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 June 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 July 31, 1994.
Common Stock, $1.00 par value -- 45,396,611
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
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $164,001,000 $146,463,000 $302,107,000 $273,910,000
Costs and expenses:
Cost of sales 112,250,000 100,219,000 207,465,000 187,194,000
Selling, general and administrative 31,288,000 29,003,000 60,384,000 57,503,000
Other (income) and expenses:
Interest expense 1,819,000 1,706,000 3,166,000 3,210,000
Other (income) expense (110,000) 142,000 (1,000) 80,000
145,247,000 131,070,000 271,014,000 247,987,000
Income before income taxes 18,754,000 15,393,000 31,093,000 25,923,000
Income taxes 6,358,000 4,791,000 10,541,000 8,170,000
Net income $ 12,396,000 $ 10,602,000 $ 20,552,000 $ 17,753,000
COMMON STOCK DATA:
Net income per share* $ .27 $ .23 $ .45 $ .38
Average common shares outstanding* 45,875,000 46,234,000 46,015,000 46,225,000
Cash dividends per share of common stock* $ .11 $ .09 $ .21 $ .18
<FN>
See notes to consolidated condensed financial statements.
</TABLE>
*1993 amounts adjusted for 4-for-3 stock split distributed March 1, 1994.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30 December 31
1994 1993 (a)
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ 496,000 $ 2,576,000
Trade accounts receivable, net of
allowances for doubtful accounts 101,853,000 81,593,000
Inventories:
Raw materials 35,333,000 28,595,000
Work in process 24,837,000 18,567,000
Finished goods 19,376,000 15,860,000
Prepaid expenses 4,989,000 4,627,000
Total current assets 186,884,000 151,818,000
Properties and equipment:
Land 5,595,000 5,502,000
Buildings and improvements 38,182,000 36,014,000
Machinery and equipment 101,150,000 93,481,000
Accumulated depreciation (77,071,000) (72,793,000)
Net properties and equipment 67,856,000 62,204,000
Intangible assets, net of
accumulated amortization 120,295,000 65,436,000
Other deferred charges and assets 11,794,000 15,666,000
Total manufacturing assets 386,829,000 295,124,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 115,884,000 110,580,000
Total assets $502,713,000 $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
June 30 December 31
1994 1993 (a)
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $ 57,887,000 $ 282,000
Trade accounts payable 40,009,000 33,363,000
Accrued liabilities and income taxes 68,572,000 65,411,000
Total current liabilities 166,468,000 99,056,000
Long-term borrowings 20,504,000 1,344,000
Deferred income taxes 11,620,000 10,929,000
Total manufacturing liabilities 198,592,000 111,329,000
Financial services activities -
Short-term borrowings 100,190,000 75,433,000
Long-term borrowings 19,734,000
Total financial services liabilities 100,190,000 95,167,000
Total liabilities 298,782,000 206,496,000
CONTINGENCY
SHAREHOLDERS' EQUITY
Common stock - par value 45,701,000 45,738,000
Capital in excess of par value 52,824,000 54,045,000
Retained earnings 116,458,000 105,471,000
Treasury stock (6,820,000)
Deferred stock awards (1,297,000) (1,715,000)
Foreign currency translation (2,935,000) (4,331,000)
Total shareholders' equity 203,931,000 199,208,000
Total liabilities and
shareholders' equity $502,713,000 $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)
Six Months Ended June 30
1994 1993
Operating activities:
Net income $ 20,552,000 $ 17,753,000
Depreciation 4,972,000 4,599,000
Working capital changes and other (5,093,000) (5,951,000)
Net cash provided by operating
activities 20,431,000 16,401,000
Investing activities:
Purchases of properties and
equipment (4,467,000) (4,421,000)
Principal extensions under
lease financing agreements (39,648,000) (28,664,000)
Principal collections under
lease financing agreements 34,344,000 25,051,000
Payments for purchases of companies,
net of cash acquired (69,563,000) (22,869,000)
Other, net (1,322,000) 1,409,000
Net cash used for investing
activities (80,656,000) (29,494,000)
Financing activities:
Addition to short-term
borrowings 82,332,000 21,952,000
Addition (reduction) to
long-term borrowings (955,000) 4,434,000
Purchases of treasury stock (9,736,000) (553,000)
Cash dividends paid to
shareholders (13,695,000) (11,814,000)
Other, net 199,000 206,000
Net cash provided by financing
activities 58,145,000 14,225,000
Increase (decrease) in cash and
cash equivalents (2,080,000) 1,132,000
Cash and cash equivalents at
beginning of period 2,576,000 2,223,000
Cash and cash equivalents at
end of period $ 496,000 $ 3,355,000
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
six months ended June 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 six-month periods ended June 30, 1994 and
1993 was $2,609,000 and $2,886,000, respectively. Income taxes
paid for these same periods were $8,602,000 and $8,633,000.
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
SECOND QUARTER 1994
Comparison with Second Quarter 1993
Net sales increased 12% to $164.0 million, compared to $146.5 million
in the second quarter of 1993. Net income rose 17% in the second
quarter to $12.4 million compared to $10.6 million reported in the same
period a year ago, while per share earnings also increased 17% to $.27
per share. New business for the second quarter increased 25% over the
prior year while backlogs of $244.3 million increased 23%. Excluding
the effect of the two companies acquired in the second quarter, new
business and backlog levels increased 22% and 17% over last year's
amounts, respectively.
All four of the company's groups continued their positive trends of
recent quarters by posting increases in new business, sales and
earnings in the second quarter compared to levels achieved a year ago.
Second quarter earnings for the Sign Group more than tripled to a level
of $1.1 million compared to the $.3 million reported in last year's
second quarter. The group's sales increased 13% over 1993's second
quarter while incoming orders increased 14%. Sign continues to benefit
from gradually improving conditions in its markets, a more focused
approach to its markets and ongoing operational improvements. Second
quarter earnings of the Safety Products Group (previously known as the
Signal Group) increased 30% on a sales increase of 26%. While the
major portion of these increases were attributable to the inclusion of
Justrite's results after being acquired in May 1994, the group's
existing domestic businesses also posted double-digit earnings gains
due to strong sales increases. Sales and earnings for the Vehicle Group
in the second quarter increased 9% and 7%, respectively. Both fire
apparatus and street sweeper operations contributed to these improved
results. The group's new business increased 27% over last year's second
quarter essentially due to strong increases in Emergency One's domestic
fire apparatus orders. Netherlands-based Ravo also experienced a
strong improvement in orders over the prior year. The Tool Group's
sales and earnings for the second quarter increased 7% and 8%,
respectively. These increases were led by continued strong domestic
demand for Dayton Progress' products with sales in international
markets again showing improvement. The Registrant's major businesses
continue to experience positive trends, especially in domestic markets.
Strong domestic markets, expected modest improvements in European
markets and slight gains expected from recent acquisitions continue to
provide a basis for the Registrant's confidence in improved sales and
earnings for the remainder of the year.
Cost of sales as a percent of net sales was 68.4% in the second quarter
of 1994 and 1993. Selling, general and administrative expenses as a
percent of net sales decreased to 19.1% in the second quarter of 1994
from 19.8% in the second 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 second quarter of 1994 was
33.9% compared to the second quarter 1993 rate of 31.1%. 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.
Comparison of First Six Months 1994 to Same Period 1993
Net sales for the first six months were $302.1 million, 10% above last
year's $273.9 million. Net income of $20.6 million was 16% above last
year's first half net income of $17.8 million. Earnings per share
increased 18% to $.45 compared to $.38 for the same period last year.
Cost of products sold as a percent of net sales increased to 68.7% in
the first six months of 1994 from 68.3% in the first six months of
1993. The percentage increase was principally due to a shift to lower
margined sales in the Vehicle and Sign groups. Selling, general and
administrative expenses decreased to 20.0% of net sales in the first
six months of 1994 from 21.0% in the same period a year ago. The
percentage decrease was mainly due to the reasons cited above for the
second quarter. The effective tax rate for the first half of 1994 was
33.9%, up from the 31.5% reported for the first half of 1993. The
increase was mainly due to the reasons cited above for the second
quarter.
Financial Position and Liquidity at June 30, 1994
The current ratio applicable to manufacturing activities was 1.1 at
June 30, 1994 compared to 1.5 at December 31, 1993. Working capital
(manufacturing operations) at June 30, 1994 was $20.4 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
28% at June 30, 1994 compared to 1% at December 31, 1993. The debt to
capitalization ratio applicable to financial services activities was
86% at June 30, 1994 and December 31, 1993. The increase in
manufacturing debt resulted primarily from short-term debt incurred to
purchase recent acquisitions, as mentioned above.
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
six months ended June 30, 1994.
Capital expenditures during the first six months of 1994 were $4.5
million compared to $4.4 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
June 30, 1994 the Registrant held 343,873 shares of treasury stock at
a cost of $6.8 million purchased during the six-month period ended June
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. 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 Events
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.
On June 30, 1994, the Registrant acquired, principally for cash, the
assets of Peabody Myers Corporation ("Vactor"). Vactor is an Illinois-
based manufacturer of municipal combination catch basin/sewer cleaning
vacuum trucks, industrial vacuum loaders and street sweepers.
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 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 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 August 11, 1994
Charles R. Campbell
Senior Vice President & Chief
Financial & Administrative
Officer
