SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                For the quarterly period ended September 28, 1997

          [ ] 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)



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, 1997 was 8,534,977.

<PAGE>

                             STIMSONITE CORPORATION

                                      Index

                                                                           Page
Part I.   Financial Information

          Item 1.  Condensed Consolidated Financial Statements
                   Condensed Consolidated Statements of Operations            3
                   Condensed Consolidated Balance Sheets                    4-5
                   Consolidated Statements 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

<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          Twelve Months Ended
                                          --------------------     --------------------         --------------------
                                           9/28/97     9/29/96      9/28/97     9/29/96          9/28/97     9/29/96
                                          --------    --------     --------    --------         --------    --------     

<S>                                        <C>         <C>          <C>         <C>              <C>         <C>    
Net sales                                  $25,514     $28,834      $63,710     $66,499          $79,923     $84,298
Cost of goods sold                          15,704      18,113       41,071      42,242           54,664      54,523
                                          --------    --------     --------    --------         --------    --------
Gross profit                                 9,810      10,721       22,639      24,257           25,259      29,775

Operating expenses:
    Selling and administrative               3,439       3,958       10,397      11,456           14,201      14,821
    Research and development                   390         689        1,404       2,099            2,105       2,843
    Amortization of intangibles                654         711        2,073       2,130            2,789       2,842
    Restructuring charge                       ---         ---          ---         ---            4,000         ---
                                          --------    --------     --------    --------         --------    --------
Total operating expenses                     4,483       5,358       13,874      15,685           23,095      20,506
                                          --------    --------     --------    --------         --------    --------
Operating income                             5,327       5,363        8,765       8,572            2,164       9,269

Interest expense                               620         660        1,863       2,074            2,469       2,792
                                          --------    --------     --------    --------         --------    --------
Income (loss) before provision for
  income taxes and extraordinary item        4,707       4,703        6,902       6,498             (305)      6,477

Provision for income taxes                   1,966       1,913        2,959       2,636              130       2,852

Extraordinary item, net of tax benefit         ---         332          ---         332              ---         332
                                          --------    --------    ---------    --------         --------    --------
Net income (loss)                            2,741       2,458        3,943       3,530             (435)      3,293
                                          ========    ========    =========    ========         ========    ========

Net income (loss) per common and
common equivalent shares                     $0.32       $0.27        $0.45       $0.39           ($0.05)      $0.36
                                         =========   =========    =========   =========        ==========  =========
Average number of common and
common equivalent shares outstanding     8,662,423   8,971,462    8,711,151   9,007,052        8,752,897   9,029,517
</TABLE>

See Accompanying Notes
<PAGE>

                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>


                                                    9/28/97         12/31/96
                                                   ---------       ---------    
                                                  (Unaudited)      (Audited)
                          ASSETS

<S>                                                 <C>               <C>
Current assets
  Cash and cash equivalents                           $222              $227

  Trade accounts receivable less allowance for
      doubtful accounts of $506 (1997)              24,232            17,130
      and $1,206 (1996)

  Inventories                                       13,307            11,938

  Prepaid expenses and other                         1,059             3,157

  Deferred tax assets                                1,670             1,670
                                                  --------          --------
      Total current assets                          40,490            34,122

Property, plant and equipment, net                  11,741            18,907

Intangible assets, net                              12,319            14,373

Deferred financing costs, net                          167               287

Long term deferred tax assets and other              4,092             4,181
                                                  --------          --------
        Total Assets                               $68,809           $71,870
                                                  ========          ========
</TABLE>


See Accompanying Notes

<PAGE>

                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>


                                                   9/28/97         12/31/96
                                                  ---------       ---------  
                                                 (Unaudited)      (Audited)

                      LIABILITIES

<S>                                                <C>              <C>   
Current liabilities:

  Accounts payable                                  $9,933          $11,334

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

  Other accrued expenses                             5,763            4,435
                                                  --------         --------  
    Total current liabilities                       18,196           18,269

Accrued postretirement benefits                        631              631

Long-term debt                                      23,075           28,300
                                                   -------         --------      
    Total liabilities                               41,902           47,200



                  STOCKHOLDERS' EQUITY

Total stockholders' equity                          26,907           24,670
                                                  --------         --------       
    Total Liabilities and Stockholders' Equity     $68,809          $71,870
</TABLE>
                                                  ========         ========     
See Accompanying Notes
<PAGE>
                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>

                                                           Three Months Ended          Nine Months Ended        Twelve Months Ended
                                                         ---------------------      ---------------------     --------------------- 
                                                          9/28/97      9/29/96       9/28/97      9/29/96      9/28/97      9/29/96
                                                         --------     --------      --------     --------     --------     --------
<S>                                                        <C>          <C>           <C>          <C>         <C>           <C>   
Net cash provided by operating activities                  $3,567       $1,174        $3,068       $2,360      $14,010       $4,625
                                                         ========     ========      ========     ========     ========      ======= 
Cash flows from investing activities:
  Purchase of property, plant and equipment                 $(310)     ($2,546)      ($1,734)     ($8,389)     ($2,739)     ($8,249)
  Sale of property, plant and equipment                    $5,802           -         $5,802           -        $5,802           -
  Acquisition of Pave-Mark                                     -           (97)           -           (97)          97       (1,109)
  Investment in joint venture partnership                      -           (25)           -           (25)          25          (53)
  Other                                                        -           167            -            -            -          (575)
                                                         --------     --------       -------     --------     --------      ------- 
    Net cash (used in)/provided by
      investing activities                                 $5,492      ($2,501)       $4,068      ($8,511)      $3,185      ($9,986)
                                                         ========     ========      ========     ========     ========      ======= 
Cash flows from financing activities:
  Proceeds from the issuance of common stock, 
    net of offering expenses                                  $26           -            $31          $56         $278         $148
  Payments to reacquire common stock                         (196)        (248)       (1,226)        (686)      (1,847)      (1,180)
  Principal payments under capital lease obligations         (130)                      (210)          -          (244)          -
  Proceeds from long-term debt                                725       34,900         6,375       41,200        2,475       41,200
  Payments on long-term debt                               (9,325)     (33,216)      (11,600)     (34,246)     (17,508)     (35,605)
  Cash over draft                                              -            -             -            -            -           926
  Financing fees paid in connection with debt refinancing      -          (225)           -          (225)        (107)        (376)
    Net cash provided by (used in)                       ---------    --------      --------     --------     --------      ------- 
       financing activities                                (8,900)       1,211        (6,630)       6,099      (16,953)       5,113
    Effect of exchange rate changes on cash                  (132)         262          (511)         188         (407)         282
                                                         ---------    --------      --------     --------     --------      ------- 
Net increase (decrease) in cash and cash equivalents           27          146            (5)         136         (165)          34
Cash and cash equivalents, beginning of period                195          241           227          251          387          353
                                                         --------     --------      --------     --------     --------      ------- 
Cash and cash equivalents, end of period                     $222         $387          $222         $387         $222         $387
                                                         ========     ========      ========     ========     ========      ======= 
Supplemental disclosure of cash flow information:
  Cash paid during the period for interest                   $993         $666        $1,607       $1,870       $2,547       $2,329
                                                         ========     ========      ========     ========     ========      ======= 
  Cash paid during the period for income taxes                $34         $981           $39       $1,139       $1,780       $2,777
                                                         ========     ========      ========     ========     ========      ======= 
  Capital lease for property, plant & equipment              $597           -           $597           -          $597           -
                                                         ========     ========      ========     ========     ========      =======
  Property plant & equipment purchases
  included in accounts payable                                $43           -            $43           -          $43            -
                                                         ========     ========      ========     ========     ========      ======= 

</TABLE>

See Accompanying Notes
<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,  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.  Such  adjustments
are of a normal recurring nature.  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, 1996 (the "1996 Form 10-K").

The Company's  business is seasonal and,  accordingly,  comparative twelve month
trailing information is provided.  The financial  information included herein at
September  28, 1997 and for the periods  ended  September 28, 1997 and September
29,  1996  is  unaudited  and,  in the  opinion  of the  Company,  reflects  all
adjustments (which include only 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, 1996 was derived from the  Company's  consolidated
financial statements included in the 1996 Form 10-K.

The  results  for the  quarter  ended  September  28,  1997 are not  necessarily
indicative of results that can be expected for the full year ending December 31,
1997.


Note 2 - Inventories

Inventories consist of the following:

                           September 28, 1997          December 31, 1996
                           ------------------          -----------------  
($000)                         (Unaudited)                 (Audited)
Raw materials                      $5,249                    $3,772
Work in process                     1,920                     1,601
Finished goods                      6,138                     6,565
                                  -------                   -------
                                  $13,307                   $11,938
                                  =======                   =======

<PAGE>

Note 3  -  Impact of New Accounting Standards Not Yet Effective

Effective for periods ending after December 15, 1997, the Company is required to
adopt SFAS 128  (Statement of Financial  Accounting  Standards No. 128 "Earnings
Per Share"). SFAS 128 requires companies to calculate basic and diluted earnings
per share based upon standards designed to provide consistency and compatibility
with  calculations  of  other  countries  and  with  that  of the  International
Accounting Standards  Committee.  The Company does not expect earnings per share
as reported to be materially  different than basic or diluted earnings per share
to be reported upon adoption of the new accounting standard.


In June 1997,  the FASB issued SFAS No. 130 -  Reporting  Comprehensive  Income.
This  statement   establishes   standards  for  the  reporting  and  display  of
comprehensive  income  and  its  components  in a full  set of  general  purpose
financial  statements and is effective for fiscal years beginning after December
15, 1997.  Reclassification  of  financial  statements  for earlier  periods for
comparative  purpose is also  required.  Also in June 1997, the FASB issued SFAS
131 - Disclosures about Segments of an Enterprise and Related Information.  This
statement  establishes  standards for the way that public  business  enterprises
report information about operating  segments in annual financial  statements and
requires that those  enterprises  report  selected  information  about operating
segments  in  interim  financial   reports  issued  to  shareholders.   It  also
establishes  standards  for related  disclosures  about  products and  services,
geographic areas and major customers.  This statement is effective for financial
statements  for  periods   beginning   after  December  15,  1997.   Comparative
information for earlier years is also to be presented.

In  relation  to SFAS  Nos.  130 and  131,  the  Company  is in the  process  of
evaluating the impact of these statements on its financial reporting.


Note 4  -  Subsequent Event

On August 1, 1997,  the  Company  sold its  Waukegan,  Illinois  facility  to an
unrelated third party.  The $5.8 million of net proceeds were used to repay long
term debt under the Company's credit facility.  A loss was realized on the sale;
however,  the loss was adequately covered by a $4.0 million reserve  established
during the fiscal year ended December 31, 1996. See the 1996 Form 10-K.

<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 twelve months ended September 28, 1997 and September 29, 1996. 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 1996 Form 10-K.

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

Seasonality and Quarterly Results

The  Company's  sales  are  seasonal.   The  domestic  highway  maintenance  and
construction  season tends to reach its peak in the second and third quarters of
the year, and domestic sales of the Company's  products are generally highest in
these  quarters.  While  international  sales are also  seasonal,  international
maintenance and  construction  seasons vary from the domestic season and tend to
offset  somewhat  the  seasonality  of  domestic  sales.   International   sales
constituted  13.2% and 8.3% of net sales in the third quarters of 1997 and 1996,
respectively,  14.0% and 11.5% of net sales in the first nine months of 1997 and
1996, respectively,  and 12.5% of net sales in the year ended December 31, 1996.
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.

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.

<PAGE>
<TABLE>
<CAPTION>

Table
                                Percentage of                      Percentage of                      Percentage of      
                                  Net Sales        Inc (Dec)         Net Sales        Inc (Dec)         Net Sales        Inc (Dec) 
                                Quarter Ended      Percentage    Nine Months Ended    Percentage   Twelve Months Ended   Percentage
                            ------------------    Change from   ------------------    Change from  -------------------  Change from
                            9/28/97    9/29/96   Prior Period   9/28/97    9/29/96   Prior Period  9/28/97    9/29/96   Prior Period
                            -------    -------   ------------   -------    -------   ------------  -------    -------   ------------

<S>                            <C>       <C>         <C>         <C>         <C>        <C>        <C>        <C>          <C>   
Net sales                      100.0%    100.0%      (11.5%)     100.0%      100.0%     (4.2%)     100.0%     100.0%       (5.2%)

Cost of goods sold              61.6      62.8       (13.3)       64.5        63.5      (2.8)       68.4       64.7         0.3

Gross profit                    38.4      37.2        (8.5)       35.5        36.5      (6.7)       31.6       35.3       (15.2)

Selling and administrative      13.5      13.7       (13.1)       16.3        17.2      (9.2)       17.8       17.6        (4.2)

Research and development         1.5       2.4       (43.4)        2.2         3.2     (33.1)        2.6        3.4       (26.0)

Amortization of intangibles      2.6       2.5        (8.0)        3.3         3.2      (2.7)        3.5        3.4        (1.9)

Restructuring charge              -         -           -           -           -         -          5.0         -           -

Operating income                20.9      18.6        (0.7)       13.8        12.9       2.3         2.7       11.0       (76.7)

Interest expense                 2.4       2.3        (6.1)        2.9         3.1     (10.2)        3.1        3.3       (11.6)

Income (loss) before provision
  for income taxes and
  extraordinary item            18.4      16.3        (0.1)       10.8         9.8       6.2        (0.4)       7.7          -

Net income (loss)               10.7       8.5        11.5         6.2         5.3      11.7        (0.5)       3.9          -


</TABLE>

See Accompanying Notes

<PAGE>

Quarter ended September 28, 1997
Compared to
Quarter ended September 29, 1996

Net sales of $25.5  million for the quarter ended  September 28, 1997  decreased
$3.3  million or 11.5% from the  comparable  fiscal 1996  quarter.  Net sales of
domestic highway  delineation  products  decreased 18.3% compared with the third
quarter of 1996. The Company believes that the lower revenue in the current year
is largely  attributable  to a general  decline in the amount  spent for highway
delineation  products and delays in  construction  projects which  postponed the
installation of pavement markers and thermoplastic  markings in certain markets.
Optical film  domestic  revenues  increased  16.1% over  comparable  fiscal 1996
quarter  revenue  reflecting  the  acceptance  of the Company's new product line
introduced in the fourth quarter of 1996.  International  revenues  increased by
40.3%  compared to the third  quarter of 1996,  due  primarily  to strong  sales
growth in Latin America, Central Europe and the South Asia Pacific markets which
partially offset continuing soft Western European markets.

Cost of goods sold for the third quarter of 1997 totaled $15.7 million  compared
to $18.1  million for the 1996 period.  As a percentage  of net sales,  costs of
goods sold  decreased  from 62.8% in the third quarter of 1996 to 61.6% in 1997.
The  related  1.2  percentage   point  increase  in  gross  margin  was  largely
attributable to a favorable mix of product sales,  which was partially offset by
less favorable pricing for certain product lines,  particularly for non-plowable
markers  and  thermoplastic   markings,  and  as  the  result  of  certain  sale
promotions.

Selling  and  administrative  expenses  for the third  quarter of 1997 were $3.4
million, a decrease of $0.5 million.  The decline was largely the result of cost
cutting measures put in place at the end of 1996.

Research  and  development  expenses  for the  third  quarter  of 1997 were $0.4
million  compared to $0.7 million in the third quarter of 1996. The decrease was
attributable  to  cost-cutting  measures put in place at the end of 1996 and the
inclusion,  as an offset to expense,  of a higher level of revenue from the sale
of insert tools used principally by the automotive industry.  As a percentage of
net  sales,  research  and  development  expenses  were 1.5% in the 1997  period
compared to 2.4% in the 1996 period.  Management  believes current levels of R&D
expenditures are adequate for the Company's business.

Interest  expense was $0.6  million in the third  quarter of 1997, a decrease of
$0.1 million  compared to the comparable  1996 period,  due  principally  due to
lower level of debt  following the  application of $5.8 million in proceeds from
the sale of the Company's Waukegan, Illinois property on August 1, 1997.


<PAGE>

Income taxes of $2.0 million in the third quarter of 1997 reflected an effective
tax rate of 41.8%  compared  to $1.9  million  in taxes and a 40.7%  rate in the
third  quarter  of  1996.  The 1.1  percentage  point  increase  in the tax rate
resulted  from a change in the mix of domestic  and  international  income.  The
Company   does  not  accrue  a  tax  benefit  on  losses   incurred  in  certain
international operations.

Nine months ended September 28, 1997
Compared to
Nine months ended September 29, 1996

Net sales for the nine months ended  September  28, 1997 were $63.7  million,  a
$2.8 million or 4.2% decrease  compared to the same nine month period in 1996. A
decrease of $5.0 million in sales of domestic highway  delineation  products was
partially  offset by increases of $0.9 million in domestic sales of optical film
and $1.3 million in international revenues.

Cost of goods sold for the nine months ended  September  28, 1997 totaled  $41.1
million (64.5%)  compared to $42.2 million (63.5%) in 1996. A corresponding  1.0
percentage point decline in gross margin was largely attributable to competitive
pricing, particularly for non-plowable markers and thermoplastic markings and as
the result of certain sale promotions.

Selling and administrative expenses for the nine months ended September 28, 1997
totaled $10.4  million,  a decrease of $1.1 million or 9.2% compared to the same
period in 1996. The decline was largely the result of cost cutting  measures put
in place at the end of 1996.

Research and  development  expenses for the nine months ended September 28, 1997
were $1.4 million compared to $2.1 million in the same period in 1996.  Expenses
were lower in 1997 due to cost cutting  measures put in place at the end of 1996
and an increase in revenue from the sale of insert tools,  which is an offset to
research and development expense.

Interest  expense was $1.9 million for the nine months ended September 28, 1997,
compared  to  $2.1  million  in the  same  period  of  1996.  The  decrease  was
principally  due to lower interest rates  associated with the refinancing of the
Company's credit lines in July 1996.


Twelve months ended  September 28, 1997
Compared to
Twelve months ended  September 29, 1996

Net sales for the twelve months ended  September 28, 1997 were $79.9 million,  a
decrease of $4.4  million or 5.2%.  Net  domestic  sales of highway  delineation

<PAGE>

products  decreased  $5.9 million or 8.8%  compared with the twelve months ended
September 29, 1996. Net international  sales increased $1.4 million or 13.3% and
net domestic  sales of optical film increased $0.2 million or 2.7% compared with
the twelve months ended September 29, 1996.

Cost of goods sold for the twelve months ended  September 28, 1997 totaled $54.7
million (68.4%) compared to $54.5 (64.7%) million in the comparable 1996 period.
The  corresponding  3.7  percentage  point  decline  in gross  margin is largely
attributable to competitive  pricing,  particularly for non-plowable markers and
thermoplastic markings and as the result of certain sale promotions.

Selling and  administrative  expenses for the twelve months ended  September 28,
1997 totaled $14.2  million,  a decrease of $0.6 million or 4.2% compared to the
previous  twelve month  period.  Decreases  in expenses  were the result of cost
reduction  measures  implemented  at the end of 1996  offset by $0.3  million of
income arising in 1996 from a gain  recognized  upon the sale of a minor product
line.

Research and development expenses for the twelve months ended September 28, 1997
were $2.1 million  compared to $2.8 million in the previous twelve month period.
Expenses were lower in the more recent twelve month period due to cost reduction
measures implemented at the end of 1996 and an increase in revenue from the sale
of insert tools,  which is an offset to research and development  expense.  As a
percentage  of net sales,  research and  development  expenses were 2.6% for the
twelve months ended  September 28, 1997 compared to 3.4% for the previous twelve
month period.

The Company incurred a $4.0 million  restructuring  charge in the fourth quarter
of 1996 relating  principally to the planned sale of certain land and a building
under construction in Waukegan,  Illinois. The restructuring charge is described
in detail in the 1996 Form 10K under the caption  "Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations - Year Ended December
31, 1996 Compared to Year Ended December 31, 1995 Restructuring Charge."

Interest  expense  for the  twelve  months  ended  September  28,  1997 was $2.5
million,  compared to $2.8 million in the  previous  twelve  month  period.  The
decrease was the result of lower  interest rates  associated  with the Company's
current credit agreement compared to its former credit agreement.

Liquidity and Capital Resources
-------------------------------

The Company  finances  working  capital  requirements  and capital  expenditures
through internally generated funds,  revolving credit loans and lease financing.
During the nine month  period ended  September  28,  1997,  the Company  reduced

<PAGE>

borrowings  under its long term credit  facility by $5.2 million.  The principal
sources and applications of funds during the nine period were as follows:

                        Sources and Applications of Funds
                      Nine Months Ended September 28, 1997

                                   ($millions)

         Sources
         -------

         Net income                                                  $3.9
         Depreciation and amortization                                4.5
         Net proceeds from the sale of 

         All other (net)                                              1.0
                                                                     ----
                  Total sources                                      15.2


         Applications
         ------------

         Net increase in accounts receivable                         (7.1)
         Net repayment of long-term debt                             (5.2)
         Repurchase of outstanding Company stock                     (1.2)
         Capital expenditures (excluding Waukegan property)          (1.7)
                                                                     ----
                  Total applications                                (15.2)

         Net change in cash balance                                 $ -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 these quarters.  The Company  realized
$3.1  million  from  operating  activities  in the  first  nine  months of 1997,
compared  to $2.4  million  during the first nine  months of 1996.  The  Company

<PAGE>

realized  $14.0  million from  operating  activities  in the twelve month period
ended September 28, 1997, compared to $4.6 million from operating  activities in
the twelve months ended  September 29, 1996.  The $9.4 million  increase in cash
flow from operating  activities resulted largely from $13.7 million of favorable
net changes in current  assets and  liabilities  offset by $3.7 million in lower
net income.

At September 28, 1997,  the Company's  outstanding  borrowings  under its credit
agreement consisted of $17.3 million of term loans and $8.2 million of revolving
loans. During the balance of 1997, $1.2 million of term loans become due, and an
additional  $2.5 million of term loans become due during 1998.  At September 28,
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 $11.7 million.

The Company  expects  capital  expenditures  for additions and  replacements  to
approximate  $3.0 million in 1997 and $4.0  million in 1998,  with funding to be
provided  principally  from internally  generated funds.  Through  September 28,
1997, the Company had spent $1.7 million on 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, Illinois effective May 1, 1998.

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  buyback  program by 500,000  shares,  raising the total
allowable purchases to 1,000,000 shares. Through September 28, 1997, the Company
had  purchased  438,300  shares of its common stock at an average price of $6.86
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
1998.  From  time to  time,  the  Company  considers  possible  acquisitions  of
businesses  complimentary  to the  Company's  business.  It is  likely  that any
significant acquisition would be funded with additional long term debt.


Adoption of new accounting standards
------------------------------------

As  described  in Note 3 to the Notes to  Condensed  Financial  Statements,  the
Company is required to adopt the following new accounting standards:

      SFAS 128 -- Statement of Financial Accounting Standards No. 128 "Earnings 
                  Per Share


<PAGE>

      SFAS 130 -- Reporting Comprehensive Income

      SFAS 131 -- Disclosures about Segments of an Enterprise and Related 
                  Information


Forward Looking Statements
--------------------------

This Form 10-Q contains "forward looking  statements"  within the meaning of the
Private Securities Litigation Reform Act of 1995, including (without limitation)
statements as to  expectations,  beliefs and future  financial  performance  and
assumptions  underlying the foregoing related to product demand, ability to meet
short and long term debt requirements,  expected cash flow from operations,  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 economic  conditions;
(ii) pricing and other actions taken by competitors;  (iii)  government  funding
(or perceptions  regarding such funding) of highway construction  projects;  and
(iv) the Company's ability to develop and protect its proprietary technology and
to react to increased competition resulting from expiring patents.
<PAGE>

                           Part II - Other Information







Item 6 - Exhibits and Reports on Form 8-K

(A)     Exhibits

        10.1    Lease dated as of August 20, 1997 between the Company 
                (as tenant) and  First Bank National Association, as 
                trustee (as landlord)

        11.1    Statement regarding computation of per share earnings

(B)     Reports on Form 8-K

        The Company  did not file any  current  reports  on Form 8-K  during the
        quarter ended September 28, 1997
<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 11, 1997           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)



<PAGE>
                                  Exhibit Index


                                                                    Sequential
Exhibit                                                                Page
Number                Description                                     Number
------                -----------                                     ------ 
                                         
                                                                 
11.1     Statement Regarding Computation of Per Share Earnings           20 

10.1     Lease for 6565 W Howard Street, Niles, IL                       21