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 June 29, 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 July 25, 1997 was 8,538,827.


<PAGE>

<TABLE>
<CAPTION>
                             STIMSONITE CORPORATION

                                      Index
                                                                       Page
<S>      <C>                                                            <C>                      
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                           9-15

Part II. Other Information

Item 4.  Submission of Matters to a Vote of Security Holders             16

Item 6.  Exhibits and Reports on Form 8-K                                17
</TABLE>

<PAGE>

                     STIMSONITE CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (Dollars in Thousands Except Per Share Information)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                             Quarter Ended                  Six Months Ended            Twelve Months Ended
                                        -------------------------     --------------------------     -------------------------
                                            6/29/97       6/30/96          6/29/97       6/30/96         6/29/97       6/30/96
                                        -----------   -----------     ------------   -----------     -----------   -----------
<S>                                         <C>           <C>              <C>           <C>             <C>           <C>
Net sales                                   $23,594       $24,240          $38,196       $37,665         $83,243       $81,762
Cost of goods sold                           15,029        15,099           25,367        24,129          57,073        52,132
                                        -----------   -----------     ------------   -----------     -----------   -----------
Gross profit                                  8,565         9,141           12,829        13,536          26,170        29,630

Operating expenses:
     Selling and administrative               3,434         3,653            6,958         7,498          14,720        14,770
     Research and development                   369           618            1,014         1,410           2,404         2,957
     Amortization of intangibles                708           710            1,419         1,419           2,846         2,835
    Restructuring charge                        ---           ---              ---           ---           4,000           ---
                                        -----------   -----------     ------------   -----------     -----------   -----------
Total operating expenses                      4,511         4,981            9,391        10,327          23,970        20,562
                                        -----------   -----------     ------------   -----------     -----------   -----------
Operating income                              4,054         4,160            3,438         3,209           2,200         9,068

Joint venture partnership loss                  ---           ---              ---           ---             ---            22
Interest expense                                665           740            1,243         1,414           2,509         2,888
                                        -----------   -----------     ------------   -----------     -----------   -----------
Income (loss) before provision for
  income taxes and extraordinary item         3,389         3,420            2,195         1,795            (309)        6,158

Provision for income taxes                    1,411         1,356              993           723              77         2,689

Extraordinary item, net of tax benefit          ---           ---              ---           ---             332           ---
                                        -----------   -----------      -----------   -----------     -----------   -----------
Net income (loss)                             1,978         2,064            1,202         1,072            (718)        3,469
                                        ===========   ===========      ===========   ===========     ===========   ===========

Net income (loss) per common and
common equivalent shares                      $0.23         $0.23            $0.14         $0.12          ($0.08)        $0.38
                                        ===========   ===========      ===========   ===========     ===========   ===========
Average number of common and
common equivalent shares outstanding      8,693,643     9,016,494        8,735,508     9,024,848       8,830,153     9,068,980

</TABLE>
See Accompanying Notes
<PAGE>
                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                       6/29/97        12/31/96
                                                     -----------     ----------
                                                     (Unaudited)     (Audited)
                          ASSETS
<S>                                                    <C>            <C>
Current assets
       Cash and cash equivalents                          $195           $227

       Trade accounts receivable less allowance
          for doubtful accounts of $896 (1997)
          and $1,206 (1996)                             23,162         17,130

       Inventories                                      14,430         11,938

       Prepaid expenses and other                        2,994          3,157

       Deferred tax assets                               1,670          1,670
                                                    ----------     ----------
                         Total current assets           42,451         34,122

Property, plant and equipment, net                      18,637         18,907

Intangible assets, net                                  12,953         14,373

Deferred financing costs, net                              182            287

Long term deferred tax assets and other                  4,092          4,181
                                                    ----------     ----------
                         Total Assets                  $78,315        $71,870
                                                    ==========     ==========
</TABLE>

See Accompanying Notes

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

<TABLE>
<CAPTION>
                                                       6/29/97        12/31/96
                                                      -----------   -----------
                                                      (Unaudited)     (Audited)
                      LIABILITIES
<S>                                                      <C>           <C>
Current liabilities:
   Accounts payable                                      $13,986       $11,334

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

   Other accrued expenses                                  5,055         4,435
                                                      ----------    ----------
      Total current liabilities                           21,541        18,269

Accrued postretirement benefits                              631           631

Long-term debt                                            31,675        28,300
                                                      ----------    ----------
      Total liabilities                                   53,847        47,200



                  STOCKHOLDERS' EQUITY

   Total stockholders' equity                             24,468        24,670
                                                      ----------    ----------
       Total Liabilities and Stockholders' Equity        $78,315       $71,870
                                                      ==========    ==========
</TABLE>
See Accompanying Notes
<PAGE>
                     STIMSONITE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                                       Six Months Ended             Twelve Months Ended
                                                                     ---------------------         -----------------------
                                                                      6/29/97       6/30/96         6/29/97         6/30/96
                                                                      -------       -------         -------         -------
<S>                                                                    <C>           <C>              <C>            <C>
Cash flows from operating activities:
  Net income (loss)                                                    $1,202        $1,072           $(718)         $3,469
    Adjustments to reconcile net income to net
      cash provided by operating activities:
        Depreciation                                                    1,694         1,580           3,280           3,092
        Amortization of intangibles, deferred financing
           costs and discount on long term debt                         1,446         1,538           3,032           3,478
        Provision for uncollectible accounts                              -              -              311             303
        Deferred income taxes                                             -              -           (1,993)         (1,204)
        Joint venture partnership loss                                    -              -               -               22
        Extraordinary item                                                -              -              332              -
        Restructuring charge                                              -              -            4,000              -

        Changes in assets and liabilities:
          Trade account receivables                                    (6,032)       (4,422)           (907)         (2,488)
          Inventories                                                  (2,492)         (910)          1,328          (1,191)
          Prepaid expense and other                                       331          (180)         (1,725)           (329)
          Accounts payable                                              1,981           843           6,083          (1,530)
          Accrued employee benefits                                     1,512           395           1,133          (1,145)
          Accrued warranty                                               (141)          114             144              85
          Accrued income taxes                                             -          1,156          (2,683)          1,569
                                                                      -------       -------         -------         -------
            Net cash provided by (used in)
              operating activities                                      ($499)       $1,186         $11,617          $4,131
                                                                      =======       =======         =======         =======
Cash flows from investing activities:
  Purchase of property, plant and equipment                           ($1,424)      ($5,843)        ($4,975)        ($6,674)
  Acquisition of Pave-Mark                                                -              -              142          (1,433)
  Investment in joint venture partnership                                 -              -               25             (72)
  Other                                                                   -            (167)             -               (6)
                                                                      -------       -------         -------         -------
            Net cash used in investing activities                     ($1,424)      ($6,010)        ($4,808)        ($8,185)
                                                                      =======       =======         =======         =======
Cash flows from financing activities:
  Proceeds from the issuance of common stock,
    net of offering expenses                                               $5           $56            $252            $148
  Payments to reacquire common stock                                   (1,030)         (438)         (1,899)           (932)
  Principal payments under capital lease obligations                      (80)           -             (114)             31
  Proceeds from long-term debt                                          5,650         6,300          36,650           7,100
  Payments on long-term debt                                           (2,275)       (1,030)        (41,399)         (2,971)
  Cash over draft                                                          -             -               -              926
  Financing fees paid in connection with debt refinancing                  -             -             (332)           (151)
            Net cash provided by (used in)                            -------       -------         -------         -------
               financing activities                                     2,270         4,888          (6,842)          4,151
            Effect of exchange rate changes on cash                      (379)          (74)            (13)           (141)
                                                                      -------       -------         -------         -------
Net increase (decrease) in cash and cash equivalents                      (32)          (10)            (46)            (44)
Cash and cash equivalents, beginning of period                            227           251             241             285
                                                                      -------       -------         -------         -------
Cash and cash equivalents, end of period                                 $195          $241            $195            $241
                                                                      =======       =======         =======         =======
Supplemental disclosure of cash flow information:
  Cash paid during the period for interest                               $614        $1,204          $2,220          $2,311
                                                                      =======       =======         =======         =======
  Cash paid during the period for income taxes                             $5          $158          $2,727          $2,987

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

  Property plant & equipment purchases
  included in accounts payable                                            866            -              866              -

                                                                      =======       =======         =======         =======
</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  full year
information is provided.  The financial  information included herein at June 29,
1997 and for the periods ended June 29, 1997 and June 30, 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 June 29, 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:
<TABLE>
<CAPTION>

                         June 29, 1997        December 31, 1996
                         -------------        -----------------
($000)                    (Unaudited)             (Audited)
<S>                         <C>                   <C>
Raw materials                $3,994                $3,772
Work in process               1,879                 1,601
Finished goods                8,557                 6,565
                            -------               -------
                            $14,430               $11,938
                            =======               =======
</TABLE>

<PAGE>

Note 3  -  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.


Note 4  -  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  is 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.

<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,  six months
and twelve months ended June 29, 1997 and June 30, 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 11.7% of net sales in the  second  quarters  of 1997 and
1996, respectively, 14.6% and 13.9% of net sales in the first six 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       Inc (Dec)       Percentage of      Inc (Dec)      Percentage of       Inc (Dec)
                                  Net Sales        Percentage        Net Sales        Percentage        Net Sales        Percentage
                                Quarter Ended      Change from    Six Months Ended    Change from  Twelve Months Ended   Change from
                              6/29/97   6/30/96   Prior Period   6/29/97   6/30/96   Prior Period   6/29/97   6/30/96   Prior Period
                              -------   -------   ----------     -------   -------   ------------   -------   -------   ------------
<S>                             <C>       <C>         <C>          <C>       <C>          <C>         <C>       <C>            <C>
Net sales                       100.0%    100.0%      (2.7%)       100.0%    100.0%       1.4%        100.0%    100.0%         1.8%

Cost of goods sold               63.7      62.3       (0.5)         66.4      64.1        5.1          68.6      63.8          9.5

Gross profit                     36.3      37.7       (6.3)         33.6      35.9       (5.2)         31.4      36.2        (11.7)

Selling and administrative       14.6      15.1       (6.0)         18.2      19.9       (7.2)         17.7      18.1         (0.3)

Research and development          1.6       2.5      (40.3)          2.7       3.7      (28.1)          2.9       3.6        (18.7)

Amortization of intangibles       3.0       2.9       (0.3)          3.7       3.8        --            3.4       3.5          0.4

Restructuring charge              --        --         --            --        --         --            4.8       --           --

Operating income                 17.2      17.2       (2.5)          9.0       8.5        7.1           2.6      11.1        (75.7)

Interest expense                  2.8       3.1      (10.1)          3.3       3.8      (12.1)          3.0       3.5        (13.1)

Income (loss) before provision
  for income taxes and
  extraordinary item             14.4      14.1       (0.9)          5.7       4.7       22.3          (0.4)      7.5          --

Net income (loss)                 8.4       8.5       (4.2)          3.1       2.8       12.1          (0.9)      4.2          --
</TABLE>
See Accompanying Notes
<PAGE>

Quarter Ended  June 29, 1997
Compared to
Quarter Ended  June 30, 1996

Net sales of $23.6 million for the second  quarter ended June 29, 1997 decreased
$0.6  million or 2.7% from the  comparable  fiscal  1996  quarter.  Net sales of
domestic highway  delineation  products  decreased 7.1% compared with the second
quarter of 1996. The lower revenue in the current year was largely  attributable
to cold and wet weather which caused an unusual level of delays in  construction
projects  and  prevented  installation  of pavement  markers  and  thermoplastic
markings in certain markets. Optical film domestic revenues increased 31.2% 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 9.6% compared to the second quarter of 1996
primarily due to strong sales growth in Latin  America,  Central  Europe and the
South Asian Pacific  markets which were partially  offset by the continuing soft
Western European markets.

Cost of goods sold for the second quarter of 1997 totaled $15.0 million compared
to $15.1  million for the 1996 period.  As a percentage  of net sales,  costs of
goods sold  increased from 62.3% in the second quarter of 1996 to 63.7% in 1997.
The related 0.5% decline in gross profit was largely attributable to competitive
pricing, particularly for non-plowable markers and thermoplastic products and as
the result of certain sales promotions.

Selling and  administrative  expenses  for the second  quarter of 1997 were $3.4
million, a decrease of $0.2 million.  The decline was largely the result of cost
cutting  measures put in place at the end of 1996 which  continue to benefit the
Company in 1997.

Research  and  development  expenses  for the  second  quarter of 1997 were $0.4
million compared to $0.6 million in the second quarter of 1996. The decrease was
attributable  to  cost-cutting  measures  put in place at the end of 1996.  As a
percentage of net sales, research and development expenses were 1.6% in the 1997
period compared to 2.5% in the 1996 period.  Management  believes current levels
of R&D expenditures will not have a material adverse effect on the Company.

Interest  expense was $0.7  million in the second  quarter of 1997 a decrease of
$0.1 million  compared to the comparable  1996 period,  principally due to lower
interest rates associated with the Company's  current credit agreement  compared
to its former credit agreement.

<PAGE>

Six Months Ended  June 29, 1997
Compared to
Six Months Ended  June 30, 1996

Net sales for the six months ended June 29, 1997 were $38.2 million, an increase
of $0.5 million or 1.4% compared to the comparable fiscal 1996 period. Decreases
of $0.4  million  in  domestic  highway  delineation  products  were  offset  by
increases  of $0.6  million in optical  film and $0.3  million in  international
revenues.

Cost of goods sold for the six months ended June 29, 1997 totaled  $25.4 million
compared to $24.1  million in 1996.  A 2.3%  decline in gross margin was largely
attributable to competitive  pricing,  particularly for non-plowable markers and
thermoplastic and as the result of certain sale promotions.

Selling  and  administrative  expenses  for the six months  ended June 29,  1997
totaled  $7.0  million,  a decrease of $0.5  million or 7.2%  compared to a year
earlier.  The decline was largely  the result of cost  cutting  measures  put in
place at the end of 1996.

Research  and  development  expenses for the six months ended June 29, 1997 were
$1.0 million down 28.0% compared to 1996.  Expenses were lower in the six months
ended June 29, 1997 due to cost cutting measures put in place at the end of 1996
and a modest  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 2.7% in the 1997 period compared to 3.7%
in 1996.

Interest  expense was $1.2  million for the six months  ended June 29,  1997,  a
decrease of $0.2 million or 12.1% compared to 1996. The decrease was principally
due to lower  interest  rates  associated  with  the  Company's  current  credit
agreement  compared to its former  credit  agreement.  The decrease was achieved
despite a higher level of borrowing in 1997 related to the debt financing of the
Waukegan, Illinois property.

Twelve Months Ended  June 29, 1997
Compared to
Twelve Months Ended  June 30, 1996

Net sales for the twelve  months  ended June 29,  1997 were  $83.2  million,  an
increase  of $1.5  million or 1.8%.  Net sales of domestic  highway  delineation
products  increased  $1.6 million or 2.5%  compared with the twelve months ended
June 30, 1996. Net international  sales increased $0.2 million or 2.0% while net
sales of domestic  optical film decreased $0.3 million or 4.3% compared with the
twelve months ended June 30, 1996.

Cost of goods  sold for the twelve  months  ended June 29,  1997  totaled  $57.1
million  compared  to $52.1  million in the  comparable  1996  period.  The 9.5%
increase is due to the higher level of sales and a sales mix which favored lower
margin products, such as thermoplastic products.


<PAGE>

Selling and  administrative  expenses  for the year ended June 29, 1997  totaled
$14.7  million,  a decrease of $0.1 million or 0.4%  compared to a year earlier.
Decreases in expenses  were the result of cost cutting  measures put in place at
the end of 1996 offset by $0.3 million of income  arising from  recognition of a
$0.3 million gain upon the sale of a minor product line in 1996.

Research  and  development  expenses  for the year ended June 29, 1997 were $2.4
million  compared to $3.0 million a year  earlier.  Expenses  were lower for the
year ended June 29, 1997 due principally to  cost-cutting  measures put in place
at the end of 1996.  As a  percentage  of net sales,  research  and  development
expenses  were 2.9% for the year ended June 29, 1997 compared to 3.6% for a year
earlier.

The Company incurred a $4.0 million  restructuring  charge in the fourth quarter
of fiscal year 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 year ended June 29, 1997 was $2.5 million,  a decrease
of  $0.4  million  or  13.1%  compared  to a  year  earlier.  The  decrease  was
principally due to 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 six months ended June 29, 1997, the Company borrowed $3.4 million net
from its long term  credit  facility  to purchase  $1.0  million of  outstanding
shares of common  stock and $1.4  million in plant and  equipment  and used $0.9
million in cash in operating and other activities.

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

<PAGE>

sales. The Company has historically borrowed funds available under its revolving
credit  facilities to fund working  capital during these  quarters.  The Company
expended  $0.5 million on operating  activities  in the first six months of 1997
compared to realizing  $1.2 million from  operating  activities in the first six
months of 1996.  Cash flow from  operating  activities  in the current  year was
lower than in the previous year due to larger  increases in accounts  receivable
and  inventory,  not fully offset by increases  in payables  and  accruals.  The
Company  realized $11.6 million from  operating  activities in the twelve months
ended June 29, 1997,  compared to $4.1 million from operating  activities in the
twelve months ended June 30, 1996.  The $7.5 million  increase in cash flow from
operating  activities  resulted  largely  from $4.2  million in lower  operating
income offset by a $4.0 million non-cash  restructuring  charge and $7.7 million
in net changes in current assets and liabilities.

On August 1, 1997,  the  Company  sold its  Waukegan,  Illinois  facility  to an
unrelated third party.  The $5.8 million of net proceeds from the sale were used
to repay  long term debt  under the  Company's  credit  facility.  See Note 3 to
Condensed Consolidated Financial Statements.

At June  29,  1997,  the  Company's  outstanding  borrowings  under  its  credit
agreement  consisted  of $23.8  million  of term  loans  and  $10.4  million  of
revolving  loans.  During the balance of 1997, $1.9 million of term loans become
due, and an  additional  $2.5  million of term loans become due during 1998.  At
June 29, 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 $9.6 million.

The Company expects capital expenditure  spending for additions and replacements
to approximate $4.0 million in 1997 and $4.0 million in 1998, with funding to be
provided principally from internally generated funds. Through June 29, 1997, the
Company had spent $1.4 million on capital expenditures.

The Company currently uses the major portion of its manufacturing  capacity. The
Company  is  considering  an  expansion  of  capacity  in 1998.  The  Company is
currently in  negotiations  to lease or buy  additional  space in the Niles,  IL
area.  However,  there  can be no  assurance  that  these  negotiations  will be
successful.

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 up to 1,000,000 shares.  Through June 29, 1997, the Company
had  purchased  407,200  shares of its common stock at an average price of $6.90
per share.  Completion of this stock  repurchase  program is permitted under the
Company's  credit  agreement,  subject  to  continued  compliance  with  various
financial covenants.

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

<PAGE>

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
------------------------------------
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  is 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.

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 4 - Submission of Matters to a Vote of Security Holders

          The annual  meeting of  stockholders  of the Company took place on May
          22, 1997. The following matters were voted upon at the meeting:

          The following directors were elected to serve during the year or until
          their successors have been elected.  A summary of voting results is as
          follows:
<TABLE>
<CAPTION>
                                         Tabulation of Votes
                                         -------------------
Name of Director                     For                  Withheld
----------------                     ---                  --------
<S>                               <C>                      <C>
Terrence D. Daniels               5,457,149                17,507
Lawrence S. Eagleburger           5,457,049                17,607
Donald H. Haider                  5,457,149                17,507
Edward T. Harvey, Jr.             5,461,147                13,509
Anthony R. Ignaczak               5,457,149                17,507
Richard J.M. Poulson              5,457,049                17,607
Robert E. Stutz                   5,459,147                15,509
Jay R. Taylor                     5,457,132                17,524
</TABLE>
          The  appointment  of  Coopers & Lybrand as the  Company's  independent
          accountants for the 1997 fiscal year was ratified. A summary of voting
          results is as follows:
<TABLE>
<CAPTION>
                                  Number of Votes
                                  ---------------
<S>                                  <C>
For                                  5,470,320
Against                                  1,161
Abstain                                  3,175
</TABLE>

<PAGE>

Item 6 - Exhibits and Reports of Form 8-K

(A)    Exhibits

       10.4  Purchase   agreement   dated  July  18,  1997  between   Stimsonite
             Corporation  (seller) and Kenneth Spungen  (purchaser) for the sale
             of the Company's facility in Waukegan, Illinois.

       10.5  First  Amendment  dated March 27, 1997 to loan agreement dated July
             23, 1996 between LaSalle National Bank and Harris Trust and Savings
             Bank as a co-lendors and Stimsonite Corporation.

       10.6  Second  Amendment  dated July 1, 1997 to loan agreement  dated July
             23, 1996 between LaSalle National Bank and Harris Trust and Savings
             Bank as co-lendors and Stimsonite Corporation.

       11.1  Statement Regarding Computation of Per Share Earnings.

       27.1  Financial Data Schedule

(B)    Reports on Form 8-K
       The Company did not file any Forms 8-K during the quarter  ended June 29,
       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 August 13, 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>

<TABLE>
                                  Exhibit Index
                                  -------------
<CAPTION>
                                                                  Sequential
Exhibit                                                              Page
Number                Description                                   Number
------                -----------                                  --------
<S>   <C>
10.4  Purchase  agreement  dated July 18, 1997  between  Stimsonite  Corporation
      (seller) and Kenneth  Spungen  (purchaser)  for the sale of the  Company's
      facility in Waukegan, Illinois.

10.5  First Amendment dated March 27, 1997 to loan agreement dated July 23, 1996
      between  LaSalle  National  Bank and Harris  Trust and  Savings  Bank as a
      co-lendors and Stimsonite Corporation.

10.6  Second  Amendment dated July 1, 1997 to loan agreement dated July 23, 1996
      between  LaSalle  National  Bank and  Harris  Trust  and  Savings  Bank as
      co-lendors and Stimsonite Corporation.

11.1  Statement Regarding Computation of Per Share Earnings

27.1  Financial Data Schedule

</TABLE>