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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 9, 2001
Federal Signal Corporation
(Exact name of registrant as specified in its charter)
Delaware 0-693 36-1063330
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
1415 W. 22nd Street, Oak Brook, Illinois 60523
(Address of principal executive offices) (Zip Code)
(630) 954-2000
(Registrant's telephone number, including area code)
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Item 9. Regulation FD Disclosure
Federal Signal Corporation hereby discloses its 2000 Annual Report for
information purposes only.
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
Dated: March 9, 2000 By: /s/ Joseph J. Ross
Joseph J. Ross
Chairman and
Chief Executive Officer
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[LOGO] FEDERAL SIGNAL CORPORATION 2000 ANNUAL REPORT
[PHOTO]
Environmental Products Group
[PHOTO]
Tool Group
COMMITTED TO SHAREHOLDER VALUE
FOCUSED ON GROWTH AND PROFITABILITY
[PHOTO]
Safety Products Group
[PHOTO]
Fire Rescue Group
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FEDERAL SIGNAL CORPORATION, FOUNDED IN 1901, IS A MANUFACTURER AND WORLDWIDE
SUPPLIER OF SAFETY, SIGNALING AND COMMUNICATIONS EQUIPMENT, FIRE RESCUE
PRODUCTS, STREET SWEEPING AND VACUUM LOADER VEHICLES, PARKING CONTROL
EQUIPMENT, CARBIDE AND SUPERHARD TIPPED CUTTING TOOLS, PRECISION METAL STAMPING
PUNCHES AND COMPONENTS FOR PLASTIC INJECTION MOLDS. THE COMPANY IS MANAGED ON A
DECENTRALIZED BASIS AND COMPRISES THE FOLLOWING FOUR MAJOR OPERATING GROUPS:
SAFETY PRODUCTS, TOOL, ENVIRONMENTAL PRODUCTS AND FIRE RESCUE. A SMALLER GROUP,
SIGN, A DISCONTINUED OPERATION, IS CURRENTLY BEING OFFERED FOR SALE.
FEDERAL SIGNAL'S MISSION IS TO BE THE LEADING INNOVATOR, MANUFACTURER AND
MARKETER OF SELECTED PRODUCTS AND SERVICES IN DIVERSE WORLDWIDE INDUSTRIAL
MARKET NICHES.
FEDERAL SIGNAL'S GROWTH STRATEGY IS: TO BE THE MARKET LEADER IN PROFITABLE,
GROWING, LONG PRODUCT LIFE CYCLE, LOWER TECHNOLOGY MARKETS. WE TARGET MARKETS
WHICH ARE GLOBALLY TOO SMALL TO ATTRACT MAJOR COMPETITORS. WE STRIVE TO ACHIEVE
HIGH PROFITABILITY AND GROWTH IN THESE MARKETS THROUGH PRODUCT AND PROCESS
INNOVATION PLUS OVERALL OPERATING EXCELLENCE.
[PIE CHART GRAPH]
2000 SALES
FIRE RESCUE GROUP: $389 MILLION
ENVIRONMENTAL PRODUCTS GROUP: $255 MILLION
SAFETY PRODUCTS GROUP: $267 MILLION
TOOL GROUP: $194 MILLION
ON THE COVER
Emergency One's Cyclone II rescue pumper
Signal Products' Vista lightbar enhanced with LED technology
Dayton Progress' precision metal stamping components
Elgin Sweeper's Crosswind recirculating air sweeper
CONTENTS
Financial Highlights 1
Corporate Profile 2
To Our Shareholders and Employees 4
Perspectives on Growth 7
Financial Performance 11
Review of Operations
Safety Products Group 12
Tool Group 16
Environmental Products Group 18
Fire Rescue Group 22
Financial Section 26
Shareholder Information, Directors and Corporate Officers 53
TRADEMARKS
Air Bear, Air Cub, APD, Akusta, American Eagle, Auditor Power Pad, Bronto
Skylift, Broom Bear, Clapp Dico, Crosswind, Cyclone, Eagle, Elgin, Emergency
One, E-One, Federal, Federal Signal, Five Star, [LOGO], Gator, Geovac, Guzzler,
HDT, Hush, Jetstream, Justrite, Millbank, NRL, Passport Plus, Pauluhn, RAVO,
Saulsbury, ScanNet, Seneca, SideStacker, Signal Products, Spectrum, SST, Stream
Line, Super Tiller, Superior, Target Tech, Titan, V-Max Cab, Vactor, VAMA,
Vaxjet, Victor, Vista, Viper are trademarks of Federal Signal Corporation or its
subsidiaries.
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FINANCIAL HIGHLIGHTS Federal Signal Corporation and Subsidiaries
[LINE GRAPH]
NET SALES
(in millions of dollars)
91 408 For the years ended December 31, 2000 1999 Change
92 462 ----------------------------------------------------------------------------------------------------
93 507
94 611 OPERATIONS
95 745
96 814 Net sales $1,106,127,000 $ 977,209,000 13%
97 859
98 937 Operating income $ 116,654,000 $ 101,352,000 15%
99 977
00 1,106 Income from continuing operations $ 57,655,000 $ 54,383,000 6%
Pro-forma income from continuing operations,
[LINE GRAPH] excluding restructuring charges $ 59,976,000 $ 54,383,000 10%
INCOME PER SHARE Per share data:
(continuing operations) Income from continuing operations $ 1.27 $ 1.18 8%
Income from discontinued operations,
91 .70 net of taxes $ .02 $ .07
92 .77 Cumulative effect of change in accounting $ (.02) $
93 .85 Net Income - diluted (1) $ 1.26 $ 1.25 1%
94 .96 Cash dividends paid $ .76 $ .74 3%
95 1.13
96 1.26 Operating margin 10.5% 10.4%
97 1.24
98 1.20 Return on average common
99 1.18 shareholders' equity 16.2% 17.0%
00 1.27
1.32* Cash flow from operations $ 64,390,000 $ 57,656,000
[LINE GRAPH] Capital expenditures $ 22,288,000 $ 23,404,000
RETURN ON EQUITY Average common shares outstanding 45,521,000 45,958,000
(in percent)
----------------------------------------------------------------------------------------------------
91 20.0 FINANCIAL POSITION AT YEAR-END
92 20.0
93 21.0 Shares outstanding 45,304,000 46,114,000
94 22.3
95 22.0 Working capital(2) $ 60,016,000 $ 71,586,000
96 23.8
97 20.6 Current ratio(2) 1.2 1.3
98 19.1
99 17.0 Debt-to-capitalization ratio(2) 45% 42%
00 16.2
17.1* Shareholders' equity $ 357,431,000 $ 354,033,000
Book value per share $ 7.89 $ 7.68
(*) excluding restructuring
charges and change in (1) amounts may not add due to rounding
accounting (2) manufacturing operations only
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CORPORATE PROFILE
- ------------------------------------------------------------------------------------------------------------------------------------
SAFETY PRODUCTS GROUP TOOL GROUP
[3 PHOTOS] [3 PHOTOS]
- ------------------------------------------------------------------------------------------------------------------------------------
STEPHEN C. BUCK Group President ALAN G. RINGLER Group President
- ------------------------------------------------------------------------------------------------------------------------------------
LINES OF BUSINESS
- ------------------------------------------------------------------------------------------------------------------------------------
Warning, signaling, Parking revenue Containment Standard and Carbide cutoff Mold bases and mold
hazardous area and access control products for special die and grooving tool tooling components
lighting and systems storage and use components and systems and
communications of hazardous precision parts superhard inserts
products material
MARKET SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Industry, Airports, Industry, Die builders, Automotive, Plastic injection mold
municipalities, municipalities, laboratories, automotive, automotive suppliers, builders, electronics,
automotive and institutions, institutions, appliance, can bearings, agriculture/ automotive, medical,
truck, oil and gas, parking operators, government making construction building
marine, mining contractors, equipment, aerospace
roadway authorities
REPRESENTATIVE BRANDS
- ------------------------------------------------------------------------------------------------------------------------------------
Akusta, Federal APD Justrite Dayton Progress Clapp Dico P.C.S. Company
Federal Signal, Manchester Tools
Millbank, NRL,
Pauluhn,
Target Tech,
VAMA, Victor
PRIMARY MANUFACTURING LOCATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Anaheim, CA Novi, MI Mattoon, IL Dayton, OH Akron, OH Fraser, MI
Danville, KY Sao Paulo, Brazil Jamestown, NY Whitehouse, OH
Pearland, TX Minneapolis, MN
University Park, IL Portland, IN
Barcelona, Spain Frankfurt, Germany
Edmonton, Alberta Meaux, France
Macclesfield, England Tokyo, Japan
Newcastle, England Warwickshire,
Johannesburg, England
South Africa Woodbridge,
Ontario
NET SALES/GROUP INCOME (in millions)
NET NET
SALES SALES
[LINE GRAPH] [LINE GRAPH]
96 197 96 141
97 222 97 139
98 253 98 146
99 262 99 158
00 267 00 194
GROUP GROUP
INCOME INCOME
[LINE GRAPH] [LINE GRAPH]
96 30.5 96 31.7
97 29.8 97 30.8
98 40.6 98 31.4
99 41.4 99 33.3
00 43.7 00 35.3 - 36.3*
(*)excluding restructuring charges
[LINE GRAPH] [LINE GRAPH] [LINE GRAPH] [LINE GRAPH]
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ENVIRONMENTAL PRODUCTS GROUP FIRE RESCUE GROUP
[3 PHOTOS] [3 PHOTOS]
- ------------------------------------------------------------------------------------------------------------------------------------
SHAWN V. CASEY Group President RICHARD G. GIBB Group President
- ------------------------------------------------------------------------------------------------------------------------------------
Air and mechanical Sewer and catch basin High pressure water Aluminum, steel and Vehicle-mounted Airport rescue
sweeping for cleaners, industrial blasting systems composite polymer aerial access vehicles and
roadways, parking vacuum loaders, glycol fire apparatus and platforms industrial
areas and industrial recovery vehicles, EMS rescue and fire equipment
facilities hydroexcavation transport vehicles
vehicles, closed-loop
surface cleaning systems
- ------------------------------------------------------------------------------------------------------------------------------------
Municipalities, Municipalities, Environmental Municipal, industrial, Municipal, industrial, Municipal
contractors, contractors, airports, contractors, military, airport airport fire and military
airports, industry industry industry, shipyards fire protection, protection, industrial airports,
emergency medical contractors, utilities industrial
service (EMS) complexes
- ------------------------------------------------------------------------------------------------------------------------------------
Elgin Sweeper Guzzler Jetstream American Eagle Bronto Emergency One
Five Star Vactor Emergency One
Ravo Vaxjet Saulsbury
Superior
- ------------------------------------------------------------------------------------------------------------------------------------
Elgin, IL Streator, IL Houston, TX Ocala, FL Tampere, Finland Ocala, FL
Youngsville, NC Preble, NY
Alkmaar, Netherlands Red Deer, Alberta
Beijing, China
- ------------------------------------------------------------------------------------------------------------------------------------
NET GROUP NET GROUP
SALES INCOME SALES INCOME
[LINE GRAPH] [LINE GRAPH] [LINE GRAPH] [LINE GRAPH]
96 177 96 13.6 96 300 96 27.1
97 186 97 15.9 97 312 97 26.9
98 220 98 19.6 98 318 98 14.5
99 247 99 24.5 99 310 99 10.9
00 255 00 23.1 00 389 00 24.9
25.9*
* excluding restructuring charges
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[PHOTO]
JOSEPH J. ROSS,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TO OUR SHAREHOLDERS AND EMPLOYEES
- --------------------------------------------------------------------------------
2000 was an unusual year for our company. Both our global municipal and
industrial markets were strong through the first nine months of the year. In the
fourth quarter, a severe and sudden decline in U.S. manufacturing activity
impacted our industrial businesses quickly and broadly. For the full year,
however, we experienced significant progress.
KEY ACHIEVEMENTS DURING OUR YEAR
- - Our continuing operations increased sales by 13% and operating income before
restructuring charges in those businesses increased 19%.
- - Fire Rescue Group increased sales by 22% (due to a required change in
accounting, that increase is reported as 26%) and more than doubled its
income, as it left behind problems faced in the previous two years.
- - We successfully consolidated two manufacturing operations within each of our
Tool and Environmental Products groups in the second half of the year; those
actions will benefit the profitability of each of those groups for years to
come.
- - Our broad municipal markets remained strong throughout the year, and we
believe we gained market share in most of those markets.
- - In March of last year we increased our presence in the market for high
precision plastic injection mold tooling with the acquisition of P.C.S.
Company.
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While we are pleased with these accomplishments, we also had some
disappointments. Net income growth for the year was flat. Strong income growth
in continuing operations was offset by restructuring charges related to plant
consolidations and an earnings decline in our discontinued Sign operations, as
well as increased interest costs during the year. We also were not successful in
divesting our Sign business during the year, as a combination of a very slow
U.S. sign market and a tightening of credit availability for financial buyers
delayed the sale process.
Our sales within the U.S. increased 17% this past year, as our U.S. municipal
markets remained strong throughout the year and we benefited from acquisitions
made within our Tool Group.
Sales outside the U.S. increased just 3%; however, sales increases in local
currencies amounted to 9%. We saw solid increases in non-U.S. sales within our
Safety Products and Tool groups, mainly in Europe and Mexico. Non-U.S. sales of
the Fire Rescue Group were good, but our Environmental Products Group was down
significantly; their Far East markets remained very weak and their European
competitors selling into these markets took advantage of the weakness of the
euro. Orders were improving toward the end of the year and, with the
strengthening of the euro versus the U.S. dollar, we anticipate greater growth
going into 2001.
We increased our cash flow from operations by 12%, due in great part to a
continuing focus on reduction of working capital. Cash flow represented 112% of
net income in the year 2000. That cash provides us the flexibility to invest in
new products, fund acquisitions, pay down debt or, in certain circumstances, buy
back stock. We introduced quite a few new products across the company, as
spending on new product development increased again. New products are the key to
growth in our mature markets and are always a high priority for the use of our
cash. The group narratives later in this report include discussion of new
product activity. We expect cash flow to increase further in the coming year,
both on an absolute basis and as a percentage of net income.
Overall employee turnover rate decreased in 2000 as we increased our focus on
employee development and retention in a very tight labor market. The employees
of Federal Signal Corporation are the company, and I again thank all of them for
their many contributions this past year.
EACH OF OUR FOUR GROUPS INCREASED SALES AND OPERATING INCOME BEFORE
RESTRUCTURING CHARGES IN 2000 Within the Fire Rescue Group, full year operating
margin almost doubled over a low prior year; the benefits of a 1999 enterprise
resource planning system installation, coupled with many other process
improvements, helped drive the improvement. The group had a record year in
aerial fire truck orders with plans to introduce additional new aerial products
in the coming year. As a result of the continuing operational improvements made
throughout the year, the group is again anticipating a substantial increase in
operating margin in 2001.
Environmental Products Group new orders increased by 12%, while sales
increased just 3% as many of the new orders were booked in the fourth quarter of
the year and could not be delivered by year end. As a result, the group ended
the year with a record-high backlog. The consolidation of our Birmingham,
Alabama manufacturing facility with our facilities in Streator, Illinois had a
negative impact on sales and earnings as manufacturing time increased in the
latter half of the year; we hired a great number of new employees in Streator
and, as expected, incurred significant inefficiency as these employees were
trained. That training will pay off as we move through 2001.
The Safety Products Group had another record year in sales of lights, sirens
and warning devices to the global police, fire and outdoor warning markets. The
group's full year sales increased only 2%, however, as fourth quarter U.S.
industrial market weakness slowed industrial product sales significantly. Also,
entering the year the group anticipated a recovery in its hazardous area
lighting and communications product lines, driven by the broad, global energy
markets, but this did not occur. While energy prices and production were up,
investments in new capital equipment were delayed throughout the year. Having
seen an increase in quoting activity in the fourth quarter, and continued high
energy prices, the group now anticipates a significant turnaround in these
product lines in 2001.
The Tool Group experienced steady growth throughout the first nine months of
the year; however, full year growth, not including an acquisition made in the
first quarter, was moderate as a sharp decline in U.S. sales and margins in the
fourth quarter negatively impacted full year results.
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[PHOTO]
ROGER B. PARSONS, RETIRING PRESIDENT OF THE ENVIRONMENTAL PRODUCTS
GROUP, ON THE LEFT, AND THOMAS N. MCGOWEN, JR., RETIRING DIRECTOR.
As mentioned earlier, the group acquired P.C.S. Company, a manufacturer and
marketer of precision tooling to the plastic injection mold industry, a market
with greater long-term growth potential than our current metal stamping market.
This addition performed well throughout the year and should continue with good
growth as its sales and marketing efforts are integrated with the group's broad
distribution system.
2000 BROUGHT SEVERAL KEY CHANGES TO OUR MANAGEMENT TEAM This year marked the
retirement of two long-time contributors to Federal Signal. On December 31,
2000, Roger B. Parsons retired as president of our Environmental Products Group.
Roger was with Elgin Sweeper Company when Federal Signal acquired that company
in 1982. Roger became president of Elgin Sweeper in 1983 and led our growth from
a $30 million sweeping company to a $250 million Environmental Products Group.
Shawn V. Casey, who has been with our company in both U.S. and foreign roles
since 1993 and was most recently president of Elgin Sweeper Company, has
succeeded Roger as president of this group.
Also, Thomas N. McGowen, Jr. is retiring this year from our board of
directors, having served for 27 years. Tom participated in the diversification
of Federal Signal in the late 1970's and early 1980's, and he has provided good
and welcome counsel to the company.
At the same time, we are pleased that Andrew E. Graves has joined the
company as our president and chief operating officer effective February 1st of
2001. Andy's career has been with FMC Corporation and, most recently, with CNH
Global, Inc., the successor company to Case Corporation and New Holland
Corporation. Andy has an excellent background in manufacturing and marketing of
capital goods and brings a great deal of international experience to the
company.
OUR OUTLOOK IS POSITIVE Market diversification in lower technology businesses
has been a key strategy of Federal Signal over the years. In 2001,we expect
strong U.S. municipal markets to more than offset slow U.S. industrial markets.
Both our Fire Rescue and Environmental Products groups ended 2000 with
record backlogs, positioning them well to enter the new year. Despite lower
backlogs and lower growth rates, we still expect sales and earnings growth from
our Safety Products and Tool groups, but not at the levels of the Fire Rescue
and Environmental Products groups. We expect the first half of the year to
continue very slow in industrial markets, with any market pick up to occur in
the latter half of the year.
We expect our operating margin to improve in 2001 as the benefits of plant
consolidations, cost reduction programs and process improvements continue to
show positive results, both on earnings and cash flow.
The diversity of our municipal and industrial markets should form the basis
for solid growth in the upcoming year, notwithstanding an extremely slow U.S.
manufacturing segment. Growth under these varying market conditions has been one
of the fundamental strategies of this company and we anticipate the positive
results of that strategy in 2001.
Sincerely,
/s/ Joseph J. Ross
Joseph J. Ross
Chairman and Chief Executive Officer
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[MAP]
PERSPECTIVES ON GROWTH AND
SHAREHOLDER VALUE CREATION
FOREIGN SALES AND MANUFACTURING LOCATIONS
- --------------------------------------------------------------------------------
- - (SAFETY) - (TOOL) - (ENVIRONMENTAL) - (FIRE RESCUE)
PRODUCTS GROUP GROUP PRODUCTS GROUP GROUP
Brazil Canada Netherlands Canada
Canada France Peoples Republic Finland
Hong Kong Germany of China Hong Kong
Peoples Republic Japan Sweden
of China United Kingdom Switzerland
South Africa United Arab Emirates
Spain
United Arab Emirates
United Kingdom
Federal Signal remains committed to the successful shareholder value-creation
mission and supporting strategies that have been described in this annual report
section for many years. They are restated below.
Federal Signal is a non-consumer market company with this overall growth
and value-creation strategy: to be the market leader in profitable, growing,
long product life cycle, lower technology markets. We target markets which are
globally too small to attract major competitors. We strive to achieve high
profitability and growth in these markets through product and process innovation
plus overall operating excellence.
This overall strategy statement is supported by the following components:
- - Sales and earnings growth are driven by market growth, increases in market
share from new products and competitive advantages, penetration of identical
markets in new, non-U.S. geography and entry into related (but not necessarily
identical) U.S. markets.
- - Internal growth is augmented by value-creating acquisitions in both current
and complementary markets through the purchase of small to modest-sized,
generally privately-held companies where combination benefits exist.
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- - Above average profit margins are enhanced or maintained by leveraging leading
positions in U.S. markets, leveraging U.S. product strengths in non-U.S.
markets and aggressive cost reduction and asset minimization programs
company-wide.
- - Federal Signal operates under a decentralized management structure with
incentive programs that are aligned with the interests of shareholders. Within
this decentralized management structure, a superior work force is attracted
and developed through disciplined training programs, self-directed work teams
and opportunities for advancement.
These strategies lead to high margin and high return on equity with low
capital intensity over the long-term, resulting in sufficient internally
generated cash flow to sustain long-term growth.
The served markets summarized in the Corporate Profile on pages 2 and 3
normally expand every year as Federal Signal enters into complementary market
niches. Market expansion or entry activities are discussed in the group
narratives, pages 12 through 25.
Our business unit competencies enable them to create new products or acquire
them profitably to enter complementary market niches with minimal risk. Each
business unit continuously develops core competencies specific to its markets,
building sustainable competitive advantages that support profitable growth
strategies.
The execution of our strategy, including some of our accomplishments during
the year 2000, is described below.
OPERATE BUSINESSES WITH LEADERSHIP POSITIONS IN SELECT MARKET NICHES Essentially
all of our U.S. sales are from businesses that have leading positions in their
main markets, ranking either #1 or #2 in market share. In newly entered
segments, leadership positions are targeted and action plans developed to
achieve them. For example, in 2000, the Tool Group acquired P.C.S. Company, a
provider of precision tooling to the plastic injection mold industry. P.C.S. is
a strong player in providing standard ejector pins, core pins, sleeves and
accessories to this growing industry. By integrating P.C.S. with our current
Tool Group distribution strengths, we intend to achieve a leading position in
this tooling niche.
CONTINUALLY AND RAPIDLY IMPROVE OUR BUSINESSES This strategy refers to the
actions we take and the culture we maintain to steadily improve the competitive
position and operating performance of each of our businesses, leading to
increasing profit margins and market share.
The Federal Signal strategic and annual operating planning processes are used
to develop appropriate operating action plans and assure that the Federal Signal
culture is maintained. These processes set objectives and
[PHOTO]
THE ACQUISITION OF THE PATENTED VAXJET CLOSED-LOOP SURFACE CLEANER SYSTEM OPENS
NEW DOORS FOR THE ENVIRONMENTAL PRODUCTS GROUP IN ENVIRONMENTAL CLEANING
APPLICATIONS. THIS NEW TECHNOLOGY,DESIGNED TO REMOVE OIL,DIRT AND OTHER
ACCUMULATIONS FROM SURFACES SUCH AS STREETS, AIRPORT RUNWAYS,TOLL BOOTH
AREAS,PARKING LOTS AND GARAGES WHILE RECYCLING THE WASH WATER ASSISTS FACILITIES
WITH FEDERAL CLEAN WATER ACT COMPLIANCE.
result in detailed written quarterly action plans for all key managers. These
action plans include monthly and quarterly goals tied to incentive plans that
ultimately support value-creating long-term objectives.
Each of our operating units has specific "critical success factors" that are
their most significant variables for growth and profitability, the key
components of shareholder value creation. These factors are included in annual
operating plans and are targeted and monitored for improvement each year.
Success factors cover areas such as customer satisfaction, speed of new product
development, labor productivity and supplier relationships. While the largest
improvements most often occur in our newly acquired businesses, we obtain steady
progress in the elimination of non-value-added activities and costs in long-held
businesses as well.
In 2000 two groups found important opportunities for cost reduction through
plant consolidation. The Environmental Products Group moved the Birmingham,
Alabama industrial vacuum truck manufacturing operations to the Streator,
Illinois municipal vacuum truck (predominantly sewer cleaning trucks)
manufacturing operation. The Tool Group combined its Dico brand superhard
cutting-tool operations with its recently acquired Clapp and Haney superhard
cutting-tool plant in Whitehouse, Ohio. Though restructuring costs were incurred
in 2000, both of these consolidations bring substantial cost savings in 2001 and
high financial returns into the future.
Our company-wide program to reduce costs, called Bold Goal, lowers costs
through a constant focus on elimination of non-value-added costs as well as
through advanced procurement methods and engineering design changes to
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minimize material costs. Bold Goal activities which involved purchasing and
supplier personnel eliminated costs amounting to over $8 million in 2000, or
more than 1% of our targeted cost base. These savings are the net amount after
price increases have been offset. Hundreds of employees achieved important
additional Bold Goal program savings during the year by finding lower cost ways
to operate. Group operating performance is covered in the narratives on pages 12
through 25, including Bold Goal achievements in each group.
ACQUIRE, OR PARTNER WITH,COMPANIES IN RELATED BUSINESSES Most of our growth will
come from our current businesses, yet we need to acquire businesses that fit
well with our current groups in order to achieve our long-term growth objective.
Focused on expansion within our current lines of business, we target companies
that:
- - operate in attractive industries;
- - offer leadership positions in niche markets;
- - have good prospects for growth;
- - would either benefit significantly from synergies with our existing strengths
in marketing and manufacturing or would expand our markets geographically;
- - have a high probability of achieving a rate of return that is at least 50%
above our weighted average cost of capital.
As mentioned previously, in March 2000 we acquired P.C.S. Company, which
manufactures precision "standard" mold tooling, complementing our existing
"special" mold tooling manufacturing capability and metal stamping distribution.
Also in March 2000, we acquired the technology for the Vaxjet closed-loop
surface cleaning system. This patented system is an innovative combination of
our sewer-cleaning vacuum truck and high-pressure waterblasting technologies,
and has the ability to serve a potentially large emerging market.
[PHOTO]
P.C.S. COMPANY,ACQUIRED IN MARCH 2000, OFFERS A COMPLETE LINE OF TOOLING
COMPONENTS FOR THE PLASTIC INJECTION MOLD AND DIE CAST INDUSTRIES. PRODUCTS
INCLUDE BOTH STANDARD AND SPECIAL MOLD BASES ALONG WITH PINS,
SLEEVES,BLADES,SELF-LUBRICATING DEVICES AND ACCESSORIES.
MAINTAIN OUR DIVERSIFICATION WITH LOWER-TECHNOLOGY BUSINESSES Diversity of
markets is a key reason that we have steady performance over the years. Our
diversity is demonstrated by the following 2000 sales charts:
SALES BY MARKET
[PIE CHART GRAPH] 27% Industrial and other
5% Commercial
41% Municipal
25% Foreign
2% U.S. Government
SALES BY GROUP
[PIE CHART GRAPH] 35% Fire Rescue
24% Safety
23% Environmental
18% Tool
NON-U.S. SALES BY
GEOGRAPHIC AREA
[PIE CHART GRAPH] 47% Europe
16% Middle East/Africa
11% Asia/Pacific
16% Canada
10% Mexico/South America
This diversity by marketplace is one of the drivers of our acquisition
program. With a recent acquisition focus in our Tool Group, its percent of total
company sales for the year 2000 was 18%, up from 16% in 1999. While we do not
plan on having all groups equal in size, we do not want a single group to be the
dominant driver of our performance.
We only acquire businesses with lower-technology products that are not subject
to rapid obsolescence and which have barriers to entry. This, coupled with
aggressive new product development, and a large municipal sales component, tends
to reduce the impact of economic cyclicality. Our products are diverse, but our
business units have a great deal in common and the overall culture is to share
knowledge and talent as needed. If a business unit has a competency needed at
another unit, we provide it quickly through transfer of people or the transfer
of knowledge and training.
A very important example of sharing is the Federal Signal purchasing group,
which not only shares techniques and personnel, but also helps each of our
businesses achieve their Bold Goal cost reduction targets. The purchasing group
aggregates common supply needs such as steel and truck chassis, and frequently
negotiates multi-year contracts covering these needs. This cost advantage, which
most of our single-business competitors do not have, is particularly helpful
when we acquire a business or enter a new market niche with complementary
products.
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INCREASE PENETRATION OF NON-U.S. MARKETS To achieve Federal's overall growth and
profitability objectives, our goal is to be the global leader in the markets we
serve. We believe most of the niches we have traditionally served in the U.S.
are in fact global in nature, and thus our traditional product offerings and the
underlying technologies are well suited for global growth. While substantial
market share gains are still available in U.S. markets, our low market shares in
many of our markets outside the U.S. and the emerging need by many of those
economies for our products provide even greater opportunities for long-term
growth. These opportunities are being exploited through export, alliance and
acquisition of non-U.S. manufacturers.
Our global growth strategy includes sourcing components for non-U.S.
manufacturing operations from our operations in the U.S. These components
include, for example, lighting sub-assemblies and semi-finished tooling. As a
result, operating profits on non-U.S. sales are realized in three areas - sales
produced from assets located outside the U.S. (reported separately in our annual
financial statements), intercompany sales from the U.S. to non-U.S. based
operations and direct export sales. Financial decisions relating to our growth
strategy are based on relating the total profits realized for the target market
and the assets employed by that segment.
With experienced management in place, and with many of our non-U.S. markets
expanding faster than our U.S. markets, the global marketplace in our selected
niches continues to offer a large long-term opportunity. While the Asia-Pacific
and Middle East regional markets remained relatively slow in 2000, we continue
to believe these markets will provide excellent long-term growth opportunities.
DEVELOP A SUPERIOR WORK FORCE WITHIN A DECENTRALIZED MANAGEMENT FRAMEWORK
Federal manages on a decentralized basis to ensure that decisions are made at
the operating level and to enable our operating units to take actions necessary
to accomplish our common growth and value-creation goals. This operating style
and market closeness fosters innovation, efficiency and an entrepreneurial
management style.
Federal's ultimate success depends on the quality and motivation of our
employees. To acquire and retain quality employees, we seek people at all levels
with superior potential and encourage their development through disciplined
training programs. We rely on these quality employees, working in teams or
individually, to find and implement ideas for improvements in our business.
While there were many such employee-initiated ideas and improvements throughout
the company in 2000, two of them are described below.
- -------------------------------------------------------------------------------
BOLD GOAL INITIATIVES
Federal Signal launched its Supplier Strategic Alliance process in 2000 to
further expand upon the success of the company's Bold Goal program. The focus of
the Bold Goal program is lower costs through more advanced procurement methods
and engineering design changes to minimize material costs. The Supplier
Strategic Alliance initiative takes the process one step further by forging true
customer- supplier alliances.
[PHOTO]
FROM LEFT:JAMIE (GASS) GRANT,
VACTOR MANUFACTURING;
DAVE CONVERSE AND CHRIS BURESCH,
ELGIN SWEEPER COMPANY
[PHOTO]
MADHU MANIKKAM,
EMERGENCY ONE
[PHOTO]
JEFF HAASE,
EMERGENCY ONE
The Supplier Strategic Alliance effort is lead by the corporate purchasing group
and employs cross-functional team members representing business units throughout
the company. The business unit employees pictured on the left volunteered to
work on our Commercial Truck Chassis Alliance team this past year while still
fulfilling the requirements of their regular positions. The team negotiated a
long-term supply contract that was advantageous to both the company and the
supplier.
[PHOTO] [PHOTO] [PHOTO]
DAVID LOVETT DENISE NAPOLEON RAY POOL
The three Emergency One employees pictured above, members of different sections
of the purchasing group, joined together in a team effort to work with common
vendors to further Bold Goal objectives. By combining their different
perspectives, they were able to achieve cost reductions of approximately $1.5
million in the year 2000.
10
15
FINANCIAL PERFORMANCE
[PHOTO]
Henry L.Dykema,
Vice President and Chief Financial Officer
Federal Signal's most important financial objective is to achieve superior
long-term total returns for shareholders. In 2000 the total return on Federal
Signal shares was 27%, compared to a negative 16% for the S&P Industrials
benchmark. This very favorable one-year performance comparison also improved the
five-, ten-, fifteen- and twenty- year period comparisons. While Federal
Signal's total return performance did not overtake the S&P Industrials benchmark
for any of the long-term periods, this year's performance was very encouraging.
We remain highly focused on the growth and profitability factors that drive
shareholder value.
The charts at right depict Federal Signal's financial performance on three
growth and profitability measures we use to set goals and guide strategy.
Diluted earnings per share from continuing operations before restructuring
charges were $1.32 in 2000, up 12% from 1999; including restructuring charges
they were $1.27, up 8%. Our long-term earnings per share growth objective is 10%
plus an average long-term U.S. inflation rate, currently resulting in a nominal
increase objective of about 12%. Federal Signal's long-term performance as shown
in the chart is within 1% of the 10% inflation-adjusted objective for the
fifteen-year period but is below this target for all periods shown. A key cause
of this underperformance was the decline in Fire Rescue Group operating income
in 1998 and 1999. This group began a strong recovery in 2000 that we expect to
continue in 2001 and beyond.
Return on equity (ROE) before the effect of restructuring charges and the
cumulative effect of a change in accounting was 17.1% in 2000, up from 17.0% in
1999; reported ROE including restructuring charges and the accounting change was
16.2%. We expect to again exceed our 20% ROE target over the next few years as
earnings increases are achieved.
Cash flow from operations rose to $64 million in 2000, from $58 million in
1999. The 2000 performance benefited from an overall improvement in receivables
management and an inventory reduction in the Fire Rescue Group.
Federal Signal's dividend policy is to maintain a dividend payout ratio of
about 40%; in 2000, the ratio was 60%. Over the next few years the company
expects earnings growth to far outpace planned dividend increases, enabling the
company to reach the payout ratio of 40%. The payout target of 40% is set to
retain sufficient cash to fund growth, including acquisitions, over the long
term.
Cash used for acquisitions in 2000 was approximately $24 million, compared
to $74 million of cash and stock in 1999. Capital expenditures declined slightly
to $22 million from $23 million in 1999. Expenditures were primarily for
machinery and equipment to raise productivity and capacity. Capital spending was
approximately 2% of sales, in line with Federal Signal's long-term trend.
The debt-to-capitalization ratio for manufacturing operations was 45% at
year-end 2000, compared to 42% in 1999. Our normal operating range is 30% to 40%
and we intend to return to the upper end of this range as earnings increase and
we achieve further success with our working capital improvement programs.
Federal Signal's financial position is healthy and remains supportive of
future growth.
OBJECTIVE: ACHIEVE SUPERIOR SHAREHOLDER RETURNS
Annual compound rates of return (in percent)
20 18+
17+
16+
15++ 15+
14++
15
10++ + S&P Industrials
10 ++ Federal Signal
5
0
-2++
YEARS 5 10 15 20
OBJECTIVE: AVERAGE ANNUAL EPS INCREASE-10% PLUS INFLATION
(percent increase)
15
12
10 9 9 Increase objective-
inflation-adjusted
7
5 Nominal (reported):
3 total bar
Inflation-adjusted:
1 dark blue bar
YEARS 5 10 15
OBJECTIVE: 20% OR MORE RETURN ON EQUITY
(percent return)
25 23.8
20.6
20 19.1
17.0 17.1(*)
16.2
15
10
5
96 97 98 99 00
CASH FLOW FROM OPERATIONS
(in millions)
80 75.5
64.2 64.4
61.4
57.7
60
40
20
96 97 98 99 00
* excluding restructuring charges
and change in accounting
11
16
SAFETY PRODUCTS GROUP
2000 1999 1998
-----------------------------------
(in thousands except employee data)
SALES $267,062 $ 261,940 $253,020
OPERATING INCOME 43,721 41,384 40,601
BACKLOG AT DECEMBER 31 18,493 27,334 25,738
TOTAL ASSETS 220,867 227,073 224,605
CAPITAL EXPENDITURES 5,333 8,646 4,648
EMPLOYEES 1,904 1,931 1,992
THE SAFETY PRODUCTS GROUP MANUFACTURES AND MARKETS WORLDWIDE A BROAD RANGE OF
SAFETY-RELATED PRODUCTS,SERVING PUBLIC AND INDUSTRIAL SAFETY, PARKING CONTROL
AND HAZARDOUS AREA LIGHTING MARKETS.
[PHOTO]
EMERGENCY PRODUCTS' NEW VIPER INTERIOR LIGHT SERIES CAPITALIZES ON
INVESTMENTS IN TECHNOLOGY ENHANCING FEDERAL SIGNAL'S POSITION AS THE
PREFERRED SUPPLIER TO PUBLIC SAFETY PROFESSIONALS.
OPERATING HIGHLIGHTS
- Safety Products Group earnings increased 6% on a 2% increase in sales.
- Key sales and earnings growth drivers were emergency vehicular signaling
products and outdoor warning products.
- Hazardous area lighting markets remained weak, reducing overall
Safety Products Group sales and earnings growth.
LEADING BRANDS
[LOGOS]
SAFETY PRODUCTS GROUP SALES REPRESENT 24 PERCENT OF FEDERAL SIGNAL'S TOTAL SALES
FOR 2000
12
17
OPERATIONS REVIEW
- - Emergency vehicular signaling products and outdoor warning products set sales
and earnings records.
- - Launched several new signaling products using advanced LED (light emitting
diode) technology.
- - Core hazardous liquid containment products posted sales gains driven by new
product introductions.
- - Reorganized several operations to capture synergies and reduce costs.
Safety Products Group operating income grew 6% while sales increased 2%.
Significant earnings gains in emergency vehicular signaling and outdoor warning
products were partially offset by continued reduced profits in hazardous area
lighting and UK-based hazardous area public address system operations, both of
which serve energy-related markets. Excluding operations that rely heavily on
energy markets, sales increased 6% and profits increased 13%.
The emergency vehicular signaling product line again posted record sales and
profits. Combining good growth in the United States with particularly strong
sales in Europe, Mexico and South America, this product line more than offset
continued weakness in Asia and Middle East markets and the negative impact of
foreign currency translation. Product mix and cost reduction programs at all
emergency vehicular signaling manufacturing locations contributed to improved
margins.
The industrial signaling and communications systems product lines posted sales
results equal with last year. Significant gains in the U.S. outdoor warning
product line were more than offset by a severe decline at the UK-based public
address system operation. Continued weakness in key energy markets, combined
with costs associated with plant consolidation and organizational changes,
contributed to unsatisfactory profitability results at this location.
Continued inactivity in energy-related markets also curtailed operating
performance of the hazardous area lighting product line. As a result, the gains
made last year in reducing the cost structure of these businesses were more
[PHOTO]
SHOWN HERE ARE ITEMS FROM THE BROAD LINE OF SIGNAL PRODUCTS BRAND AUDIBLE AND
VISUAL SIGNALING PRODUCTS TO THE INDUSTRIAL MARKETPLACE, INCLUDING WARNING
LIGHTS, STATUS INDICATORS, INTERCOM SYSTEMS, HORNS, BELLS AND SIRENS.
than offset by a decline in sales volume. While there was anticipation that 2000
would be the year in which the energy markets would rebound, activity level
during the year remained low despite higher oil prices. The primary cause for
this was the continuing tight spending control within the industry and the
effect of several recent oil company mergers which rationalized combined
exploration and production resources. Toward the end of the year, key industry
statistics such as rig utilization and quoting activity increased. These trends
support prevailing forecasts for an industry rebound in 2001.
Parking and revenue control products posted modest improvement over last
year's record results. Business in the United States, Mexico and South America
recorded sizeable increases in both sales and market share, offset somewhat by
weakness in Pacific Rim markets.
Last year's restructuring of the hazardous liquid containment operation to
more closely focus on the core safety can and cabinet product lines resulted in
an improved sales growth rate compared to the trend of the past few years.
13
18
[PHOTO]
FEDERAL APD OFFERS AN INTEGRATED,SINGLE SOLUTION FOR PARKING AND GROUND
TRANSPORTATION CONTROL. APD HAS A COMPLETE LINE OF HARDWARE AND CENTRAL
MANAGEMENT SYSTEM SOFTWARE FOR AIRPORTS, HOSPITALS, UNIVERSITIES, SHOPPING MALLS
AND MUNICIPALITIES AROUND THE WORLD.
The organizations within the Safety Products Group focus on the following key
strategies to attain sales, market share and profit growth objectives:
- - Build upon the market leadership position that most Safety Products Group
businesses enjoy within their home markets.
- - Increase market share in non-U.S. markets.
- - Continue cost reduction and productivity improvement.
- - Develop and empower employees.
Although falling short of targeted financial growth objectives, the group made
progress during the year on these strategic initiatives that will make the group
stronger in the future.
All Safety Products Group businesses develop and introduce innovative new
products to grow and gain share. During the year virtually all group businesses
built upon new product momentum, with about 25% of 2000 sales coming from new
products introduced in the last five years. The emergency vehicular signaling
product line and industrial signaling product line launched several signal
lights that incorporate advanced LED technology. This light source offers
several advantages over conventional strobe or halogen alternatives in that it
consumes less power, is more reliable, lasts longer and offers programmable
flash patterns to fit a variety of application needs. In addition, the emergency
vehicular signaling operation introduced an electronic version of a popular
electro-mechanical siren used in the fire service. The new electronic siren
consumes significantly less power, yet provides the classic sound that has
become a standard in the industry.
The UK-based hazardous area public address systems unit developed a new
generation public address system that expands the product reach beyond
traditional hazardous area environments and into commercial applications. The
parking and revenue control operation enhanced its parking management control
system and introduced an innovative new gate designed to be used in both
conventional parking and industrial applications. The hazardous liquid
containment business further expanded its line of rotationally-molded spill
containment products and launched a line of aluminum propane cylinder cabinets.
THE COMBINED PRODUCT OFFERING OF PAULUHN AND VICTOR PRODUCTS GIVES THE COMPANY
THE UNIQUE ABILITY TO MEET OR EXCEED BOTH UNITED STATES (UL) AND INTERNATIONAL
(IEC) STANDARDS FOR A BROAD RANGE OF HAZARDOUS AREA LIGHTING APPLICATIONS.
[PHOTOS]
14
19
[PHOTO]
JUSTRITE'S EXTENSIVE LINE OF PRODUCTS FOR THE SAFE STORAGE,TRANSFER,USE AND
DISPOSAL OF HAZARDOUS LIQUIDS IS SOLD THROUGH MULTIPLE DISTRIBUTION CHANNELS
WORLDWIDE.
The further slow down in energy-related markets during the year masked the
significant progress made in expanding non-U.S. sales and market share growth.
Excluding operations that rely heavily on the energy markets, Safety Products
Group non-U.S. business grew 23% over 1999. Emergency vehicular signaling,
industrial signaling, outdoor warning and hazardous liquid containment product
lines posted significant growth in non-U.S. sales.
Despite the modest increase in sales, the group's overall operating margin
improved .6 percentage points. Excluding operations that rely heavily on
energy-related markets, the operating margin increased one percentage point. In
addition to the sales increases at several operations, much of this operating
margin improvement came from continued cost reduction and productivity
improvement initiatives across the group.
Company-wide Bold Goal cost reduction initiatives resulted in a 2% reduction
of targeted costs, in addition to offsetting inflationary costs. The Safety
Products Group combined internal operating unit requirements for several
high-usage material categories with other Federal Signal businesses. The group
jointly established vendor strategic alliances for these materials,
significantly reducing procurement costs. Also during the year, every major line
of business completed value analysis/value-engineering projects on key products,
which resulted in significant cost reductions for many of the products involved.
The implementation of shop floor process improvement programs increased
manufacturing productivity. This was accomplished through investments in factory
automation equipment as well as employee- recommended process changes.
Furthermore, many locations progressed in maximizing the company-wide
productivity improvement features of recently installed enterprise resource
planning (ERP) systems.
Communications systems operations were realigned toward the end of the year to
more closely link the outdoor warning systems operation with hazardous area
public address system operations. The new organization capitalizes on the many
market/product development and cost reduction synergies that exist between these
two businesses.
All group businesses continuously work to further empower employees. The
foundation of this work is active employee education and development programs.
World Class Manufacturing training is now standard at most group operations. In
addition, as part of the ISO 9000 qualification process, employees participate
in extensive quality training. During the year, several locations initiated
leadership development programs while the UK-based hazardous area lighting
operation attained the government- sponsored "Investors in People"
certification.
OUTLOOK The Safety Products Group expects good sales growth in 2001, driven by
new products introduced in 2000, recovery in energy-related markets and modestly
improving global industrial markets.
15
20
TOOL GROUP
2000 1999 1998
---------------------------------
(in thousands except employee data)
SALES $194,485 $ 158,164 $145,964
OPERATING INCOME(*) 36,269 33,303 31,426
BACKLOG AT DECEMBER 31 14,679 13,085 9,393
TOTAL ASSETS 175,884 155,095 85,013
CAPITAL EXPENDITURES 7,837 6,893 6,404
EMPLOYEES 1,534 1,404 1,318
* in 2000, before restructuring charges
THE TOOL GROUP MANUFACTURES A BROAD RANGE OF HIGH PRECISION AND CONSUMABLE TOOLS
FOR METAL STAMPING,METAL CUTTING AND PLASTIC INJECTION MOLD INDUSTRIES SERVING
MORE THAN 14,000 INDUSTRIAL CUSTOMERS AROUND THE WORLD.
[PHOTO]
PRECISION PUNCHES,MATRIXES AND RETAINERS ARE USED IN THE MANUFACTURE OF
STAMPED METAL PARTS. THE COMPLETE LINE OF DAYTON PROGRESS PRODUCTS INCLUDES
STANDARD CATALOG SIZES AND SHAPES AS WELL AS
OPERATING HIGHLIGHTS
- Tool Group income before restructuring charges increased
9% on a 23% sales increase.
- The P.C.S. Company acquired in 2000 and the Clapp and Haney Company
acquired in 1999 were key growth contributors.
- Tool Group consolidated two superhard cutting tool operations.
- Tool Group's main metal stamping and cutting tool markets
weakened considerably in the second half.
LEADING BRANDS
[LOGOS]
TOOL GROUP SALES REPRESENT 18 PERCENT OF FEDERAL SIGNAL'S TOTAL SALES FOR 2000
21
OPERATIONS REVIEW
- - Acquired P.C.S. Company, a leading mold-tooling supplier to the plastic
injection mold industry.
- - Consolidated two superhard cutting tool operations.
- - Introduced new "S2" cutoff product in the carbide- tooling segment.
- - Expanded the special products die component manufacturing facility in
Jamestown, New York and restructured die component operations in Japan.
The Tool Group increased sales and operating income before restructuring
charges in the year 2000 by 23% and 9%, respectively, as the acquisition of
P.C.S. Company in March 2000 more than offset a slowing U.S. industrial economy.
The Tool Group operates in three focused tooling niches: carbide and superhard
(diamond and CBN-tipped carbide) cutting tools; mold-tooling products; and
punches and other die components used in metal stamping operations.
- - Carbide cutting tool sales were up slightly over the previous year, but sales
in the last quarter of 2000 were down 11%, the lowest fourth quarter in the
last five years. Superhard cutting tool sales improved based on three strong
quarters of automotive production and several new automotive projects.
- - Mold tooling sales were up 10% for the full year, again based in large part
on the March 2000 acquisition of P.C.S. Company.
- - Die component sales for the full year were up 5% over 1999, with U.S. sales
growing 3% based on a strong first half of the year and non-U.S. sales growing
11% on the strength of several new products.
The consolidation of the Tool Group's two superhard manufacturing facilities
created a unified company that is the clear market leader in North America with
30% market share. This market is currently forecast to grow at mid single-digit
annual percentage rates over the next three to five years.
Mold-tooling markets in the U.S. are forecast to grow annually in the high
single digits. In 2000 the group gained 2-3 percentage points of market share in
the mold base product category with the introduction of a new interchangeable
plate system. The group also expanded its product offering in carbide cutoff and
deep grooving with the new "S2" system, capturing additional market share.
The group's die component market share in the U.S. remained constant and
continues to be the clear market leader in the U.S. In Germany, France and
Canada die component market share increased 1-2% in 2000 through the
introduction of several new products.
[PHOTO]
CLAPP DICO IS THE U.S. MARKET LEADER IN THE MANUFACTURING AND MARKETING OF
SUPERHARD CUTTING TOOLS FOR MACHINING OF HARDENED STEELS AND HIGH-SILICON
ALUMINUM. THESE TOOLS ARE USED IN THE PRODUCTION OF ENGINES, TRANSMISSIONS AND
OTHER VEHICLE COMPONENTS. CLAPP DICO PROVIDES A COMPLETE PRODUCT OFFERING FOR
TURNING,MILLING AND DRILLING APPLICATIONS.
The Tool Group focused on costs as well as growth during 2000. The group
reduced primary working capital as a percent of sales in 2000 through better
inventory management at all companies. The group reduced the cost of purchased
items by 3%, in addition to offsetting inflationary costs, through Bold Goal
cost reduction programs. The primary U.S. die component manufacturing facility
reduced labor hours by 10,000 hours, yet supported increased sales by utilizing
a new manufacturing process and new state-of-the-art equipment. The carbide tool
operations introduced a new machining technique to manufacture steel toolholding
products and components, reducing manufacturing costs by more than 15% for those
products.
The Tool Group progressed in the superhard segment after the mid-1999
acquisition of Clapp & Haney. Management completed consolidation of the smaller
Dico brand operation into the larger, more efficient Clapp & Haney facility in
October 2000. The combined operation reduces operating costs through processes
that increase machine automation and decrease direct labor.
In March 2000 the Tool Group purchased P.C.S. Company in Fraser, Michigan.
P.C.S. provides mold bases and precision mold-tooling components to plastic
injection mold operations. By combining selective marketing and sales functions
with the die components business, the P.C.S. acquisition enhances future growth
prospects for both product segments.
The Tool Group completed enterprise resource planning system implementations
and training in both the carbide-tooling and superhard businesses in 2000; it
also progressed toward QS-9000 certification in the carbide-tooling facility.
All group companies invested in computer training, individual shop skills
training in mathematics and blue prints, and selective supervisor training.
These investments in systems and training drive continuous improvement in tool
operation productivity.
OUTLOOK The U.S. industrial markets served by the Tool Group slowed in the
second half of 2000 and are expected to remain slow into the second half of
2001. With a full year of P.C.S. and no restructuring charges, the Tool Group
is positioned to improve sales and profits in 2001, particularly as the U.S.
industrial economy begins to improve in the latter part of the year.
17
22
ENVIRONMENTAL PRODUCTS GROUP
2000 1999 1998
---------------------------------------
(in thousands except employee data)
SALES $255,269 $ 247,097 $219,812
OPERATING INCOME(*) 25,874 24,454 19,559
BACKLOG AT DECEMBER 31 72,275 57,171 62,455
TOTAL ASSETS-MANUFACTURING 149,622 143,320 139,819
TOTAL ASSETS-FINANCIAL SERVICES 69,055 66,096 51,499
CAPITAL EXPENDITURES 4,137 3,241 2,485
EMPLOYEES 1,134 1,107 1,065
(*)in 2000, before restructuring charges
THE ENVIRONMENTAL PRODUCTS GROUP MANUFACTURES AND MARKETS WORLDWIDE A FULL RANGE
OF STREET AND PARKING LOT SWEEPING, INDUSTRIAL VACUUMING,MUNICIPAL CATCH
BASIN/SEWER CLEANING VEHICLES AND HIGH-PERFORMANCE WATER BLASTING EQUIPMENT.
[PHOTO]
THE VACTOR 2100 COMBINATION SEWER CLEANER CONTINUED TO STRENGTHEN ITS MARKET
LEADERSHIP POSITION IN U.S.MUNICIPAL AND CONTRACTOR MARKETS,WHILE MAKING
SIGNIFICANT INROADS INTO SELECT INTERNATIONAL MARKETS
INCLUDING LATIN AMERICA AND THE MIDDLE EAST.
OPERATING HIGHLIGHTS
- Environmental Products Group income before restructuring
charges increased 6% on a 3% sales increase.
- Environmental Products Group consolidated two vacuum truck
manufacturing facilities.
- Strong core product performance drove orders up 12%.
LEADING BRANDS
[LOGOS]
ENVIRONMENTAL PRODUCTS GROUP SALES REPRESENT 23 PERCENT OF FEDERAL SIGNAL'S
TOTAL SALES FOR 2000
18
23
OPERATIONS REVIEW
- - Achieved order increases of 10% or more for all U.S.
and European core products.
- - Consolidated two vacuum truck manufacturing facilities.
- - Expanded presence in the U.S. parking lot sweeper segment.
- - Registered significant cost reductions for major purchased
components through strategic supplier contracts.
- - Improved operating margin for fifth straight year.
In 2000 the Environmental Products Group (EPG) achieved its fifth consecutive
record year for orders, sales and earnings. Strong performances from all U.S.
core products - municipal and private contractor sweepers, municipal and
industrial vacuum trucks and industrial waterblasters - and from European
sweepers, drove orders up 12% over 1999. Non-U.S. orders outside of Europe were
again soft, weakened by the strong dollar and slower Latin American and Asian
markets.
EPG's sales increased 3% and earnings (before restructuring charges related to
the consolidation of two manufacturing facilities) increased 6% in 2000 compared
to 1999. Even though U.S. sewer cleaners, waterblasters and European sweepers
established sales and earnings records, total group performance was tempered by
several factors. Initial negative effects of the plant consolidation on
productivity, new product start-up inefficiencies in U.S. sweeper operations and
the effect of currency translations held down further margin improvement. With
the possible exception of additional currency erosion, EPG believes these
factors will not repeat and in fact will provide substantial financial benefit
in 2001 and beyond.
EPG continued to focus on its investment in 2000. Improvements in receivables
collections more than offset the increase in inventories relating to the U.S.
plant consolidation, European production increase and certain new product
start-ups. Primary working capital as a percent of sales improved two percentage
points during the year.
Five key long-term drivers influence EPG's improving growth performance.
- - EPG operates in modestly-sized market segments with relatively high barriers
to entry. EPG's traditional markets are municipalities and other governmental
agencies, private sweeping and industrial contractors, industry,
[PHOTO]
THE ELGIN PELICAN,THE WORLD'S BEST SELLING MECHANICAL STREET SWEEPER,REBOUNDED
SIGNIFICANTLY DURING THE YEAR DUE TO STRENGTHENING U.S. MUNICIPAL MARKETS.
PRODUCT ENHANCEMENTS SUCH AS A NEW PAINT PROCESS PRIOR TO ASSEMBLY AND A DUST
FILTRATION EXHAUST SYSTEM OPTION CONTRIBUTED TO THE STRONG PERFORMANCE.
airports and institutions. It supplies motorized street sweepers, combination
catch basin/sewer cleaners, industrial vacuum trucks and high-pressure
waterblasters to these segments. Each product is highly technical in its
design, yet each product shares common technology with other EPG products. In
addition, all EPG products utilize sophisticated hydraulic,
electric/electronic, water or pneumatic systems to accomplish their jobs. EPG
has engineered the application of all these related technologies in a way that
makes it especially difficult for competitors to replicate. As a result, EPG
leads more market segments than its competitors.
- - EPG holds very significant, but still growing, market share in each segment.
EPG is the clear U.S. leader for municipal and contractor sweepers, municipal
catch basin/sewer cleaners and industrial vacuum loaders. It continues to
improve share in these categories by constantly introducing technological
advances and adding new products. For example, our Broom Bear and Air Bear
products acquired in 1998 both contributed to significant market share gains
in the municipal and contractor market segments and filled niches not
previously served. Waterblasters, also acquired in 1998, have not yet reached
a leadership position but EPG's industrial contractor and direct-to-industry
channels significantly increased waterblaster market share in 2000.
19
24
[PHOTO]
EPG MOVED PRODUCTION OF THE GUZZLER ACE INDUSTRIAL VACUUM LOADER FROM
BIRMINGHAM, ALABAMA TO STREATOR,ILLINOIS IN A CONSOLIDATION EFFORT WITH VACTOR
MANUFACTURING. STATE-OF-THE-ART MANUFACTURING TECHNOLOGY AT THE STREATOR
LOCATION WILL SIGNIFICANTLY RAISE THE ALREADY HIGH QUALITY,FIT AND FINISH OF ALL
GUZZLER PRODUCTS.
EPG also leads the European compact sweeper segment and significantly
increased market share in this segment during 2000. In addition, EPG
continues to expand into new non-U.S. geographies that present profitable
opportunities to compete on quality and features.
It is important to note that as EPG continues to grow market share in its
traditional markets, operating margins have improved year over year for the
last five years.
- - Leveraging off its expanding distribution channels and technological
expertise, EPG developed or acquired several new products that were launched
into complementary market segments. In 2000 EPG entered the parking lot
sweeper segment with its new Air Cub sweepers. Sold through a new
direct-to-customer channel, the internally developed Air Cub sweeper utilizes
technologies adapted from EPG's larger recirculating air and vacuum sweeper.
EPG's new hydroexcavator, based on sewer cleaner technology, locates and
excavates underground utility and telecommunication cables, pipes and fiber
optics using high-pressure water and vacuum. Hydroexcavator orders far
exceeded expectations in 2000 as this product is rapidly becoming "best
practice" for this application because it eliminates costly infrastructure
damage and potential service interruptions caused by traditional digging. A
third new product acquired early in 2000 is the Vaxjet patented closed-loop
surface cleaner. This product utilizes EPG waterblast technology to dislodge,
vacuum and filter hard to clean materials such as grease and oils, rubber and
chemicals from paved surfaces. Target applications are tollway booths,
airport runways, service stations, parking garages and industry in general.
Several channels are taking this product to market and early sales results
are promising. These new products provide entry to large, faster growing
segments for EPG within the vast environmental market. New products developed
or acquired in the last five years accounted for approximately 20% of total
EPG sales in 2000.
- - An active regulatory environment at both state and federal levels creates
increased demand for EPG products. Increasing awareness and enforcement of
Phase II of the Clean Water Act is expected to drive demand for products like
the closed-loop surface cleaner, sewer cleaners and street sweepers. In 2000
greater attention to air quality resulted in the California South Coast Air
Quality Management District laying out stringent dust emission regulations
for street sweepers. EPG certified eleven of its sweeper models to conform to
these new regulations.
NEW PRODUCTS, AN EXPANDED SALES FORCE AND
ADDITIONAL PRODUCT SUPPORT LED TO
INCREASED MARKET SHARE FOR JETSTREAM OF
HOUSTON. PRODUCTS INCLUDE A COMPLETE LINE [PHOTO]
OF FLUID END CONVERSION KITS, PUMPS, DIESEL
AND ELECTRIC UNITS AND A FULL LINE OF
PARTS AND ACCESSORIES.
20
25
[PHOTO]
THE NEW RAVO SERIES 3 SWEEPER FEATURING A SUPER-COMPACT DESIGN PROVIDES HIGH
MANEUVERABILITY FOR SWEEPING APPLICATIONS IN TIGHT AREAS. THE PRODUCT HAS
QUICKLY GAINED POPULARITY AND MARKET SHARE THROUGHOUT EUROPE. NEW OPTIONS SUCH
AS CONTAINER HIGH DUMP AND HIGH TRANSPORT SPEEDS WILL FACILITATE CONTINUED SALES
GROWTH.
Regulations to prevent damage to underground infrastructures via mechanical
digging are increasingly common. In 2000 EPG integrated its technology efforts
with the goal of accelerating development of permanent solutions to its
customers' environmental problems.
- - EPG believes it leads its competition in part because of the financial, human
and strategic resources available through Federal Signal. It uses these
resources to continuously drive operational improvements and growth
opportunities. In 2000 EPG undertook the consolidation of its industrial
vacuum loader manufacturing in Birmingham, Alabama into its sewer cleaner
facility in Streator, Illinois. EPG determined that modest capital investment
would enable it to smooth out production cycles,leverage commonality of design
and manufacturing technologies for these products, and better utilize
available capacity. Substantial long-term savings and a short investment
payback period will result from restructuring charges incurred in 2000.
During 2000 EPG participated with other groups to negotiate strategic
alliances with suppliers of major components used commonly across Federal
Signal, resulting in significant savings and other benefits. EPG also negotiated
separate alliances for components unique to the group. Along with other Bold
Goal cost reduction successes, EPG achieved a total of 1% savings for purchased
goods and services in 2000, in addition to offsetting inflationary costs.
EPG attracts and retains high quality employees, and continues their
development through training programs. For example, in 2000 the group's
multi-channel sales team received over 150 hours per person of training ranging
from dealer development to sales skills, time management and financial analysis.
The group also rolled out to all employees a self-paced home study program
emphasizing three areas: management, professional and support training.
OUTLOOK EPG expects solid sales growth in 2001 from new products and increased
customer response to environmental regulatory activity. The group also expects
to improve operating margins through savings from the 2000 plant consolidation
and ongoing lean manufacturing programs. As a result, the group is targeting
good earnings growth for 2001.
21
26
FIRE RESCUE GROUP
2000 1999 1998
-----------------------------------
(in thousands except employee data)
SALES $389,311 $ 310,008 $318,038
OPERATING INCOME 24,940 10,900 14,526
BACKLOG AT DECEMBER 31 255,568 246,500 207,424
TOTAL ASSETS-MANUFACTURING 201,960 200,950 178,818
TOTAL ASSETS-FINANCIAL SERVICES 145,175 125,165 114,163
CAPITAL EXPENDITURES 4,958 4,598 5,603
EMPLOYEES 2,331 2,278 2,125
THE FIRE RESCUE GROUP MANUFACTURES AND MARKETS WORLDWIDE A FULL RANGE OF FIRE
APPARATUS,AIRPORT RESCUE AND FIRE FIGHTING TRUCKS,EMS RESCUE AND TRANSPORT
VEHICLES AND AERIAL ACCESS PLATFORMS.
[PHOTO]
WINTERSVILLE,OHIO FIRE AND RESCUE PROTECTS THEIR COMMUNITY WITH THE FIRST
E-ONE HP75 SIDESTACKER,THE NEXT GENERATION OF 75' AERIAL LADDER TRUCKS. AS A
MULTI-PURPOSE VEHICLE,THE SIDESTACKER DESIGN OFFERS MAXIMUM STORAGE SPACE
OPERATING AS A COMBINATION PUMPER,RESCUE AND LADDER TRUCK.
OPERATING HIGHLIGHTS
- Fire Rescue Group earnings more than doubled on a 26% sales increase.
- North American manufacturing operations improved substantially
all year, raising productivity, throughput and margins.
- The main fire rescue markets were healthy all year, raising new orders
10% and backlog to another year-end record.
LEADING BRANDS
[LOGOS]
FIRE RESCUE GROUP SALES REPRESENT 35 PERCENT OF FEDERAL SIGNAL'S TOTAL SALES FOR
2000
27
OPERATIONS REVIEW
- - Operations restructuring launched in 1999 resulted in a 22% increase in sales
in 2000 (26% after accounting change); operating margin increased 2.9
percentage points.
- - Set new record levels for orders and backlog.
- - Introduced new products targeting profitable market niches.
- - Quality initiative in Ocala facility resulted in ISO 9001 certification.
- - New tools strengthened the group's dealer organization.
Year 2000 saw many of the 1999 North American operation performance
improvement initiatives come to fruition. Fire Rescue Group (FRG) sales
increased by 26% while operating income more than doubled. New orders increased
10% and backlog grew by 4%. Year 2000 was a turnaround story as improvements in
U.S. manufacturing dramatically improved throughput, productivity, customer
service and quality. The backlog increase in 2000 resulted from a large influx
of orders late in the year.
Despite somewhat more difficult market conditions in Europe in 2000, market
share improved. In Europe, competitors with new products attempted to take some
of Bronto's strong market share of articulating ladder platform (ALP) devices
that reach beyond 100 feet. Bronto, located in Finland, held its worldwide
market share and increased new order bookings with an aggressive engineering
program of cost reduction and new product development. In 2000 they shipped the
world's tallest aerial platform (288 feet) and once again made it more difficult
for competitors to reach them. Bronto also succeeded because of its strong
strategic relationships with fire apparatus body builders around the world who
are well entrenched in their regional markets. Bronto provides the ALP device
and the local body builder completes the balance of the apparatus design and
manufacturing.
[PHOTO]
RICHMOND INTERNATIONAL AIRPORT RECENTLY PURCHASED TWO E-ONE TITAN HPR AIRPORT
RESCUE AND FIRE FIGHTING VEHICLES - ONE 6 X 6 AND ONE 4 X 4. BOTH HIGH
PERFORMANCE RESCUE VEHICLES ARE BUILT WITH DUAL COIL SPRING INDEPENDENT
SUSPENSION AND ALL-WHEEL INBOARD DISC BRAKES,WHICH PROVIDE UNEQUALLED DRIVING
PERFORMANCE.
In North America, management focused on product development and improving
profitability in several market segments. Product development teams enhanced the
"Hush" chassis, a super-quiet high performance chassis for municipal fire
trucks, and redesigned an airport rescue and fire fighting (ARFF) chassis for
its worldwide customer base. Teams introduced several new models in the
pumper/tanker product family. These models fill out the Emergency One brand
product offering and are expected to help expand market share in the rural and
suburban market segments.
FRG new products are key to growth and profitability. For all FRG brands
- -American Eagle, Bronto, Emergency One, Saulsbury and Superior -a total of eight
new products were introduced in 2000. About 25% of FRG's sales in 2000 were from
new products introduced over the last five years.
In 1999, teams launched quality and engineering programs to strengthen
customer loyalty for the group's fire rescue vehicle brands. These programs
significantly improved 2000 performance. The brand names of Emergency One,
Superior and Saulsbury increased market share within traditional customer
segments and the American Eagle brand increased its share of market by
attracting a high percentage of first-time customers, as it was designed to do.
23
28
[PHOTO]
BOMBEROS DE CARACAS RECENTLY PURCHASED AN AMERICAN EAGLE 75' AERIAL AND THREE
AMERICAN EAGLE SUPER COMMERCIAL PUMPERS TO PROTECT THE BUSY CITY OF
CARACAS,VENEZUELA.
In a very competitive global market environment, the group's strong
international dealer organization continued its worldwide success. Overall,
non-U.S. orders were up 15% and included large orders for twenty industrial fire
fighting vehicles for refineries in Saudi Arabia, 39 municipal fire trucks for
Qatar and eighteen ARFF vehicles for the Royal Danish Air Force.
The improved financial performance of the Fire Rescue Group in 2000
resulted partially from the restructuring of the North American fire apparatus
manufacturing operation. A single management team now directs three heretofore
independently managed operations as one entity - Fire Rescue Group North
America. This management team improved many operating areas, such as:
- - Two years of product line rationalization eliminated product model redundancy
and reduced the number of low volume and low margin products.
- - A recently installed enterprise resource planning system benefits scheduling,
material flow, cost analysis and operating efficiencies across the Ocala,
Florida multi-plant environment, and will soon be implemented in other areas
of the group.
- - Also in Ocala, ISO 9001 written procedures and certification confirm operating
improvements that are benefiting customers as well as improving margins.
- - Federal Signal's Bold Goal program resulted in a 1% cost reduction, in
addition to offsetting inflation on targeted cost categories. The source of
these savings includes strategic alliance relationships with key suppliers who
work with FRG on an enterprise-wide basis.
- - Coordinated scheduling of manufacturing facilities across North America
enabled FRG to dramatically increase production and effectively improve
customer service.
During 2000 FRG completed the task of integrating its most recent
acquisition, Saulsbury Fire Rescue, Inc. of Preble, New York, into the
coordinated management structure of FRG North America. The group consolidated
and integrated Saulsbury into the FRG dealer organization in 1999. Now with the
further integration of other disciplines within the organization, FRG is serving
customers more efficiently and at a lower cost.
[PHOTO]
CIBA SPECIALTY CHEMICALS IN MCINTOSH, ALABAMA IS NOW EQUIPPED WITH A BRONTO
SKYLIFT F167 HLA (HIGH LEVEL ARTICULATING) PLATFORM. WITH OUTSTANDING REACH,THE
BRONTO F167 PROVIDES ACCESS TO AN INDUSTRIAL PLANT'S MOST INACCESSIBLE AREAS.
THE F167 PLATFORM CAN REACH 72 FEET HORIZONTALLY WHILE AT 100 FEET OF ELEVATION
AND PERFORM A BUILDING SCRUB UNMATCHED BY TRADITIONAL AERIALS. IT HAS TWO
ARTICULATION POINTS AND A TELESCOPIC BOOM ASSEMBLY THAT ALLOWS WORKERS TO GO
UP,OVER AND DOWN.
29
The group is also bringing to fruition a program which provides more
efficient tools to FRG's dealer organization so they can more effectively
promote the brands of FRG North America. Dealers can now quickly access product
information, prepare proposals and react to competitors' bids as a result of
significant improvements in the electronic sales tool. The time saved is
invested in servicing a larger customer base. Other sales support tools such as
an enhanced vehicle leasing program and an expanded product training program
improved FRG North America dealers' ability to fully serve their customers.
Sustained operating and financial performance improvement is only possible
when the people within all disciplines of an organization improve their skills
and productivity. Toward that objective, FRG continues to provide opportunities
to further individual and organizational development. Each location within FRG
has a strategic relationship with an educational facility that executes programs
for individual skills training and organizational development.
- - In Ocala, Florida, Central Florida Community College provides manufacturing
skills training, supervisor and management development training.
- - In Red Deer, Alberta, Red Deer Community College is a strategic partner.
- - In Preble, New York, the Onondaga Community College provides important
training programs.
- - In Tampere, Finland, the University of Tampere provides both human
resource development and product development opportunities.
[PHOTO]
SAULSBURY FIRE & RESCUE MANUFACTURED A NEW WALK-IN RESCUE UNIT FOR THE OAK BROOK
FIRE DEPARTMENT LOCATED IN OAK BROOK, ILLINOIS, HOME OF FEDERAL SIGNAL
CORPORATION'S CORPORATE HEADQUARTERS. THE NEW STAINLESS STEEL SQUAD,CUSTOM
DESIGNED TO MEET THE DEPARTMENT'S SPECIFICATIONS, IS EQUIPPED TO SERVE AS A
RESCUE UNIT AND A COMMAND CENTER FOR A VARIETY OF INCIDENTS INCLUDING HAZARDOUS
MATERIAL SPILLS AND STRUCTURE FIRES.
OUTLOOK Municipal budgets, with the exception of Europe, still remain strong.
Also, with the anticipated strengthening of airport construction worldwide, FRG
should experience increased demand for ARFF vehicles in 2001. In addition to
healthy market fundamentals, the U.S. Congress recently passed the FIRE Act,
which will provide more than $400 million of project funding for the U.S. Fire
Service over several years. FRG expects these factors, combined with a strong
backlog at the start of the year, will result in healthy sales growth in 2001.
With Fire Rescue Group's demonstrated ability to improve operating
performance and its continued development of lean manufacturing techniques, the
group is confident it will continue to substantially improve margins in 2001.
Based on the 2001 outlook for both sales and margins, the group expects a very
strong increase in earnings.
25
30
FINANCIAL SECTION TABLE OF CONTENTS
SELECTED FINANCIAL DATA 27
CONSOLIDATED BALANCE SHEETS 28
CONSOLIDATED STATEMENTS OF INCOME 29
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME 30
CONSOLIDATED STATEMENTS OF CASH FLOWS 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 32
AUDITORS' REPORT 47
FINANCIAL REVIEW 48
FORWARD-LOOKING STATEMENTS THIS DOCUMENT CONTAINS VARIOUS
FORWARD-LOOKING STATEMENTS. STATEMENTS IN THIS DOCUMENT THAT ARE NOT HISTORICAL
ARE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THOSE
STATED. SUCH RISKS AND UNCERTAINTIES INCLUDE: ECONOMIC CONDITIONS IN VARIOUS
REGIONS, PRODUCT AND PRICE COMPETITION,RAW MATERIAL PRICES,FOREIGN CURRENCY
EXCHANGE RATE CHANGES,TECHNOLOGY CHANGES,PATENT ISSUES,LITIGATION RESULTS,LEGAL
AND REGULATORY DEVELOPMENTS AND OTHER RISKS AND UNCERTAINTIES DESCRIBED IN
DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
26
31
[LOGO]
FEDERAL SIGNAL
CORPORATION
1415 West 22nd Street
Oak Brook, Illinois
60523-2004
630-954-2000
www.federalsignal.com
[LOGO] printed on recycled paper
32
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
OPERATING RESULTS (DOLLARS
IN MILLIONS):
Net sales (a) $1,106.1 $ 977.2 $936.8 $858.6 $814.1 $744.9 $611.1 $506.7 $462.1 $407.9 $368.1
Income before income
taxes (a,b) $ 84.4 $ 79.3 $ 79.4 $ 81.5 $ 86.6 $ 77.8 $ 66.2 $ 57.6 $ 51.7 $ 47.4 $ 38.5
Income from continuing
operations (b) $ 57.7 $ 54.4 $ 55.1 $ 56.9 $ 57.8 $ 51.9 $ 44.3 $ 39.0 $ 35.6 $ 32.1 $ 25.6
Operating margin (a) 10.5% 10.4% 10.4% 11.2% 11.8% 12.1% 12.2% 12.4% 12.3% 12.8% 11.8%
Return on average common
shareholders' equity
(b,c) 16.2% 17.0% 19.1% 20.6% 23.8% 22.0% 22.3% 21.0% 20.0% 20.0% 20.4%
COMMON STOCK DATA (PER
SHARE) (d):
Income from continuing
operations -- diluted $ 1.27 $ 1.18 $ 1.20 $ 1.24 $ 1.26 $ 1.13 $ .96 $ .85 $ .77 $ .70 $ .56
Cash dividends $ .76 $ .74 $ .71 $ .67 $ .58 $ .50 $ .42 $ .36 $ .31 $ .27 $ .22
Market price range:
High $ 24.13 $ 28.06 $27.50 $26.75 $28.25 $25.88 $21.38 $21.00 $17.63 $15.19 $10.75
Low $ 14.75 $ 15.06 $20.00 $19.88 $20.88 $19.63 $16.88 $15.75 $12.38 $ 9.25 $ 6.19
Average common shares
outstanding (in
thousands) 45,521 45,958 45,846 45,840 45,885 45,776 45,948 46,155 46,157 46,126 46,038
FINANCIAL POSITION AT YEAR-END
(DOLLARS IN MILLIONS):
Working capital (e) $ 60.0 $ 71.6 $116.0 $ 41.6 $ 40.6 $ 48.8 $ 53.9 $ 52.8 $ 49.5 $ 44.9 $ 42.7
Current ratio (e) 1.2 1.3 1.6 1.2 1.2 1.3 1.4 1.5 1.6 1.5 1.5
Total assets $ 991.1 $ 948.6 $836.0 $727.9 $703.9 $620.0 $521.6 $405.7 $363.7 $341.2 $295.8
Long-term debt, net of
current portion $ 125.4 $ 134.4 $137.2 $ 32.1 $ 34.3 $ 39.7 $ 34.9 $ 21.1 $ 16.2 $ 15.6 $ 15.8
Shareholders' equity $ 357.4 $ 354.0 $321.8 $299.8 $272.8 $248.1 $220.3 $199.2 $179.0 $164.8 $146.4
Debt-to-capitalization
ratio (e) 45% 42% 37% 30% 28% 29% 22% 1% 2% 1% 2%
OTHER (DOLLARS IN MILLIONS):
New business (a) $1,113.7 $1,018.8 $967.9 $888.8 $851.3 $704.9 $631.5 $526.0 $455.0 $405.2 $398.2
Backlog (a) $ 361.0 $ 344.1 $305.0 $254.7 $227.6 $190.0 $204.0 $167.6 $143.4 $146.8 $142.0
Net cash provided by
operating activities $ 64.4 $ 57.7 $ 75.5 $ 64.2 $ 61.4 $ 62.9 $ 53.8 $ 48.8 $ 40.2 $ 43.9 $ 48.3
Net cash (used for)
investing activities $ (64.8) $ (105.1) $(93.0) $(38.4) $(54.2) $(88.1) $(96.9) $(38.1) $(26.9) $(47.8) $(14.7)
Net cash provided by
(used for) financing
activities $ 5.2 $ 40.9 $ 22.2 $(27.5) $ (4.1) $ 29.9 $ 45.1 $(10.3) $(11.2) $ 2.5 $(34.6)
Capital expenditures (a) $ 22.3 $ 23.4 $ 19.2 $ 18.2 $ 15.2 $ 14.2 $ 9.9 $ 9.1 $ 7.6 $ 10.4 $ 6.6
Depreciation (a) $ 19.5 $ 17.1 $ 14.9 $ 13.3 $ 11.8 $ 10.5 $ 8.9 $ 7.5 $ 6.8 $ 6.2 $ 5.9
Employees (a) 6,936 6,750 6,531 6,102 5,721 5,469 4,638 3,847 3,635 3,505 3,356
- ---------------
(a) continuing operations only; amounts prior to 2000 restated for
discontinuance of the Sign Group operations
(b) in 1996, includes gain on sale of subsidiary of $4.7 million pre-tax, $2.8
million after-tax or $.06 per share
(c) in 1995, includes the impact of a nonrecurring charge for a litigation
settlement related to a discontinued business of $4.2 million after-tax
(d) reflects 3-for-2 stock splits in 1990, 1991 and 1992, and a 4-for-3 stock
split in 1994
(e) manufacturing operations only
27
33
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------
2000 1999
---- ----
ASSETS
Manufacturing activities:
Current assets
Cash and cash equivalents $ 13,556,000 $ 8,764,000
Accounts receivable, net of allowances for doubtful
accounts of $2,629,000 and $2,901,000,
respectively 167,964,000 152,956,000
Inventories--Note B 157,619,000 159,970,000
Prepaid expenses 9,797,000 8,895,000
------------ ------------
Total current assets 348,936,000 330,585,000
Properties and equipment--Note C 112,596,000 111,212,000
Other assets
Intangible assets, net of accumulated amortization 274,925,000 273,844,000
Other deferred charges and assets 25,873,000 23,592,000
------------ ------------
Total manufacturing assets 762,330,000 739,233,000
------------ ------------
Net assets of discontinued operations, including financial
assets 14,558,000 18,132,000
Financial services activities--Lease financing and other
receivables, net of allowances for doubtful accounts of
$683,000 and $976,000, respectively, and net of
unearned finance revenue--Note D 214,230,000 191,261,000
------------ ------------
Total assets $991,118,000 $948,626,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Manufacturing activities:
Current liabilities
Short-term borrowings--Note E $145,813,000 $ 99,204,000
Accounts payable 60,878,000 68,533,000
Accrued liabilities
Compensation and withholding taxes 25,387,000 22,071,000
Other 48,395,000 60,851,000
Income taxes--Note F 8,447,000 8,340,000
------------ ------------
Total current liabilities 288,920,000 258,999,000
Other liabilities
Long-term borrowings--Note E 125,449,000 134,410,000
Deferred income taxes--Note F 27,835,000 28,574,000
------------ ------------
Total manufacturing liabilities 442,204,000 421,983,000
------------ ------------
Financial services activities--Borrowings--Note E 191,483,000 172,610,000
------------ ------------
Total liabilities 633,687,000 594,593,000
------------ ------------
Shareholders' equity--Notes I and J
Common stock, $1 par value, 90,000,000 shares
authorized, 47,067,000 and 46,889,000 shares issued,
respectively 47,067,000 46,889,000
Capital in excess of par value 68,693,000 66,762,000
Retained earnings--Note E 299,985,000 276,951,000
Treasury stock, 1,763,000 and 775,000 shares,
respectively, at cost (34,302,000) (17,023,000)
Deferred stock awards (1,847,000) (2,238,000)
Accumulated other comprehensive income (22,165,000) (17,308,000)
------------ ------------
Total shareholders' equity 357,431,000 354,033,000
------------ ------------
Total liabilities and shareholders' equity $991,118,000 $948,626,000
============ ============
See notes to consolidated financial statements.
28
34
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
2000 1999 1998
---- ---- ----
Net sales $1,106,127,000 $ 977,209,000 $ 936,834,000
Costs and expenses
Cost of sales (768,783,000) (676,607,000) (646,455,000)
Selling, general and administrative (220,690,000) (199,250,000) (192,507,000)
-------------- -------------- --------------
Operating income 116,654,000 101,352,000 97,872,000
Interest expense (31,401,000) (23,339,000) (19,336,000)
Other income (expense), net (839,000) 1,296,000 824,000
-------------- -------------- --------------
Income before income taxes 84,414,000 79,309,000 79,360,000
Income taxes--Note F (26,759,000) (24,926,000) (24,225,000)
-------------- -------------- --------------
Income from continuing operations 57,655,000 54,383,000 55,135,000
Income from discontinued operations, net of
taxes 726,000 3,154,000 4,261,000
Cumulative effect of change in accounting (844,000)
-------------- -------------- --------------
Net income $ 57,537,000 $ 57,537,000 $ 59,396,000
============== ============== ==============
Basic net income per share
Income from continuing operations $ 1.27 $ 1.19 $ 1.21
Income from discontinued operations, net of
taxes .02 .07 .09
Cumulative effect of change in accounting (.02)
-------------- -------------- --------------
Net income $ 1.27 $ 1.26 $ 1.30
============== ============== ==============
Diluted net income per share
Income from continuing operations $ 1.27 $ 1.18 $ 1.20
Income from discontinued operations, net of
taxes .02 .07 .09
Cumulative effect of change in accounting (.02)
-------------- -------------- --------------
Net income* $ 1.26 $ 1.25 $ 1.30
============== ============== ==============
- ---------------
* amounts may not add to total due to rounding
See notes to consolidated financial statements.
29
35
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
---- ---- ----
Net income $57,537,000 $57,537,000 $59,396,000
Other comprehensive income (loss)--Foreign currency
translation adjustment, net (4,857,000) (6,590,000) 2,059,000
----------- ----------- -----------
Comprehensive income $52,680,000 $50,947,000 $61,455,000
=========== =========== ===========
See notes to consolidated financial statements.
30
36
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998
---- ---- ----
Operating activities
Net income $ 57,537,000 $ 57,537,000 $ 59,396,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting 844,000
Depreciation 19,482,000 17,057,000 14,938,000
Amortization 9,575,000 8,740,000 7,141,000
Provision for doubtful accounts 881,000 2,098,000 1,358,000
Deferred income taxes (220,000) 983,000 4,961,000
Other, net (102,000) 365,000 345,000
Changes in operating assets and liabilities,
net of effects from acquisitions of
companies
Accounts receivable (10,012,000) (10,162,000) (5,943,000)
Inventories 7,522,000 (29,634,000) (13,213,000)
Prepaid expenses (120,000) (4,020,000) 1,116,000
Accounts payable (9,567,000) 12,490,000 9,372,000
Accrued liabilities (10,702,000) 46,000 (1,562,000)
Income taxes (728,000) 2,156,000 (2,416,000)
------------- ------------- -------------
Net cash provided by operating activities 64,390,000 57,656,000 75,493,000
------------- ------------- -------------
Investing activities
Purchases of properties and equipment (22,288,000) (23,404,000) (19,173,000)
Principal extensions under lease financing
agreements (143,850,000) (131,791,000) (109,132,000)
Principal collections under lease financing
agreements 122,412,000 108,004,000 102,342,000
Payments for purchases of companies, net of cash
acquired, excludes $15,715,000 of common stock
issued in 1999 (24,401,000) (57,932,000) (64,349,000)
Other, net 3,297,000 27,000 (2,717,000)
------------- ------------- -------------
Net cash used for investing activities (64,830,000) (105,096,000) (93,029,000)
------------- ------------- -------------
Financing activities
Addition to short-term borrowings, net 61,482,000 78,768,000 58,184,000
Increase (reduction) in long-term borrowings (4,961,000) (2,883,000) 4,902,000
Purchases of treasury stock (17,279,000) (3,592,000) (9,842,000)
Cash dividends paid to shareholders (34,534,000) (33,574,000) (32,145,000)
Other, net 524,000 2,169,000 1,067,000
------------- ------------- -------------
Net cash provided by financing activities 5,232,000 40,888,000 22,166,000
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 4,792,000 (6,552,000) 4,630,000
Cash and cash equivalents at beginning of year 8,764,000 15,316,000 10,686,000
------------- ------------- -------------
Cash and cash equivalents at end of year $ 13,556,000 $ 8,764,000 $ 15,316,000
============= ============= =============
See notes to consolidated financial statements.
31
37
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Federal Signal Corporation and all of its subsidiaries. All
significant intercompany balances and transactions have been eliminated.
CASH EQUIVALENTS: The company considers all highly liquid investments with
a maturity of three-months or less, when purchased, to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. At
December 31, 2000 and 1999, approximately 52% and 55%, respectively, of the
company's inventories are costed using the LIFO (last-in, first-out) method. The
remaining portion of the company's inventories is costed using the FIFO
(first-in, first-out) method.
PROPERTIES AND DEPRECIATION: Properties and equipment are stated at cost.
Depreciation, for financial reporting purposes, is computed principally on the
straight-line method over the estimated useful lives of the assets.
INTANGIBLE ASSETS: Intangible assets principally consist of costs in excess
of fair values of net assets acquired in purchase transactions and are generally
being amortized over forty years. Accumulated amortization aggregated
$41,876,000 and $34,184,000 at December 31, 2000 and 1999, respectively. The
company makes regular periodic assessments to determine if factors are present
which indicate that an impairment of intangibles may exist. If factors indicate
that an impairment may exist, the company makes an estimate of the related
future cash flows. The undiscounted cash flows, excluding interest, are compared
to the related book value including the intangibles. If such cash flows are less
than the book value, the company makes an estimate of the fair value of the
related business to determine the amount of impairment loss, if any, to be
recorded as a reduction of the recorded intangibles.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS: The company enters into agreements (derivative
financial instruments) to manage the risks associated with interest rates and
foreign exchange rates. The company does not actively trade such instruments nor
enter into such agreements for speculative purposes. The company principally
utilizes two types of derivative financial instruments: 1) interest rate swaps
to manage its interest rate risk, and 2) foreign currency forward exchange
contracts to manage risks associated with sales and purchase commitments
denominated in foreign currencies. The differential between the interest to be
received and the interest to be paid under interest rate swap agreements is
accrued as interest rates change and is recognized as an adjustment to interest
expense; the related amount payable to or receivable from the counterparties is
included in accrued liabilities or other assets. Unrealized gains and losses on
the forward exchange contracts are deferred and recognized in income in the same
period as the related hedged foreign currency transaction.
REVENUE RECOGNITION: Effective January 1, 2000, the company changed its
method of accounting for recognizing revenues as required by Staff Accounting
Bulletin No. 101 issued by the Securities and Exchange Commission. Effective
with the change, the company recognizes revenues for product sales based upon
the respective terms of delivery for each sale agreement. In years prior to
2000, the company recognized substantially all of its revenues for product sales
as products were shipped, as this method was then in compliance with generally
accepted accounting principles. See Note P.
INCOME PER SHARE: Basic net income per share is calculated using income
available to common shareholders (net income) divided by the weighted average
number of common shares outstanding during the year. Diluted net income per
share is calculated in the same manner except that the denominator is increased
to include the weighted number of additional shares that would have been
outstanding had dilutive stock option shares been actually issued. The company
uses the treasury stock method to calculate dilutive shares. See Note N for the
calculation of basic and diluted net income per share.
32
38
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--INVENTORIES
Inventories at December 31 are summarized as follows:
2000 1999
---- ----
Finished goods $ 45,636,000 $ 40,590,000
Work in process 45,127,000 60,893,000
Raw materials 66,856,000 58,487,000
------------ ------------
Total inventories $157,619,000 $159,970,000
============ ============
If the first-in, first-out cost method, which approximates replacement
cost, had been used exclusively by the company, inventories would have
aggregated $166,956,000 and $169,404,000 at December 31, 2000 and 1999,
respectively.
NOTE C--PROPERTIES AND EQUIPMENT
A comparative summary of properties and equipment at December 31 is as
follows:
2000 1999
---- ----
Land $ 5,291,000 $ 5,717,000
Buildings and improvements 51,755,000 50,365,000
Machinery and equipment 184,990,000 169,110,000
Accumulated depreciation (129,440,000) (113,980,000)
------------ ------------
Total properties and equipment $112,596,000 $111,212,000
============ ============
NOTE D--LEASE FINANCING AND OTHER RECEIVABLES
As an added service to its customers, the company is engaged in financial
services activities. These activities primarily consist of providing long-term
financing for certain U.S. customers purchasing vehicle-based products from the
company's Environmental Products and Fire Rescue groups. A substantial portion
of these receivables is due from municipalities. Financing is provided through
sales-type lease contracts with terms that range typically two to ten years.
At the inception of the lease, the company records the product sales price
and related costs and expenses of the sale. Financing revenues are included in
income over the life of the lease. The amounts recorded as lease financing
receivables represent amounts equivalent to normal selling prices less
subsequent customer payments.
Lease financing and other receivables will become due as follows:
$67,180,000 in 2001, $39,711,000 in 2002, $30,732,000 in 2003, $23,336,000 in
2004, $16,722,000 in 2005 and $37,232,000 thereafter. At December 31, 2000 and
1999, unearned finance revenue on these leases aggregated $34,354,000 and
$31,290,000, respectively.
NOTE E--DEBT
Short-term borrowings at December 31 consisted of the following:
2000 1999
---- ----
Commercial paper $299,073,000 $210,602,000
Notes payable 32,027,000 57,278,000
Current maturities of long-term debt 6,196,000 3,934,000
------------ ------------
Total short-term borrowings $337,296,000 $271,814,000
============ ============
Of the above amounts, $191,483,000 and $172,610,000 are classified as
financial services activities borrowings at December 31, 2000 and 1999,
respectively.
33
39
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Long-term borrowings at December 31 consisted of the following:
2000 1999
---- ----
6.79% unsecured note payable in annual installments
of $10,000,000 in 2007-2011 $ 50,000,000 $ 50,000,000
7.59% unsecured note payable in 2001 ($4,000,000)
and 2002 ($8,000,000) 12,000,000 12,000,000
7.99% unsecured note payable in 2004 15,000,000 15,000,000
Floating rate (5.79% at December 31, 2000) secured
note payable in monthly installments ending in
2004 2,889,000 6,907,000
Notes payable backed by long-term credit lines (7.6%
at December 31, 2000) 50,000,000 50,000,000
Other 1,756,000 4,437,000
------------ ------------
131,645,000 138,344,000
Less current maturities 6,196,000 3,934,000
------------ ------------
Total long-term borrowings $125,449,000 $134,410,000
============ ============
Aggregate maturities of long-term debt amount to approximately $6,196,000
in 2001, $9,525,000 in 2002, $924,000 in 2003, $65,000,000 in 2004 and
$50,000,000 thereafter. The fair values of borrowings are not substantially
different from recorded amounts.
The 7.59% and 7.99% notes contain various restrictions relating to
maintenance of minimum working capital, payments of cash dividends, purchases of
the company's stock, and principal and interest of any subordinated debt. At
December 31, 2000, all of the company's retained earnings were free of any
restrictions and the company was in compliance with the financial covenants of
its debt agreements.
The company paid interest of $31,780,000 in 2000, $24,888,000 in 1999 and
$18,600,000 in 1998. Weighted average interest rates on short-term borrowings
were 7.6% and 6.2% at December 31, 2000 and 1999, respectively. See Note H
regarding the company's utilization of derivative financial instruments relating
to outstanding debt.
At December 31, 2000, the company had unused credit lines of $375,000,000,
of which $241,000,000 expires June 14, 2001 and $134,000,000 expires June 17,
2004. Commitment fees, paid in lieu of compensating balances, were
insignificant.
NOTE F--INCOME TAXES
The provisions for income taxes consisted of the following:
2000 1999 1998
---- ---- ----
CURRENT:
Federal $19,119,000 $17,942,000 $14,150,000
Foreign 5,036,000 3,759,000 2,486,000
State and local 2,824,000 2,242,000 2,628,000
----------- ----------- -----------
26,979,000 23,943,000 19,264,000
DEFERRED:
Federal 426,000 291,000 3,222,000
Foreign (424,000) 347,000 1,619,000
State and local (222,000) 345,000 120,000
----------- ----------- -----------
(220,000) 983,000 4,961,000
----------- ----------- -----------
Total income taxes $26,759,000 $24,926,000 $24,225,000
=========== =========== ===========
34
40
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Differences between the statutory federal income tax rate and the effective
income tax rate are summarized below:
2000 1999 1998
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 2.0 2.1 2.2
Tax-exempt interest (3.3) (3.2) (3.2)
Other, net (2.0) (2.5) (3.5)
---- ---- ----
Effective income tax rate 31.7% 31.4% 30.5%
==== ==== ====
The company had net current deferred income tax benefits of $2,877,000 and
$3,396,000 recorded in the balance sheet at December 31, 2000 and 1999,
respectively. The company paid income taxes of $24,481,000 in 2000, $21,933,000
in 1999 and $24,419,000 in 1998.
Net deferred tax liabilities (assets) comprised the following at December
31, 2000: Depreciation and amortization--$32,748,000; revenue recognized on
custom manufacturing contracts--$3,406,000; accrued pension
benefits--$6,002,000; accrued expenses deductible in future
periods--$(14,135,000); and other--$(3,063,000).
Net deferred tax liabilities (assets) comprised the following at December
31, 1999: Depreciation and amortization--$28,909,000; revenue recognized on
custom manufacturing contracts--$2,484,000; accrued pension
benefits--$5,030,000; accrued expenses deductible in future
periods--$(10,319,000); and other--$(926,000).
Income before taxes consisted of the following:
2000 1999 1998
---- ---- ----
United States $71,734,000 $65,753,000 $66,886,000
Non-U.S. 12,680,000 13,556,000 12,474,000
----------- ----------- -----------
$84,414,000 $79,309,000 $79,360,000
=========== =========== ===========
NOTE G--POSTRETIREMENT BENEFITS
The company and its subsidiaries sponsor a number of defined benefit
retirement plans covering certain of its salaried employees and hourly employees
not covered by plans under collective bargaining agreements. Benefits under
these plans are primarily based on final average compensation and years of
service as defined within the provisions of the individual plans. The company
also participates in several multiemployer retirement plans that provide defined
benefits to employees under certain collective bargaining agreements.
U.S. BENEFIT PLANS
The components of net periodic pension (credit) are summarized as follows:
2000 1999 1998
---- ---- ----
Company-sponsored plans
Service cost $ 2,251,000 $ 3,036,000 $ 2,546,000
Interest cost 4,537,000 4,313,000 3,947,000
Expected return on plan assets (8,961,000) (8,165,000) (7,225,000)
Amortization of transition amount (230,000) (230,000) (183,000)
Other (228,000) (8,000) (8,000)
----------- ----------- -----------
(2,631,000) (1,054,000) (923,000)
Multiemployer plans 636,000 690,000 661,000
----------- ----------- -----------
Net periodic pension (credit) $(1,995,000) $ (364,000) $ (262,000)
=========== =========== ===========
35
41
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarizes the changes in the projected benefit obligation
and plan assets, the funded status of the company-sponsored plans and the major
assumptions used to determine these amounts.
2000 1999
---- ----
Projected benefit obligation, January 1 $52,024,000 $ 62,079,000
Service cost 2,251,000 3,036,000
Interest cost 4,537,000 4,313,000
Actuarial (gain)loss 6,369,000 (15,411,000)
Benefits paid (3,686,000) (1,993,000)
Curtailment credit (839,000)
----------- ------------
Projected benefit obligation, December 31 $60,656,000 $ 52,024,000
=========== ============
Fair value of plan assets, January 1 $69,008,000 $ 72,903,000
Adjustment to prior year actual return 1,805,000
Actual return on plan assets 951,000 (1,917,000)
Company contribution 3,000
Benefits paid (3,686,000) (1,981,000)
----------- ------------
Fair value of plan assets, December 31 $68,078,000 $ 69,008,000
=========== ============
Funded status of plan, December 31 $ 7,422,000 $ 16,984,000
Unrecognized actuarial (gain)loss 3,708,000 (9,080,000)
Unrecognized prior service cost (96,000) (110,000)
Unrecognized net transition obligation (1,078,000) (1,308,000)
----------- ------------
Net amount recognized as prepaid benefit cost in the
balance sheet $ 9,956,000 $ 6,486,000
=========== ============
Plan assets consist principally of a broadly diversified portfolio of
equity securities and corporate and U.S. government obligations. Included in
plan assets at December 31, 2000 and 1999 were 653,400 shares of the company's
common stock valued at $12,823,000 and $10,495,000, respectively. Dividends paid
on the company's common stock to the pension trusts aggregated $497,000 and
$484,000, respectively, for the years ended December 31, 2000 and 1999. The
company curtailed the pension benefits of employees of a discontinued business
in 2000; the resulting credit of $839,000 was reported as a component of income
from discontinued operations.
The following significant assumptions were used in determining pension
costs for the three-year period ended December 31, 2000:
2000 1999 1998
---- ---- ----
Discount rate 8.1% 6.8% 7.2%
Rate of increase in compensation levels 4% 4% 4%
Expected long-term rate of return on plan assets 12% 12% 12%
The weighted average discount rates used in determining the actuarial
present value of all pension obligations at December 31, 2000 and 1999 were 7.7%
and 8.1%, respectively.
The company also sponsors a number of defined contribution pension plans
covering a majority of its employees. Participation in the plans is at each
employee's election. Company contributions to these plans are based on a
percentage of employee contributions. The cost of these plans, including the
plans of companies acquired during the three-year period ended December 31,
2000, was $4,886,000 in 2000, $3,993,000 in 1999, and $3,790,000 in 1998.
The company also provides certain medical, dental and life benefits to
certain eligible retired employees. These benefits are funded when the claims
are incurred. Participants generally become eligible for these benefits at age
60 after completing at least fifteen years of service. The plan provides for the
payment of specified percentages of medical and dental expenses reduced by any
deductible and payments made by other primary group coverage and government
programs. The company will continue to reduce the percentage of the cost of
benefits that it will pay since the company's future costs are limited to 150%
of the 1992 cost. Accumulated
36
42
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
postretirement benefit liabilities of $3,890,000 and $3,522,000 at December 31,
2000 and 1999, respectively, were fully accrued. The net periodic postretirement
benefit costs have not been significant during the three-year period ended
December 31, 2000.
NON-U.S. BENEFIT PLAN
A wholly-owned subsidiary sponsors a defined benefit plan for substantially
all of its employees in the United Kingdom. Benefits under this plan are based
on final compensation and years of service as defined within the provisions of
the plan.
Net periodic pension credits during the three-year period ended December
31, 2000 were not significant. The following summarizes the changes in the
projected benefit obligation and plan assets, the funded status of the
company-sponsored plans and the major assumptions used to determine these
amounts.
2000 1999
---- ----
Projected benefit obligation, October 1 $37,068,000 $40,520,000
Service cost 542,000 696,000
Interest cost 2,240,000 2,308,000
Actuarial (gain)loss (630,000) (3,430,000)
Employee contributions 102,000 112,000
Benefits paid (1,766,000) (1,884,000)
Increase (decrease) due to translation (3,907,000) (1,254,000)
----------- -----------
Projected benefit obligation, September 30 $33,649,000 $37,068,000
=========== ===========
Fair value of plan assets, October 1 $39,540,000 $39,222,000
Actual return on plan assets 4,372,000 3,276,000
Company contribution 397,000 164,000
Employee contribution 102,000 112,000
Benefits paid (1,766,000) (1,884,000)
Plan expenses (135,000) (124,000)
Increase (decrease) due to translation (4,317,000) (1,226,000)
----------- -----------
Fair value of plan assets, September 30 $38,193,000 $39,540,000
=========== ===========
Funded status of plan, September 30 $ 4,544,000 $ 2,472,000
Unrecognized actuarial loss 749,000 2,794,000
----------- -----------
Net amount recognized as prepaid benefit cost in the
balance sheet $ 5,293,000 $ 5,266,000
=========== ===========
Plan assets consist principally of a broadly diversified portfolio of
equity securities, U.K. government obligations and fixed interest securities.
The following significant assumptions were used in determining pension costs for
the three-year period ended December 31, 2000:
2000 1999 1998
---- ---- ----
Discount rate 6.5% 6% 7.5%
Rate of increase in compensation levels 3% 3.5% 4%
Expected long-term rate of return on plan assets 8.5% 8% 8%
The weighted average discount rate used in determining the actuarial
present value of all pension obligations at September 30, 2000 and 1999 was
6.5%.
NOTE H--DERIVATIVE FINANCIAL INSTRUMENTS
At December 31, 2000, the company had one agreement with a financial
institution to swap interest rates. This agreement is based on a notional amount
of $25,000,000. The company pays interest at a fixed rate of 5.13% and receives
interest at the three-month LIBOR rate. The swap expires in February 2008. The
agreement allows the counterparty to cancel the swap at three-month intervals
commencing in February 2001. If at any three-
37
43
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
month extension date the counterparty decides not to extend the swap, it is
terminated and no further obligations are due by either party.
At December 31, 1999, the company had similar swap agreements on notional
amounts totaling $150 million. The estimated cost (benefit) to terminate these
agreements was $169,000 and ($599,000) at December 31, 2000 and 1999,
respectively. Except for the agreement described above, these swap agreements
expired or were terminated in 2000 resulting in insignificant gains or losses.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" as later amended,
the adoption of which will be required by no later than January 1, 2001. This
statement standardizes the accounting treatment for derivative instruments. The
company has determined that this statement will have an insignificant effect on
its reported results of operations; the company is required to adopt the
provisions of this statement on January 1, 2001.
NOTE I --STOCK-BASED COMPENSATION
The company's stock benefit plans, approved by the company's shareholders,
authorize the grant of benefit shares or units to key employees and directors.
The plan approved in 1988 authorized, until May 1998, the grant of up to
2,737,500 benefit shares or units (as adjusted for subsequent stock splits and
dividends). The plan approved in 1996 and amended in 1999 authorizes the grant
of up to 2,500,000 benefit shares or units until April 2006. These share or unit
amounts exclude amounts that were issued under predecessor plans. Benefit shares
or units include stock options, both incentive and non-incentive, stock awards
and other stock units.
Stock options are primarily granted at the fair market value of the shares
on the date of grant and become exercisable one year after grant at a rate of
one-half annually and are exercisable in full on the second anniversary date.
All options and rights must be exercised within ten years from date of grant. At
the company's discretion, vested stock option holders are permitted to elect an
alternative settlement method in lieu of purchasing common stock at the option
price. The alternative settlement method permits the employee to receive,
without payment to the company, cash, shares of common stock or a combination
thereof equal to the excess of market value of common stock over the option
purchase price.
The company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25, no
compensation expense is recognized when the exercise price of stock options
equals the market price of the underlying stock on the date of grant.
Stock option activity for the three-year period ended December 31, 2000
follows (number of shares in 000's, prices in dollars per share):
OPTION SHARES WEIGHTED AVERAGE PRICE ($)
--------------------- ---------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Outstanding at beginning of year 2,312 2,025 2,036 19.29 18.80 17.98
Granted 63 489 180 18.65 18.57 23.56
Canceled or expired (36) (35) (59) 21.74 21.99 22.43
Exercised (161) (167) (132) 11.05 10.65 11.77
----- ----- -----
Outstanding at end of year 2,178 2,312 2,025 19.84 19.29 18.80
===== ===== =====
Exercisable at end of year 1,588 1,468 1,523 19.95 18.71 18.00
===== ===== =====
38
44
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For options outstanding at December 31, 2000, the number (in thousands),
weighted average exercise prices in dollars per share, and weighted average
remaining terms were as follows:
PERIOD IN WHICH OPTIONS WERE GRANTED
-------------------------------------------------
00-99 98-97 96-95 94-93 92-91 AGGREGATE
----- ----- ----- ----- ----- ---------
Number outstanding 513 549 442 305 369 2,178
Exercise price range ($):
High 26.13 25.38 24.75 20.62 15.87 26.13
Low 14.94 20.06 20.12 16.00 11.17 11.17
Weighted average:
Exercise price ($) 18.53 21.71 23.98 19.81 13.93 19.84
Remaining term (years) 9 7 5 3 1 6
The weighted average fair value of options granted was $4.86 per share
during 2000, $3.58 per share during 1999 and $5.24 per share during 1998. The
fair value of options was estimated at the grant date using a Black-Scholes
option pricing model with the following weighted average assumptions; risk free
interest rates of 5.0% in 2000, 6.4% in 1999 and 4.6% in 1998; dividend yield of
3.9% in 2000, 4.8% in 1999 and 2.5% in 1998; market volatility of the company's
common stock of .27 in 2000, .23 in 1999 and .20 in 1998; and a weighted average
expected life of the options of approximately 8 years for 2000 and 7 years for
1999 and 1998. For purposes of pro forma disclosure, the estimated fair value of
the options is amortized to expense over the option's vesting period. On a pro
forma basis, the company's net income would have been $56,800,000 or $1.25 per
share for the year ended December 31, 2000, $56,523,000 or $1.23 per share for
the year ended December 31, 1999 and $58,202,000 or $1.27 per share for the year
ended December 31, 1998. The calculated pro forma impact on 1998-2000 net income
and net income per share amounts are not necessarily indicative of future
amounts until application of the disclosure rules are applied to all
outstanding, nonvested awards.
The intent of the Black-Scholes option valuation model is to provide
estimates of fair values of traded options that have no vesting restrictions and
are fully transferable. Option valuation models require the use of highly
subjective assumptions including expected stock price volatility. The company
has utilized the Black-Scholes method to produce the pro forma disclosures
required under Statement of Financial Accounting Standards No. 123, "Accounting
and Disclosure of Stock-Based Compensation". In management's opinion, existing
valuation models do not necessarily provide a reliable single measure of the
fair value of its employee stock options because the company's employee stock
options have significantly different characteristics from those of traded
options and the assumptions used in applying option valuation methodologies,
including the Black-Scholes model, are highly subjective.
Stock award shares are granted to employees at no cost. Awards primarily
vest at the rate of 25% annually commencing one year from the date of award,
provided the recipient is still employed by the company on the vesting date. The
cost of stock awards, based on the fair market value at the date of grant, is
being charged to expense over the four-year vesting period. The company granted
stock award shares of 69,500 in 2000, 65,000 in 1999 and 58,000 in 1998. The
fair values of these shares were $1,108,000, $1,712,000 and $1,289,000,
respectively. Compensation expense related to stock award shares recorded during
these periods was $1,499,000, $1,308,000 and $1,173,000, respectively.
Under the 1988 plan, no benefit shares or units were available for future
grant during the three-year period ending December 31, 2000. Under the 1996
plan, the following benefit shares or units were available for future grant:
937,000 at December 31, 2000, 1,040,000 at December 31, 1999 and 69,000 at
December 31, 1998.
39
45
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--SHAREHOLDERS' EQUITY
The company has 90,000,000 authorized shares of common stock, $1 par value
and 800,000 authorized and unissued shares of preference stock, $1 par value.
The changes in shareholders' equity for each of the three years in the
period ended December 31, 2000 were as follows:
ACCUMULATED
COMMON CAPITAL IN DEFERRED OTHER
STOCK EXCESS OF RETAINED TREASURY STOCK COMPREHENSIVE
PAR VALUE PAR VALUE EARNINGS STOCK AWARDS INCOME
--------- ---------- -------- -------- -------- -------------
Balance at December 31, 1997--
46,501,000 shares issued $46,501,000 $61,029,000 $226,432,000 $(19,695,000) $(1,718,000) $(12,777,000)
Net income 59,396,000
Cash dividends declared (32,462,000)
Exercise of stock options:
Cash proceeds 100,000 1,292,000
Exchange of shares 31,000 129,000 (160,000)
Stock awards granted 58,000 1,231,000 (1,289,000)
Tax benefits related to stock compensation
plans 265,000
Retirement of treasury stock (22,000) (482,000) 504,000
Purchases of 444,000 shares of treasury
stock (9,466,000)
Amortization of deferred stock awards 1,173,000
Foreign currency translation adjustment,
net 2,059,000
Other (3,000) (344,000)
----------- ----------- ------------ ------------ ----------- ------------
Balance at December 31, 1998--
46,668,000 shares issued 46,668,000 63,461,000 253,366,000 (29,161,000) (1,834,000) (10,718,000)
Net income 57,537,000
Cash dividends declared (33,952,000)
Exercise of stock options:
Cash proceeds 147,000 1,472,000
Exchange of shares 21,000 99,000 (120,000)
Stock awards granted 65,000 1,647,000 (1,712,000)
Tax benefits related to stock compensation
plans 363,000
Retirement of treasury stock (12,000) (280,000) 292,000
Purchases of 141,000 shares of treasury
stock (3,582,000)
Issued 706,000 shares from treasury for
purchases of companies 15,715,000
Amortization of deferred stock awards 1,308,000
Foreign currency translation adjustment,
net (6,590,000)
Other (167,000)
----------- ----------- ------------ ------------ ----------- ------------
Balance at December 31, 1999--
46,889,000 shares issued 46,889,000 66,762,000 276,951,000 (17,023,000) (2,238,000) (17,308,000)
Net income 57,537,000
Cash dividends declared (34,503,000)
Exercise of stock options:
Cash proceeds 82,000 961,000
Exchange of shares 79,000 697,000 (776,000)
Stock awards granted 69,000 1,039,000 (1,108,000)
Tax benefits related to stock compensation
plans 302,000
Retirement of treasury stock (52,000) (1,068,000) 1,120,000
Purchases of 988,000 shares of treasury
stock (17,279,000)
Amortization of deferred stock awards 1,499,000
Foreign currency translation adjustment,
net (4,857,000)
Other (344,000)
----------- ----------- ------------ ------------ ----------- ------------
Balance at December 31, 2000--
47,067,000 shares issued $47,067,000 $68,693,000 $299,985,000 $(34,302,000) $(1,847,000) $(22,165,000)
=========== =========== ============ ============ =========== ============
In July 1998, the company declared a dividend distribution of one preferred
share purchase right on each share of common stock outstanding on and after
August 18, 1998. This plan replaces a similar plan approved in 1988. The rights
are not exercisable until the rights distribution date, defined as the earlier
of: 1) the tenth day following a public announcement that a person or group of
affiliated or associated persons acquired or obtained
40
46
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the right to acquire beneficial ownership of 20% or more of the outstanding
common stock or 2) the tenth day following the commencement or announcement of
an intention to make a tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of 30% or more of
such outstanding common shares. Each right, when exercisable, entitles the
holder to purchase from the company one one-hundredth of a share of Series A
Preferred stock of the company at a price of $100 per one one-hundredth of a
preferred share, subject to adjustment. The company is entitled to redeem the
rights at $.10 per right, payable in cash or common shares, at any time prior to
the expiration of twenty days following the public announcement that a 20%
position has been acquired. In the event that the company is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power is sold, proper provision will be made so
that each holder of a right will thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of a right, that number of
shares of common stock of the acquiring company which at the time of such
transaction would have a market value of two times the exercise price of the
right. The rights expire on August 18, 2008 unless earlier redeemed by the
company. Until exercised, the holder of a right, as such, will have no rights as
a shareholder, including, without limitation, the right to vote or to receive
dividends.
NOTE K--ACQUISITIONS
During the three-year period ended December 31, 2000, the company made the
following acquisitions, principally all for cash, except as otherwise noted. In
March 2000, the company acquired P.C.S. Company. Located near Detroit, Michigan,
P.C.S. offers a comprehensive line of tooling components for the plastic
injection mold and the die cast industries. The company also made a small
Environmental Products Group acquisition during the first quarter of 2000. As a
result of the 2000 acquisitions, the company recorded approximately $9.9 million
of working capital, $3.8 million of fixed and other assets and $10.7 million of
costs in excess of fair value. The assigned values of these acquisitions are
based upon preliminary estimates. In July 1999, the company acquired Clapp &
Haney Tool Company for cash and stock. Located near Toledo, Ohio, Clapp & Haney
is the leading U.S. manufacturer and marketer of polycrystalline diamond and
cubic boron nitride consumable tooling. The company also made a small Safety
Products Group acquisition during the early part of 1999. As a result of the
1999 acquisitions, the company recorded approximately $4.9 million of working
capital, $12.2 million of fixed and other assets and $56.1 million of costs in
excess of fair value. In January 1998, the company acquired Saulsbury Fire
Equipment Corporation and Five Star Manufacturing Company. In August 1998, the
company acquired Jetstream of Houston. Saulsbury, located in Tully, New York, is
the leading manufacturer of stainless steel-bodied fire trucks and rescue
vehicles in the United States. Five Star, based in Youngsville, North Carolina,
manufactures mechanical and recirculating air street sweepers. Located in
Houston, Texas, Jetstream is a leading manufacturer of high-pressure
waterblasting equipment. The company also made several small Safety Products
Group acquisitions during the last half of 1998. As a result of the 1998
acquisitions, the company recorded approximately $10.5 million of working
capital, $8.0 million of fixed and other assets and $47.9 million of costs in
excess of fair value.
All of the acquisitions in the three-year period ended December 31, 2000
have been accounted for as purchases. Accordingly, the results of operations of
the acquired companies have been included in the consolidated statements of
income from the effective dates of the acquisitions. Assuming the 2000 and 1999
acquisitions occurred January 1, 1999, the company estimates that reported
consolidated net sales would have changed less than 1% in 2000 and increased by
4% in 1999, while reported net income would have changed less than 1% in 2000
and increased by 4% in 1999. The company made no significant changes to the
values originally assigned to assets and liabilities recorded as a result of
acquisitions made prior to 2000.
NOTE L--LEGAL PROCEEDINGS
The company is subject to various claims, other pending and possible legal
actions for product liability and other damages and other matters arising out of
the conduct of the company's business. The company believes, based on current
knowledge and after consultation with counsel, that the outcome of such claims
and actions will not have a material adverse effect on the company's
consolidated financial position or the results of operations.
NOTE M--SEGMENT AND RELATED INFORMATION
The company has four continuing operating segments as defined under
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information". Business units are
41
47
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
organized under each segment because they share certain characteristics, such as
technology, marketing, and product application, which create long-term
synergies. The principal activities of the company's operating segments are as
follows:
ENVIRONMENTAL PRODUCTS--Environmental Products manufactures a variety of
self-propelled street cleaning vehicles, vacuum loader vehicles, municipal catch
basin/sewer cleaning vacuum trucks and waterblasting equipment. Environmental
Products sells primarily to municipal customers, contractors and government
customers.
FIRE RESCUE--Fire Rescue manufactures chassis; fire trucks, including Class
A pumpers, mini-pumpers and tankers; airport and other rescue vehicles, aerial
access platforms and aerial ladder trucks. This group sells primarily to
municipal customers, volunteer fire departments and government customers.
SAFETY PRODUCTS--Safety Products produces a variety of visual and audible
warning and signal devices; paging, local signaling, and building security,
parking and access control systems; hazardous area lighting; and equipment for
storage, transfer, use and disposal of flammable and hazardous materials. The
group's products are sold primarily to industrial, municipal and government
customers.
TOOL--Tool manufactures a variety of consumable tools which include die
components for the metal stamping industry, a large selection of precision metal
products for nonstamping needs and a line of precision cutting and grooving
tools including polycrystalline diamond and cubic boron nitride products for
superhard applications. The group's products are sold predominately to
industrial markets.
Net sales by operating segment reflect sales of products and services and
financial revenues to external customers, as reported in the company's
consolidated statements of income. Intersegment sales are insignificant. The
company evaluates performance based on operating income of the respective
segment. Operating income includes all revenues, costs and expenses directly
related to the segment involved. In determining segment operating income,
neither corporate nor interest expenses are included. Operating segment
depreciation expense, identifiable assets and capital expenditures relate to
those assets that are utilized by the respective operating segment. Corporate
assets consist principally of cash and cash equivalents, notes and other
receivables and fixed assets. The accounting policies of each operating segment
are the same as those described in the summary of significant accounting
policies.
See Note K for a discussion of the company's acquisition activity during
the three-year period ended December 31, 2000.
Non-U.S. sales, which include sales exported from the U.S. and sales made
by non-U.S. operations, aggregated $274,168,000 in 2000, $265,249,000 in 1999
and $266,562,000 in 1998. Sales exported from the U.S. aggregated $102,402,000
in 2000, $104,940,000 in 1999 and $98,135,000 in 1998.
42
48
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the company's continuing operations by segment for the
three-year period ended December 31, 2000 is as follows:
2000 1999 1998
---- ---- ----
Net sales
Environmental Products $ 255,269,000 $ 247,097,000 $ 219,812,000
Fire Rescue 389,311,000 310,008,000 318,038,000
Safety Products 267,062,000 261,940,000 253,020,000
Tool 194,485,000 158,164,000 145,964,000
-------------- -------------- --------------
Total net sales $1,106,127,000 $ 977,209,000 $ 936,834,000
============== ============== ==============
Operating income
Environmental Products $ 23,101,000 $ 24,454,000 $ 19,559,000
Fire Rescue 24,940,000 10,900,000 14,526,000
Safety Products 43,721,000 41,384,000 40,601,000
Tool 35,298,000 33,303,000 31,426,000
Corporate expense (10,406,000) (8,689,000) (8,240,000)
-------------- -------------- --------------
Total operating income 116,654,000 101,352,000 97,872,000
Interest expense (31,401,000) (23,339,000) (19,336,000)
Other income (expense) (839,000) 1,296,000 824,000
-------------- -------------- --------------
Income before income taxes $ 84,414,000 $ 79,309,000 $ 79,360,000
============== ============== ==============
Depreciation and amortization
Environmental Products $ 5,030,000 $ 4,609,000 $ 3,869,000
Fire Rescue 5,304,000 5,299,000 4,605,000
Safety Products 8,978,000 8,925,000 8,210,000
Tool 8,907,000 6,115,000 4,448,000
Corporate 838,000 849,000 947,000
-------------- -------------- --------------
Total depreciation and amortization $ 29,057,000 $ 25,797,000 $ 22,079,000
============== ============== ==============
Identifiable assets
Manufacturing activities
Environmental Products $ 149,622,000 $ 143,320,000 $ 139,819,000
Fire Rescue 201,960,000 200,950,000 178,818,000
Safety Products 220,867,000 227,073,000 224,605,000
Tool 175,884,000 155,095,000 85,013,000
Corporate 13,997,000 12,795,000 10,803,000
-------------- -------------- --------------
Total manufacturing activities 762,330,000 739,233,000 639,058,000
-------------- -------------- --------------
Financial services activities
Environmental Products 69,055,000 66,096,000 51,499,000
Fire Rescue 145,175,000 125,165,000 114,163,000
-------------- -------------- --------------
Total financial services activities 214,230,000 191,261,000 165,662,000
-------------- -------------- --------------
Total identifiable assets $ 976,560,000 $ 930,494,000 $ 804,720,000
============== ============== ==============
Additions to long-lived assets
Environmental Products $ 5,574,000 $ 3,241,000 $ 32,685,000
Fire Rescue 4,958,000 4,598,000 18,603,000
Safety Products 5,333,000 13,496,000 17,348,000
Tool 19,857,000 70,243,000 6,404,000
Corporate 23,000 26,000 33,000
-------------- -------------- --------------
Total additions to long-lived assets $ 35,745,000 $ 91,604,000 $ 75,073,000
============== ============== ==============
Financial revenues (included in net
sales)
Environmental Products $ 6,113,000 $ 5,170,000 $ 3,904,000
Fire Rescue 8,082,000 7,166,000 7,606,000
-------------- -------------- --------------
Total financial revenues $ 14,195,000 $ 12,336,000 $ 11,510,000
============== ============== ==============
43
49
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Due to the nature of the company's customers, a significant portion of the
Environmental Products and Fire Rescue financial revenues is exempt from federal
income tax.
A summary of the company's continuing operations by geographic area for the
three-year period ended December 31, 2000 is as follows:
2000 1999 1998
---- ---- ----
UNITED STATES
Net sales $934,361,000 $816,900,000 $768,407,000
Operating income 103,704,000 88,012,000 83,199,000
Long-lived assets 344,367,000 334,833,000 266,337,000
ALL NON-U.S. (principally Europe)
Net sales $171,766,000 $160,309,000 $168,427,000
Operating income 12,950,000 13,340,000 14,673,000
Long-lived assets 69,027,000 73,815,000 75,448,000
The company had no significant amounts of sales to or long-lived assets in
an individual country outside of the United States.
During 2000, the company decided to divest the operations of the Sign Group
and began to search for a qualified buyer of that business. Sign manufactures
for sale or lease illuminated, non-illuminated and electronic advertising sign
displays primarily for commercial and industrial markets. It also enters
contracts to provide maintenance service for the signs it manufactures as well
as for signs manufactured by others. The results of the Sign operations are
reported as discontinued operations in the financial statements; 1999 and 1998
financial statements have been appropriately restated.
The company also incurred $3,744,000 in restructuring charges during 2000
relating to the consolidation of facilities and operations. Of this amount, the
Environmental Products Group incurred costs of $2,773,000 and the Tool Group
incurred $971,000.
NOTE N--NET INCOME PER SHARE
The following table summarizes the information used in computing basic and
diluted income per share for the three-year period ending December 31, 2000:
2000 1999 1998
---- ---- ----
Numerator for both basic and diluted
income per share computations -- net
income $57,537,000 $57,537,000 $59,396,000
=========== =========== ===========
Denominator for basic income per share--
weighted average shares outstanding 45,388,000 45,775,000 45,568,000
Effect of employee stock options
(dilutive potential common shares) 133,000 183,000 278,000
----------- ----------- -----------
Denominator for diluted income per
share -- adjusted shares 45,521,000 45,958,000 45,846,000
=========== =========== ===========
NOTE O--COMMITMENTS
The company leases certain facilities and equipment under operating leases,
some of which contain options to renew. Total rental expense on all operating
leases was $8,297,000 in 2000, $8,037,000 in 1999 and $8,426,000 in 1998.
Sublease income and contingent rentals relating to operating leases were
insignificant. At December 31, 2000, minimum future rental commitments under
operating leases having noncancelable lease terms in excess of one year
aggregated $30,701,000 payable as follows: $7,097,000 in 2001, $5,515,000 in
2002, $3,777,000 in 2003, $3,295,000 in 2004, $2,798,000 in 2005 and $8,219,000
thereafter.
At December 31, 2000, the company had outstanding standby letters of credit
aggregating $17,214,000 principally to act as security for retention levels
related to casualty insurance policies and to guarantee the performance of
subsidiaries that engage in export transactions to foreign governments and
municipalities.
44
50
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P--CHANGE IN ACCOUNTING
In the fourth quarter of 2000, the company changed its method of accounting
for recognizing revenues for product sales. Effective with this change,
retroactively applied to January 1, 2000, the company recognizes revenues based
upon the respective terms of delivery for each sale agreement. This change was
required by Staff Accounting Bulletin (SAB) No. 101 issued by the Securities and
Exchange Commission. In years prior to 2000, the company recognized
substantially all of its revenues for product sales as products were shipped, as
this method was then in compliance with generally accepted accounting
principles.
For the restated three-month period ended March 31, 2000 and the year ended
December 31, 2000, the company recognized sales of $10,052,000 and the related
operating income of $1,362,000 resulting from the change in accounting method;
these amounts were previously recognized in sales and income in 1999 under the
company's previous accounting method. These sales and the related income also
account for the cumulative effect of the change in accounting method on prior
years, which resulted in a charge to net income of $844,000 (net of taxes of
$518,000), or $.02 per diluted share. This charge reflects the adoption of SAB
No. 101 and is included in the restated three-month period ended March 31, 2000
and the year ended December 31, 2000. Pro-forma net income amounts for the
three-year period ending December 31, 2000, assuming the change in method was
retroactively applied to the beginning of that period, are as follows:
2000 1999 1998
---- ---- ----
Net income $58,381,000 $57,268,000 $59,436,000
Diluted net income per share $ 1.28 $ 1.25 $ 1.30
Presented below is a summary of the originally reported and restated income
statement data for the first three three-month periods of the year ended
December 31, 2000:
MARCH 31 JUNE 30 SEPTEMBER 30
---------------------- ---------------------- ----------------------
ORIGINALLY ORIGINALLY ORIGINALLY
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- -------- ---------- --------
Net sales $271,670 $260,181 $278,217 $286,825 $ 270,884 $258,577
Gross margin 85,323 82,807 87,245 88,786 83,019 80,534
Income from continuing operations 14,297 13,763 16,012 16,198 15,715 14,705
Income (loss) from discontinued
operations 939 939 172 172 (25) (25)
Cumulative effect of change in
accounting (844)
Net income 15,236 13,858 16,184 16,370 15,690 14,680
Per share data--diluted:
Income from continuing operations .31 .30 .35 .36 .35 .32
Income (loss) from discontinued
operations .02 .02
Cumulative effect of change in
accounting (.02)
Net income* .33 .30 .36 .36 .35 .32
* amounts may not add due to rounding
45
51
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE Q-- SELECTED QUARTERLY DATA (UNAUDITED)
(in thousands of dollars except per share amounts)
FOR THE THREE-MONTH PERIOD ENDED
-----------------------------------------------------------------------------------------
2000 1999
------------------------------------------- -------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER MARCH JUNE SEPTEMBER DECEMBER
31* 30* 30* 31 31 30 30 31
----- ---- --------- -------- ----- ---- --------- --------
Net sales $260,181 $286,825 $258,577 $300,544 $235,661 $242,991 $237,243 $261,314
Gross margin 82,807 88,786 80,534 85,217 72,058 73,582 74,244 80,718
Income from
continuing
operations 13,763 16,198 14,705 12,989 12,239 12,677 13,373 16,094
Income (loss) from
discontinued
operations 939 172 (25) (360) 808 1,015 416 915
Cumulative effect of
change in
accounting (844)
Net income 13,858 16,370 14,680 12,629 13,047 13,692 13,789 17,009
Per share data--
diluted:
Income from
continuing
operations .30 .36 .32 .29 .27 .28 .29 .35
Income (loss)
from
discontinued
operations .02 (.01) .02 .02 .01 .02
Cumulative effect
of change in
accounting (.02)
Net income .30 .36 .32 .28 .29 .30 .30 .37
Pro-forma amounts
assuming change in
accounting
(Note P):
Net income 14,702 16,370 14,680 12,629 12,834 13,389 14,263 16,782
Diluted net
income per
share .32 .36 .32 .28 .28 .29 .31 .36
Dividends paid per
share .190 .190 .190 .190 .185 .185 .185 .185
Market price range
per share
High 18.50 21.50 22.94 24.13 28.06 26.19 22.38 20.13
Low 14.75 16.50 16.75 17.13 20.00 19.81 18.69 15.06
* indicates periods restated for change in accounting (see Note P)
In 2000 the company incurred pre-tax restructuring charges (see Note M) of
$75,000, $837,000 and $2,832,000 for each of the three-month periods ending June
30, September 30 and December 31, respectively.
46
52
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
of Federal Signal Corporation
We have audited the accompanying consolidated balance sheets of Federal
Signal Corporation and subsidiaries as of December 31, 2000 and 1999 and the
related consolidated statements of income, comprehensive income and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Federal Signal
Corporation and subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.
As discussed in Notes A and P to the financial statements, in 2000 the
company changed its method of revenue recognition.
[ERNST & YOUNG LLP SIGNATURE]
Chicago, Illinois
January 25, 2001
47
53
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
CONSOLIDATED RESULTS OF OPERATIONS
Federal Signal Corporation's net sales increased 13% in 2000 to $1.11
billion compared to the $.98 billion in 1999. Income from continuing operations
increased 6% to $57.7 million in 2000; excluding restructuring charges incurred
in the company's Environmental Products and Tool groups, income from continuing
operations increased 10%. Diluted income per share from continuing operations
increased 8% to $1.27 in 2000; excluding restructuring charges, income per share
from continuing operations increased 12% to $1.32. Net income in 2000 remained
flat at $57.5 million with diluted net income per share increasing $.01 to $1.26
in 2000. Net income and net income per share amounts included $.7 million ($.02
per share) income from the discontinued operations of the Sign Group and a
charge of $.8 million ($.02 per share) for the cumulative effect of a change in
accounting for revenue recognition. The improved results from the company's
continuing operations reflected growth in sales and earnings before
restructuring charges in all four continuing groups, led by the significantly
increased results of the Fire Rescue Group. Federal Signal's 13% sales increase
in 2000 was a result of a 1% increase in prices and a 12% increase in volume
including approximately 3% relating to added volume from acquired businesses.
Sales to customers in the United States increased 17% in 2000 and sales to
non-U.S. customers increased 3% (9% in functional currency). Incoming orders
increased 9% in 2000 with orders from U.S. customers increasing 10% and orders
from non-U.S. customers increasing 8%.
Net sales increased to $.98 billion in 1999 from $.94 billion in 1998.
Income from continuing operations declined 1% to $54.4 million in 1999, or $1.18
per share on a diluted basis, compared to $55.1 million in 1998, or $1.20 per
share. This decline was principally a result of lower earnings in the company's
Fire Rescue Group. The 1999 sales increase of 4% was a result of a 1% increase
in prices and a 3% increase in volume including 3% relating to added volume from
acquired businesses. Sales to customers in the United States increased 6% in
1999 while sales to non-U.S. customers declined slightly. Incoming orders also
increased 5% in 1999 with orders from U.S. customers increasing 5% and orders
from non-U.S. customers increasing 7%.
The company focuses on operating margin, rather than either the gross
margin component or the selling, general, and administrative (SG&A) cost
component of operating margin when setting overall Federal Signal performance
targets and monitoring results. The reasons for this focus are: 1) the distinct
differences in the cost structures of the company's businesses, and 2) the
varying growth rates of these individual businesses. This combination dictates
that the separate operating margin components are only useful in managing
individual business performance. In looking at total profitability of the
company's U.S. and non-U.S. operations, the company recognizes that some of its
U.S. operations have benefited from selling their products through distribution
channels of non-U.S. operations. The following table summarizes the company's
gross margins and operating margins for the last five years (percent of sales):
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.5 69.2 69.0 68.4 69.1
----- ----- ----- ----- -----
Gross profit margin 30.5 30.8 31.0 31.6 30.9
SG&A expenses 20.0 20.4 20.6 20.4 19.1
----- ----- ----- ----- -----
Operating margin 10.5% 10.4% 10.4% 11.2% 11.8%
===== ===== ===== ===== =====
Gross profit margins of 30.5% in 2000 are somewhat lower than the average
of the 1996-1999 period (31.1%). SG&A expenses as a percent of sales began
improving somewhat in 1999 and improved again in 2000 to 20.0%, which includes
the effect of $3.7 million of restructuring charges incurred in the company's
Environmental Products and Tool groups. Excluding restructuring charges, SG&A
expenses were 19.6% of sales in 2000; this compares favorably to the 1996-1999
average of 20.1%. Operating margin for 2000 excluding the restructuring charges
was 10.9%, the highest since 1997 and compares to the average of 11.0% for the
1996-1999 period. Since operating margins have declined from the company's rate
achieved in 1996, an explanation of that trend is warranted. The decline in the
company's operating margin prior to 2000, for the most part, reflects lower
operating margins of the Fire Rescue Group. Operating margins of the company's
continuing businesses outside of the Fire Rescue Group were 14.8% in 2000 and
compared favorably to a fairly consistent level of 14.6% averaged in the
1996-1999 period. In 1997 through 1999, significant operating issues in the Fire
Rescue Group adversely affected the company's margins. Chassis and related
component supply shortages, while affecting many of the company's vehicle-based
businesses in 1997 and 1998, had its most severe impact on the U.S.-based fire
48
54
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW (CONTINUED)
rescue business. Shortages of components and skilled people and installation of
an enterprise resource planning system adversely affected Fire Rescue sales and
earnings in 1999. During 2000, Fire Rescue achieved dramatic improvements in
throughput, productivity, customer service and quality and saw the group's
operating margin expand to 6.4% from the 3.5% experienced in 1999.
Interest expense increased $8.1 million in 2000, largely as a result of
borrowings related to businesses acquired for cash in mid-1999 and early 2000, a
$17 million purchase of company stock and a $23 million increase in financial
services assets. The increase in interest expense of $4.0 million in 1999 was
largely a result of borrowings related to acquisitions of businesses for cash in
1999, production-related increases in inventories and increases in financial
services assets, partially offset by lower interest rates. Weighted average
interest rates on short-term borrowings were 6.5% in 2000, 5.4% in 1999 and 5.8%
in 1998.
The company's effective tax rate in 2000 of 31.7% was up slightly from the
31.4% in 1999 with no significant changes in the underlying factors influencing
these rates. The 1999 rate increased from the 30.5% in 1998 largely as a result
of a few individually insignificant factors.
At the end of 2000, the company changed its assumptions for discount rates
used in determining the actuarial present values of accumulated and projected
benefit obligations for its postretirement plans. The company reduced the
discount rate to 7.7% at the end of 2000 from the 8.1% used at the end of 1999
for its U.S. plan because of the lower interest rate environment experienced at
the end of 2000. The company expects that the change in this assumption will not
have a significant impact on 2001 results of operations.
Certain of the company's businesses are susceptible to the influences of
seasonal buying or delivery patterns. The company's businesses which tend to
have lower sales in the first calendar quarter compared to other quarters as a
result of these influences are street sweeping, fire rescue products, outdoor
warning, municipal emergency signal products, parking systems and signage.
GROUP OPERATIONS
All four of the company's continuing operating segments achieved higher
sales and earnings excluding restructuring charges in 2000 with Fire Rescue
achieving significant increases. Tool Group sales and earnings also were well
above 1999 as a result of solid performances by newly-acquired businesses.
ENVIRONMENTAL PRODUCTS
Environmental Products orders rose 12% and sales increased 3% in 2000 while
operating income declined 6%. Excluding restructuring charges of $2.8 million
incurred to consolidate the group's vacuum truck operations into its Streator,
Illinois facility, operating income increased 6%. The group's sales growth was
due to broadly good performance in sweepers, waterblasters and municipal vacuum
trucks. In 1999 group sales and earnings increased 12% and 25%, respectively,
while orders increased 5%. Sales and earnings from municipal sewer cleaners
increased significantly in 1999, due in part from a very large backlog at the
beginning of the year; the group's 1999 results also benefited from a 1998
acquisition of a manufacturer of high pressure waterblasters. Offsetting a part
of these increases were lower sales and a profit decline in industrial vacuum
trucks reflecting weak markets for this product line in 1999.
FIRE RESCUE
In 2000 Fire Rescue orders increased 10%; earnings more than doubled on a
26% increase in sales. Orders for the group were strong in good North American
municipal markets. The group's Florida-based manufacturing operations increased
productivity, throughput and quality and saw operating margin improve to 6.4% in
2000 from 3.5% in 1999. Sales at the Finland-based operations were modestly
higher, despite the markka weakening against the U.S. dollar, and income
declined as this unit incurred costs related to the rollout of several new
products. In 1999 Fire Rescue sales declined 3% and earnings fell 25%. Fire
Rescue orders improved 6% as markets remained active throughout 1999. The
group's sales and earnings declines reflected the significant production
problems experienced throughout 1999 by the Florida-based operations. Component
supply problems continued into 1999 and the Florida-based operation's April 1,
1999 implementation of an enterprise resource planning system and shortages of
qualified workers also had a negative effect on production. The Florida-based
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW (CONTINUED)
operation saw fourth quarter 1999 production and shipments improve substantially
over levels achieved in the first part of 1999 establishing the foundation for
improved levels of performance in 2000.
SAFETY PRODUCTS
Safety Products orders decreased 3% in 2000 while sales increased 2%;
operating income increased 6%. An improved operating margin reflected municipal
market sales strength offsetting continued weak oilfield-related sales. In 1999
Safety Products Group sales increased 4% and earnings increased 2%; orders
increased 4%. The group's emergency vehicle signal, parking and outdoor warning
system product lines saw significant sales and earnings gains in 1999. These
improvements were partially offset in 1999 by lower sales and earnings of
hazardous area lighting products, which resulted from very weak energy-related
market conditions, and lower earnings from sales of hazardous liquid containment
products.
TOOL
Tool Group orders increased 24% and sales increased 23% in 2000; earnings
increased 6% including restructuring charges of $1.0 million. Excluding the
restructuring charges, operating income increased 9%. The group's results
reflected the benefits of two acquisitions, which performed strongly,
restructuring charges incurred to consolidate two superhard cutting tool
operations, and weak U.S. auto and broad industrial markets in the second half
of the year. In 1999 Tool Group orders and sales increased 7% and 8%,
respectively; earnings increased 6%. The mid-1999 acquisition of Clapp & Haney
Tool Company more than offset the effects of slow markets, which produced lower
sales and earnings in some of the group's other tool businesses. Excluding the
effect of the acquisition in 1999, U.S. sales increased 1% while non-U.S. sales
declined 5% reflecting lower automotive die build programs in Germany and Japan.
SIGN
The company decided to divest the Sign Group and began searching for a
buyer of this business. The group saw markets weaken in 2000 and sales and
operating income declined from 1999 results. The results of this group are
reported as discontinued operations in the company's consolidated financial
statements.
FINANCIAL SERVICES ACTIVITIES
The company maintains a large investment ($214 million and $191 million at
December 31, 2000 and 1999, respectively) in lease financing and other
receivables that are generated by its environmental products and fire rescue
operations. For the five-year period ending December 31, 2000, these assets
continued to be leveraged in accordance with the company's stated financial
objectives (see further discussion in "Financial Position and Cash Flow").
Financial services assets have repayment terms generally ranging from two
to ten years. The increases in these assets resulted from increasing sales of
environmental and fire rescue products as well as continuing acceptance by
customers of the benefits of using the company as their source of financing
vehicle purchases.
FINANCIAL POSITION AND CASH FLOW
The company emphasizes generating strong cash flows from operations,
reaching a record $75.5 million in 1998. Cash flow from operations declined to
$57.7 million in 1999 as inventory levels increased to support higher production
in vehicle businesses, particularly Fire Rescue. Cash flow from operations again
increased in 2000 to $64.4 million largely reflecting improvements in
receivables management. The company expects improvement in its operating cash
flow as it continues to focus aggressively on earnings growth as well as working
capital management, particularly inventories.
During the 1996-2000 period, the company utilized its strong cash flows
from operations and available debt capacity to: 1) fund in whole or in part
strategic acquisitions of companies operating in markets related to those
already served by the company; 2) purchase increasing amounts of equipment
principally to provide for further cost reductions and increased productive
capacity for the future as well as tooling for new products; 3) increase
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW (CONTINUED)
its investment in financial services activities; 4) pay increasing amounts in
cash dividends to shareholders; and 5) repurchase a small percentage of its
outstanding common stock each year.
Cash flows for the five-year period ending December 31, 2000 are summarized
as follows (in millions):
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Cash provided by (used for):
Operating activities $ 64.4 $ 57.7 $ 75.5 $ 64.2 $ 61.4
Investing activities (64.8) (105.1) (93.0) (38.4) (54.2)
Financing activities 5.2 40.9 22.2 (27.5) (4.1)
In order to show the distinct characteristics of the company's investment
in its manufacturing activities and its investment in its financial services
activities, the company has presented separately these investments and their
related liabilities. Different ratios of debt and equity support each of these
two types of activities.
One of the company's financial objectives is to maintain a strong financial
position. At December 31, 2000, the company's debt-to-capitalization ratio of
its manufacturing operations was 45% compared to 42% a year earlier. The
increase largely reflects the $24 million used for acquisitions of businesses
during 2000; the company expects to modestly reduce the debt-to-capitalization
ratio of its manufacturing operations during 2001. The company believes that its
financial assets, due to their overall quality, are capable of sustaining a
leverage ratio of 87%. At both December 31, 2000 and 1999, the company's
debt-to-capitalization ratio for its financial services activities was 87% for
its continuing operations.
As indicated earlier, management focuses substantial effort on improving
the utilization of the company's working capital. The company's current ratio
for its manufacturing operations was 1.2 at December 31, 2000 and 1.3 at
December 31, 1999. The decline in 2000 is largely due to additional short-term
borrowings incurred primarily to fund acquisitions and repurchase common stock.
The company anticipates that its financial resources and major sources of
liquidity, including cash flow from operations, will continue to be adequate to
meet its operating and capital needs in addition to its financial commitments.
MARKET RISK MANAGEMENT
The company is subject to risks associated with changes in interest rates
and foreign exchange rates. The company principally utilizes two types of
derivative financial instruments: 1) interest rate swaps and 2) foreign exchange
forward contracts to manage risks associated with sales and purchase commitments
denominated in foreign currencies. The company does not hold or issue derivative
financial instruments for trading or speculative purposes and is not a party to
leveraged derivatives.
The company uses interest rate swap agreements to reduce interest rate
risk. Interest rate swaps change the fixed/floating interest rate mix of the
company's debt portfolio. At December 31, 2000, the company was party to an
interest rate swap agreement with a notional amount of $25,000,000. See Note H
to the consolidated financial statements for a description of this agreement.
The company manages its exposure to interest rate movements by maintaining
a proportionate relationship between fixed-rate debt to total debt within
established percentages. The company uses actual fixed-rate borrowings as well
as interest rate swap agreements to provide fixed interest rates.
Approximately 40% of the company's debt is used to support financial
services assets; the average remaining life of those assets is typically under
three years. The company is currently comfortable with a sizeable portion of
floating rate debt, since a rise in borrowing rates would normally correspond
with a rise in lending rates in a reasonable period.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW (CONTINUED)
Significant interest rate sensitive instruments at December 31, 2000 and
1999 were as follows (dollars in millions):
2000 1999
-------------------------------------------------------------------- ---------------
FAIR FAIR
2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- ----- ----- -----
Long-term debt
Fixed rate
Principal $ 5.5 $ 8.1 $0.2 $15.0 $ 50.0 $ 78.8 $ 79.4 $ 81.4 $ 74.7
Average interest rate 7.1% 7.1% 7.1% 7.1% 6.8% 7.0% 6.9%
Variable rate
Principal $ 0.7 $ 1.4 $0.8 $50.0 $ 52.9 $ 52.9 $ 56.9 $ 56.9
Average interest rate 7.5% 7.5% 7.6% 7.6% 7.6% 6.1%
Short-term debt -- variable rate
Principal $331.1 $331.1 $331.1 $267.9 $267.9
Average interest rate 7.6% 7.6% 6.2%
Interest rate swaps (pay fixed,
receive variable)
Notional amount $ 25.0 $ 25.0 $ (0.2) $150.0 $ 0.6
Average pay rate 5.1%
Average receive rate 6.8%
The company had an insignificant amount of foreign exchange forward
contracts outstanding at
December 31, 2000.
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58
SHAREHOLDER INFORMATION
ANNUAL MEETING OF SHAREHOLDERS
Thursday, April 19, 2001, 11:00 a.m., Oak Brook Marriott Hotel, 1401 West 22nd
Street, Oak Brook, Illinois 60523.
COMMON STOCK DATA
Federal Signal Corporation's Common Stock is listed and traded on the New York
Stock Exchange under the symbol FSS and is quoted in financial press listings as
"FedlSgnl"or "FdSgnl". The company expects to continue paying regular quarterly
cash dividends as it has done since 1948, depending, of course, on future
earnings, financial condition and capital requirements.
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company is the transfer agent and registrar for Federal Signal
Common Stock. Notices regarding change of address and inquiries regarding lost
dividend checks, lost or stolen stock certificates and transfers of stock, other
than a purchase and sale which must be handled through a broker, should be
directed to EquiServe Trust Company, N.A., P.O. Box 2500, Jersey City, New
Jersey 07303-2500, 800-446-2617.
DIVIDEND REINVESTMENT PLAN
This plan enables Federal Signal shareholders, who hold at least 50 shares in
their own name or through a broker or otherwise, to automatically and regularly
apply common stock cash dividends toward the purchase of additional shares of
common stock. Participants have the option of purchasing more common shares
through the plan with direct cash payments. The company pays all bank service
fees and brokerage commissions for common stock purchased through the plan. At
year-end 2000, 2,060 shareholders (50% of record holders) were enrolled in the
plan. This represents about 6% of outstanding stock or 2,633,000 shares
participating in the plan. Inquiries regarding enrollment in the plan or
questions concerning established accounts should be directed to EquiServe,
Dividend Reinvestment Service, P.O. Box 2598, Jersey City, New Jersey
07303-2598.
REPORTS
A copy of the company's 10-K and financial statements may be obtained free of
charge by contacting the Office of the Secretary, Federal Signal Corporation,
1415 West 22nd Street, Oak Brook, Illinois 60523-2004, 630-954-2021.
INVESTOR RELATIONS
Henry L. Dykema, Vice President and Chief Financial Officer,
630-954-2020.
SHAREHOLDERS
Some of Federal Signal's shareholders have their shares registered in their
broker's name or "street" name. If you are a "street" name holder and are not
receiving company communications directly or in a timely manner, we would be
pleased to send this information to you if you will send us your name and
address. Federal Signal had a total of approximately 20,000 "street" name and
record shareholders at year-end 2000.
WEBCAST OF QUARTERLY CONFERENCE CALL
The company anticipates earnings press releases, followed by a 3:30 p.m. Eastern
Time conference call, on April 17, July 18 and October 16, 2001. You may listen
to the conference call over the internet through Federal's website at
http://www.federalsignal.com. To listen to the call live, you should go to the
website at least fifteen minutes in advance to register and download and
install, if necessary, the required free audio software. A replay of the call
will be accessible shortly after the call concludes from our website for about
one week.
From left to right,
Charles R. Campbell,
Paul W. Jones,
[PHOTO] James C. Janning,
Joseph J. Ross,
Richard R. Thomas,
James A. Lovell,Jr.
DIRECTORS
Joseph J. Ross, 55 * James A. Lovell, Jr., 72 **
Chairman and President, Lovell
Chief Executive Officer Communications
Federal Signal Corporation Elected 1984
Elected 1986
Richard R. Thomas, 67 **
Charles R. Campbell, 61 ** Retired, President
Principal, The Everest Group Tool Group
Elected 1998 Federal Signal Corporation
Elected 1994
James C. Janning, 52 **
Group President Committees
Harbour Group, Ltd. * Audit
Elected 1999 * Compensation and Benefits
* Corporate Governance
Paul W. Jones, 52 ** * Executive
Chairman, President and
Chief Executive Officer
U.S. Can Company
Elected 1998
OFFICERS
Joseph J. Ross, 55 Robert W. Racic, 52
Chairman and Vice President and Treasurer
Chief Executive Officer 29 years service
18 years service
Richard L. Ritz, 47
John DeLeonardis, 54 Vice President and
Vice President, Taxes Controller
14 years service 17 years service
Duane A. Doerle, 45 Jennifer L. Sherman, 36
Vice President, Corporate Deputy General Counsel
Development and Assistant Secretary
16 years service 6 years service
Henry L. Dykema, 61 Kim A. Wehrenberg, 49
Vice President and Vice President, General
Chief Financial Officer Counsel and Secretary
6 years service 14 years service
Richard G. Gibb, 57 James S. Weir, 42
Executive Vice President Assistant Treasurer
30 years service 14 years service
Andrew E. Graves, 42
President and
Chief Operating Officer
DIVIDEND DATES
Federal Signal Corporation anticipates the following cash dividend dates for
2001:
RECORD DATE PAYMENT DATE
March 15 April 3
June 14 July 5
September 13 October 2
December 14 January 3 (2002)