FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
o 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: 1-6003
Federal Signal Corporation
(Exact name of Registrant as specified in its charter)
Delaware 36-1063330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 West 22nd Street
Oak Brook, IL 60523
(Address of principal executive offices) (Zip code)
(630) 954-2000
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed since
last report)
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 ____
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Title
Common Stock, $1.00 par value 45,303,000 shares outstanding at April 30, 2000
Part I. Financial Information
Item 1. Financial Statements
INTRODUCTION
The consolidated condensed financial statements of Federal Signal Corporation
and subsidiaries included herein have been prepared by the Registrant, without
audit, 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 such rules and
regulations, although the Registrant believes that the disclosures are adequate
to make the information presented not misleading. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31,
---------------------------
2000 1999
---- ----
Net sales $289,234,000 $253,294,000
Costs and expenses:
Cost of sales 199,807,000 176,219,000
Selling, general and administrative 59,666,000 52,977,000
Other (income) and expenses:
Interest expense 6,970,000 5,187,000
Other (income) and expense, net (25,000) (443,000)
------------- -----------
266,418,000 233,940,000
Income before income taxes 22,816,000 19,354,000
Income taxes 7,580,000 6,307,000
----------- -----------
Net income $ 15,236,000 $ 13,047,000
=========== ===========
COMMON STOCK DATA:
Basic and diluted net income per share $.33 $.29
Weighted average common shares outstanding
Basic 45,613,000 45,436,000
Diluted 45,674,000 45,700,000
Cash dividends per share of common stock $.190 $.185
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Net income $15,236,000 $13,047,000
Other comprehensive loss, net of tax -
Foreign currency translation adjustments (2,295,000) (2,762,000)
---------- ----------
Comprehensive income $12,941,000 $10,285,000
========== ==========
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999 (a)
--------- -----------
(Unaudited)
ASSETS
Manufacturing activities -
Cash and cash equivalents $ 15,582,000 $ 8,764,000
Trade accounts receivable, net of
allowances for doubtful accounts 167,741,000 165,682,000
Inventories:
Raw materials 71,827,000 59,056,000
Work in process 58,802,000 63,064,000
Finished goods 43,047,000 40,589,000
Prepaid expenses 11,937,000 8,982,000
------------- -----------
Total current assets 368,936,000 346,137,000
Properties and equipment:
Land 6,182,000 6,167,000
Buildings and improvements 53,618,000 52,662,000
Machinery and equipment 186,505,000 182,557,000
Accumulated depreciation (128,014,000) (126,023,000)
------------- -----------
Net properties and equipment 118,291,000 115,363,000
Intangible assets, net of
accumulated amortization 287,242,000 277,217,000
Other deferred charges and assets 25,789,000 24,412,000
------------- -----------
Total manufacturing assets 800,258,000 763,129,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 201,988,000 197,832,000
------------- -----------
Total assets $1,002,246,000 $960,961,000
============= ===========
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued
March 31, December 31,
2000 1999 (a)
--------- -----------
LIABILITIES (Unaudited)
Manufacturing activities -
Short-term borrowings $ 156,965,000 $ 99,204,000
Trade accounts payable 76,570,000 74,324,000
Accrued liabilities and income taxes 91,942,000 95,935,000
------------- -----------
Total current liabilities 325,477,000 269,463,000
Long-term borrowings 132,512,000 134,410,000
Deferred income taxes 26,435,000 30,445,000
------------- -----------
Total manufacturing liabilities 484,424,000 434,318,000
Financial services activities - Borrowings 176,302,000 172,610,000
------------- -----------
Total liabilities 660,726,000 606,928,000
SHAREHOLDERS' EQUITY
Common stock - par value 46,997,000 46,889,000
Capital in excess of par value 67,925,000 66,762,000
Retained earnings 283,490,000 276,951,000
Treasury stock (34,307,000) (17,023,000)
Deferred stock awards (2,982,000) (2,238,000)
Accumulated other comprehensive income (19,603,000) (17,308,000)
------------- -----------
Total shareholders' equity 341,520,000 354,033,000
------------- -----------
Total liabilities and
shareholders' equity $1,002,246,000 $ 960,961,000
============= ===========
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Operating activities:
Net income $ 15,236,000 $ 13,047,000
Depreciation 5,052,000 4,352,000
Amortization 2,435,000 1,954,000
Working capital changes and other (5,890,000) (30,838,000)
---------- ----------
Net cash provided by (used for)
operating activities 16,833,000 (11,485,000)
Investing activities:
Purchases of properties and
equipment (5,748,000) (6,464,000)
Principal extensions under
lease financing agreements (34,869,000) (26,549,000)
Principal collections under
lease financing agreements 30,713,000 24,612,000
Payments for purchases of companies,
net of cash acquired (24,401,000) (2,655,000)
Other, net (880,000) 1,119,000
---------- ---------
Net cash used for investing
activities (35,185,000) (9,937,000)
Financing activities:
Additional short-term borrowings, net 61,313,000 27,096,000
Reduction of long-term borrowings (1,758,000) (1,698,000)
Purchases of treasury stock (17,284,000) (278,000)
Cash dividends paid to shareholders (17,243,000) (16,590,000)
Other, net 142,000 1,021,000
---------- ----------
Net cash provided by financing
activities 25,170,000 9,551,000
---------- ----------
Increase (decrease) in cash and cash
equivalents 6,818,000 (11,871,000)
Cash and cash equivalents at
beginning of period 8,764,000 15,316,000
---------- ----------
Cash and cash equivalents at
end of period $ 15,582,000 $ 3,445,000
========== ==========
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. It is suggested that the condensed consolidated financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
2. In the opinion of the Registrant, the information contained herein
reflects all adjustments necessary to present fairly the Registrant's
financial position, results of operations and cash flows for the interim
periods. Such adjustments are of a normal recurring nature. The operating
results for the three months ended March 31, 2000 are not necessarily
indicative of the results to be expected for the full year of 2000.
3. Interest paid for the three-month periods ended March 31, 2000 and 1999
was $6,358,000 and $5,744,000, respectively. Income taxes paid for these
same periods were $2,930,000 and $1,202,000, respectively.
4. The following table summarizes the information used in computing basic and
diluted income per share:
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Numerator for both basic
and diluted income per share
computations - net income $15,236,000 $13,047,000
========== ==========
Denominator for basic income
per share - weighted average
shares outstanding 45,613,000 45,436,000
Effect of employee stock options
(dilutive potential common shares) 61,000 264,000
---------- ----------
Denominator for diluted income
per share - adjusted shares 45,674,000 45,700,000
========== ==========
5. The following table summarizes the Registrant's operations by segment for
the three-month periods ended March 31, 2000 and 1999.
Three months ended March
------------------------
2000 1999
---- ----
Net sales
Environmental Products $ 62,521,000 $ 61,121,000
Fire Rescue 90,771,000 73,107,000
Safety Products 69,990,000 64,197,000
Sign 17,564,000 17,633,000
Tool 48,388,000 37,236,000
----------- -----------
Total net sales $289,234,000 $253,294,000
=========== ===========
Operating income
Environmental Products $ 6,017,000 $ 6,430,000
Fire Rescue 4,873,000 1,404,000
Safety Products 11,229,000 9,121,000
Sign 248,000 1,306,000
Tool 10,152,000 7,922,000
Corporate expense (2,758,000) (2,085,000)
---------- ----------
Total operating income 29,761,000 24,098,000
Interest expense (6,970,000) (5,187,000)
Other income 25,000 443,000
---------- ----------
Income before income taxes $22,816,000 $19,354,000
========== ==========
The basis of segmentation and the basis of measurement of segment profit
or loss are consistent with those used in the Registrant's last annual
report. There have been no material changes in total assets from the
amount disclosed in the Registrant's last annual report.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
FIRST QUARTER 2000
Comparison with First Quarter 1999
Federal Signal Corporation reported a 17% increase in net income to $15.2
million for the first quarter from $13.0 million last year. Diluted earnings per
share rose 14% to $.33 from $.29 in 1999. New orders, sales and backlog achieved
record levels for the quarter. Sales were up 14% to $289 million from $253
million in 1999 and new orders were up 15% to $295 million. Backlog rose 11% to
$401 million from $361 million last year.
All four of the company's largest groups increased new orders and sales over
last year's first quarter. Sales and income growth was led by the Fire Rescue
Group, the largest of Federal's groups, with the Safety Products and Tool groups
also up significantly.
Fire Rescue Group income more than tripled on a 24% sales increase. Sales and
income were up sharply in North American fire apparatus operations as production
substantially exceeded that of the first quarter of 1999. These manufacturing
operations also performed above expectations for the quarter as improvements
implemented by management in 1999 raised throughput and productivity
significantly. Fire access platform income generated by operations in Finland
was below the first quarter of 1999 due to a number of factors; chief among them
were costs and production delays related to new product development. New orders
for the Fire Rescue Group were up 27% on continuing strong major markets.
Environmental Products Group sales were up 2% on a 7% increase in orders. U.S.
sweeper and municipal sewer cleaning vehicle orders were up strongly over last
year's first quarter. While industrial product markets strengthened sequentially
versus the fourth quarter of 1999, group income was down 6% versus last year's
strong first quarter because of unfavorable sales and earnings comparisons for
the group's industrial businesses and product mix within the sweeper segment.
Safety Products Group income was up 23% on a 9% sales increase. New orders
increased 7% as major markets remained strong and the oilfield-related markets
remained weak. The group's very strong income growth and favorable operating
margin resulted from increased sales volume, favorable product mix and
continuing effective cost control.
Tool Group income increased 28% on a 30% sales increase. Overall, Tool's main
markets strengthened importantly during the quarter compared to last year. In
addition, the two acquisitions completed after the first quarter of 1999
provided a significant portion of the quarter's sales and earnings gains and are
performing slightly above our acquisition expectations.
Sign Group sales were flat and income declined significantly on delays in
certain large orders and non-recurring high costs incurred associated with
policy allowances for a major customer. New orders declined 11% as a result of
the order delays referenced above, but the group's bidding activity remains
strong, shifting sales into the latter part of the year.
Cost of sales as a percent of net sales decreased from 69.6% in the first
quarter of 1999 to 69.1% in the first quarter of 2000. The percentage decrease
was largely attributable to increased productivity and significant sales growth
in the Registrant's Fire Rescue Group and improved mix and significant sales
growth in the Safety Products Group. Selling, general and administrative
expenses as a percent of net sales decreased to 20.6% from 20.9% reflecting the
significant increase in sales volume. Interest expense increased to $7.0 million
from $5.2 million largely as a result of increased borrowings to finance recent
business acquisitions, increased financial services assets and additional
purchases of treasury shares. The effective tax rate for the first quarter of
2000 increased slightly to 33.2% from 32.6% in 1999 largely as a result of
taxable earnings increasing faster than tax-exempt revenues.
Seasonality of Registrant's Business
Certain of the Registrant's businesses are susceptible to the influences of
seasonal buying or delivery patterns. The Registrant's businesses which tend to
have lower sales in the first calendar quarter compared to other quarters as a
result of these influences are signage, street sweeping, outdoor warning,
municipal emergency signal products, parking systems and fire rescue products.
Financial Position and Liquidity at March 31, 2000
The current ratio applicable to manufacturing activities was 1.1 at March 31,
2000 compared to 1.3 at December 31, 1999. Working capital (manufacturing
operations) at March 31, 2000 was $43.5 million compared to $76.7 million at the
most recent year-end. The debt-to-capitalization ratio applicable to
manufacturing activities was 48% at March 31, 2000 compared to 42% at December
31, 1999. The decline in the current ratio and working capital since December
31, 1999 is attributable to an increase in short-term debt incurred to fund an
acquisition of a small tool company, payments of dividends to common
shareholders and purchases of additional treasury shares. The
debt-to-capitalization ratio applicable to financial services activities was 87%
at March 31, 2000 and December 31, 1999.
Current financial resources and anticipated funds from the Registrant's
operations are expected to be adequate to meet future cash requirements
including capital expenditures and modest amounts of additional stock
repurchases.
Part II. Other Information
Responses to items one, two, three, five and six are omitted since these items
are either inapplicable or the response thereto would be negative.
Item 4. Submission of Matters to a Vote of Security Holders.
At its Annual Meeting of Stockholders on April 20, 2000, the stockholders of the
Registrant voted to elect two directors and voted against a proposed shareholder
Maximize Value Resolution to put the Registrant up for sale. Out of the
45,689,536 shares entitled to vote, holders of 36,540,010 shares voted.
Shareholders elected James C. Janning a director for a three-year term. Holders
of 35,601,383 shares voted for his election, while holders of 938,626 shares
withheld votes.
Shareholders elected Joseph J. Ross a director for a three-year term. Holders of
35,387,606 shares voted for his reelection, while holders of 1,152,403 shares
withheld votes.
Holders of 26,033,741 shares voted against the shareholder resolution, holders
of 3,881,378 shares voted for it, while holders of 972,887 shares withheld
votes; there were 5,652,004 shares of broker nonvotes.
Charles R. Campbell, Paul W. Jones, James A. Lovell, Jr., Thomas N. McGowen, Jr.
and Richard R. Thomas are the other directors of the Registrant whose term of
office as directors continued after the meeting
Pursuant to the requirements 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.
SIGNATURES
Pursuant to the requirements 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.
Federal Signal Corporation
05/15/00 By: /s/ Henry L. Dykema
Date Henry L. Dykema, Vice President and Chief
Financial Officer