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 June 30, 1995
OR
( ) 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, ILLINOIS 60521
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 954-2000
NONE
(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 issuer's
classes of common stock, as of July 31, 1995.
Common Stock, $1.00 par value -- 45,328,573
PART I. FINANCIAL INFORMATION
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
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, 1994.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended June 30 Six Months Ended June 30
1995 1994 1995 1994
Net sales $199,355,000 $164,001,000 $386,487,000 $302,107,000
Costs and expenses:
Cost of sales 138,058,000 112,250,000 268,327,000 207,465,000
Selling, general and administrative 36,621,000 31,288,000 73,907,000 60,384,000
Other (income) and expenses:
Interest expense 3,336,000 1,819,000 6,498,000 3,166,000
Other (income) expense (488,000) (110,000) (475,000) (1,000)
Total costs and expenses 177,527,000 145,247,000 348,257,000 271,014,000
Income before income taxes 21,828,000 18,754,000 38,230,000 31,093,000
Income taxes 7,349,000 6,358,000 12,958,000 10,541,000
Net income $ 14,479,000 $ 12,396,000 $ 25,272,000 $ 20,552,000
COMMON STOCK DATA:
Net income per share $ .32 $ .27 $ .55 $ .45
Average common shares outstanding 45,875,000 45,875,000 45,846,000 46,015,000
Cash dividends per share of common stock $ .13 $ .11 $ .25 $ .21
See notes to consolidated condensed financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30 December 31
1995 1994 (a)
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents --- $ 4,605,000
Trade accounts receivable, net of
allowances for doubtful accounts 119,518,000 107,985,000
Inventories:
Raw materials 49,277,000 36,490,000
Work in process 24,330,000 22,355,000
Finished goods 20,435,000 20,054,000
Prepaid expenses 4,950,000 4,807,000
Total current assets 218,510,000 196,296,000
Properties and equipment:
Land 5,764,000 5,740,000
Buildings and improvements 38,855,000 38,045,000
Machinery and equipment 116,930,000 109,841,000
Accumulated depreciation (85,203,000) (80,788,000)
Net properties and equipment 76,346,000 72,838,000
Intangible assets, net of
accumulated amortization 116,871,000 115,306,000
Other deferred charges and assets 10,376,000 9,972,000
Total manufacturing assets 422,103,000 394,412,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 135,864,000 127,188,000
Total assets $557,967,000 $521,600,000
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1994 has been derived from the
audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS -- Continued
June 30 December 31
1995 1994 (a)
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $ 39,230,000 $ 25,222,000
Trade accounts payable 42,876,000 44,918,000
Accrued liabilities and income taxes 66,600,000 72,238,000
Total current liabilities 148,706,000 142,378,000
Long-term borrowings 41,577,000 34,878,000
Deferred income taxes 15,158,000 13,778,000
Total manufacturing liabilities 205,441,000 191,034,000
Financial services activities -
Short-term borrowings 117,926,000 110,252,000
Total liabilities 323,367,000 301,286,000
CONTINGENCY
SHAREHOLDERS' EQUITY
Common stock - par value 45,828,000 45,767,000
Capital in excess of par value 54,474,000 53,756,000
Retained earnings 147,083,000 133,138,000
Treasury stock (9,868,000) (7,880,000)
Deferred stock awards (1,420,000) (1,688,000)
Foreign currency translation (1,497,000) (2,779,000)
Total shareholders' equity 234,600,000 220,314,000
Total liabilities and
shareholders' equity $557,967,000 $521,600,000
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1994 has been derived from the
audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30
1995 1994
Operating activities:
Net income $ 25,272,000 $ 20,552,000
Depreciation 5,896,000 4,972,000
Amortization 2,257,000 1,772,000
Working capital changes and other (20,513,000) (6,865,000)
Net cash provided by operating
activities 12,912,000 20,431,000
Investing activities:
Purchases of properties and
equipment (9,642,000) (4,467,000)
Principal extensions under
lease financing agreements (53,649,000) (39,648,000)
Principal collections under
lease financing agreements 44,973,000 34,344,000
Payments for purchases of companies,
net of cash acquired (2,127,000) (69,563,000)
Other, net (4,723,000) (1,322,000)
Net cash used for investing
activities (25,168,000) (80,656,000)
Financing activities:
Addition to short-term
borrowings 21,382,000 82,332,000
Addition (reduction) to
long-term borrowings 5,218,000 (955,000)
Purchases of treasury stock (3,049,000) (9,736,000)
Cash dividends paid to
shareholders (16,101,000) (13,695,000)
Other, net 201,000 199,000
Net cash provided by financing
activities 7,651,000 58,145,000
Decrease in cash and cash
equivalents (4,605,000) (2,080,000)
Cash and cash equivalents at
beginning of period 4,605,000 2,576,000
Cash and cash equivalents at
end of period $ --- $ 496,000
See notes to consolidated condensed financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. It is suggested that the consolidated condensed 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, 1994.
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 and
six months ended June 30, 1995, are not necessarily indicative of
the results to be expected for the full year of 1995.
3. Interest paid for the six-month periods ended June 30, 1995 and
1994 was $7,417,000 and $2,609,000, respectively. Income taxes
paid for these same periods were $14,175,000 and $8,602,000.
4. On August 4, 1995, the United States Fifth Circuit Court of
Appeals vacated a $17,745,000 judgment rendered against the
Registrant in June 1993. The judgment had been rendered against
the Registrant by the Federal District Court in the Western
District of Texas for alleged violation of the Texas Deceptive
Trade Practices Act and misrepresentations to Duravision, Inc. and
Manufacturers Product Research Group of North America, Inc. (MPR)
in connection with a 1988 research and development project for
indoor advertising. The Court of Appeals determined that the
damages found by the jury were not sufficiently supported by the
evidence and remanded the case for retrial on what damages, if
any, Duravision and MPR can prove. The Registrant intends to
vigorously defend the matter upon retrial. The Registrant
believes that the ultimate resolution of this contingency will not
have a material effect on its financial condition nor its future
results of operations or cash flows. The Registrant cannot
reasonably estimate the ultimate amount of a judgment, if any, or
interest and attorney fees, if any, which may result from retrial
of the case. Accordingly, the Registrant has not recorded any
accruals for potential losses which may result from an adverse
decision.
5. As indicated in Note I included in the Registrant's annual report
on Form 10-K for the year ended December 31, 1994, the Registrant
enters into interest rate swap agreements to manage its interest
rate risk. Effective July 27, 1995, the Registrant entered into
an agreement with a financial institution to swap interest rates
on a notional amount of $125 million, approximately 80% of its
short-term debt then outstanding. The agreement requires the
Registrant to pay to the counterparty interest at a rate of 5.47%.
The counterparty is required to pay the Registrant interest based
upon the three-month London Interbank Offered Rate (LIBOR). The
agreement is for a period of six months, with an option to the
counterparty to extend the agreement for an additional twelve
months.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
SECOND QUARTER 1995
Comparison with Second Quarter 1994
Second quarter net income was $14.5 million, 17% over the $12.4 million
reported a year ago. Earnings per share of $.32 were 19% above last
year's second quarter results of $.27. Second quarter sales of $199.4
million increased 22% over last year's $164.0 million. New business
increased 18% over the prior year to $204.0 million. A portion of the
sales and new business increases resulted from the acquisitions of
Justrite and Vactor which occurred May 9, 1994 and June 30, 1994,
respectively. Backlogs increased to $259.3 million compared to $244.3
million a year ago.
In the second quarter, the Safety Products, Vehicle and Sign groups
posted strong sales and earnings increases while the Tool Group
reported more modest sales and earnings increases.
The Safety Products Group's earnings increased 45% to a new quarterly
record on a sales increase of 26%. Sales and earnings were higher in
large part due to increased shipments and margins by Signal Products
and VAMA. The group's increases also reflected the acquisition of
Justrite which reported improved sales and earnings over the prior
year.
The Vehicle Group's sales increased 26% and earnings increased 13%.
The group posted new records for both sales and earnings during the
quarter. Nearly half of the sales increase was attributable to the
additive sales of Vactor. Fire apparatus sales and earnings continued
to be positively impacted by the strong order activity which began in
late 1994 and fire apparatus backlogs again increased during the
quarter. As expected, Emergency One continued to experience strong
foreign demand as its foreign new business for the first half of 1995
more than tripled the same period last year. The group's municipal
sweeping operations achieved higher sales but lower earnings due to the
adverse effects of a weakening lira on Netherlands-based Ravo
International's sweeper sales into Italy.
Earnings by the Sign Group increased 60% on a sales increase of 11%.
The group's operating margins improved largely as a result of higher
manufacturing margins reflecting the group's focus on more
sophisticated, higher value-added projects. Sign's new business
increased 55% over the prior year to a quarterly level not seen by the
group since 1989.
Tool Group sales increased 9% while income increased 2%. Strong
foreign demand for die components and precision parts as well as
carbide cutting tools was the primary reason for the increased sales.
Productivity in the die components and precision parts operations was
a little lower than that experienced in 1994's second quarter but
somewhat better than in the first quarter of this year. Productivity
improvements are anticipated to be achieved through the balance of the
year. In addition, margins continue to be adversely impacted by
competitive price pressure in Japan.
Cost of sales as a percent of net sales increased from 68.4% in the
second quarter of 1994 to 69.3% in the second quarter of 1995. The
percentage increase was principally attributed to the large sales
increase in the Vehicle Group, which tends to have lower gross margins
than the other groups. Also contributing to the increase was the
adverse impact of the weakening lira on Ravo International's margins,
as well as the lower productivity and margin pressure experienced by
the Tool Group, all of which is mentioned above. Selling, general and
administrative expenses as a percent of net sales decreased to 18.4% in
the second quarter of 1995 from 19.1% in the second quarter of 1994.
The decrease was attributed to the increase in sales and to cost
reduction programs. The effective tax rate for the second quarter of
1995 was 33.7%, down slightly from the 33.9% reported for the second
quarter of 1994.
Comparison of First Six Months 1995 to Same Period 1994
For the first six months, earnings per share were $.55, an increase of
22% over the $.45 reported in the same period last year. Net income
for the first six months increased 23% to $25.3 million in 1995
compared to $20.6 million in 1994. Sales for the first six months of
$386.5 million increased 28% over the $302.1 million reported last
year.
Cost of products sold as a percent of net sales increased to 69.4% in
the first six months of 1995 from 68.7% in the first six months of
1994. The percentage increase was primarily due to the reasons cited
above for the second quarter. Selling, general and administrative
expenses decreased to 19.1% of net sales in the first six months of
1995 from 20.0% in the same period a year ago. The percentage decrease
was mainly due to the reasons cited above for the second quarter. The
effective tax rate was 33.9% for the first half of 1995 and 1994.
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, other municipal emergency signal
products and parking systems manufacturing operations.
Financial Position and Liquidity at June 30, 1995
The current ratio applicable to manufacturing activities was 1.5 at
June 30, 1995 compared to 1.4 at December 31, 1994. Working capital
(manufacturing operations) at June 30, 1995 was $69.8 million compared
to $53.9 million at the most recent year end. The increase in working
capital results from record setting shipment levels in the second
quarter as well as purchases of chassis and other key components made
in anticipation of customer orders, many of which are expected to ship
in the remainder of 1995. The debt to capitalization ratio applicable
to manufacturing activities was 26% at June 30, 1995 compared to 22% at
December 31, 1994. The debt to capitalization ratio applicable to
financial services activities was 87% at June 30, 1995 and December 31,
1994. The increase in manufacturing debt resulted primarily from the
increase in working capital, as well as debt used for recent capital
expenditures, taxes paid and greater dividend payments.
Capital expenditures during the first six months of 1995 were $9.6
million compared to $4.5 million for the same period a year ago.
Approximately one half of the 1995 year-to-date capital expenditures
relate to investments made in the Tool Group to increase capacity and
improve productivity. Capital expenditures for the full year 1994 were
$11.1 million. The Registrant anticipates that capital expenditures
for the full year 1995 will be approximately 30% to 50% greater than
1994 full year amounts. At June 30, 1995 the Registrant held 492,418
shares of treasury stock at a cost of $9.9 million. Included in these
amounts were 97,305 shares at a cost of $2.0 million purchased during
the six-month period ended June 30, 1995. Modest amounts of additional
shares are being considered for purchase in the open market during the
remainder of 1995. Current financial resources and anticipated funds
from the Registrant's operations are expected to be adequate to meet
future cash requirements. See Notes 4 and 5 of the Notes to
Consolidated Condensed Financial Statements regarding the Duravision
contingency and the Registrant's entering into an interest rate swap
agreement effective July 27, 1995.
Other Events
On August 4, 1995, the Registrant acquired for cash the net operating
assets of Bronto Skylift Oy Ab ("Bronto"). Bronto, headquartered in
Tampere, Finland, is the leading manufacturer of access platforms for
the fire market and also has a large share of the heavy duty, truck-
mounted industrial access platform market.
PART II. OTHER INFORMATION
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Responses to items two through six are omitted since these items are
either inapplicable or the response thereto would be negative.
Item 1. Legal Proceedings
See Note 4 of the Notes to Consolidated Condensed Financial Statements.
SIGNATURE
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
(Registrant)
Date August 14, 1995
Henry L. Dykema
Vice President and Chief
Financial Officer