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, 1997
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-6003
Federal Signal Corporation
(Exact name of Registrant as specified in its charter)
Delaware 36-1063330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 West 22nd Street
Oak Brook, IL 60523-9945
(Address of principal executive offices) (Zip code)
(630) 954-2000
(Registrant's telephone number including area code)
1415 West 22nd Street
Oak Brook, IL 60521
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, $1.00 par value 45,258,816
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 16, 1997.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended June 30 Six Months Ended June 30
1997 1996 1997 1996
Net sales $236,156,000 $232,272,000 $460,641,000 $443,065,000
Costs and expenses:
Cost of sales 158,893,000 161,851,000 312,954,000 309,514,000
Selling, general and administrative 50,144,000 43,354,000 96,768,000 85,272,000
Other (income) and expenses:
Interest expense 4,154,000 3,704,000 8,091,000 7,334,000
Other (income) expense (640,000) (736,000) (1,166,000) (1,018,000)
----------- ----------- ----------- -----------
212,551,000 208,173,000 416,647,000 401,102,000
----------- ----------- ----------- -----------
Income before income taxes 23,605,000 24,099,000 43,994,000 41,963,000
Income taxes 7,546,000 8,121,000 14,319,000 14,134,000
----------- ----------- ----------- -----------
Net income $ 16,059,000 $ 15,978,000 $ 29,675,000 $ 27,829,000
=========== =========== =========== ===========
COMMON STOCK DATA:
Net income per share $ .35 $ .35 $ .65 $ .61
=========== =========== =========== ===========
Average common shares outstanding 45,832,000 45,979,000 45,837,000 45,970,000
Cash dividends per share of common stock $ .1675 $ .1450 $ .3350 $ .2900
<FN>
See notes to condensed consolidated financial statements.
</FN>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 December 31
1997 1996 (a)
--------- ----------
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ 5,384,000 $12,431,000
Trade accounts receivable, net of
allowances for doubtful accounts 140,317,000 141,203,000
Inventories:
Raw materials 64,214,000 56,051,000
Work in process 30,733,000 29,088,000
Finished goods 26,111,000 23,154,000
Prepaid expenses 5,834,000 5,079,000
----------- -----------
Total current assets 272,593,000 267,006,000
Properties and equipment:
Land 5,161,000 5,250,000
Buildings and improvements 41,916,000 40,044,000
Machinery and equipment 136,043,000 132,099,000
Accumulated depreciation (99,245,000) (94,568,000)
---------- -----------
Net properties and equipment 83,875,000 82,825,000
Intangible assets, net of
accumulated amortization 160,548,000 165,854,000
Other deferred charges and assets 15,911,000 17,228,000
----------- -----------
Total manufacturing assets 532,927,000 532,913,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 176,295,000 170,988,000
----------- -----------
Total assets $709,222,000 $703,901,000
=========== ===========
See notes to condensed consolidated financial statements.
(a)The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued
June 30 December 31
1997 1996 (a)
--------- ----------
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $85,793,000 $69,987,000
Trade accounts payable 56,469,000 64,088,000
Accrued liabilities and income taxes 72,907,000 92,338,000
---------- ----------
Total current liabilities 215,169,000 226,413,000
Long-term borrowings 32,930,000 34,311,000
Deferred income taxes 22,183,000 22,183,000
---------- ----------
Total manufacturing liabilities 270,282,000 282,907,000
Financial services activities -
Short-term borrowings 153,060,000 148,205,000
----------- -----------
Total liabilities 423,342,000 431,112,000
SHAREHOLDERS' EQUITY
Common stock - par value 46,084,000 45,986,000
Capital in excess of par value 58,720,000 57,138,000
Retained earnings 212,186,000 190,181,000
Treasury stock (18,150,000) (14,404,000)
Deferred stock awards (2,339,000) (1,508,000)
Foreign currency translation (10,621,000) (4,604,000)
----------- -----------
Total shareholders' equity 285,880,000 272,789,000
----------- -----------
Total liabilities and
shareholders' equity $709,222,000 $703,901,000
=========== ===========
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30
1997 1996
Operating activities:
Net income $29,675,000 $27,829,000
Depreciation 7,367,000 6,610,000
Amortization 2,776,000 2,471,000
Working capital changes and other (26,919,000) (19,738,000)
---------- ----------
Net cash provided by operating
activities 12,899,000 17,172,000
Investing activities:
Purchases of properties and
equipment (9,737,000) (7,259,000)
Principal extensions under
lease financing agreements (59,327,000) (49,331,000)
Principal collections under
lease financing agreements 54,020,000 41,359,000
Payments for purchases of companies,
net of cash acquired --- (23,593,000)
Other, net 2,678,000 1,430,000
----------- -----------
Net cash used for investing
activities (12,366,000) (37,394,000)
Financing activities:
Additional short-term
borrowings, net 20,799,000 32,613,000
Reduction of long-term borrowings (1,638,000) (1,511,000)
Purchases of treasury stock (5,282,000) (189,000)
Cash dividends paid to
shareholders (21,716,000) (18,822,000)
Other, net 257,000 583,000
----------- -----------
Net cash provided by (used for) financing
activities (7,580,000) 12,674,000
Decrease in cash and cash
equivalents (7,047,000) (7,548,000)
Cash and cash equivalents at
beginning of period 12,431,000 9,350,000
---------- ---------
Cash and cash equivalents at
end of period $ 5,384,000 $ 1,802,000
========= =========
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. It is suggested that the condensed consolidated financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Registrant's Proxy Statement for the Annual Meeting of
Shareholders held on April 16, 1997.
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, 1997, are not
necessarily indicative of the results to be expected for the full year of
1997.
3. Interest paid for the six-month periods ended June 30, 1997 and 1996 was
$8,419,000 and $7,029,000, respectively. Income taxes paid for these same
periods were $16,843,000 and $10,027,000, respectively.
4. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Registrant will be required to change
the method currently used to compute earnings per share. Under the new
requirements for calculating primary earnings per share, the dilutive
effect of stock options will be excluded. The impact of Statement 128 on
the calculation of primary and fully diluted earnings per share for these
quarters is expected to be insignificant.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
SECOND QUARTER 1997
Comparison with Second Quarter 1996
Second quarter net income was up 1% to $16.1 million while earnings per share
were $.35 in both 1997 and 1996. Second quarter sales of $236.2 million
increased 2% over last year's $232.3 million. New business of $229.5 million
increased 6% from the $215.7 million booked in last year's second quarter.
The Safety, Vehicle and Tool groups reported increases in sales over last year's
second quarter while Sign's sales were lower. The Vehicle and Safety Products
groups achieved higher earnings in the second quarter while earnings for the
Sign and Tool groups were lower. Orders for the Safety Products and Vehicle
groups also increased in the second quarter while Sign's modestly declined.
Safety Products' sales increased 12% and earnings increased 1%. Safety Product's
orders were up 16%. These percentage changes reflect the inclusion of the
mid-1996 acquisition, Victor Products. Excluding the impact of Victor, the
group's sales were up 2% and earnings were down 2%. Sales of emergency vehicle
and industrial signaling products increased strongly over last year's second
quarter and generated strong earnings gains for the group. Offsetting a large
portion of this earnings increase was a decline in earnings in the hazardous
material containment business whose results were affected by substantial
one-time, non-recurring costs in the second quarter.
The Vehicle Group's earnings increased 14% on a sales increase of 4%. The
group's orders increased 6%. Both fire rescue and environmental products
achieved significantly increased earnings, with the group's foreign operations
posting substantial sales and earnings gains over last year's results.
Operational improvements, largely in the group's foreign businesses, improved
the group's operating margin. Total fire rescue orders in the second quarter
were down slightly from last year but improved sharply over those received in
this year's first quarter.
Tool Group sales increased 1% and earnings declined 5%; orders were even with
last year. Orders, sales, earnings and operating margins were constrained by
modest weakness in certain foreign markets, the effects of recent domestic auto
strikes and a stronger US dollar.
The Sign Group's sales and earnings declined 26% and 42%, respectively, compared
to strong record results achieved in last year's second quarter. Sales and
earnings increased significantly over the group's results achieved in this
year's first quarter while orders were 3% lower.
Cost of sales as a percent of net sales decreased from 69.7% in the second
quarter of 1996 to 67.3% in the second quarter of 1997. The reduction in the
cost of sales percentage was largely the result of two main factors: 1) the
Vehicle Group experienced improved gross margins due to operational improvements
largely in its foreign businesses and 2) the effect on gross profit caused by
the inclusion of a significant commission in the Registrant's sales and selling,
general and administrative expenses relating to a large fire rescue vehicle
sale. Selling, general and administrative expenses as a percent of net sales
increased to 21.2% from 18.7% in the second quarter of 1996. Over half of the
increase was due to the fire rescue-related commission described above. Most of
the remaining increase was due to volume-related issues in the Sign Group and
the non-recurring charges in the hazardous material containment business
described above. The effective tax rate for the second quarter of 1997 was 32.0%
compared to the second quarter 1996 rate of 33.7%. The decrease mainly resulted
from favorable foreign effects.
Comparison of First Six Months 1997 to Same Period 1996
For the first six months, net income of $29.7 million in 1997 increased 7% over
the $27.8 million reported in the same period of last year. Earnings of $.65 per
share for the first six months of 1997 also increased 7% over last year's $.61
per share. Sales for the six month period increased 4% to $460.6 million in 1997
compared to $443.1 million in 1996.
Orders for the first six months were 2% lower than a year ago.
Cost of sales as a percent of net sales decreased to 67.9% in the first six
months of 1997 from 69.9% in the first six months of 1996. Selling, general and
administrative expenses increased to 21.0% of net sales in the first six months
of 1997 from 19.2% in the same period a year ago. The percentage changes were
primarily due to the reasons cited above for the second quarter. The effective
tax rate was 32.5% for the first half of 1997 compared to 33.7% for the first
half of 1996. The decrease mainly resulted from favorable foreign effects.
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
platforms.
Financial Position and Liquidity at June 30, 1997
The current ratio applicable to manufacturing activities was 1.3 at June 30,
1997 compared to 1.2 at December 31, 1996. Working capital (manufacturing
operations) at June 30, 1997 was $57.4 million compared to $40.6 million at the
most recent year end. The increase in working capital resulted from additional
chassis purchases in the Vehicle Group prior to discontinuance by the
manufacturer and inventory purchased for new product introductions. The debt to
capitalization ratio applicable to manufacturing activities was 30% at June 30,
1997 compared to 28% at December 31, 1996. The debt to capitalization ratio
applicable to financial services activities was 87% at June 30, 1997 and
December 31, 1996.
Current financial resources and anticipated funds from the Registrant's
operations are expected to be adequate to meet future cash requirements
including capital expenditures and modest amounts of additional stock purchases.
Other Events
In July 1997, Registrant acquired Pauluhn Electric Mfg. Co., Inc. for cash.
Based near Houston Texas, Pauluhn is a $17 million manufacturer of hazardous
area and explosion proof electrical products which are sold primarily to
customers that operate in dangerous or rugged environments such as off-shore
oil/gas, mining, marine and refineries.
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Federal Signal Corporation
08/04/97 By: /s/ Henry L. Dykema
Henry L. Dykema, Vice President and Chief Financial Officer