EXHIBIT 13
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1993 ANNUAL REPORT TO SHAREHOLDERS OF FEDERAL SIGNAL CORPORATION
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FEDERAL SIGNAL CORPORATION
Selected Financial Data
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983
Operating Results (in millions):
Net sales $ 565.2 $ 518.2 $ 466.9 $ 439.4 $ 398.4 $ 361.4 $ 305.8 $ 273.3 $ 264.5 $ 241.3 $ 208.5
Income before income taxes (a) $ 58.8 $ 49.9 $ 45.6 $ 42.5 $ 34.6 $ 28.4 $ 23.8 $ 20.9 $ 16.3 $ 14.9 $ 10.6
Income from continuing operations (b) $ 39.8 $ 34.5 $ 31.0 $ 28.1 $ 22.1 $ 18.2 $ 14.5 $ 12.3 $ 11.9 $ 9.2 $ 6.4
Common Stock Data (per share) (c):
Income from continuing operations $ 0.86 $ 0.75 $ 0.67 $ 0.61 $ 0.48 $ 0.40 $ 0.31 $ 0.26 $ 0.26 $ 0.20 $ 0.14
Cash dividends $ 0.36 $ 0.32 $ 0.27 $ 0.22 $ 0.19 $ 0.16 $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.15
Market price range:
High $21- $17-5/8 $15-1/4 $10-3/4 $7-1/8 $4-7/8 $4-7/8 $4-1/2 $3-3/4 $3-5/8 $4-1/4
Low $15-3/4 $12-3/8 $9-1/4 $6-1/4 $4-1/4 $3-1/2 $2-7/8 $3-1/8 $2-5/8 $2-1/2 $2-7/8
Average common shares
outstanding (in thousands) 46,293 46,128 46,126 46,038 46,103 45,639 47,137 46,767 45,335 45,357 45,716
Financial Position at Year-End
(dollars in millions):
Working capital (d) $ 52.8 $ 49.5 $ 44.9 $ 42.7 $ 63.8 $ 59.5 $ 53.9 $ 52.8 $ 58.2 $ 60.6 $ 60.3
Current ratio (d) 1.5 1.6 1.5 1.5 2.1 2.0 1.9 2.2 2.3 2.5 2.6
Total assets $ 405.7 $ 363.7 $ 341.2 $ 295.8 $ 271.3 $ 251.1 $ 233.3 $ 191.4 $ 187.4 $ 178.7 $ 166.2
Shareholders' equity $ 199.2 $ 179.0 $ 164.8 $ 146.4 $ 130.4 $ 115.5 $ 103.2 $ 102.4 $ 91.1 $ 85.3 $ 84.7
% Debt to capitalization ratio (d) 1 2 1 2 10 18 22 4 15 18 20
% Return on average common
shareholders' equity 21.0 20.0 20.0 20.4 18.7 17.0 14.5 12.2 13.3 11.0 8.5
Other (dollars in millions) (e):
New business $ 584.2 $ 510.3 $ 462.7 $ 467.6 $ 429.9 $ 382.4 $ 328.3 $ 276.4 $ 274.6 $ 246.5 $ 225.6
Backlog $ 221.8 $ 198.0 $ 203.2 $ 199.9 $ 171.7 $ 140.2 $ 119.2 $ 96.7 $ 93.6 $ 83.5 $ 78.3
Cash flow from operations $ 48.8 $ 40.2 $ 43.9 $ 48.3 $ 34.6 $ 22.5 $ 20.1 $ 22.7 $ 16.5 $ 13.6 $ 2.1
Capital expenditures $ 10.1 $ 8.8 $ 12.0 $ 8.3 $ 9.2 $ 7.3 $ 6.9 $ 6.3 $ 6.9 $ 4.5 $ 6.9
Depreciation $ 9.2 $ 8.7 $ 8.2 $ 7.8 $ 7.9 $ 7.1 $ 5.5 $ 5.2 $ 5.3 $ 4.8 $ 4.1
Employees 4,426 4,268 4,212 4,158 4,142 3,880 3,653 3,183 3,190 2,962 2,830
<FN>
(a) in 1985, reflects pre-tax provisions to expense for non-recurring charges of $4.6 million
(b) in 1992, reflects net cumulative effects of accounting changes for postretirement benefits and income taxes of $30,000;
in 1985, reflects cumulative effect of accounting change for investment tax credits of $2.2 million and after-tax
provisions to expense for non-recurring charges of $2.3 million
(c) reflects 10% stock dividends each paid in 1983, 1988 and 1989, 3-for-2 stock splits in 1990, 1991 and 1992, and a 4-for-3
stock split distributable March 1, 1994
(d) manufacturing operations only
(e) continuing operations only
FINANCIAL REVIEW
Consolidated Results of Operations
Federal Signal Corporation again achieved record levels of net sales
(28th consecutive annual increase) and net income (10th consecutive
annual increase). Net sales increased to $565.2 million, 9% higher
than 1992's $518.2 million. Net income increased 15% to $39.8
million in 1993 from $34.5 million in 1992. These increases follow
1992's increases of 11% in sales and in net income. Net income per
share for 1993 increased 15% to $.86 per share compared to $.75 in
1992 and $.67 per share in 1991.
The 1993 sales increase of 9% resulted from volume increases of 8%
(including 4% resulting from the acquisition of Guzzler
Manufacturing, Inc. in March) and price increases of 1%. Domestic
sales increased 14% in 1993 while foreign sales declined 7% from
1992's record levels. Excluding the sales of Guzzler, domestic sales
were 10% higher in 1993 while foreign sales declined 9% due largely
to the recessionary European economic environment. In light of the
generally slow-growth nature of the domestic economy as well as the
slow-growth nature of most of the company's markets, the company
anticipates domestic sales growth in 1994 will be somewhat lower than
1993's rate. Foreign sales are expected to again increase in 1994.
Foreign sales accounted for 20% of the company's total sales in 1993
compared to 23% of total sales in 1992.
The 1993 sales increases follow an 11% increase in sales in 1992 over
1991 levels. The increase in sales in 1992 resulted from volume
increases of 10% and price increases of 1%. Excluding the effect of
companies acquired in 1992 and in late 1991, domestic sales were even
with 1991 levels. Foreign sales increased 52% in 1992 including 22%
from companies acquired in 1992 and late 1991.
Operating margins have increased from 10.6% in 1989 to 11.3% in 1993,
despite generally declining gross profit margins as the following
data shows:
(percent of sales)
1993 1992 1991 1990 1989
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 67.8 68.2 67.9 66.8 66.3
Gross profit margin 32.2 31.8 32.1 33.2 33.7
Selling, general and
administrative expenses 20.9 21.2 21.3 22.4 23.1
Operating margin 11.3% 10.6% 10.8% 10.8% 10.6%
Gross profit margins have generally declined principally due to
sales of the Vehicle Group increasing more rapidly than sales of the
other groups. The Vehicle Group normally experiences higher cost of
sales percentages but lower operating expense percentages than the
other groups. This was exacerbated in 1992 due to the late 1991
acquisitions of Superior Emergency Vehicles and Frontline Emergency
Vehicles. This trend reversed in 1993 due to improving gross
margins of three of the company's four groups, most notably Signal
and Sign. Due to the reorganization costs incurred in 1992 for
newly acquired businesses and certain costs incurred at Ravo for
development and other operational changes, the percentage of
selling, general and administrative expenses did not decline in 1992
as rapidly as normally would be expected. In 1993, however,
reductions in the percentage of selling, general and administrative
costs did occur. The reduction in 1993 occurred as a result of: 1)
higher sales, and the resultant impact of fixed costs being spread
over those higher sales, and 2) operational improvements made,
particularly in the Sign Group. All of the company's groups
continue to work toward reducing their manufacturing and purchase
costs as well as seek improved operating efficiencies.
Because of the varied nature of the company's operations, the
company recognizes that changes in operating income as a percentage
of net sales on a consolidated basis may sometimes distort its real
operating performance. In order to monitor the operating
performance of its operations, the company utilizes various methods,
one of which is a return on assets approach. Return on assets is
defined as operating income divided by the identifiable assets of
its businesses. In recent years, the company's operations have
achieved strong returns as summarized in the chart below.
The company has improved its returns on assets of its existing
businesses over the years by increasing profit margins and asset
turnover. Returns for the total company remained even with last
year's level. Return on assets for the Signal and Sign Groups
increased significantly above 1992 results while returns for the
Tool and Vehicle Groups declined. Excluding the effects of
acquisitions made in 1993 and late 1992, returns on manufacturing
assets for the total company and the Tool Group improved over 1992
results while the return for the Vehicle Group remained even.
The company acquires businesses which facilitate and meet the
company's growth and other strategic objectives. It is anticipated
that businesses acquired will not generate the same levels of
returns as the company's other businesses for some time following
their respective acquisition. However, the company's strategies
include making constant improvements in all of its businesses. The
results of these efforts are evidenced by the improving returns on
manufacturing assets of businesses operated for two years or more.
Excluding the effects of the companies acquired in 1993 and late
1992, the company's return on manufacturing assets increased to 24%
in 1993 from 22% in 1992. The declines in 1992 and 1991 were due
solely to the acquisitions made during those respective years or
late in previous years. Excluding the effects of companies acquired
in 1992 and late 1991, return on assets in 1992 was 26%, or equal to
1991's 26% determined on a similar basis. In addition to continuing
programs undertaken to reduce manufacturing and operating costs and
improve productivity, the company also has continuing programs to
improve asset turnover. Improving inventory turnover and
accelerating the collection of accounts receivable have also had a
significant positive impact on return on assets.
Interest expense declined $.3 million in 1993 following an increase
of $.8 million in 1992. The decline in 1993 was the result of lower
interest rates offset partially by increased average borrowings.
Increased borrowings were incurred to support increases in the
company's financial services activities, fund repurchases of the
company's stock at the end of 1992, and fund the purchase of Guzzler
Manufacturing in March 1993. Purchases of companies in 1992,
increases in the company's financial services assets and repurchases
of the company's stock at the end of 1991 resulted in the increase
in interest expense in 1992.
The company's effective tax rate of 32.3% in 1993 increased from
rates of 31.0% and 31.9% in 1992 and 1991, respectively, largely as
a result of the enacted change in the statutory federal income tax
rate in 1993.
Effective January 1, 1992, the company adopted the provisions of
Statements of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," and No. 109, "Accounting for Income Taxes." See
discussions of the respective provisions of these statements in
Note B to the financial statements. In November 1992, the Financial
Accounting Standards Board issued SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." This statement is required
to be adopted no later than for the year ended 1994. The company
anticipates that the adoption of this statement will have an
insignificant impact on results of operations in 1994 and future
years.
At the end of 1993, the company changed its assumptions for discount
rates used in determining the actuarial present values of
accumulated and projected benefit obligations for its postretirement
plans from 8.5% to 7.6%. This reduction resulted from the lower
interest rate environment being experienced at the end of 1993. The
company also reduced its estimate for projected rates of increase in
compensation levels from 5% to 4% for future years as a result of
continued low levels of inflation, the expectation that low levels
will continue for the foreseeable future and the fact that average
increases, for some time, have been at lower than assumed rates.
The company expects that the changes in assumptions will have an
insignificant impact on 1994 results of operations.
Group Operations
Except for the company's Sign Group, domestic markets were generally
stronger in 1993 compared to relatively weak markets in 1992 and
1991. As mentioned previously, foreign sales declined somewhat from
the record levels achieved in 1992 due to weak economies experienced
in key overseas markets. All four of the company's groups
experienced increases in both sales and operating income in 1993.
The Sign and Signal Groups achieved the most significant earnings
increases.
Signal
All of the group's units experienced improved profitability in 1993
and contributed to the group's 20% increase in earnings. Signal
Group sales increased 9% in 1993 as all units also experienced
increased sales over 1992 levels. A small portion of the sales
increase was attributable to the full year inclusion of VAMA
acquired in May 1992. Domestic sales were up 3% while foreign sales
increased 35%. In 1992, earnings increased 22% on a sales increase
of 18%. About one-third of the sales increase in 1992 resulted from
the acquisition of VAMA. The group's 1992 domestic sales increased
13% while foreign sales increased 47% (9% excluding the effect of
VAMA).
For the seventh consecutive year, the Signal Group's operating
margin increased. Continued emphasis on cost reductions and the
impact of new product sales and increased penetration of foreign
markets contributed to the improved results including an increase in
the group's return on manufacturing assets. The Signal Group
continued its efforts to further improve its manufacturing
throughput and reduce manufacturing costs and operating expenses.
Signal Products continued to make improvements in its inventory
turnover. Reductions in inventories have resulted in LIFO credits
of $.3 million in 1993 and $.5 million in both 1992 and 1991. The
acquisition of VAMA in 1992 resulted in a dilutive effect on the
group's return on manufacturing assets. Excluding the effects of
VAMA, the group's return on manufacturing assets in 1992 increased
to 38%. The company expects that further operational improvements,
particularly at VAMA, will result in improved asset returns in the
future.
Sign
The Sign Group posted losses in 1992 and 1991 following profitable
years in 1989 and 1990. In 1993, Sign returned to profitability,
albeit at a modest level. Severe declines in 1990 and 1991 and an
additional slight decline in 1992 in commercial and industrial
construction activity caused severe price competition and excess
capacity in the custom sign industry. As a result, the Sign Group's
sales and profitability declined dramatically during that period.
In 1990, the group began taking steps to consolidate its
manufacturing resources. These efforts continued into 1993 along
with improvements in its systems and support activities. During
1993, Sign's markets appeared to have stabilized. Significant
reductions in operating expenses, increased training, and a focus on
higher margin sales resulted in improved profitability in 1993.
While the group's market conditions will likely continue to be weak
in the near term, management is confident that the group's markets
in 1994 will be somewhat similar to those experienced in 1993. The
steps taken by the group and the continued stable market conditions
expected for 1994 should result in improved operating results next
year.
Tool
In 1993, the Tool Group achieved a 7% increase in income and a 12%
increase in sales. Domestic sales increased 17% in 1993, of which
about one-half resulted from the late 1992 acquisition of Dico
Corporation. Foreign sales declined 7% in 1993 largely due to the
weak economies in Europe and Japan. All of the Tool Group businesses
achieved higher sales and earnings principally as a result of domestic
sales gains. The 1993 sales increases follow domestic and foreign
sales increases of 10% and 20%, respectively, in 1992. The decline in
the return on manufacturing assets in 1991 was principally due to
competitive price pressure which negatively affected margins. Returns
on manufacturing assets available through investments in newly
acquired companies have been lower than historical returns produced by
existing operations. As mentioned earlier, this is anticipated in the
company's acquisition objectives. Excluding the impact of Dico,
acquired in late 1992, the return on manufacturing assets increased to
42% in 1993 from 41% in 1992.
Vehicle
Earnings for the Vehicle Group increased 7% in 1993 on a sales
increase of 9%. Most of the sales increase and about half of the
earnings increase were attributable to the addition of the sales and
earnings of Guzzler Manufacturing, Inc., acquired in March 1993.
Domestic sales increased 20% in 1993. About half of the domestic
increase resulted from the acquisition of Guzzler. Foreign sales
declined 16% in 1993 from 1992's record levels due to weaker markets,
particularly in Europe. Sales in 1992 increased 12%, about two-thirds
of which resulted from the acquisitions of Superior Emergency Vehicles
and Frontline Emergency Vehicles. Earnings increased 3% in 1992 as
performance improvements at Emergency One were partially offset by
substantial reorganization costs incurred by newly acquired businesses
and by costs related to product development and operational changes at
Ravo. Return on manufacturing assets declined in 1992 and again in
1993 due to the effects of companies acquired. Excluding the impact
of the acquisition of Guzzler in 1993, return on manufacturing assets
was 17%.
Financial Services Activities
The company maintains a large investment ($111.6 million at 1993's
year-end) in lease financing receivables which are generated
principally by its vehicle operations with the balance generated by
its sign operations. These assets continued to be conservatively
leveraged at or below the company's stated financial objectives for
these assets for the five-year period ending December 31, 1993 (see
further discussion in Financial Position and Cash Flow).
Financial services assets have repayment terms generally ranging from
two to ten years. The increases in these assets resulted from
increasing sales of the Vehicle Group as well as continuing greater
acceptance by customers of the benefits of using Federal as their
source of financing vehicle purchases.
Financial Position and Cash Flow
The company continues to place emphasis on generating strong cash
flows from its operations. During 1993, cash flow from operations
increased to a level of $48.8 million compared to $40.2 million in
1992 and $43.9 million in 1991. These results are directly reflective
of: 1) efforts to lower costs; and 2) the amount of improvement
(reduction) in the relative amounts of working capital required to
support the company's increased sales volumes. The company has
reduced its working capital to sales ratio by nearly half since 1987
principally by improving its days-sales-outstanding and inventory
turnover ratios. As a result of the reductions achieved so far, the
company anticipates that significant further reduction in the working
capital to sales ratio is unlikely to be achieved going forward.
Nevertheless, the company expects to continue to focus aggressively on
improving its efficiencies and costs as well as its working capital
management.
During the 1989-1993 period, the company has utilized its strong cash
flows from operations to: 1) fund in whole or in part strategic
acquisitions of companies operating in markets related to those
already served by the company; 2) purchase increasing amounts of
equipment principally to provide for further cost reductions and
increased productive capacity for the future as well as tooling for
new products; 3) increase its investment in financial services
activities; 4) pay increasing amounts in cash dividends to
shareholders; and 5) repurchase up to 1-2% of its outstanding common
stock each year.
Cash flows for the five-year period ending December 31, 1993 are
summarized as follows:
(in millions of dollars)
1993 1992 1991 1990 1989
Cash provided by
(used for):
Operating activities $ 48.8 $ 40.2 $ 43.9 $ 48.3 $ 34.6
Investing activities (38.1) (26.9) (47.8) (14.7) (24.1)
Financing activities (10.3) (11.2) 2.5 (34.6) (8.9)
Increase (decrease) in
cash and cash
equivalents $ .4 $ 2.1 $ (1.4) $ (1.0) $ 1.6
In order to present the distinct characteristics of the company's
investment in its manufacturing activities and its investment in its
financial services activities, the company has presented separately
these investments and their related liabilities. Each of these two
types of activities are supported by different percentages of debt and
equity.
One of the company's financial objectives is to maintain a strong
financial position. The company defines its goal as normally having a
debt to capitalization ratio of 30% or less for its manufacturing
operations. At December 31, 1993 and 1992, the company's debt to
capitalization ratios of its manufacturing operations were 1% and 2%,
respectively. Also, at December 31, 1993 and 1992, the company's debt
to capitalization ratios for its financial services activities were
86% and 82%, respectively. The company believes that its financial
assets, due to their overall quality, are capable of sustaining a
leverage ratio in the range of 85% to 87% on average. The company
intends to maintain this range of leverage for its financial
activities in the future and at the same time fulfill its financial
objective with respect to its manufacturing debt to capitalization
ratio. These intentions are consistent with its investment grade
credit rating obtained in connection with its commercial paper
program.
As indicated earlier, substantial effort is focused on improving the
utilization of the company's working capital. The company's current
ratio for its manufacturing operations was 1.5 at December 31, 1993
and 1.6 at December 31, 1992. These ratios are slightly lower than
those in prior years as a result of reduced working capital needs for
receivables and inventories and improved management of cash
disbursements. The company anticipates that its financial resources
and major sources of liquidity, including cash flow from operations,
will continue to be adequate to meet its operating and capital needs
in addition to its financial commitments.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1993 1992
Assets
Manufacturing activities:
Current assets
Cash and cash equivalents $ 2,576,000 $ 2,223,000
Accounts receivable, net of allowances
for doubtful accounts of $2,215,000
and $1,688,000, respectively 81,593,000 70,704,000
Inventories - Note C 63,022,000 58,185,000
Prepaid expenses 4,627,000 4,618,000
Total current assets 151,818,000 135,730,000
Properties and equipment - Note D 62,204,000 61,269,000
Other assets
Intangible assets, net of accumulated amortization 65,436,000 54,272,000
Other deferred charges and assets 15,666,000 8,399,000
Total manufacturing assets 295,124,000 259,670,000
Financial services activities
Lease financing receivables, net of allowances for
doubtful accounts of $976,000 and $1,138,000,
respectively, and net of unearned finance
revenue - Note E 110,580,000 103,989,000
Total assets $405,704,000 $363,659,000
Liabilities and Shareholders' Equity
Manufacturing activities:
Current liabilities
Short-term borrowings - Note F $ 282,000 $ 259,000
Accounts payable 33,363,000 26,074,000
Accrued liabilities
Compensation and withholding taxes 16,601,000 16,004,000
Other - Note B 44,541,000 37,544,000
Income taxes - Notes B and G 4,269,000 6,349,000
Total current liabilities 99,056,000 86,230,000
Other liabilities
Long-term borrowings - Note F 1,344,000 3,548,000
Deferred income taxes - Notes B and G 10,929,000 9,435,000
Total manufacturing liabilities 111,329,000 99,213,000
Financial services activities - Note F
Short-term borrowings 75,433,000 72,794,000
Long-term borrowings 19,734,000 12,672,000
Total financial services liabilities 95,167,000 85,466,000
Total liabilities 206,496,000 184,679,000
Contingency - Note M
Shareholders' equity - Notes I and J
Common stock, $1 par value, 90,000,000 shares
authorized, 45,738,000 and 34,478,000 shares
issued, respectively 45,738,000 34,478,000
Capital in excess of par value 54,045,000 71,422,000
Retained earnings - Note F 105,471,000 82,160,000
Treasury stock, 264,000 shares, at cost (5,227,000)
Deferred stock awards (1,715,000) (1,941,000)
Foreign currency translation adjustment (4,331,000) (1,912,000)
Total shareholders' equity 199,208,000 178,980,000
Total liabilities and shareholders' equity $405,704,000 $363,659,000
<FN>
See notes to consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1993 1992 1991
Net sales $565,163,000 $518,223,000 $466,939,000
Other income, net 1,048,000 1,214,000 691,000
Costs and expenses
Cost of sales 383,087,000 353,231,000 317,135,000
Selling, general and administrative 118,192,000 109,834,000 99,257,000
Interest expense 6,136,000 6,471,000 5,649,000
Total costs and expenses 507,415,000 469,536,000 422,041,000
Income before income taxes 58,796,000 49,901,000 45,589,000
Income taxes - Note G 19,016,000 15,471,000 14,543,000
Income before cumulative effects of changes in
accounting methods 39,780,000 34,430,000 31,046,000
Cumulative effects of changes in accounting
methods - Note B 30,000
Net income $ 39,780,000 $ 34,460,000 $ 31,046,000
Net income per share* $ 0.86 $ 0.75 $ 0.67
Average common shares outstanding* 46,293,000 46,128,000 46,126,000
<FN>
*adjusted for 4-for-3 stock split distributable March 1, 1994
See notes to consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1993 1992 1991
Operating activities
Net income $39,780,000 $34,460,000 $31,046,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,215,000 8,732,000 8,225,000
Cumulative effects of changes in accounting methods (30,000)
Provision for doubtful accounts 2,710,000 2,521,000 2,310,000
Deferred income taxes (350,000) 2,213,000 266,000
Other, net (1,844,000) (764,000) 1,576,000
Changes in operating assets and liabilities net of
effects from acquisitions and divestitures of companies
Accounts receivable (10,742,000) 1,165,000 (6,307,000)
Inventories (400,000) 1,054,000 7,680,000
Prepaid expenses (935,000) 1,126,000 (431,000)
Accounts payable 5,193,000 (4,170,000) 1,857,000
Accrued liabilities 3,378,000 (4,474,000) (1,270,000)
Income taxes 2,746,000 (1,594,000) (1,049,000)
Net cash provided by operating activities 48,751,000 40,239,000 43,903,000
Investing activities
Purchases of properties and equipment (10,139,000) (8,835,000) (12,034,000)
Principal extensions under lease financing agreements (70,470,000) (66,400,000) (61,351,000)
Principal collections under lease financing agreements 64,041,000 63,063,000 40,096,000
Payments for purchases of companies, net of cash acquired (22,869,000) (14,825,000) (17,042,000)
Other, net 1,378,000 79,000 2,540,000
Net cash used for investing activities (38,059,000) (26,918,000) (47,791,000)
Financing activities
Addition to short-term borrowings 2,542,000 8,160,000 19,773,000
Principal payments on long-term borrowings (1,002,000) (1,215,000) (843,000)
Principal extensions under long-term borrowings 5,080,000
Purchases of treasury stock (1,778,000) (4,679,000) (5,597,000)
Cash dividends paid to shareholders (15,938,000) (13,848,000) (11,710,000)
Other, net 757,000 391,000 846,000
Net cash provided by (used for) financing activities (10,339,000) (11,191,000) 2,469,000
Increase (decrease) in cash and cash equivalents 353,000 2,130,000 (1,419,000)
Cash and cash equivalents at beginning of year 2,223,000 93,000 1,512,000
Cash and cash equivalents at end of year $ 2,576,000 $ 2,223,000 $ 93,000
<FN>
See notes to consolidated financial statements.
Federal Signal Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note A - Significant Accounting Policies
Principles of consolidation: The consolidated financial statements
include the accounts of Federal Signal Corporation and all of its
subsidiaries.
Cash equivalents: The company considers all highly liquid
investments with a maturity of three months or less, when purchased,
to be cash equivalents.
Inventories: Inventories are stated principally at the lower of
last-in, first-out (LIFO) cost or market.
Properties and depreciation: Properties and equipment are stated at
cost. Depreciation, for financial reporting purposes, is computed
principally on the straight-line method over the estimated useful
lives of the assets.
Intangible assets: Intangible assets principally consist of costs in
excess of fair values of net assets acquired in purchase transactions
and are generally being amortized over forty years. Accumulated
amortization aggregated $6,737,000 and $4,949,000 at December 31,
1993 and 1992, respectively.
Revenue recognition: Substantially all of the company's sales are
recorded as products are shipped or services are rendered. The
percentage-of-completion method of accounting is used in certain
instances for custom-manufactured products where, due to the nature
of specific orders, production and delivery schedules exceed normal
schedules.
Income per share: Income per share was computed on the basis of the
weighted average number of common and common equivalent shares
(dilutive stock options) outstanding during the year. Income per
share amounts have been restated to give retroactive effect to the
split to be distributed March 1, 1994 (See Note K).
Note B - Changes in Accounting for Postretirement Benefits and
Income Taxes
Effective January 1, 1992, the company adopted the provisions of
Statements of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," and No. 109, "Accounting for Income Taxes." The
provisions of SFAS No. 106 require that expenses associated with
certain postretirement benefits be recognized during the eligible
service lives of the respective employees. Prior to adoption of SFAS
No. 106, the company recorded the expenses for such benefits when the
claims were incurred. The company elected to recognize the
transition obligation of $1,931,000 ($1,231,000 net of the related
income tax benefits) immediately in net income in 1992, the year of
adoption. The provisions of SFAS No. 109 require that income tax
liabilities and assets are to be determined based upon tax rates and
legislation enacted as of the respective balance sheet date. Prior
to the company's adoption of SFAS No. 109, the company's income tax
liabilities and assets were determined using historical tax rates.
The company elected to record the cumulative adjustment of $1,261,000
in net income in 1992, the year of adoption. Net income and related
per share amounts would not be significantly different if the
provisions of these statements had been used by the company in 1991.
The following summarizes the changes in the balance sheet at
December 31, 1992 resulting from the adoptions of SFAS No. 106 and
No. 109.
Increase (decrease) in $000
SFAS SFAS
No. 106 No. 109 Total
Manufacturing assets $ $ (210) $ (210)
Manufacturing liabilities 1,231 (1,471) (240)
Retained earnings (1,231) 1,261 30
Note C - Inventories
Inventories at December 31 are summarized as follows:
1993 1992
Finished goods $15,860,000 $11,856,000
Work in process 18,567,000 19,975,000
Raw materials 28,595,000 26,354,000
Total inventories $63,022,000 $58,185,000
If the first-in, first-out cost method, which approximates
replacement cost, had been used by the company, inventories would
have aggregated $71,541,000 and $66,981,000 at December 31, 1993 and
1992, respectively.
Note D - Properties and Equipment
A comparative summary of properties and equipment at December 31 is
as follows:
1993 1992
Land $ 5,502,000 $ 5,578,000
Buildings and improvements 36,014,000 34,279,000
Machinery and equipment 93,481,000 88,607,000
Accumulated depreciation (72,793,000)(67,195,000)
Total properties and equipment $62,204,000 $61,269,000
Note E - Lease Financing Receivables
As an added service to its customers, the company is engaged in
financial services activities. These activities primarily consist of
providing long-term financing for certain customers of the company's
sign and vehicle operations. A substantial portion of the lease
financing receivables of the Vehicle Group are due from
municipalities. Financing is provided through sales-type lease
contracts with terms which range typically as follows:
Sign-related leases 3 - 5 years
Vehicle-related leases 2 - 10 years
At the inception of the lease, the company records the product sales
price and related costs and expenses of the sale. Financing revenues
are included in income over the life of the lease. The amounts
recorded as lease financing receivables represent amounts equivalent
to normal selling prices less subsequent customer payments.
Lease financing receivables will become due as follows:
$40,239,000 in 1994, $21,077,000 in 1995, $16,666,000 in 1996,
$12,104,000 in 1997, $8,062,000 in 1998 and $13,408,000 thereafter.
At December 31, 1993 and 1992, unearned finance revenue on these
leases aggregated $18,924,000 and $21,328,000, respectively.
Note F - Debt
Short-term borrowings at December 31 consisted of the following:
1993 1992
Commercial paper $21,422,000 $
Notes payable 53,021,000 72,794,000
Current maturities of long-term debt 1,272,000 259,000
Total short-term borrowings $75,715,000 $73,053,000
Long-term borrowings at December 31 consisted of the following:
1993 1992
7.59% unsecured note payable in 2001
($4,000,000) and 2002 ($8,000,000) $12,000,000 $12,000,000
6.58% unsecured discounted notes
payable in eight annual installments
of $1,000,000 beginning in 1994 and
ending in 2001 6,403,000
Other 3,947,000 4,479,000
Subtotal 22,350,000 16,479,000
Less current maturities 1,272,000 259,000
Total long-term borrowings $21,078,000 $16,220,000
The above amounts of short-term and long-term borrowings are
apportioned to the following activities of the company at December
31:
Short-term 1993 1992
Manufacturing activities $ 282,000 $ 259,000
Financial services activities 75,433,000 72,794,000
Total short-term borrowings $75,715,000 $73,053,000
Long-term
Manufacturing activities $ 1,344,000 $ 3,548,000
Financial services activities 19,734,000 12,672,000
Total long-term borrowings $21,078,000 $16,220,000
The company's financial assets are, due to their overall quality,
capable of sustaining a leverage ratio of 85% to 87% on average.
Mortgage debt and debt not otherwise apportioned to the company's
financial activities is apportioned to manufacturing activities.
Aggregate maturities of long-term debt amount to approximately
$1,272,000 in 1994, $1,186,000 in 1995, $1,122,000 in 1996,
$3,399,000 in 1997 and $1,042,000 in 1998. The company believes that
the fair values of borrowings are not substantially different from
recorded amounts.
The 7.59% note was renegotiated in late 1993; as a result, the
interest rate was reduced from 10.85% and the amounts payable were
each extended seven years beyond the original respective payment
dates. The note contains various restrictions relating to
maintenance of minimum working capital, amount of short-term debt,
payments of cash dividends, purchases of the company's stock, and
principal and interest of any subordinated debt. All of the
company's retained earnings at December 31, 1993 were free of any
restrictions.
At December 31, 1993, the company had various agreements with
financial institutions to swap interest rates on notional amounts
totaling $15,000,000 thereby reducing its exposure to floating
interest rates on a portion of its outstanding variable rate loans.
The agreements provide that the company will pay interest at an
average fixed annual rate of 6.09% and will receive interest based
upon the London Interbank Offered Rate (LIBOR) or the Federal Reserve
Statistical Release (Form H.15) one-month composite commercial paper
rate. The agreements expire in various amounts and at various dates
from 1994 to 1995.
The company paid interest of $5,437,000 in 1993, $5,871,000 in 1992
and $5,527,000 in 1991.
At December 31, 1993, the company had unused credit lines of
$60,000,000, which expire on June 20, 1996. Commitment fees, paid in
lieu of compensating balances, were insignificant.
Note G - Income Taxes
The provisions for income taxes consisted of the following:
1993 1992 1991
Current:
Federal and foreign $17,200,000 $11,817,000 $12,919,000
State and local 1,946,000 1,441,000 1,358,000
Total 19,146,000 13,258,000 14,277,000
Deferred (credit):
Federal and foreign (226,000) 2,117,000 243,000
State and local (124,000) 96,000 23,000
Total (350,000) 2,213,000 266,000
Enacted rate change
effect on deferred
liabilities 220,000
Total income taxes $19,016,000 $15,471,000 $14,543,000
Differences between the statutory federal income tax rate and the
effective income tax rate are summarized below:
1993 1992 1991
Statutory federal income tax rate 35.0% 34.0% 34.0%
State income taxes, net of federal
tax benefit 2.0 2.0 2.0
Tax-exempt interest (3.0) (3.4) (3.5)
Enacted rate change effect on
deferred liabilities .4
Other, net (2.1) (1.6) (.6)
Effective income tax rate 32.3% 31.0% 31.9%
In the accompanying balance sheets, the caption "Income taxes"
includes net deferred income tax benefits of $2,057,000 in 1993 and
$110,000 in 1992. The company paid income taxes of $16,938,000 in
1993, $13,503,000 in 1992 and $14,208,000 in 1991.
Deferred tax liabilities (assets) comprised the following at
December 31, 1993: Depreciation and amortization - $10,708,000;
revenue recognized on lease financing receivables and custom
manufacturing contracts - $8,393,000; accrued expenses deductible in
future periods - $(7,593,000); and other $(2,636,000). Deferred tax
liabilities (assets) comprised the following at December 31, 1992:
Depreciation and amortization - $9,572,000; revenue recognized on
lease financing receivables and custom manufacturing contracts -
$7,678,000; accrued expenses deductible in future periods -
$(6,556,000); and other $(1,369,000).
Note H - Postretirement Benefits
The company and its subsidiaries sponsor a number of defined benefit
retirement plans covering certain of its salaried employees and
hourly employees not covered by plans under collective bargaining
agreements. Benefits under these plans are primarily based on final
average compensation as defined within the provisions of the
individual plans. The company's policy is to contribute amounts
sufficient to meet the minimum funding requirements of applicable
laws and regulations. Plan assets consist principally of a broadly
diversified portfolio of equity securities, corporate and U.S.
Government obligations and guaranteed-return insurance contracts.
The company also participates in several multiemployer retirement
plans which provide benefits to employees under certain collective
bargaining agreements.
Pension expense is summarized as follows:
1993 1992 1991
Company-sponsored plans
Service cost $1,511,000 $1,415,000 $1,350,000
Interest cost 2,290,000 2,053,000 1,923,000
Return on plan assets (6,428,000) (3,827,000) (6,171,000)
Other amortization and
deferral 1,943,000 (219,000) 2,591,000
Total (684,000) (578,000) (307,000)
Multiemployer plans 561,000 530,000 508,000
Total pension expense
(credit) $ (123,000) $ (48,000) $ 201,000
The following summarizes the funded status of the company-sponsored
plans at December 31, 1993 and 1992 and the major assumptions used
to determine these amounts. At December 31, 1993 and 1992, all of
the company's plans had assets which exceeded accumulated benefits.
1993 1992
Actuarial present value of:
Vested benefit obligation $24,193,000 $18,674,000
Nonvested benefits 1,874,000 1,369,000
Accumulated benefit obligation $26,067,000 $20,043,000
Actuarial present value of projected
benefit obligation $32,457,000 $26,808,000
Plan assets at market value 45,058,000 39,843,000
Plan assets in excess of projected
benefit obligation 12,601,000 13,035,000
Unrecognized net obligation at
January 1, 1993 and 1992,
respectively (2,455,000) (2,640,000)
Unrecognized net experience
(gain) (10,646,000) (11,579,000)
Accrued pension liability $( 500,000) $(1,184,000)
The following significant assumptions were used in determining
pension costs for the years ended December 31, 1993, 1992 and 1991:
1993 1992 1991
Discount rate 8.5% 8.5% 9%
Rate of increase in
compensation levels 5% 5% 6%
Expected long-term rate of
return on plan assets 11% 11% 11%
The company also provides certain medical, dental and life benefits
to certain eligible retired employees. These benefits are funded
when the claims are incurred. Participants generally become
eligible for these benefits at age 60 after completing at least
fifteen years of service. The plan provides for the payment of
specified percentages of medical and dental expenses reduced by any
deductible and payments made by other primary group coverage and
government programs. The corporation will continue to reduce the
percentage of the cost of benefits that it will pay as the company's
future costs are limited to 150% of the 1992 cost.
As indicated in Note B, the company adopted the provisions of SFAS
No. 106 in 1992. The following table sets forth the status of the
retiree health care benefits at December 31, 1993 and 1992,
respectively:
1993 1992
Accumulated postretirement benefit
obligation:
Retirees $ 696,000 $ 511,000
Fully eligible active
plan participants 22,000 15,000
Other active plan participants 1,465,000 1,486,000
Accrued postretirement benefit
liability $2,183,000 $2,012,000
The net periodic postretirement benefit cost for 1993 and 1992
consisted of the following:
1993 1992
Service cost of benefits earned $ 89,000 $ 94,000
Interest cost on accumulated
postretirement benefit obligation 163,000 167,000
Net periodic postretirement
benefit cost $252,000 $261,000
The expected postretirement benefit obligation was measured using an
assumed 12% increase in the per capita claims medical costs and a
10% increase in the per capita dental claims costs for 1993 and
1994. These increases are reduced by .65% and .55%, respectively,
after 1993 through 2003 and remain at 5.5% and 4.5%, respectively,
thereafter. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.6% at
December 31, 1993 and 8.5% at January 1, 1992 and December 31, 1992.
If the health care cost trend rates were increased 1%, the
accumulated postretirement benefit obligation as of December 31,
1993 would have increased by 1%. The effect of this change on the
aggregate of service and interest cost for 1993 would be an increase
of 2%.
Note I - Stock Options and Awards
The company's stock benefit plan, approved by the company's
shareholders, authorizes the grant of up to 2,737,500 (as adjusted
for subsequent stock splits and dividends) benefit shares or units
to key employees and directors until May 1998. This excludes shares
which were issued under predecessor plans. Benefit shares or units
include stock options, both incentive and non-incentive, stock
awards and other stock units.
Stock options are primarily granted at the fair market value of the
shares on the date of grant and become exercisable one year after
grant at a rate of one-half annually and are exercisable in full on
the second anniversary date. All options and rights must be
exercised within 10 years from date of grant. At the company's
discretion, vested stock option holders are permitted to elect an
alternative settlement method in lieu of purchasing common stock at
the option price. The alternative settlement method permits the
employee to receive, without payment to the company, cash, shares of
common stock or a combination thereof equal to the excess of market
value of common stock over the option purchase price.
Changes in outstanding shares under option during 1993 (adjusted for
the 4-for-3 stock split to be distributed March 1, 1994) were as
follows:
Option price
Option shares range
Outstanding at December 31, 1992 1,815,911 $ 2.80-$17.19
Granted 217,720 $16.59-$20.63
Canceled or expired (18,285) $11.50-$17.34
Exercised (321,012) $ 2.80-$17.19
Outstanding at December 31, 1993 1,694,334 $ 2.80-$20.63
Exercisable at December 31, 1993 1,208,431 $ 2.80-$15.47
Stock award shares are granted to employees at no cost. Awards
primarily vest at the rate of 25% annually commencing one year from
the date of award, provided the recipient is still employed by the
company on the vesting date. The cost of stock awards, based on the
fair market value at the date of grant, is being charged to expense
over the four-year vesting period.
Available for future grant were 658,707 and 894,875 benefit shares or
units at December 31, 1993 and 1992, respectively.
Note J - Shareholders' Equity
The company has 90,000,000 authorized shares of common stock, $1 par value and 800,000 authorized and unissued shares
of preference stock, $1 par value.
The changes in shareholders' equity for each of the three years in the period ended December 31, 1993 were as follows:
Foreign
Common Capital in Deferred currency
stock excess of Retained Treasury stock translation
par value par value earnings stock awards adjustment
Balance at December 31,
1990 - 23,200,000 shares
issued $23,200,000 $87,500,000 $43,311,000 $(7,274,000) $(1,199,000) $ 896,000
Net income 31,046,000
Cash dividends declared (12,294,000)
Conversion of debentures 26,000 236,000
Exercise of stock options:
Cash proceeds 120,000 733,000
Exchange of shares 101,000 583,000 (684,000)
Stock awards granted 66,000 1,524,000 (1,590,000)
Stock awards canceled (1,000) (8,000) 9,000
Tax benefits related to
stock compensation plans 2,001,000
Retirement of treasury
stock (52,000) (1,332,000) 1,384,000
Purchases of 235,000 shares
of treasury stock (5,597,000)
Issuance related to
acquisitions 81,000 1,919,000
Amortization of deferred
stock awards 662,000
Foreign currency
translation adjustment 107,000
Other (700,000)
Balance at December 31,
1991 - 23,541,000 shares
issued 23,541,000 93,156,000 62,063,000 (12,871,000) (2,118,000) 1,003,000
Net income 34,460,000
Cash dividends declared (14,363,000)
Conversion of debentures 133,000 798,000
Exercise of stock options:
Cash proceeds 56,000 337,000
Exchange of shares 69,000 300,000 (369,000)
Stock awards granted 26,000 508,000 (534,000)
Tax benefits related to
stock compensation plans 656,000
Retirement of treasury
stock (44,000) (812,000) 856,000
Purchases of 264,000 shares
of treasury stock (5,249,000)
3-for-2 stock split,
10,697,000 shares issued 10,697,000 (23,590,000) 12,893,000
Amortization of deferred
stock awards 711,000
Foreign currency
translation adjustment (2,915,000)
Other 69,000 (487,000)
Balance at December 31,
1992 - 34,478,000 shares
issued 34,478,000 71,422,000 82,160,000 (5,227,000) (1,941,000) (1,912,000)
Net income 39,780,000
Cash dividends declared (16,469,000)
Exercise of stock options:
Cash proceeds 86,000 438,000
Exchange of shares 155,000 938,000 (1,093,000)
Stock awards granted 30,000 659,000 (689,000)
Stock awards canceled (2,000) (57,000) 59,000
Tax benefits related to
stock compensation plans 1,562,000
Retirement of treasury
stock (81,000) (1,929,000) 2,010,000
Purchases of 99,000 shares
of treasury stock (2,689,000)
4-for-3 stock split,
11,072,000 shares issued 11,072,000 (18,988,000) 7,916,000
Amortization of deferred
stock awards 856,000
Foreign currency
translation adjustment (2,419,000)
Other (917,000)
Balance at December 31,
1993 - 45,738,000 shares
issued $45,738,000 $54,045,000 $105,471,000 $ - $(1,715,000) $(4,331,000)
In June 1988, the company declared a dividend distribution of one
preferred share purchase right on each share of common stock
outstanding on and after July 5, 1988. The rights are not
exercisable until the rights distribution date, defined as the
earlier of: (1) the tenth day following a public announcement that a
person or group of affiliated or associated persons acquired or
obtained the right to acquire beneficial ownership of 20% or more of
the outstanding common stock or (2) the tenth day following the
commencement or announcement of an intention to make a tender offer
or exchange offer, the consummation of which would result in the
beneficial ownership by a person or group of 30% or more of such
outstanding common shares. Each right, when exercisable, entitles
the holder to purchase from the company one one-hundredth of a share
of Series A Preferred stock of the company at a price of $90 per one
one-hundredth of a preferred share, subject to adjustment. The
company is entitled to redeem the rights at $.10 per right, payable
in cash or common shares, at any time prior to the expiration of
twenty days following the public announcement that a 20% position has
been acquired. In the event that the company is acquired in a merger
or other business combination transaction or 50% or more of its
consolidated assets or earning power is sold, proper provision will
be made so that each holder of a right will thereafter have the right
to receive, upon the exercise thereof at the then current exercise
price of a right, that number of shares of common stock of the
acquiring company which at the time of such transaction would have a
market value of two times the exercise price of the right. The
rights expire on July 5, 1998 unless earlier redeemed by the company.
Until exercised, the holder of a right, as such, will have no rights
as a shareholder, including, without limitation, the right to vote or
to receive dividends.
Note K - Subsequent Event
On February 3, 1994, the company's board of directors authorized a
4-for-3 stock split to be distributed March 1, 1994. The number of
common shares issued as of December 31, 1993 and per share data for
all years presented have been adjusted retroactively as if the split
had occurred on that date.
Note L - Acquisitions and Divestitures
During the three-year period ended December 31, 1993, the company
made the following acquisitions, all principally for cash and
earnouts to be based upon the future profitability of the respective
business, except as noted. Generally, earnouts are payable at the
end of a five-year period, a portion of which are sometimes
guaranteed. In March 1993, the company acquired the outstanding
shares of Guzzler Manufacturing, Inc., an Alabama-based manufacturer
of vacuum loader vehicles. As a result of this acquisition, the
company recorded approximately $6.0 million of working capital, $6.1
million of fixed and other assets, $.8 million of debt assumed and
$12.7 million of costs in excess of fair values. In November 1992,
the company acquired the outstanding shares of Dico Corporation, a
Michigan-based manufacturer of polycrystalline diamond and cubic
boron nitride cutting tools. In May 1992, the company acquired the
outstanding shares of Aplicaciones Tecnologicas Vama S.L., a leading
European manufacturer of emergency vehicular signaling products
located in Barcelona, Spain. In March 1992, the company acquired the
assets of Schneider Stanznormalien GmbH, a German manufacturer of
precision punch and die components, for cash. As a result of the
1992 acquisitions, the company recorded approximately $7.2 million of
working capital, $2.8 million of fixed and other assets, $.5 million
of debt assumed and $12.0 million of costs in excess of fair values.
In December 1991, the company acquired, in two independent
transactions, the outstanding shares of Superior Emergency Equipment,
Ltd. (Superior) and Frontline Corporation. Superior is a Canadian-
based manufacturer of a full range of fire truck bodies primarily for
the Canadian market. Frontline manufactured ambulances and rescue
trucks. In October 1991, the company purchased for cash and stock,
the outstanding shares of Container Tool Corporation, a manufacturer
of precision beverage can tooling. As a result of the 1991
acquisitions, the company recorded approximately $4.8 million of
working capital, $2.6 million of fixed and other assets, $3.5 million
of debt assumed and $15.9 million of costs in excess of fair values.
All of the acquisitions in the three-year period ended December 31,
1993 have been accounted for as purchases. Accordingly, the results
of operations of the acquired companies have been included in the
consolidated statements of income from the effective dates of the
acquisitions. Assuming the 1993 acquisitions occurred on January 1,
1992 and the 1992 acquisitions occurred on January 1, 1991, the
company estimates that consolidated net sales would have been
increased 1% and 7% in 1993 and 1992, respectively, while net income
would not have been materially different from amounts reported.
Note M - Contingency
On May 3, 1993, a Texas federal court jury rendered a verdict of
$17,745,000 against Federal Sign, a division of the company, for
alleged violation of the Texas Deceptive Trade Practices Act and
misrepresentations to Duravision, Inc. and Manufacturers Product
Research Group of North America, Inc. in connection with a 1988
research and development project for indoor advertising signs. The
company believes the court erroneously excluded important evidence
and that the verdict was against the weight of the evidence. Both
inside and outside counsel that initially handled the case opined at
the time of the verdict that the likelihood of a substantially
unfavorable result to the company on appeal was remote. Trial
counsel has turned the case over to new appellate counsel and has
stated they cannot currently give an opinion on the appeal because
they are no longer handling the case. Appellate counsel now handling
the appeal of the case has not issued an opinion on its outcome.
However, if the company loses its appeal of this case, there would be
a charge to earnings for this verdict, plus interest and attorney
fees. The company believes that the ultimate resolution of this
contingency will not have a material effect on its financial
condition, and accordingly, the company has not recorded any accruals
for potential losses resulting from this judgment.
Note N - Segment Information
The principal activities of the company's primary industry segments
are as follows:
Signal Group: The Signal Group produces a variety of visual and
audible warning and signal devices used by private industry and
various governmental agencies, paging, local signaling, and building
security, parking and access control systems.
Sign Group: The Sign Group manufactures for sale or lease
illuminated, non-illuminated and electronic advertising sign
displays. It also enters into contracts to provide maintenance
service for the signs it manufactures as well as for signs
manufactured by others.
Tool Group: The Tool Group manufactures a variety of perishable
tools which include die components for the metal stamping industry,
a large selection of precision metal products for non-stamping needs
and a line of precision cutting and deep grooving tools.
Vehicle Group: The Vehicle Group manufactures chassis, fire trucks
including Class A pumpers, mini-pumpers and tankers, airport and
other rescue vehicles, ambulances and aerial ladder trucks, a
variety of self-propelled street cleaning vehicles, vacuum loader
vehicles and catch basin cleaners.
Total revenue by business segment reflects sales to unaffiliated
customers, as reported in the company's consolidated statements of
income. Operating profit includes all costs and expenses directly
related to the segment involved. In determining operating profit,
neither corporate nor interest expenses were included. Business
segment depreciation expense, identifiable assets and capital
expenditures relate to those assets that are utilized by the
respective business segment. Corporate assets consist principally
of cash and cash equivalents, notes and other receivables and fixed
assets.
Foreign sales, including export and foreign operations, aggregated
$113,210,000 in 1993, $121,332,000 in 1992 and $79,875,000 in 1991.
Export sales aggregated $59,324,000 in 1993, $61,355,000 in 1992 and
$39,439,000 in 1991.
A summary of the company's operations by geographic area for the
three-year period ended December 31, 1993 is as follows (in
thousands):
1993 1992 1991
United States
Net sales $511,277 $458,246 $426,503
Operating income 62,977 53,863 48,026
Identifiable assets 353,172 307,088 295,723
All foreign (principally
Europe, Canada and Japan)
Net sales $ 53,886 $ 59,977 $ 40,436
Operating income 907 1,295 2,521
Identifiable assets 52,532 56,571 45,443
For the years ended December 31,
(in thousands)
1993 1992 1991
Net sales
Signal $104,927 $ 95,946 $ 81,240
Sign 58,550 56,074 59,031
Tool 111,879 99,619 88,947
Vehicle 289,807 266,584 237,721
Total net sales $565,163 $518,223 $466,939
Operating income
Signal $ 16,159 $ 13,518 $ 11,063
Sign 1,169 (1,815) (1,846)
Tool 23,273 21,715 19,583
Vehicle 30,289 28,267 27,458
Corporate expense (7,006) (6,527) (5,711)
Total operating income 63,884 55,158 50,547
Interest expense ( 6,136) ( 6,471) (5,649)
Other income 1,048 1,214 691
Income before income taxes $ 58,796 $ 49,901 $ 45,589
Depreciation
Signal $ 1,757 $ 1,792 $ 1,757
Sign 1,684 1,856 1,958
Tool 2,313 1,957 1,789
Vehicle 3,412 3,082 2,673
Corporate 49 45 48
Total depreciation $ 9,215 $ 8,732 $ 8,225
Identifiable assets
Manufacturing activities
Signal $ 51,092 $ 47,043 $ 35,962
Sign 24,480 23,237 23,762
Tool 62,035 61,803 49,736
Vehicle 142,158 120,507 128,864
Corporate 15,359 7,080 1,909
Total manufacturing
activities 295,124 259,670 240,233
Financial services activities
Sign 17,282 19,958 21,944
Vehicle 93,298 84,031 78,989
Total financial services
activities 110,580 103,989 100,933
Total identifiable assets $405,704 $363,659 $341,166
Capital expenditures
Signal $ 2,675 $ 1,366 $ 1,544
Sign 988 1,227 1,557
Tool 2,614 2,710 2,710
Vehicle 3,848 3,513 6,219
Corporate 14 19 4
Total capital expenditures $ 10,139 $ 8,835 $ 12,034
Note O - Selected Quarterly Data (Unaudited)
(in thousands of dollars except per share amounts)
For the three months ended
1 9 9 3 1 9 9 2
March June September December March June September December
31 30 30 31 31 30 30 31
Net sales $127,447 $146,463 $142,740 $148,513 $119,817 $131,909 $135,513 $130,984
Gross margin $ 40,472 $ 46,244 $ 46,365 $ 48,995 $ 37,214 $ 42,048 $ 42,689 $ 43,041
Net income (a) $ 7,151 $ 10,602 $ 10,661 $ 11,366 $ 6,205 $ 9,332 $ 9,275 $ 9,648
Per share data (b):
Net income (a) $ .15 $ .23 $ .23 $ .25 $ .13 $ .20 $ .20 $ .21
Dividends paid $ .09 $ .09 $ .09 $ .09 $ .08 $ .08 $ .08 $ .08
Market price range
High $ 18 1/4 $ 19 $ 21 $ 21 $ 17 5/8 $ 17 1/8 $ 15 3/8 $ 16 1/4
Low 15 3/4 16 1/2 17 7/8 19 1/2 14 1/8 13 12 3/8 13 1/4
<FN>
(a) three months ended March 31, 1992 includes $30 (fractional amount per share) relating to the cumulative
effects of changes in accounting for postretirement benefits and income taxes (see Note B).
(b) amounts adjusted for the 4-for-3 stock split distributable March 1, 1994.
Report of Ernst & Young, Independent Auditors
To the Shareholders and Board of Directors
of Federal Signal Corporation
We have audited the accompanying consolidated balance sheets of
Federal Signal Corporation and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income and cash
flows for each of the three years in the period ended December 31,
1993. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Federal Signal Corporation and subsidiaries as of December 31,
1993 and 1992, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Note B to the financial statements, in 1992 the
company changed its methods of accounting for postretirement benefits
and income taxes.
Ernst & Young
Chicago, Illinois
January 25, 1994, except for
Note K, as to which the date is
February 3, 1994
APPENDIX A
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FEDERAL SIGNAL CORPORATION
1993 Annual Report Graphic Material
The following table sets forth bar graph information contained in the
Financial Review section of the 1993 Annual Report paper format. It
is presented here in tabular format in order to conform with
electronic filing requirements.
(IN PERCENT)
1989 1990 1991 1992 1993
RETURN ON MANUFACTURING
ASSETS:
Total Company (1) 24% 25% 24% 22% 22%
Signal 19% 24% 30% 31% 34%
Sign 19% 10% -10% -12% 1%
Tool (2) 46% 46% 44% 41% 37%
Vehicle (3) 16% 21% 22% 17% 15%
WORKING CAPITAL TO SALES:
Total Company 15% 11% 9% 10% 10%
(1) excluding acquisitions, return was 24% in 1993
(2) excluding acquisitions, return was 42% in 1993
(3) excluding acquisitions, return was 17% in 1993