Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 April 30, 1994.
Common Stock, $1.00 par value -- 45,417,583
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.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31
1994 1993
Net sales $138,106,000 $127,447,000
Costs and expenses:
Cost of sales 95,215,000 86,975,000
Selling, general and administrative 29,096,000 28,500,000
Other (income) and expenses:
Interest expense 1,347,000 1,504,000
Other (income) expense 109,000 (62,000)
Total costs and expenses 125,767,000 116,917,000
Income before income taxes 12,339,000 10,530,000
Income taxes 4,183,000 3,379,000
Net income $ 8,156,000 $ 7,151,000
COMMON STOCK DATA:
Net income per share* $ .18 $ .15
Average common shares outstanding* 46,156,000 46,216,000
Cash dividends per share of
common stock* $ .11 $ .09
See notes to consolidated condensed financial statements.
*1993 amounts adjusted for 4-for-3 stock split distributed March 1, 1994.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31 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 88,552,000 81,593,000
Inventories:
Raw materials 32,704,000 28,595,000
Work in process 19,955,000 18,567,000
Finished goods 16,933,000 15,860,000
Prepaid expenses 5,149,000 4,627,000
Total current assets 163,293,000 151,818,000
Properties and equipment:
Land 5,493,000 5,502,000
Buildings and improvements 35,926,000 36,014,000
Machinery and equipment 94,428,000 93,481,000
Accumulated depreciation (74,817,000) (72,793,000)
Net properties and equipment 61,030,000 62,204,000
Intangible assets, net of
accumulated amortization 65,249,000 65,436,000
Other deferred charges and assets 13,805,000 15,666,000
Total manufacturing assets 303,377,000 295,124,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 109,461,000 110,580,000
Total assets $412,838,000 $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
March 31 December 31
1994 1993 (a)
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $ 203,000 $ 282,000
Trade accounts payable 32,697,000 33,363,000
Accrued liabilities and income taxes 64,711,000 65,411,000
Total current liabilities 97,611,000 99,056,000
Long-term borrowings 12,060,000 1,344,000
Deferred income taxes 11,169,000 10,929,000
Total manufacturing liabilities 120,840,000 111,329,000
Financial services activities -
Short-term borrowings 86,333,000 75,433,000
Long-term borrowings 8,213,000 19,734,000
Total financial services liabilities 94,546,000 95,167,000
Total liabilities 215,386,000 206,496,000
CONTINGENCY
SHAREHOLDERS' EQUITY
Common stock - par value 45,682,000 45,738,000
Capital in excess of par value 52,743,000 54,045,000
Retained earnings 108,831,000 105,471,000
Treasury stock (4,326,000)
Deferred stock awards (1,506,000) (1,715,000)
Foreign currency translation (3,972,000) (4,331,000)
Total shareholders' equity 197,452,000 199,208,000
Total liabilities and
shareholders' equity $412,838,000 $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)
Three Months Ended March 31
1994 1993
Operating activities:
Net income $ 8,156,000 $ 7,151,000
Depreciation 2,441,000 2,282,000
Working capital changes and other (6,469,000) 3,588,000
Net cash provided by operating
activities 4,128,000 13,021,000
Investing activities:
Purchases of properties and
equipment (1,574,000) (2,218,000)
Principal extensions under
lease financing agreements (17,326,000) (13,174,000)
Principal collections under
lease financing agreements 18,445,000 12,701,000
Payments for purchases of companies,
net of cash acquired (22,869,000)
Other, net (499,000) 654,000
Net cash used for investing
activities (954,000) (24,906,000)
Financing activities:
Addition to short-term
borrowings 10,806,000 16,467,000
Addition (reduction) to
long-term borrowings (962,000) 5,308,000
Purchases of treasury stock (6,769,000) (553,000)
Cash dividends paid to
shareholders (8,924,000) (7,707,000)
Other, net 99,000 90,000
Net cash provided by (used for)
financing activities (5,750,000) 13,605,000
Increase(decrease) in cash and
cash equivalents (2,576,000) 1,720,000
Cash and cash equivalents at
beginning of period 2,576,000 2,223,000
Cash and cash equivalents at
end of period $ --- $ 3,943,000
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
ended March 31, 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 three-month periods ended March 31, 1994 and
1993 was $1,511,000 and $1,748,000, respectively. Income taxes
paid for these same periods were $815,000 and $1,606,000.
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 verdict, plus interest and attorney fees. The Registrant
believes that the ultimate resolution of this contingency will not
have a material effect on its financial condition, and
accordingly, the Registrant has not recorded any accruals for
potential losses resulting from this judgment.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
FIRST QUARTER 1994
Comparison with First Quarter 1993
Net sales increased 8% to $138.1 million compared to $127.4 million in
last year's first quarter. Net income of $8.2 million increased 14%
over the $7.2 million reported in the first quarter of 1993, while per
share earnings increased 20% to $.18 per share. Incoming orders
increased 4% resulting in a backlog of $223.1 million, 8% above the
level of a year ago.
All four groups reported increases in new business, sales and operating
earnings. The most significant earnings gains were achieved by the
Tool, Sign and Signal Groups. Earnings of the Tool Group increased 12%
over last year's first quarter on a 7% sales increase. Sales in
domestic markets were strong, particularly at Dayton Progress, and
sales in overseas markets improved somewhat over last year's first
quarter. The Sign Group's incoming orders rose 13% as sales increased
5% above last year's first quarter level. While still at modest
levels, Sign Group earnings of $.2 million compared favorably to its
1993 first quarter loss of $.1 million and 1992's first quarter loss of
$1.0 million. Continued stability in Sign's major markets, improving
conditions in certain niche market segments and continued operational
improvements provide a basis for further improvement in Sign's
performance going forward. The Vehicle Group's earnings increased 5%
over 1993's first quarter. While the group's new business for the
first quarter was up modestly, sales increased 12%. Most of the sales
increase resulted from the inclusion of Guzzler Manufacturing in the
first quarter of 1994. Only a small amount of Guzzler's sales was
included in the first quarter of 1993 since it was not acquired until
mid-March of 1993. Both of the group's sweeper businesses achieved
strong sales and earnings increases. However, the group's fire
apparatus sales and earnings were lower than amounts achieved in last
year's first quarter. The strong fire apparatus new business in 1993's
fourth quarter was received too late to impact sales and earnings in
the first quarter of 1994. The strong fourth quarter orders were
followed by a decline in fire apparatus orders in the first quarter
compared to a year ago. This decline was more than offset by increases
in new business reported by the group's other businesses. The
Registrant expects a return to improving order trends for fire
apparatus due to ongoing high levels of bidding activity in Emergency
One's markets which should benefit the latter part of 1994 and 1995.
Signal Group earnings increased 10% over last year's first quarter
while sales were up slightly. Both of the group's businesses, the
signaling products and parking control systems operations, contributed
to the earnings increase. Federal APD was responsible for the 5%
increase in the group's new orders over prior year levels due to
continuing greater demand for its new parking systems, especially the
new SST line of machine readable systems. The Registrant believes that
the overall positive trends that are currently being experienced
provide a sound basis for continued confidence in further sales and
earnings improvements for the balance of 1994.
Cost of sales as a percent of net sales increased from 68.2% in the
first quarter of 1993 to 68.9% in the first quarter of 1994. The
increase in cost of sales as a percentage of net sales results
primarily from a change in total product mix reflecting greater
increased sales in the Vehicle Group as a result of the mid-March 1993
acquisition of Guzzler. Margins in the Vehicle Group are normally
lower in comparison with margins of the other groups. Selling, general
and administrative expenses as a percent of net sales decreased to
21.1% in the first quarter of 1994 from 22.4% in the first quarter of
1993. The decrease was attributed to the increase in sales volume,
management's continued efforts in containing operating expenses through
cost reduction programs and the shift in product mix mentioned above.
The Vehicle Group's selling, general and administrative expenses as a
percent of net sales are normally lower in comparison with the other
operating groups. The effective tax rate for the first quarter of 1994
was 33.9% compared to the first quarter 1993 rate of 32.1%. The
increase mainly results from the enactment of the 1993 Budget
Reconciliation Act and tax-exempt interest income becoming a lower
percentage of the Registrant's total income.
Financial Position and Liquidity at March 31, 1994
The current ratio applicable to manufacturing activities was 1.7 at
March 31, 1994 compared to 1.5 at December 31, 1993. Working capital
(manufacturing operations) at March 31, 1994 was $65.7 million compared
to $52.8 million at the most recent year end. The increase in working
capital results from record setting shipment levels in the first
quarter as well as a number of large Vehicle Group fleet orders
currently in production that are expected to ship in the second quarter
of 1994. The debt to capitalization ratio applicable to manufacturing
activities was 6% at March 31, 1994 compared to 1% at December 31,
1993. The debt to capitalization ratio applicable to financial
services activities was 86% at March 31, 1994 and December 31, 1993.
The increase in debt resulted primarily from the increase in working
capital, as well as debt used for recent treasury stock purchases and
greater dividend payments.
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-month
period ended March 31, 1994.
Capital expenditures during the first three months of 1994 were $1.6
million compared to $2.2 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
March 31, 1994 the Registrant held 212,685 shares of treasury stock at
a cost of $4.3 million purchased during the three-month period ended
March 31, 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. The Registrant believes that the ultimate resolution of
the contingency referred to in Note 5 of the Notes to Consolidated
Condensed Financial Statements will not have a material effect on the
financial condition of the Registrant.
Other Event
On May 9, 1994, the Registrant acquired, principally for cash, the
assets of Justrite Manufacturing Company. Justrite is an Illinois-
based manufacturer of safety equipment for the storage, transfer, use
and disposal of flammable and hazardous materials. The Registrant
utilized existing sources of funds for the $45,000,000 cash purchase
price paid at closing.
PART II. OTHER INFORMATION
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Responses to items two, three, five and six 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 verdict, plus interest and attorney
fees. The Registrant believes that the ultimate resolution of this
contingency will not have a material effect on its financial
condition, and accordingly, the Registrant has not recorded any
accruals for potential losses resulting from this judgment.
Item 4. Submission of Matters to a Vote of Security Holders
At its Annual Meeting of Stockholders on April 18, 1994, the
stockholders of the Registrant voted to re-elect three directors.
James A. Lovell, Jr. was re-elected a director for a two-year term.
Holders of 37,469,847 shares voted for the re-election, 656,250 shares
withheld votes, 7,542,072 shares did not vote and there were no broker
nonvotes.
Walter R. Peirson was re-elected a director for a three-year term.
Holders of 37,458,299 shares voted for the re-election, 667,799 shares
withheld votes, 7,542,071 shares did not vote and there were no broker
nonvotes.
Joseph J. Ross was re-elected a director for a three-year term.
Holders of 37,469,680 shares voted for the re-election, 656,418 shares
withheld votes, 7,542,071 shares did not vote and there were no broker
nonvotes.
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 May 12, 1994
Charles R. Campbell
Senior Vice President & Chief
Financial & Administrative Officer
