Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-6003
FEDERAL SIGNAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 36-1063330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 WEST 22ND STREET, OAK BROOK, ILLINOIS 60521
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 954-2000
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of October 31, 1994.
Common Stock, $1.00 par value -- 45,424,655
PART I. FINANCIAL INFORMATION
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
INTRODUCTION
The consolidated condensed financial statements of Federal Signal
Corporation and subsidiaries included herein have been prepared by the
Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Registrant believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
consolidated condensed financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in
the Registrant's annual report on Form 10-K for the fiscal year ended
December 31, 1993.
<TABLE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $181,283,000 $142,740,000 $483,390,000 $416,650,000
Costs and expenses:
Cost of sales 125,868,000 96,375,000 333,333,000 283,569,000
Selling, general and administrative 34,705,000 29,487,000 95,089,000 86,990,000
Other (income) and expenses:
Interest expense 2,510,000 1,597,000 5,676,000 4,807,000
Other income (326,000) (542,000) (327,000) (462,000)
Total costs and expenses 162,757,000 126,917,000 433,771,000 374,904,000
Income before income taxes 18,526,000 15,823,000 49,619,000 41,746,000
Income taxes 6,090,000 5,162,000 16,631,000 13,332,000
Net income $ 12,436,000 $ 10,661,000 $ 32,988,000 $ 28,414,000
COMMON STOCK DATA:
Net income per share* $ .27 $ .23 $ .72 $ .61
Average common shares outstanding* 45,894,000 46,332,000 45,975,000 46,261,000
Cash dividends per share of common stock* $ .11 $ .09 $ .32 $ .27
<FN>
See notes to consolidated condensed financial statements.
*1993 amounts adjusted for 4-for-3 stock split distributed March 1, 1994.
</TABLE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30 December 31
1994 1993 (a)
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ --- $ 2,576,000
Trade accounts receivable, net of
allowances for doubtful accounts 103,942,000 81,593,000
Inventories:
Raw materials 39,954,000 28,595,000
Work in process 22,345,000 18,567,000
Finished goods 20,765,000 15,860,000
Prepaid expenses 4,080,000 4,627,000
Total current assets 191,086,000 151,818,000
Properties and equipment:
Land 5,486,000 5,502,000
Buildings and improvements 38,351,000 36,014,000
Machinery and equipment 103,225,000 93,481,000
Accumulated depreciation (79,124,000) (72,793,000)
Net properties and equipment 67,938,000 62,204,000
Intangible assets, net of
accumulated amortization 120,611,000 65,436,000
Other deferred charges and assets 10,269,000 15,666,000
Total manufacturing assets 389,904,000 295,124,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 118,327,000 110,580,000
Total assets $508,231,000 $405,704,000
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1993 has been derived from the
audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS -- Continued
September 30 December 31
1994 1993 (a)
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $ 40,569,000 $ 282,000
Trade accounts payable 35,413,000 33,363,000
Accrued liabilities and income taxes 69,697,000 65,411,000
Total current liabilities 145,679,000 99,056,000
Long-term borrowings 34,822,000 1,344,000
Deferred income taxes 12,963,000 10,929,000
Total manufacturing liabilities 193,464,000 111,329,000
Financial services activities -
Short-term borrowings 102,394,000 75,433,000
Long-term borrowings 19,734,000
Total financial services liabilities 102,394,000 95,167,000
Total liabilities 295,858,000 206,496,000
CONTINGENCY
SHAREHOLDERS' EQUITY
Common stock - par value 45,755,000 45,738,000
Capital in excess of par value 53,508,000 54,045,000
Retained earnings 124,125,000 105,471,000
Treasury stock (6,820,000)
Deferred stock awards (1,883,000) (1,715,000)
Foreign currency translation (2,312,000) (4,331,000)
Total shareholders' equity 212,373,000 199,208,000
Total liabilities and
shareholders' equity $508,231,000 $405,704,000
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1993 has been derived from the
audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30
1994 1993
Operating activities:
Net income $ 32,988,000 $ 28,414,000
Depreciation 7,700,000 6,966,000
Working capital changes and other (10,406,000) (13,294,000)
Net cash provided by operating
activities 30,282,000 22,086,000
Investing activities:
Purchases of properties and
equipment (7,565,000) (6,374,000)
Principal extensions under
lease financing agreements (63,778,000) (48,407,000)
Principal collections under
lease financing agreements 56,031,000 44,962,000
Payments for purchases of companies,
net of cash acquired (69,563,000) (22,869,000)
Other, net (519,000) 1,696,000
Net cash used for investing
activities (85,394,000) (30,992,000)
Financing activities:
Addition to short-term
borrowings 67,203,000 24,060,000
Addition to long-term
borrowings 13,190,000 375,000
Purchases of treasury stock (9,736,000) (553,000)
Cash dividends paid to
shareholders (18,462,000) (15,938,000)
Other, net 341,000 469,000
Net cash provided by financing
activities 52,536,000 8,413,000
Decrease in cash and cash
equivalents (2,576,000) (493,000)
Cash and cash equivalents at
beginning of period 2,576,000 2,223,000
Cash and cash equivalents at
end of period $ --- $ 1,730,000
See notes to consolidated condensed financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. It is suggested that the consolidated condensed financial
statements be read in conjunction with the financial statements
and the notes thereto included in the Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1993.
2. In the opinion of the Registrant, the information contained herein
reflects all adjustments necessary to present fairly the
Registrant's financial position, results of operations and cash
flows for the interim periods. Such adjustments are of a normal
recurring nature. The operating results for the three months and
nine months ended September 30, 1994, are not necessarily
indicative of the results to be expected for the full year of
1994.
3. On February 3, 1994, the Registrant's Board of Directors declared
a 4-for-3 common stock split distributed March 1, 1994 to
shareholders of record on February 14, 1994. The 554,088 post-
split treasury shares held on February 14, 1994 were used to
partially effect the split. Previously reported financial
information has been restated to give effect to the stock split.
4. Interest paid for the nine-month periods ended September 30, 1994
and 1993 was $5,228,000 and $4,636,000, respectively. Income
taxes paid for these same periods were $11,721,000 and
$14,202,000.
5. On May 3, 1993, a Texas federal court jury rendered a verdict of
$17,745,000 against Federal Sign, a division of the Registrant,
for alleged violation of the Texas Deceptive Trade Practices Act
and misrepresentations to Duravision, Inc. and Manufacturers
Product Research Group of North America, Inc. in connection with
a 1988 research and development project for indoor advertising
signs. The Registrant believes the court erroneously excluded
important evidence and that the verdict was against the weight of
the evidence. Both inside and outside counsel that initially
handled the case opined at the time of the verdict that the
likelihood of a substantially unfavorable result to the Registrant
on appeal was remote. Trial counsel has turned the case over to
new appellate counsel and has stated they cannot currently give an
opinion on the appeal because they are no longer handling the
case. Appellate counsel now handling the appeal of the case has
not issued an opinion on its outcome. However, if the Registrant
loses its appeal of this case, there would be a charge to earnings
for this $17,745,000 verdict, plus interest and attorney fees of
up to $11,000,000. On the other hand, there would be no such
charges to earnings for a decision reversing the original verdict
or the appellate court could issue a decision somewhere in
between. Depending on the outcome of this matter, an adverse
decision may have a material effect on results of operations and
cash flows in the periods that the appellate court decision is
made and required payments are made. The Registrant believes that
the ultimate resolution of this contingency, however, will not
have a material effect on its financial condition nor its results
of operations or cash flows for periods subsequent to the
appellate court decision and payments required as a result of such
decision. The Registrant cannot reasonably estimate the ultimate
amount of a judgment, if any, or interest and attorney fees, if
any, which may result from an adverse appellate court decision.
Accordingly, the Registrant has not recorded any accruals for
potential losses which may result from an adverse judgment. In
the event of an adverse decision, the Registrant intends to
aggressively pursue a substantial recovery from its original trial
counsel in this matter.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
THIRD QUARTER 1994
Comparison with Third Quarter 1993
Net sales increased 27% to $181.3 million, compared to $142.7 million
in the third quarter of 1993. Net income rose 17% in the third quarter
to $12.4 million compared to $10.7 million reported in the same period
a year ago, while per share earnings also increased 17% to $.27 per
share. New business for the third quarter increased 30% over the prior
year while backlogs of $249.4 million increased 26%. Excluding the
effects of the two companies acquired in the second quarter of 1994,
sales, new business and backlogs increased 13%, 15% and 18%,
respectively, over 1993's third quarter amounts.
Excluding the effects of certain non-recurring charges recorded by the
Tool Group, all four of the Registrant's groups posted increases in new
business, sales and earnings compared to last year's third quarter.
Third quarter earnings of the Safety Products Group (previously known
as the Signal Group) increased 72% on a 42% increase in sales. The
results of Justrite, acquired in the second quarter of this year,
account for the majority of these increases. The group's signal
products operations accounted for more than one-third of the group's
improved earnings, largely due to achieving double-digit sales
increases and experiencing a favorable product mix. The Tool Group
recorded an 11% increase in sales in the third quarter compared to a
year ago; however, earnings declined 20% due to the effect of
non-recurring adjustments for a revaluation of a portion of its carbide
inventory and restructuring charges associated with the consolidation
of its New Jersey die components plant operations into those at Dayton,
Ohio. Excluding these charges against income, earnings for the third
quarter would have increased 8% over last year's third quarter,
principally as a result of the strength of the sales and earnings of
Dayton Progress. Vehicle Group earnings increased 7% over last year on
a sales increase of 30%. In addition to the effect of the sales of the
newly-acquired Vactor, sales of all of the group's other businesses
increased substantially, ranging from 11% to 30% higher. The earnings
increase was largely due to including the results of Vactor with the
improved results of most of the group's other businesses. The
disproportionately small increase in the group's earnings was due to
most of the businesses having temporarily shifted into lower-margined
shipments. The group's outlook has been bolstered by its second
consecutive quarter of strong incoming orders, as new business
increased by 40% over the prior year following the 27% increase
experienced in the second quarter. While the increase in third quarter
orders was partially due to Vactor's orders, most of the improvement
was due to the group's other businesses, as both fire apparatus and
street sweeper orders increased by double-digit percentages over last
year's levels. The Sign Group continued its trend of major
improvements over prior year results. Third quarter earnings for the
group more than tripled to $1.1 million compared to earnings of $.3
million reported in the third quarter of 1993, all on a 15% increase in
sales. New business for the third quarter increased 13% over the prior
year. This represents the third consecutive quarter that new business
has increased by more than 10% over prior year levels and the 9th
consecutive quarter of increases in income versus prior year amounts.
The continuing operating improvements in the Registrant's businesses
are being bolstered by strong incoming order trends. In addition, the
Registrant expects to realize the ongoing benefits of recent
acquisitions and is seeing positive signs indicating a strengthening in
its overseas markets. These factors should provide a solid foundation
for continued sales and earnings improvements of all the Registrant's
businesses in the fourth quarter and into 1995.
Cost of sales as a percent of net sales increased from 67.5% in the
third quarter of 1993 to 69.4% in the third quarter of 1994. The
percentage increase was primarily due to a shift to lower margined
sales in the Vehicle and Tool groups and the impact of the Tool Group
inventory revaluation mentioned above. Selling, general and
administrative expenses as a percent of net sales decreased to 19.1% in
the third quarter of 1994 from 20.7% in the third quarter of 1993. The
decrease was attributed to the increase in sales volume, as well as
management's continued efforts in containing operating expenses through
cost reduction programs. The effective tax rate for the third quarter
of 1994 was 32.9%, slightly higher than the third quarter 1993 rate of
32.6%.
Comparison of First Nine Months 1994 to Same Period 1993
Net sales for the first nine months were $483.4 million, 16% above last
year's $416.7 million. Net income of $33.0 million was 16% above last
year's first nine month's net income of $28.4 million. Earnings per
share increased 18% to $.72 compared to $.61 for the same period last
year.
Cost of products sold as a percent of net sales increased to 69.0% in
the first nine months of 1994 from 68.1% in the first nine months of
1993. The percentage increase was principally due to the reasons cited
above for the third quarter. Selling, general and administrative
expenses decreased to 19.7% of net sales in the first nine months of
1994 from 20.9% in the same period a year ago. The percentage decrease
was mainly due to the reasons cited above for the third quarter. The
effective tax rate for the first nine months of 1994 was 33.5%, up from
the 31.9% reported for the first nine months of 1993. The increase
mainly results from the fact that the 1993 rate included the impact of
favorable tax return audit results and that tax-exempt interest income
has become a lower percentage of the Registrant's total income.
Seasonality of Registrant's Business
Certain of the Registrant's businesses are susceptible to the
influences of inclement weather and/or winter influences on customer
buying patterns and/or delivery requirements. The Registrant's
businesses which tend to have lower sales in the first calendar quarter
compared to other quarters as a result of these influences are the
signage, street sweeping, outdoor warning and parking systems
manufacturing operations. Municipal budgetary spending patterns also
have generally resulted in lower emergency signal product sales in the
first quarter than in other quarters.
Financial Position and Liquidity at September 30, 1994
The current ratio applicable to manufacturing activities was 1.3 at
September 30, 1994 compared to 1.5 at December 31, 1993. Working
capital (manufacturing operations) at September 30, 1994 was $45.4
million compared to $52.8 million at the most recent year end. The
decreases in the current ratio and working capital are due to a high
level of short-term borrowings which were incurred for the recent
purchases of Justrite Manufacturing Company and Peabody Myers
Corporation ("Vactor"). The debt to capitalization ratio applicable to
manufacturing activities was 27% at September 30, 1994 compared to 1%
at December 31, 1993. The increase in manufacturing debt resulted
primarily from short-term debt incurred to purchase recent
acquisitions, as mentioned above. The debt to capitalization ratio
applicable to financial services activities was 87% at September 30,
1994 compared to 86% at December 31, 1993.
The Registrant has determined that the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" are essentially consistent with the accounting
methods of the Registrant. Adoption of this statement had an
insignificant impact on results of operations for the three months and
nine months ended September 30, 1994.
Capital expenditures during the first nine months of 1994 were $7.6
million compared to $6.4 million for the same period a year ago.
Capital expenditures for the full year 1993 were $10.1 million. The
Registrant anticipates that capital expenditures for the full year 1994
will not be significantly greater than 1993 full year amounts. At
September 30, 1994 the Registrant held 343,873 shares of treasury stock
at a cost of $6.8 million purchased during the nine-month period ended
September 30, 1994. Modest amounts of additional shares are being
considered for purchase in the open market during the remainder of
1994. Current financial resources and anticipated funds from the
Registrant's operations are expected to be adequate to meet future cash
requirements. See Note 5 of the Notes to Consolidated Condensed
Financial Statements regarding the Duravision contingency.
PART II. OTHER INFORMATION
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Responses to items two through five are omitted since these items are
either inapplicable or the response thereto would be negative.
Item 1. Legal Proceedings
On May 3, 1993, a Texas federal court jury rendered a verdict of
$17,745,000 against Federal Sign, a division of the Registrant, for
alleged violation of the Texas Deceptive Trade Practices Act and
misrepresentations to Duravision, Inc. and Manufacturers Product
Research Group of North America, Inc. in connection with a 1988
research and development project for indoor advertising signs. The
Registrant believes the court erroneously excluded important evidence
and that the verdict was against the weight of the evidence. Both
inside and outside counsel that initially handled the case opined at
the time of the verdict that the likelihood of a substantially
unfavorable result to the Registrant on appeal was remote. Trial
counsel has turned the case over to new appellate counsel and has
stated they cannot currently give an opinion on the appeal because
they are no longer handling the case. Appellate counsel now handling
the appeal of the case has not issued an opinion on its outcome.
However, if the Registrant loses its appeal of this case, there would
be a charge to earnings for this $17,745,000 verdict, plus interest
and attorney fees of up to $11,000,000. On the other hand, there
would be no such charges to earnings for a decision reversing the
original verdict or the appellate court could issue a decision
somewhere in between. Depending on the outcome of this matter, an
adverse decision may have a material effect on results of operations
and cash flows in the periods that the appellate court decision is
made and required payments are made. The Registrant believes that
the ultimate resolution of this contingency, however, will not have
a material effect on its financial condition nor its results of
operations or cash flows for periods subsequent to the appellate
court decision and payments required as a result of such decision.
The Registrant cannot reasonably estimate the ultimate amount of a
judgment, if any, or interest and attorney fees, if any, which may
result from an adverse appellate court decision. Accordingly, the
Registrant has not recorded any accruals for potential losses which
may result from an adverse judgment. In the event of an adverse
decision, the Registrant intends to aggressively pursue a substantial
recovery from its original trial counsel in this matter.
Item 6. Exhibits and Reports on Form 8-K
(b) On May 13, 1994, the Registrant filed Form 8-K reporting the
Registrant's May 9, 1994 purchase of the principal operating assets
and assumption of the principal operating liabilities of Justrite
Manufacturing Company (Justrite). On July 11, 1994, the Registrant
filed an amendment to the May 13, 1994 Form 8-K. The Registrant
filed the following financial statements with respect to its
acquisition of Justrite: 1) The audited balance sheets of Justrite
as of June 30, 1993 and 1992, (2) the audited statements of income
and retained earnings and statements of cash flows of Justrite for
the years ended June 30, 1993 and 1992, (3) the unaudited balance
sheet of Justrite as of March 31, 1994, (4) the unaudited statements
of income of Justrite for the nine months ended March 31, 1994 and
1993, (5) the unaudited statements of cash flows for the nine months
ended March 31, 1994 and 1993, (6) the pro forma consolidated
condensed balance sheet of the Registrant and Justrite as of March
31, 1994 pursuant to Article 11 of Regulation S-X, (7) the pro forma
consolidated condensed statements of income of the Registrant and
Justrite for the year ended December 31, 1993 and the three months
ended March 31, 1994 pursuant to Article 11 of Regulation S-X.
SIGNATURE
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
(Registrant)
Date November 8, 1994
Charles R. Campbell
Senior Vice President & Chief
Financial & Administrative
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1994 AND
CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 103,942
<ALLOWANCES> 0
<INVENTORY> 83,064
<CURRENT-ASSETS> 191,086<F1>
<PP&E> 147,062
<DEPRECIATION> 79,124
<TOTAL-ASSETS> 508,231
<CURRENT-LIABILITIES> 145,679<F1>
<BONDS> 34,822
<COMMON> 45,755
0
0
<OTHER-SE> 166,618
<TOTAL-LIABILITY-AND-EQUITY> 508,231
<SALES> 483,390
<TOTAL-REVENUES> 483,390
<CGS> 333,333
<TOTAL-COSTS> 333,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,676
<INCOME-PRETAX> 49,619
<INCOME-TAX> 16,631
<INCOME-CONTINUING> 32,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,988
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
<FN>
<F1>MANUFACTURING OPERATIONS ONLY
</FN>
</TABLE>
