding amounts expended for the Company's new facility in Waukegan, Illinois,
the Company expects capital expenditure  spending for additions and replacements
to approximate  $4.0 million in 1996 and $4.3 million in 1997 with funding to be
principally provided from internally generated funds.

In October  1995,  the board of directors  authorized  the  repurchase  of up to
500,000  shares of the  Company's  common stock.  As of September 29, 1996,  the
Company had purchased  148,500 shares of its common stock at an average price of
$8.18 per share.

The Company expects that cash flow from operations and borrowings  under the new
credit  facility  will be  sufficient  to fund working  capital  needs,  capital
expenditures  and mandatory  principal  payments  under the new credit  facility
through 1997.

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.

This Form 10-Q contains "forward looking  statements"  within the meaning of the
Private Securities Litigation Reform Act of 1995, including (without limitation)
statements as to  expectations,  beliefs and future  financial  performance  and
assumptions underlying the foregoing relating 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 of 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 and
(ii) pricing and other actions taken by competitors.


<PAGE>

                           Part II - Other Information


Item 6 - Exhibits and Reports on Form 8-K

(A)    Exhibits

         11.1  Statement regarding computation of per share earnings

         27     Financial Data Schedule

(B)      Reports on Form 8-K No reports were filed.

<PAGE>

                                   SIGNATURES



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated November 12, 1996                  STIMSONITE CORPORATION


                                         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)
<PAGE>


                                  Exhibit Index


                                                                Sequential
Exhibit                                                               Page
Number                Description                                   Number

11.1     Statement regarding computation of per share earnings          20

27       Financial Data Schedule                                        21