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 September 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 60521
(Address of principal executive offices) (Zip code)
(630) 954-2019
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X
No ____
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, $1.00 par value 45,598,370
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 September 30 Nine Months Ended September 30
------------------------------------ ---------------------------------
1997 1996 1997 1996
------------ ------------ ----------- --------
Net sales $229,318,000 $230,348,000 $689,959,000 $673,413,000
Costs and expenses:
Cost of sales 157,554,000 159,672,000 470,508,000 469,186,000
Selling, general and administrative 45,037,000 43,073,000 141,805,000 128,345,000
Other (income) and expenses:
Interest expense 4,459,000 4,047,000 12,550,000 11,381,000
Other (income) expense, net (482,000) (139,000) (1,648,000) (1,157,000)
----------- ----------- ----------- -----------
206,568,000 206,653,000 623,215,000 607,755,000
----------- ----------- ----------- -----------
Income before income taxes 22,750,000 23,695,000 66,744,000 65,658,000
Income taxes 6,780,000 7,808,000 21,099,000 21,942,000
----------- ----------- ----------- -----------
Net income $ 15,970,000 $ 15,887,000 $ 45,645,000 $ 43,716,000
=========== =========== =========== ===========
COMMON STOCK DATA:
Net income per share $ .35 $ .35 $ 1.00 $ .95
=========== =========== ============ ===========
Average common shares outstanding 45,829,000 45,879,000 45,832,000 45,940,000
Cash dividends per share of common stock $ .1675 $ .145 .5025 $ .435
<FN>
See notes to condensed consolidated financial statements.
</FN>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31
1997 1996 (a)
---------- ---------
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ 17,911,000 $ 12,431,000
Trade accounts receivable, net of
allowances for doubtful accounts 137,437,000 141,203,000
Inventories:
Raw materials 64,807,000 56,051,000
Work in process 22,728,000 29,088,000
Finished goods 32,564,000 23,154,000
Prepaid expenses 6,068,000 5,079,000
----------- -----------
Total current assets 281,515,000 267,006,000
Properties and equipment:
Land 5,155,000 5,250,000
Buildings and improvements 41,089,000 40,044,000
Machinery and equipment 141,561,000 132,099,000
Accumulated depreciation (102,337,000) (94,568,000)
----------- -----------
Net properties and equipment 85,468,000 82,825,000
Intangible assets, net of
accumulated amortization 182,137,000 165,854,000
Other deferred charges and assets 17,689,000 17,228,000
----------- -----------
Total manufacturing assets 566,809,000 532,913,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 172,190,000 170,988,000
----------- -----------
Total assets $738,999,000 $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
September 30 December 31
1997 1996 (a)
---------- ---------
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $100,565,000 $ 69,987,000
Trade accounts payable 53,492,000 64,088,000
Accrued liabilities and income taxes 87,275,000 92,338,000
----------- -----------
Total current liabilities 241,332,000 226,413,000
Long-term borrowings 32,553,000 34,311,000
Deferred income taxes 22,183,000 22,183,000
----------- -----------
Total manufacturing liabilities 296,068,000 282,907,000
Financial services activities -
Short-term borrowings 149,501,000 148,205,000
----------- -----------
Total liabilities 445,569,000 431,112,000
SHAREHOLDERS' EQUITY
Common stock - par value 46,130,000 45,986,000
Capital in excess of par value 58,632,000 57,138,000
Retained earnings 220,708,000 190,181,000
Treasury stock (18,191,000) (14,404,000)
Deferred stock awards (2,099,000) (1,508,000)
Foreign currency translation (11,750,000) (4,604,000)
----------- -----------
Total shareholders' equity 293,430,000 272,789,000
----------- -----------
Total liabilities and
shareholders' equity $738,999,000 $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)
Nine Months Ended September 30
1997 1996
Operating activities:
Net income $45,645,000 $ 43,716,000
Depreciation 11,085,000 9,846,000
Amortization 4,186,000 3,869,000
Working capital changes and other (9,196,000) (19,611,000)
---------- ----------
Net cash provided by operating
activities 51,720,000 37,820,000
Investing activities:
Purchases of properties and
equipment (15,949,000) (11,471,000)
Principal extensions under
lease financing agreements (85,088,000) (86,047,000)
Principal collections under
lease financing agreements 83,886,000 68,431,000
Payments for purchases of companies,
net of cash acquired (29,144,000) (27,615,000)
Other, net 4,222,000 778,000
---------- ----------
Net cash used for investing
activities (42,073,000) (55,924,000)
Financing activities:
Additional short-term
borrowings, net 32,041,000 44,470,000
Reduction of long-term borrowings (1,895,000) (1,939,000)
Purchases of treasury stock (5,323,000) (4,877,000)
Cash dividends paid to
shareholders (29,307,000) (25,487,000)
Other, net 317,000 665,000
---------- ----------
Net cash provided by (used for) financing
activities (4,167,000) 12,832,000
---------- ----------
Increase (decrease) in cash and cash
equivalents 5,480,000 (5,272,000)
Cash and cash equivalents at
beginning of period 12,431,000 9,350,000
---------- ----------
Cash and cash equivalents at
end of period $17,911,000 $ 4,078,000
========== ==========
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
nine months ended September 30, 1997, are not necessarily
indicative of the results to be expected for the full year of 1997.
3. Interest paid for the nine-month periods ended September 30, 1997
and 1996 was $13,023,000 and $11,592,000, respectively. Income
taxes paid for these same periods were $19,985,000 and $15,881,000,
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
THIRD QUARTER 1997
Comparison with Third Quarter 1996
Third quarter net income was up slightly to $16.0 million while earnings
per share were $.35, equal to those of the third quarter of 1996. Sales
for the third quarter were $229 million, essentially even with last
year's third quarter sales. Orders rose 6% above last year's strong third
quarter, driven by significant increases in the Sign and Safety Products
groups.
The Safety Products Group's sales and earnings improved significantly
over last year's third quarter. Sales and earnings of the Tool Group's
continuing businesses were up solidly while both the Vehicle and Sign
groups' sales and earnings declined.
Earnings for the Safety Products Group increased 21% over last year's
third quarter on a sales increase of 16%. The group's orders also
increased 16%. Significantly higher emergency and industrial lighting
orders and sales, including those of recently-acquired Pauluhn (see
"Other Event" below), a US-based industrial lighting manufacturer,
contributed to the group's improved results. Excluding the impact of
Pauluhn, the group's sales and earnings were up 7% and 2%, respectively.
The Tool Group's continuing businesses combined to achieve sales and
earnings gains of 6%. Both the precision punch and die components
business and the cutting tool business saw solid improvements in sales
and earnings. Most of the improvements reflected higher domestic sales
while foreign sales were down modestly from last year. Foreign sales,
when measured in local currencies, actually increased 5%. While reported
results of the Tool Group were essentially flat with last year's third
quarter, last year's results included those of a small tool business sold
at the end of 1996.
The Vehicle Group's sales declined 3% and earnings declined 9%; orders
for the group increased slightly. The Vehicle Group's sales, when
measured in local currencies, were about even with last year's third
quarter. Fire apparatus sales and earnings declined from a year ago
reflecting the previously reported slow order rate experienced by the
group's domestic fire business in the first half of the year. Orders for
domestic fire apparatus increased strongly in the third quarter over last
year. Orders for fire access platforms manufactured in Finland have been
strong throughout the year and continued through the third quarter. Sales
for the environmental products businesses increased while earnings were
essentially flat to last year's third quarter. The strong order rates of
the first half of the year for foreign street sweepers slowed in the
third quarter offsetting increases in domestic municipal sewer cleaners
and industrial vacuum trucks which continued to strengthen.
The Sign Group's orders increased 36% while sales and earnings declined
21% and 67%, respectively. Sign's third quarter sales and earnings
reflected the poor incoming orders experienced during the first half of
this year with orders improving to more favorable levels in the third
quarter. Bid activity continued strong during the quarter.
Cost of sales as a percent of net sales decreased from 69.3% in the third
quarter of 1996 to 68.7% in the third quarter of 1997. Selling, general
and administrative expenses as a percent of net sales increased to 19.6%
from 18.7% in the third quarter of 1996. The changes in the percentages
of cost of sales and selling, general and administrative expenses
reflected the proportionately greater sales increase in the Safety
Products Group. The effective tax rate for the third quarter of 1997 was
29.8% compared to the third quarter 1996 rate of 33.0%. The decrease
mainly resulted from the tax benefits associated with export sales of
U.S. products, including exports of prior years, and a proportionately
greater increase in foreign earnings taxed at lower rates.
Comparison of First Nine Months 1997 to Same Period 1996
For the first nine months, net income of $45.6 million in 1997 increased
4% over the $43.7 million reported in the same period last year. Earnings
of $1.00 per share for the first nine months of 1997 increased 5% over
last year's $.95 per share. Sales for the nine-month period increased 2%
to $690 million in 1997 compared to $673 million in 1996.
Cost of sales as a percent of net sales decreased to 68.2% in the first
nine months of 1997 from 69.7% in the first nine months of 1996 while
selling, general and administrative expenses increased to 20.6% of net
sales from 19.1%. The percentage changes were primarily caused by the
reasons cited above for the third quarter as well as the impact of a
significant sales commission associated with a large fire rescue vehicle
sale in the second quarter of 1997. The effective tax rate was 31.6% for
the first nine months of 1997 compared to 33.4% for the first nine months
of 1996. The decrease is mainly attributable to the effects of those
items discussed above for the third quarter.
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, fire apparatus and aerial access platforms.
Financial Position and Liquidity at September 30, 1997
The current ratio applicable to manufacturing activities was 1.2 at
September 30, 1997 and December 31, 1996. Working capital (manufacturing
operations) at September 30, 1997 was $40.1 million compared to $40.6
million at the most recent year end. The debt to capitalization ratio
applicable to manufacturing activities was 31% at September 30, 1997
compared to 28% at December 31, 1996. The debt to capitalization ratio
applicable to financial services activities was 87% at September 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 Event
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
11/07/97 By:/S/ Henry L. Dykema
Date Henry L. Dykema, Vice President
and Chief Financial Officer