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 March 31, 1999
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
(Address of principal executive offices) (Zip code)
(630) 954-2000
(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
Common Stock, $1.00 par value 45,462,074 shares outstanding at April 30, 1999
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 Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31
1999 1998
---------- -----------
Net sales $253,294,000 $231,230,000
Costs and expenses:
Cost of sales 176,219,000 160,180,000
Selling, general and administrative 52,977,000 50,783,000
Other (income) and expenses:
Interest expense 5,187,000 4,467,000
Other (income), net (443,000) (161,000)
----------- -----------
233,940,000 215,269,000
Income before income taxes 19,354,000 15,961,000
Income taxes 6,307,000 5,115,000
----------- -----------
Net income $ 13,047,000 $ 10,846,000
=========== ===========
COMMON STOCK DATA:
Basic and diluted net income per share $ .29 $ .24
========= ===========
Weighted average common shares outstanding
Basic 45,436,000 45,674,000
Diluted 45,700,000 45,959,000
Cash dividends per share of
common stock $ .1850 $ .1775
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended March 31
1999 1998
---------- ----------
Net income $13,047,000 $10,846,000
Other comprehensive loss, net of tax -
Foreign currency translation adjustments (2,762,000) (1,842,000)
---------- ---------
Comprehensive income $10,285,000 $9,004,000
========== =========
See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31
1999 1998 (a)
---------- -----------
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ 3,445,000 $15,316,000
Trade accounts receivable, net of
allowances for doubtful accounts 166,865,000 159,080,000
Inventories:
Raw materials 58,744,000 63,423,000
Work in process 46,976,000 32,613,000
Finished goods 35,916,000 35,925,000
Prepaid expenses 7,780,000 4,850,000
----------- -----------
Total current assets 319,726,000 311,207,000
Properties and equipment:
Land 5,956,000 5,922,000
Buildings and improvements 47,528,000 47,785,000
Machinery and equipment 161,907,000 157,392,000
Accumulated depreciation (115,991,000) (113,732,000)
----------- -----------
Net properties and equipment 99,400,000 97,367,000
Intangible assets, net of
accumulated amortization 227,350,000 232,233,000
Other deferred charges and assets 22,943,000 21,147,000
----------- -----------
Total manufacturing assets 669,419,000 661,954,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 175,982,000 174,045,000
----------- -----------
Total assets $845,401,000 $835,999,000
=========== ===========
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued
March 31 December 31
1999 1998 (a)
---------- -----------
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $62,354,000 $37,097,000
Trade accounts payable 60,546,000 62,976,000
Accrued liabilities and income taxes 80,402,000 95,120,000
----------- -----------
Total current liabilities 203,302,000 195,193,000
Long-term borrowings 135,571,000 137,152,000
Deferred income taxes 28,590,000 30,212,000
----------- -----------
Total manufacturing liabilities 367,463,000 362,557,000
Financial services activities - Borrowings 153,435,000 151,660,000
----------- -----------
Total liabilities 520,898,000 514,217,000
SHAREHOLDERS' EQUITY
Common stock - par value 46,798,000 46,668,000
Capital in excess of par value 65,701,000 63,461,000
Retained earnings 257,989,000 253,366,000
Treasury stock (29,439,000) (29,161,000)
Deferred stock awards (3,066,000) (1,834,000)
Accumulated other comprehensive income (13,480,000) (10,718,000)
----------- -----------
Total shareholders' equity 324,503,000 321,782,000
----------- -----------
Total liabilities and
shareholders' equity $845,401,000 $835,999,000
=========== ===========
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31
1999 1998
---------- ----------
Operating activities:
Net income $13,047,000 $10,846,000
Depreciation 4,352,000 4,039,000
Amortization 1,954,000 1,684,000
Working capital changes and other (30,838,000) 3,157,000
------------ ----------
Net cash provided by (used for)
operating activities (11,485,000) 19,726,000
Investing activities:
Purchases of properties and
equipment (6,464,000) (5,484,000)
Principal extensions under
lease financing agreements (26,549,000) (21,446,000)
Principal collections under
lease financing agreements 24,612,000 21,271,000
Payments for purchases of companies,
net of cash acquired (2,655,000) (23,433,000)
Other, net 1,119,000 1,545,000
------------ -----------
Net cash used for investing
activities (9,937,000) (27,547,000)
Financing activities:
Additional short-term
borrowings, net 27,096,000 29,933,000
Reduction of long-term borrowings (1,698,000) (192,000)
Purchases of treasury stock (278,000) (157,000)
Cash dividends paid to
shareholders (16,590,000) (15,856,000)
Other, net 1,021,000 402,000
---------- -----------
Net cash provided by (used for) financing
activities 9,551,000 14,130,000
----------- -----------
Increase (decrease) in cash and cash
equivalents (11,871,000) 6,309,000
Cash and cash equivalents at
beginning of period 15,316,000 10,686,000
------------ -----------
Cash and cash equivalents at
end of period $ 3,445,000 $ 16,995,000
============ ============
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 Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
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 ended
March 31, 1999, are not necessarily indicative of the results to be
expected for the full year of 1999.
3. Interest paid for the three-month periods ended March 31, 1999 and
1998 was $5,774,000 and $4,679,000, respectively. Income taxes paid
for these same periods were $1,202,000 and $1,085,000,
respectively.
4. The following table summarizes the information used in computing
basic and diluted income per share:
Three Months Ended March 31
1999 1998
------ ------
Numerator for both basic
and diluted income per share
computations - net income $13,047,000 $10,846,000
========== ==========
Denominator for basic income
per share - weighted average
shares outstanding 45,436,000 45,674,000
Effect of employee stock options
(dilutive potential common shares) 264,000 285,000
Denominator for diluted income ---------- ----------
per share - adjusted shares 45,700,000 45,959,000
========== ==========
5. The following table summarizes the Registrant's operations by
segment for the three-month periods ended March 31, 1999 and 1998.
Three months ended
March 31
1999 1998
---- ----
Net sales
Environmental Products $61,121,000 $ 50,606,000
Fire Rescue 73,107,000 70,434,000
Safety Products 64,197,000 60,626,000
Sign 17,633,000 12,875,000
Tool 37,236,000 36,689,000
------------ ------------
Total net sales $253,294,000 $ 231,230,000
============ ============
Operating income
Environmental Products $6,430,000 $ 3,718,000
Fire Rescue 1,404,000 3,069,000
Safety Products 9,121,000 8,884,000
Sign 1,306,000 (831,000)
Tool 7,922,000 7,500,000
Corporate expense (2,085,000) (2,073,000)
----------- -----------
Total operating income 24,098,000 20,267,000
Interest expense (5,187,000) (4,467,000)
Other income 443,000 161,000
------------ -----------
Income before income taxes $19,354,000 $ 15,961,000
============ ===========
The basis of segmentation and the basis of measurement of segment
profit or loss are consistent with those used in the Registrant's
last annual report. There have been no material changes in total
assets from the amount disclosed in the Registrant's last annual
report.
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
FIRST QUARTER 1999
Comparison with First Quarter 1998
Federal Signal Corporation reported a 21% increase in earnings per share
for the first quarter. Diluted earnings per share rose to $.29 from $.24
last year and net income rose 20% to $13.0 million from $10.8 million
last year. New orders, sales and backlog achieved record levels for the
quarter. Sales were up 10% to $253 million from $231 million last year,
and new orders were up 6% to $257 million. Backlog rose 7% to $361
million from $336 million last year.
All groups increased new orders, sales and income over last year's first
quarter. Sales and income growth was led by the Vehicle Group, the
largest of Federal's four groups, and by the Sign Group.
Vehicle Group income was up 15% and sales were up 11% on strength in the
environmental products segment. Sales and income increased strongly for
environmental products, with all key units participating. Fire rescue
segment sales were good, but income was down as expenses for productivity
improvement and a temporary unfavorable product mix reduced operating
margins. New orders were up 7% as domestic municipal demand remained
healthy.
Sign Group sales increased 37% and new orders increased 9% for the first
quarter, as the group continued the strong performance that began in the
second quarter of 1998. Operating income was strong and reflected
continuing operational improvements.
Safety Products Group new orders increased 7%, and sales increased 6%.
Very strong performance in the signaling business and parking security
devices more than offset weakness in hazardous area lighting and
hazardous material containers. The weakness in these businesses was
related to low oil prices and a relatively soft U.S. industrial market.
Income for the group increased 3% as sales weakness in hazardous area
lighting modestly reduced the group's operating margin.
Tool Group income increased 6% on a 1% increase in sales as cost control
and a somewhat favorable product mix improved group operating margin. New
orders were up slightly, as some strength in cutting tools from new
products and marketing initiatives offset softness in the precision punch
and die component business.
Cost of sales as a percent of net sales increased from 69.3% in the first
quarter of 1998 to 69.6% in the first quarter of 1999. The percentage
increase was largely attributable to sales growth of the Registrant's
vehicle-based businesses outpacing growth in other sales. In addition,
the Fire Rescue Segment incurred expenses for productivity improvements
and a temporary unfavorable product mix. Selling, general and
administrative expenses as a percent of net sales decreased to 20.9% from
22.0% in the first quarter of 1998 reflecting increased sales volume at
Fire Rescue and Sign as well as spending improvements in the Tool Group.
Vehicle-based products typically have higher than average cost of sales
ratios and lower selling, general and administrative expense ratios than
the average of the Registrant's other products. Interest expense
increased from $4.5 million to $5.2 million largely as a result of
increased borrowings to finance recent business acquisitions. The
effective tax rate for the first quarter of 1999 increased slightly to
32.6% from 32.0% in 1998.
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 fire rescue products.
Financial Position and Liquidity at March 31, 1999
The current ratio applicable to manufacturing activities was 1.6 at March
31, 1999 and also at December 31, 1998. Working capital (manufacturing
operations) at March 31, 1999 was $116.4 million compared to $116.0
million at the most recent year end. The debt to capitalization ratio
applicable to manufacturing activities was 40% at March 31, 1999 compared
to 37% at December 31, 1998. The debt to capitalization ratio applicable
to financial services activities was 87% at March 31, 1999 and December
31, 1998.
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
repurchases.
Year 2000
Reference should be made to Registrant's discussion of the Year 2000
issue in the Financial Review included in its Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
The company is continuing the final phases of correcting systems with
identified deficiencies and plans to complete the final validation
testing of its Year 2000 compliance program by the third quarter of 1999.
The company currently believes all essential processes, systems, and
business functions will comply with the Year 2000 requirements by the
third quarter of 1999. While the company does not expect that the
consequences of any unsuccessful modifications would significantly affect
the financial position, liquidity, or results of operations, there can be
no assurance that failure to be fully compliant by 2000 would not have an
impact on the company. The company is continuing to survey critical
suppliers, distributors and customers to assure that their systems will
be Year 2000 compliant and anticipates this survey will essentially be
complete by the third quarter of 1999. While the failure of a single
third party to timely achieve Year 2000 compliance should not have a
material adverse effect on the company's results of operations in a
particular period, the failure of several key third parties to achieve
such compliance could have such an effect. The company will develop
contingency plans by the third quarter of 1999 to alter business
relationships in the event certain third parties fail to become Year 2000
compliant.
The costs of the company's Year 2000 transition program are being funded
with cash flows from operations. Some of these costs relate solely to the
modification of existing systems, while others are for new systems, which
will improve business functionality. In total, these costs are not
expected to be substantially different from the normal, recurring costs
that are incurred for systems development and implementation. As a
result, these costs are not expected to have a material adverse effect on
the company's overall results of operations or cash flows.
Part II. Other Information
Responses to items one, two, three, five and six are omitted since these
items are either inapplicable or the response thereto would be negative.
Item 4. Submission of Matters to a Vote of Security Holders.
At its Annual Meeting of Stockholders on April 15, 1999, the stockholders
of the Registrant voted to elect three directors and to amend the Federal
Signal Corporation Stock Benefit Plan.
James A. Lovell, Jr. was re-elected a director for a three-year term.
Holders of 38,743,454 shares voted for the re-election, 470,570 shares
withheld votes, 6,319,896 shares did not vote and there were no broker
nonvotes.
Charles R. Campbell was elected a director for a three-year term. Holders
of 38,785,884 shares voted for the re-election, 428,140 shares withheld
votes, 6,319,896 shares did not vote and there were no broker nonvotes.
Paul W. Jones was elected a director for a three-year term. Holders of
38,733,206 shares voted for the re-election, 480,818 shares withheld
votes, 6,319,896 shares did not vote and there were no broker nonvotes.
Holders of 35,686,221 shares voted for the FSC Stock Benefit Plan
amendment, 3,100,765 shares voted against, 427,034 shares withheld votes,
6,319,896 shares did not vote and there were four broker nonvotes.
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.
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
05/14/99 By: /s/ Henry L. Dykema
Date Henry L. Dykema, Vice President and Chief
Financial Officer