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, 1996
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
State or other jurisdiction of (I.R.S. Employer incorporation or
organization Identification No.)
Delaware 36-1063330
Federal Signal Corporation
1415 West 22nd Street
Oak Brook, IL 60521
(630) 954-2000
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 7/31/96.
Title Outstanding
Common stock, $1.00 par value 45,387,721
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 Proxy Statement for the Annual Meeting of Shareholders held on
April 17, 1996.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended June 30 Six Months Ended June 30
1996 1995 1996 1995
Net sales $232,272,000 $199,355,000 $443,065,000 $386,487,000
Costs and expenses:
Cost of sales 161,851,000 138,058,000 309,514,000 268,327,000
Selling, general and administrative 43,354,000 36,621,000 85,272,000 73,907,000
Other (income) and expenses:
Interest expense 3,704,000 3,336,000 7,334,000 6,498,000
Other (income) expense (736,000) (488,000) (1,018,000) (475,000)
----------- ----------- ----------- -----------
208,173,000 177,527,000 401,102,000 348,257,000
----------- ----------- ----------- -----------
Income before income taxes 24,099,000 21,828,000 41,963,000 38,230,000
Income taxes 8,121,000 7,349,000 14,134,000 12,958,000
----------- ----------- ----------- -----------
Net income $ 15,978,000 $ 14,479,000 $ 27,829,000 $ 25,272,000
=========== =========== =========== ===========
COMMON STOCK DATA:
Net income per share $ .35 $ .32 $ .61 $ .55
=========== =========== =========== ===========
Average common shares outstanding 45,979,000 45,875,000 45,970,000 45,846,000
Cash dividends per share of common stock $ .145 $ .125 $ .29 $ .25
See notes to consolidated condensed financial statements.
3
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30 December 31
1996 1995 (a)
----------- ----------
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ 1,802,000 $ 9,350,000
Trade accounts receivable, net of
allowances for doubtful accounts 136,422,000 122,913,000
Inventories:
Raw materials 49,594,000 40,487,000
Work in process 26,902,000 32,286,000
Finished goods 28,915,000 24,675,000
Prepaid expenses 5,485,000 5,763,000
----------- -----------
Total current assets 249,120,000 235,474,000
Properties and equipment:
Land 5,228,000 5,703,000
Buildings and improvements 40,094,000 38,493,000
Machinery and equipment 128,745,000 120,554,000
Accumulated depreciation (92,540,000) (86,296,000)
----------- -----------
Net properties and equipment 81,527,000 78,454,000
Intangible assets, net of
accumulated amortization 163,768,000 146,774,000
Other deferred charges and assets 12,429,000 11,722,000
----------- -----------
Total manufacturing assets 506,844,000 472,424,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 155,507,000 147,535,000
----------- -----------
Total assets $662,351,000 $619,959,000
=========== ===========
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS -- Continued
June 30 December 31
1996 1995 (a)
----------- ----------
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $ 84,082,000 $ 58,760,000
Trade accounts payable 48,580,000 53,277,000
Accrued liabilities and income taxes 78,164,000 74,623,000
----------- -----------
Total current liabilities 210,826,000 186,660,000
Long-term borrowings 38,286,000 39,702,000
Deferred income taxes 17,826,000 17,826,000
----------- -----------
Total manufacturing liabilities 266,938,000 244,188,000
Financial services activities -
Short-term borrowings 134,693,000 127,690,000
----------- -----------
Total liabilities 401,631,000 371,878,000
SHAREHOLDERS' EQUITY
Common stock - par value 45,936,000 45,832,000
Capital in excess of par value 56,316,000 54,464,000
Retained earnings 176,777,000 162,095,000
Treasury stock (11,965,000) (10,949,000)
Deferred stock awards (1,931,000) (1,046,000)
Foreign currency translation (4,413,000) (2,315,000)
----------- -----------
Total shareholders' equity 260,720,000 248,081,000
----------- -----------
Total liabilities and
shareholders' equity $662,351,000 $619,959,000
=========== ===========
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30
1996 1995
------------ --------
Operating activities:
Net income $ 27,829,000 $25,272,000
Depreciation 6,610,000 5,896,000
Amortization 2,471,000 2,257,000
Working capital changes and other (19,738,000) (20,513,000)
----------- -----------
Net cash provided by operating
activities 17,172,000 12,912,000
Investing activities:
Purchases of properties and
equipment (7,259,000) (9,642,000)
Principal extensions under
lease financing agreements (49,331,000) (53,649,000)
Principal collections under
lease financing agreements 41,359,000 44,973,000
Payments for purchases of companies,
net of cash acquired (23,593,000) (2,127,000)
Other, net 1,430,000 (4,723,000)
----------- -----------
Net cash used for investing
activities (37,394,000) (25,168,000)
Financing activities:
Addition to short-term
borrowings 32,613,000 21,382,000
Addition (reduction) to
long-term borrowings (1,511,000) 5,218,000
Purchases of treasury stock (189,000) (3,049,000)
Cash dividends paid to
shareholders (18,822,000) (16,101,000)
Other, net 583,000 201,000
----------- -----------
Net cash provided by financing
activities 12,674,000 7,651,000
----------- -----------
Decrease in cash and cash
equivalents (7,548,000) (4,605,000)
Cash and cash equivalents at
beginning of period 9,350,000 4,605,000
----------- -----------
Cash and cash equivalents at
end of period $ 1,802,000 $ ---
=========== =======
See notes to consolidated condensed financial statements.
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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 Proxy Statement for the Annual Meeting of Shareholders
held on April 17, 1996.
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, 1996, are not necessarily
indicative of the results to be expected for the full year of 1996.
3. Interest paid for the six-month periods ended June 30, 1996 and 1995 was
$7,029,000 and $7,417,000, respectively. Income taxes paid for these same
periods were $10,027,000 and $14,175,000.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
SECOND QUARTER 1996
Comparison with Second Quarter 1995
Net income in the second quarter of $16.0 million, or $.35 per share, increased
10% over the $14.5 million, or $.32 per share, earned a year ago. Second quarter
sales of $232.3 million increased 17% over the $199.4 million reported in the
second quarter of 1995. New business increased 6% over the prior year to $215.7
million. A portion of the sales and new business increases resulted from the
acquisitions of Bronto and Victor Industries which occurred August 4, 1995 and
June 3, 1996, respectively. Backlogs decreased to $245.0 million compared to
$259.3 a year ago.
In the second quarter, earnings gains at the Tool and Sign groups were very
strong; gains at the Vehicle Group were solid and the Safety Products Group's
earnings declined.
The Vehicle Group achieved an 8% increase in second quarter earnings on a sales
gain of 17%. Both domestic and foreign businesses, except Bronto, had better
earnings in the second quarter than a year ago. The group's operating margin was
adversely affected by a loss at Bronto. Bronto has essentially completed its
reorganization plan and is expected to be profitable in the second half of 1996.
Vehicle Group backlogs and orders anticipated for the balance of the year should
significantly improve earnings and operating margin compared to both the first
half of 1996 and the last half of 1995. During the first six months, fire
apparatus orders increased strongly over the prior year while order increases at
our environmental products business were more modest.
The Safety Products Group's sales increased 13% while earnings declined 8%. The
group's operating margin was affected by a significant increase in development
expenses and a change in product mix, a short-term situation for which the
Registrant expects some improvement by the fourth quarter. Orders increased
significantly at the group's signaling products and parking operations with
modest increases also posted by the environmental safety operations.
Tool Group earnings in the second quarter increased 19% on an increase in sales
of 6% with all of the group's businesses achieving improved results. Both
domestic and foreign operations contributed to the group's significantly
increased earnings. The group's precision punch and die component businesses
posted significant earnings gains on solid sales increases and higher
manufacturing productivity. Cutting tool businesses achieved significantly
improved earnings in the second quarter from substantial increases in sales as
well as from improved product mix.
The Sign Group's earnings increased 52% in the second quarter driven by a 44%
increase in sales. The group's orders for the second quarter were lower compared
to a very strong quarter a year ago; however, for the first six months, the
group had a strong increase in incoming orders and its markets remain very
strong.
Cost of sales as a percent of net sales increased from 69.3% in the second
quarter of 1995 to 69.7% in the second quarter of 1996. The percentage increase
was principally attributed to the large sales increases in the Sign and Vehicle
groups, which tend to have lower gross margins than the other groups. Selling,
general and administrative expenses as a percent of net sales increased to 18.7%
in the second quarter of 1996 from 18.4% in the second quarter of 1995. The
increase was primarily attributed to an increase in research and development
programs. The effective tax rate for the second quarter of 1996 was 33.7% and
was consistent with the rate in the second quarter of 1995.
Comparison of First Six Months 1996 to Same Period 1995
For the first six months, earnings per share totaled $.61, an increase of 11%
over the $.55 per share achieved in the same period a year ago. Net income for
the first six months reached $27.8 million, increasing 10% over the $25.3
million last year. Sales for the period increased 15% to $443.1 million compared
to $386.5 million reported last year. Orders for the first six months of 1996
were 14% higher than a year ago.
Cost of sales as a percent of net sales increased to 69.9% in the first six
months of 1996 from 69.4% in the first six months of 1995. The percentage
increase was primarily due to the reasons cited above for the second quarter.
Selling, general and administrative expenses increased slightly to 19.2% of net
sales in the first six months of 1996 from 19.1% in the same period a year ago.
The effective tax rate was 33.7% for the first half of 1996 compared to 33.9%
for the first half of 1995.
8
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 aerial access platform
operations.
Financial Position and Liquidity at June 30, 1996
The current ratio applicable to manufacturing activities was 1.2 at June 30,
1996 compared to 1.3 at December 31, 1995. Working capital (manufacturing
operations) at June 30, 1996 was $38.3 million compared to $48.8 million at the
most recent year end. The decrease in working capital resulted from additional
short term borrowing for the acquisition of Victor which is discussed below. The
debt to capitalization ratio applicable to manufacturing activities was 32% at
June 30, 1996 compared to 29% at December 31, 1995. The debt to capitalization
ratio applicable to financial services activities was 87% at June 30, 1996 and
December 31, 1995. The increase in manufacturing debt resulted primarily from
debt used for acquisition of Victor Industries Limited (see "Other Events"
below).
Capital expenditures during the first six months of 1996 were $7.3 million
compared to $9.6 million for the same period a year ago. Over half of the 1996
year-to-date capital expenditures relate to investments made in the Tool and
Safety Products Groups to increase capacity and improve productivity. Capital
expenditures for the full year 1995 were $15.7 million. The Registrant
anticipates that capital expenditures for the full year 1996 will be comparable
to the prior year amounts. At June 30, 1996 the Registrant held 585,958 shares
of treasury stock at a cost of $12.0 million. Modest amounts of additional
shares are being considered for purchase in the open market during the remainder
of 1996. Current financial resources and anticipated funds from the Registrant's
operations are expected to be adequate to meet future cash requirements.
Other Events
On June 3, 1996, the Registrant acquired for cash the equity of Victor
Industries Limited ("Victor"). Victor, headquartered in Newcastle, England is
the leading manufacturer of hazardous area lighting products in the United
Kingdom and supplies hazardous area industrial lighting to over 40 countries
worldwide.
Part II. Other Information
Responses to items one through six are omitted since these items are either
inapplicable or the response thereto would be negative
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
By:_____________________________________________________
Henry L. Dykema
Vice President and Chief Financial Officer
Date: 8/14/96
9