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 April 5, 1998

             [   ]  TRANSITION  REPORT  PURSUANT TO SECTION 13 OR
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
                 the   transition   period  from   _________   to
                                __________

                         Commission file number 0-22978

                             STIMSONITE CORPORATION
             (Exact name of registrant as specified in its charter)

                  Delaware                               36-3718658
      (State or other jurisdiction of                 (I.R.S. Employer
       incorporation or organization )             Identification Number)

           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 April 30, 1998 was 8,374,527.


<PAGE>


                             STIMSONITE CORPORATION

                                      Index

Part I.    Financial Information

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

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                          9-15

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


<PAGE>
                         PART I - FINANCIAL INFORMATION
                         ------------------------------

Item 1 - Condensed Consolidated Financial Statements.

                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
           
                                                                        4/5/98           12/31/97
                                                                     ------------    --------------
                                                                      (Unaudited)     (Audited)
ASSETS

Current assets
<S>                                                                        <C>                <C> 
       Cash and cash equivalents                                           $341               $337
       Trade accounts receivable less allowance for
             doubtful accounts of $537 (1998)
             and $495 (1997)                                             12,885             14,864
       Inventories                                                       12,378             11,418
       Prepaid expenses and other                                         2,507              1,272
       Deferred tax assets                                                1,630              1,630
                                                                    ------------    ---------------
                          Total current assets                           29,741             29,521

Property, plant and equipment, net                                       11,949             11,829
Intangible assets, net                                                   10,599             11,259
Deferred financing costs, net                                               236                251
Deferred tax assets and other                                             2,342              2,341
                                                                    ------------    ---------------
                          Total assets                                  $54,867            $55,201
                                                                    ============    ===============

LIABILITIES

Current liabilities:
       Accounts payable                                                  $7,664             $7,797
       Current maturities of long-term debt                               2,500              2,500
       Other accrued expenses                                             1,246              2,218
                                                                    ------------    ---------------
                 Total current liabilities                               11,410             12,515

Accrued postretirement benefits                                             594                631

Long-term debt                                                           17,950             15,575
                                                                    ------------    ---------------
                 Total liabilities                                       29,954             28,721

STOCKHOLDERS' EQUITY

Total stockholders' equity                                               24,913             26,480
                                                                    ------------    ---------------
                 Total liabilities and stockholders' equity             $54,867            $55,201
                                                                    ============    ===============
</TABLE>
<PAGE>

                     STIMSONITE CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (Amounts in Thousands Except Share Data)
                                   (Unaudited)
<TABLE>
<CAPTION>
               
                                                        Quarter Ended                  Twelve Months Ended
                                                -------------------------------   -------------------------------
                                                   4/5/98           3/30/97           4/5/98          3/30/97
                                                --------------    -------------   ---------------   -------------

<S>                                                   <C>              <C>               <C>             <C>    
Net sales                                             $13,857          $14,602           $80,618         $83,889
Cost of goods sold                                     10,244           10,338            53,864          57,143
                                                --------------    -------------   ---------------   -------------

Gross profit                                            3,613            4,264            26,754          26,746

Operating expenses:
     Selling and administrative                         3,474            3,524            14,134          14,939
     Research and development                             817              645             2,258           2,653
     Amortization of intangibles                          683              711             2,702           2,848
     Restructuring charge                                 ---              ---               ---           4,000
                                                --------------    -------------   ---------------   -------------

Total operating expenses                                4,974            4,880            19,094          24,440
                                                --------------    -------------   ---------------   -------------

Operating income  (loss)                               (1,361)            (616)            7,660           2,306

Interest expense                                          430              578             2,154           2,584
                                                --------------    -------------   ---------------   -------------

Income (loss) before provision (benefit) for
  income taxes and extraordinary item                  (1,791)          (1,194)            5,506            (278)

Provision (benefit) for income taxes                     (742)            (418)            2,150              22
                                                --------------    -------------   ---------------   -------------

Income (loss) before extraordinary item                (1,049)            (776)            3,356            (300)

Extraordinary item, net of tax benefit                    ---              ---               ---             332
                                                --------------    -------------   ---------------   -------------

Net income (loss)                                     ($1,049)           ($776)           $3,356           ($632)
                                                ==============    =============   ===============   =============

Earnings (loss) per common and common
equivalent share:

Income (loss) before extraordinary item:
         Basic                                         ($0.12)          ($0.09)            $0.39          ($0.03)
         Diluted                                       ($0.12)          ($0.09)            $0.39          ($0.03)

Extraordinary item, net of tax benefit:
         Basic                                            ---              ---               ---          ($0.04)
         Diluted                                          ---              ---               ---          ($0.04)

Net income (loss):
         Basic                                         ($0.12)          ($0.09)            $0.39          ($0.07)
         Diluted                                       ($0.12)          ($0.09)            $0.39          ($0.07)


Weighted average number of common and common equivalent shares outstanding :
         Basic                                      8,498,442        8,777,372         8,498,442       8,910,866
         Diluted                                    8,498,442        8,777,372         8,615,321       8,910,866

</TABLE>

See Accompanying Notes
<PAGE>

                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>

                                                                    Three Months Ended            Twelve Months Ended
                                                                ---------------------------    ---------------------------

                                                                    4/5/98         3/30/97         4/5/98         3/30/97
                                                                    ------         -------         ------         -------

<S>                                                                   <C>           <C>             <C>           <C>    
Net cash provided by (used in) operating activities:                  ($988)        $1,155          $9,553        $12,852

Cash flows from investing activities:
        Purchase of property, plant and equipment                     $(802)         ($465)         (2,881)       ($8,890)
        Sale of property, plant and equipment                            -              -            5,750             -
        Investment in joint venture partnership                          -              -              -               19
                                                                ------------    -----------    ------------    -----------

         Net cash provided by (used in) investing activities          ($802)         ($465)         $2,869        ($8,871)

Cash flows from financing activities:
       Proceeds from the issuance of common stock,
         net of offering expenses                                         8              5              34            263
       Payments to reacquire common stock                              (493)          (542)         (1,537)        (1,551)
       Principal payments under capital lease obligations               (65)           (40)           (273)           (74)
       Proceeds from long-term debt                                   3,000          1,300           6,725         38,150
       Payments on long-term debt                                      (625)        (1,375)        (17,000)       (41,014)
       Financing fees paid in connection with debt refinancing           -              -               -            (332)
                                                                ------------    -----------    ------------    -----------

        Net cash provided by (used in) financing activities           1,825           (652)        (12,051)        (4,558)

       Effect of exchange rate changes on cash                          (31)           (87)           (208)           412
                                                                ------------    -----------    ------------    -----------

       Net increase (decrease) in cash and cash equivalents               4            (49)            163           (165)

       Cash and cash equivalents, beginning of period                   337            227             178            343
                                                                ------------    -----------    ------------    -----------

       Cash and cash equivalents, end of period                        $341           $178            $341           $178
                                                                ============    ===========    ============    ===========



Supplemental disclosure of cash flow information:
      Cash paid during the period for interest                         $408           $527          $2,124         $2,766

      Cash paid during the period for income taxes                     $222           $134          $1,029         $2,859

      Capital lease for property, plant & equipment                    $558             -             $558           $724

      Property plant & equipment purchases
      included in accounts payable                                     $273         $1,409            $273         $1,409


</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.   However,  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, 1997 (the "1997 Form 10-K").

The Company's  business is seasonal and,  accordingly,  comparative twelve month
trailing information is provided.  The financial  information included herein at
April 5, 1998 and for the  periods  ended  April 5,  1998 and March 30,  1997 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 that date and the results of  operations  for these
periods. The information in the condensed consolidated balance sheet at December
31,  1997 was  derived  from the  Company's  consolidated  financial  statements
included in the 1997 Form 10-K.

The results for the quarter ended April 5, 1998 are not  necessarily  indicative
of results that can be expected for the full year ending December 31, 1998.


Note 2 - Inventories

Inventories consist of the following:

                             April 5,                 December 31,
                               1998                       1997
                           ------------              --------------    
($000)                      (Unaudited)
Raw materials                 $5,234                    $5,353
Work in process                2,175                     1,455
Finished goods                 4,969                     4,640
                             -------                   -------
                             $12,378                   $11,418
                             =======                   =======


<PAGE>
Note 3 - Earnings Per Share

The  computation  of basic and  diluted  EPS,  as  prescribed  by SFAS  128,  is
presented below:
<TABLE>
<CAPTION>

                                                                            Weighted
                                                        Net Income       Average Shares      Per Share
                                                        (Numerator)      (Denominator)        Amounts
                                                        -----------      -------------        -------

Quarter ended April 5, 1998
---------------------------

Basic EPS
---------
<S>                                                    <C>                 <C>                <C>    
Income (loss) available to common stockholders         ($1,049,000)        8,498,442          ($0.12)

Effect of dilutive options                                                         0
                                                                     
Diluted EPS
-----------
Income (loss) available to common stockholders
plus assumed conversions                               ($1,049,000)        8,498,442          ($0.12)

----------------------------------------------------------------------------------------------------
Quarter ended March 30, 1997
----------------------------

Basic EPS
---------
Income (loss) available to common stockholders           ($776,000)        8,777,372          ($0.09)

Effect of dilutive options                                                         0
                                                                      
Diluted EPS
-----------
Income (loss) available to common stockholders
plus assumed conversions                                 ($776,000)        8,777,372          ($0.09)

----------------------------------------------------------------------------------------------------
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

----------------------------------------------------------------------------------------------------
Twelve months ended March 30, 1997
----------------------------------

Basic EPS
---------
Income (loss) available to common stockholders           ($632,000)        8,910,866          ($0.07)

Effect of dilutive options                                                         0

Diluted EPS
-----------
Income (loss) available to common stockholders
plus assumed conversions                                 ($632,000)        8,910,866          ($0.07)

----------------------------------------------------------------------------------------------------
</TABLE>
 
<PAGE>

Note 4  -  Contingencies

In  February of 1998,  one of the  Company's  Atlanta,  Georgia  facilities  was
damaged by fire. Substantially all of the inventory and production equipment was
destroyed.  Some sales were lost during the first  quarter due to the  Company's
inability  to  deliver  products.  The  amount of  recovery  from the  Company's
property  insurance  carrier is being  negotiated.  The Company does not believe
that the fire  will  have any  material  effect  on the  Company's  consolidated
financial condition or results of operations during 1998.

Note 5  -  Impact of New Accounting Standards

In June 1997, the FASB issued a Statement of Financial  Accounting Standards No.
130,  "Reporting   Comprehensive  Income"  ("SFAS  No.  130").  This  statement,
effective  for fiscal years  beginning  after  December  15, 1997,  requires the
Company to report  components of comprehensive  income in a financial  statement
that is displayed with the same  prominence as other financial  statements.  The
Company's financial statements are prepared in accordance with SFAS No. 130.

The Company will implement the  provisions of Statement of Financial  Accounting
Standards No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information"  (SFAS  No.  131).  This  statement,  effective  for  fiscal  years
beginning after December 15, 1997,  specifies revised guidelines for determining
an entity's operating  segments and the type and level of financial  information
to be disclosed. The Company is currently evaluating the effect of adopting SFAS
No. 131.

The Company will implement the  provisions of Statement of Financial  Accounting
Standards   No.  132,   "Employers'   Disclosures   about   Pensions  and  Other
Postretirement  Benefits"  (SFAS No. 132) This  statement,  effective for fiscal
years   beginning   after  December  15,  1997,   standardizes   the  disclosure
requirements for pensions and other postretirement benefits, requires additional
information on changes in the benefit  obligation and fair values of plan assets
and eliminates  certain  disclosures  that are no longer useful.  The Company is
currently evaluating the effect of adopting SFAS No. 132.

<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 quarters and twelve
months ended April 5, 1998 and March 30, 1997.  The following  should be read in
conjunction  with the condensed  consolidated  financial  statements and related
notes appearing elsewhere herein and the consolidated  financial  statements and
related notes contained in the 1997 Form 10-K.

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

Seasonality and Quarterly Results
---------------------------------

The  Company's  sales  are  seasonal.   The  domestic  highway  maintenance  and
construction  season tends to reach its peak in the second and third quarters of
the year, and domestic sales of the Company's  products are generally highest in
these  quarters.  While  international  sales are also  seasonal,  international
maintenance and  construction  seasons vary from the domestic season and tend to
offset  somewhat  the  seasonality  of  domestic  sales.   International   sales
constituted 21.8% and 16.9% of net sales in the first quarters of 1998 and 1997,
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 further affected by weather anomalies.

The Company's  sales are dependent on the ability and willingness of the federal
and state governments to fund highway construction  projects.  Such sales may be
affected by real or perceived  uncertainty  concerning  the level of  government
funding for highway  construction  projects. A new federal highway spending bill
is currently being considered by the U.S.  Congress.  Until the federal spending
bill  is  passed  (if it is  passed),  the  likely  effects  of the  bill on the
Company's business cannot be accurately assessed.

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         Inc (Dec)                 Percentage of              Inc (Dec)
                     Net Sales          Percentage                   Net Sales               Percentage
                   Quarter Ended        Change from             Twelve Months Ended          Change from
             -----------------------                       ---------------------------    
              4/5/98       3/30/97     Prior Period          4/5/98        3/30/97           Prior Period
             ---------    ----------   ------------        -----------   -------------       ------------     

<S>             <C>           <C>            <C>              <C>             <C>                  <C>    
Net sales       100.0 %       100.0 %        (5.1) %          100.0 %         100.0  %             (3.9) %

Cost of          73.9          70.8          (0.9)             66.8            68.1                (5.7)
goods sold

Gross profit     26.1          29.2         (15.3)             33.2            31.9                 ----

Selling and      25.1          24.1          (1.4)             17.5            17.8                (5.4)
administrative

Research          5.9           4.4          26.7               2.8             3.2               (14.9)
and
development

Amortization      4.9           4.9          (3.9)              3.4             3.4                (5.1)
of
intangibles

Restructuring    ----          ----          ----              ----             4.8              (100.0)
charge

Operating        (9.8)         (4.2)          n.m.              9.5             2.7               232.2
income

Interest          3.1           4.0         (25.6)              2.7             3.1               (16.6)
expense

Income
(loss)
before
provision
for income
taxes and
extraordinary   (12.9)         (8.2)        (50.0)              6.8            (0.3)                n.m.
item

Extraordinary
item, net of
tax benefit      ----          ----           ----              ----            0.4              (100.0)

Net income       (7.6)         (5.3)        (35.2)              4.2            (0.8)                n.m.
(loss)
</TABLE>



Quarter ended April 5, 1998
Compared to
Quarter ended March 30, 1997
----------------------------

Net sales of $13.9  million for the quarter ended April 5, 1998  decreased  $0.7
million or 5.1% from the comparable  fiscal 1997 quarter.  Net domestic sales of
highway delineation  products decreased 16.7% compared with the first quarter of
1997,  but domestic  sales of optical  film  products  and  international  sales
increased  by 19.8% and 22.3%,  respectively.  The decline in domestic  sales of
highway  delineation  products resulted  principally from the absence in 1998 of
certain  sales  promotions  and $0.4  million of lower  sales of the  HotTape(R)
product line.  Inventory  levels and production of the  HotTape(R)  product line
were  disrupted  by a plant fire in  February  1998.  Production  of  HotTape(R)

<PAGE>

resumed in April 1998.  The 19.8%  increase in  domestic  sales of optical  film
reflected growing  acceptance of the Company's  improved products  introduced in
the fourth quarter of 1996.  International  revenues increased by 22.3% compared
to the first  quarter of 1997,  due  primarily  to strong  sales growth in Latin
America.

Cost of goods sold for the first quarter of 1998 totaled $10.2 million  compared
to $10.3  million for the 1997  period.  As a percentage  of net sales,  cost of
goods sold  increased  from 70.8% in the first quarter of 1997 to 73.9% in 1998.
The  related  3.1%  decrease  in gross  margin was  largely  attributable  to an
unfavorable mix of product sales and less favorable  pricing for certain product
lines, particularly for non-snowplowable markers

Selling and  administrative  expenses for the  first  quarter of  1998 were $3.5
million  compared to $3.5 million in the first quarter of 1997.

Research  and  development  expenses  for the  first  quarter  of 1998 were $0.8
million  compared to $0.6 million in the first quarter of 1997.  The main reason
for the increase is a reduction in sales of insert tools,  as revenue from these
sales is accounted for as an offset to research and  development  expense.  As a
percentage of net sales, research and development expenses were 5.9% in the 1998
period compared to 4.4% in the 1997 period.

Interest  expense was $0.4  million in the first  quarter of 1998, a decrease of
$0.2 million  compared to the  comparable  1997 period,  due  principally to the
repayment of debt with $5.8 million in proceeds  from the sale of the  Company's
Waukegan, Illinois property on August 1, 1997.

Income tax benefit of $0.7  million in the first  quarter of 1998  reflected  an
effective  tax rate of 41.4%  compared to a $0.4 million tax benefit and a 34.9%
rate in the first  quarter  of 1997.  The  increase  in the  effective  tax rate
resulted  from a change in the mix of domestic  and  international  income.  The
Company   does  not   record  tax   benefits  on  losses   incurred  in  certain
international operations.


Twelve months ended  April 5, 1998
Compared to
Twelve months ended  March 30, 1997
-----------------------------------

Net sales for the  twelve  months  ended  April 5, 1998 were  $80.6  million,  a
decrease of $3.3  million or 3.9%.  Net  domestic  sales of highway  delineation
products  decreased  $8.0 million or 11.9% compared with the twelve months ended
March 30, 1997. Net international  sales increased $2.9 million or 27.6% and net
domestic sales of optical film increased $1.8 million or 28.9% compared with the
twelve months ended March 30, 1997.
<PAGE>

Cost of goods sold for the  twelve  months  ended  April 5, 1998  totaled  $53.9
million  (66.8% of net sales)  compared to $57.1 (68.1% of net sales) million in
the comparable 1997 period.  The corresponding  1.3% increase in gross margin is
largely  attributable to increased  productivity in the Company's  manufacturing
processes,  partly offset by competitive pricing in the non-snowplowable markers
and thermoplastic markings product groups.

Selling and  administrative  expenses for the twelve  months ended April 5, 1998
totaled  $14.1  million,  a decrease  of $0.8  million or 5.4%  compared  to the
previous  twelve month period.  Decreases in expenses were largely the result of
cost reduction measures implemented at the end of 1996.

Research and development expenses for the twelve months ended April 5, 1998 were
$2.3  million  compared to $2.7 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. As a percentage of net sales,  research
and  development  expenses  were 2.8% for the twelve  months ended April 5, 1998
compared to 3.2% for the previous twelve month period.

The Company incurred a $4.0 million  restructuring  charge in the fourth quarter
of 1996 relating  principally to the planned sale of certain land and a building
under construction in Waukegan,  Illinois. The restructuring charge is described
in detail in the 1997 Form 10-K under the caption  "Management's  Discussion and
Analysis of Financial  Condition and Results of Operations - Year Ended December
31, 1997 Compared to Year Ended December 31, 1996 Restructuring Charge."

Interest  expense for the twelve  months  ended April 5, 1998 was $2.2  million,
compared to $2.6 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 (which was refinanced in July
1996),  and a lower  level of debt  following  the  repayment  of debt with $5.8
million in 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 first  quarter  period  ended April 5, 1998,  the  Company  increased
borrowings  under its long term credit  facility by $2.4 million.  The principal
inflows and outflows of cash during the first quarter were as follows:



<PAGE>



                                Cash Flow Summary
                        First Quarter Ended April 5, 1998
                        ---------------------------------

                                   ($millions)

         Cash inflows
         ------------

         Net borrowings under credit facility                    $2.4
                                                                 ----
                  Total inflows                                   2.4
                                                                 ----
                    


         Cash outflows
         -------------

         Cash used in operating activities                       (1.0)
         Repurchase of outstanding Company stock                 (0.5)
         Capital expenditures                                    (0.8)
         All other (net)                                         (0.1)
                                                                 -----

                  Total outflows                                 (2.4)
                                                                 -----
         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 its first and second  quarters.  The
Company  used $1.0  million  of cash in  operating  activities  during the first
quarter of 1998,  compared to $1.2 million  provided by operating  activities in
the first quarter of 1997. The $2.2 million decrease in cash flow from operating
activities  during the quarter  resulted largely from unfavorable net changes in
working capital.  The Company realized $9.6 million from operating activities in
the twelve  month  period  ended April 5, 1998,  compared to $12.9  million from
operating activities in the twelve months ended March 30, 1997. The $3.3 million
decrease  in  cash  flow  from  operating   activities   resulted  largely  from
unfavorable net changes in working capital.
<PAGE>

At  April 5,  1998,  the  Company's  outstanding  borrowings  under  its  credit
agreement consisted of $15.5 million of term loans and $5.0 million of revolving
loans. During the balance of 1998, $1.9 million of term loans become due, and an
additional  $2.5 million of term loans become due during 1999. At April 5, 1998,
the additional  amount  available  under the revolving  portion of the Company's
credit  agreement  after  consideration  of all borrowing base  limitations  and
outstanding loans was $9.6 million.

The Company  expects  capital  expenditures  for additions and  replacements  to
approximate  $5.0 million in 1998 and $4.0  million in 1999,  with funding to be
provided principally from internally generated funds. Through April 5, 1998, the
Company had spent $0.8 million on capital expenditures.

The  Company  intends  to expand its  manufacturing  capacity  in 1998.  In that
connection,  the  Company  has  leased  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, then
pending,  sale of the  Waukegan  facility,  the board of  directors in July 1997
authorized an expansion of the stock buyback program by 500,000 shares,  raising
the total allowable  purchases to 1,000,000  shares.  Through April 5, 1998, the
Company had purchased  604,850 shares of its common stock at an average price of
$6.37 per share.

The Company  expects that cash flow from  operations  and  borrowings  under the
credit  facility  will be  sufficient  to fund working  capital  needs,  capital
expenditures and mandatory  principal payments under the credit facility through
1999.  From  time to  time,  the  Company  considers  possible  acquisitions  of
businesses  complimentary  to the  Company's  business.  It is  likely  that any
significant acquisition would be funded with additional long term debt.


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

As  described  in Note 4 to the Notes to  Condensed  Financial  Statements,  the
Company is required to adopt the following new accounting standards:

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

      SFAS 132 - Disclosures about Pensions and Other Postretirement benefits.



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)

<PAGE>

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.

Item 3 - Quantitative and Qualitative Disclosures about Market Risks.

Not required.


<PAGE>

                           Part II - Other Information
                           ---------------------------



Item 6 - Exhibits and Reports on Form 8-K

(A)   Exhibits

       10.1     Lease dated as of February 19, 1998 between the Company 
                (as tenant) and Marietta Blvd. Warehouse (as landlord)

       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 5, 1998

<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 15, 1998               STIMSONITE CORPORATION


                                   /s/THOMAS C. RATCHFORD
                                   ----------------------
                                   Thomas C. Ratchford
                                   Vice President-Finance, Treasurer,
                                   Secretary and Chief Financial Officer
                                   (Its Duly Authorized Officer and  Principal
                                   Financial and Accounting Officer)



<PAGE>
                                INDEX OF EXHIBITS

Exhibit 10.1      Lease dated as of February  19, 1998  between the Company
                  (as tenant) and Marietta Blvd. Warehouse (as landlord).

Exhibit 27.1      Financial Data Schedule.