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, 1995
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, 1995.
Common Stock, $1.00 par value -- 45,286,000
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, 1994.
<TABLE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $207,880,000 $181,283,000 $594,367,000 $483,390,000
Costs and expenses:
Cost of sales 145,067,000 125,868,000 413,394,000 333,333,000
Selling, general and administrative 37,865,000 34,705,000 111,772,000 95,089,000
Other (income) and expenses:
Interest expense 3,427,000 2,510,000 9,925,000 5,676,000
Other income (315,000) (326,000) (790,000) (327,000)
186,044,000 162,757,000 534,301,000 433,771,000
Income before income taxes 21,836,000 18,526,000 60,066,000 49,619,000
Income taxes 7,207,000 6,090,000 20,165,000 16,631,000
Net income $ 14,629,000 $ 12,436,000 $ 39,901,000 $ 32,988,000
COMMON STOCK DATA:
Net income per share $ .32 $ .27 $ .87 $ .72
Average common shares outstanding 45,894,000 45,894,000 45,862,000 45,975,000
Cash dividends per share of
common stock $ .13 $ .11 $ .38 $ .32
<FN>
See notes to consolidated condensed financial statements.
</TABLE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30 December 31
1995 1994 (a)
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ 1,144,000 $ 4,605,000
Trade accounts receivable, net of
allowances for doubtful accounts 137,549,000 107,985,000
Inventories:
Raw materials 53,153,000 36,490,000
Work in process 27,609,000 22,355,000
Finished goods 22,740,000 20,054,000
Prepaid expenses 4,706,000 4,807,000
Total current assets 246,901,000 196,296,000
Properties and equipment:
Land 5,728,000 5,740,000
Buildings and improvements 38,855,000 38,045,000
Machinery and equipment 121,119,000 109,841,000
Accumulated depreciation (87,338,000) (80,788,000)
Net properties and equipment 78,364,000 72,838,000
Intangible assets, net of
accumulated amortization 132,764,000 115,306,000
Other deferred charges and assets 11,027,000 9,972,000
Total manufacturing assets 469,056,000 394,412,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 144,493,000 127,188,000
Total assets $613,549,000 $521,600,000
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1994 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
1995 1994 (a)
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $ 63,960,000 $ 25,222,000
Trade accounts payable 45,642,000 44,918,000
Accrued liabilities and income taxes 79,913,000 72,238,000
Total current liabilities 189,515,000 142,378,000
Long-term borrowings 40,119,000 34,878,000
Deferred income taxes 15,158,000 13,778,000
Total manufacturing liabilities 244,792,000 191,034,000
Financial services activities -
Short-term borrowings 125,244,000 110,252,000
Total liabilities 370,036,000 301,286,000
SHAREHOLDERS' EQUITY
Common stock - par value 45,826,000 45,767,000
Capital in excess of par value 54,347,000 53,756,000
Retained earnings 156,046,000 133,138,000
Treasury stock (10,296,000) (7,880,000)
Deferred stock awards (1,239,000) (1,688,000)
Foreign currency translation (1,171,000) (2,779,000)
Total shareholders' equity 243,513,000 220,314,000
Total liabilities and
shareholders' equity $613,549,000 $521,600,000
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1994 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
1995 1994
Operating activities:
Net income $ 39,901,000 $ 32,988,000
Depreciation 8,886,000 7,700,000
Amortization 3,366,000 3,035,000
Working capital changes and other (22,535,000) (13,441,000)
Net cash provided by operating activities 29,618,000 30,282,000
Investing activities:
Purchases of properties and equipment (12,351,000) (7,565,000)
Principal extensions under
lease financing agreements (87,925,000) (63,778,000)
Principal collections under
lease financing agreements 70,620,000 56,031,000
Payments for purchases of companies,
net of cash acquired (31,066,000) (69,563,000)
Other, net (6,199,000) (519,000)
Net cash used for investing activities (66,921,000) (85,394,000)
Financing activities:
Addition to short-term borrowings 53,685,000 67,203,000
Addition to long-term borrowings 4,723,000 13,190,000
Purchases of treasury stock (3,049,000) (9,736,000)
Cash dividends paid to shareholders (21,767,000) (18,462,000)
Other, net 250,000 341,000
Net cash provided by financing activities 33,842,000 52,536,000
Decrease in cash and cash equivalents (3,461,000) (2,576,000)
Cash and cash equivalents at
beginning of period 4,605,000 2,576,000
Cash and cash equivalents at end of period $ 1,144,000 $ ---
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, 1994.
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, 1995, are not necessarily
indicative of the results to be expected for the full year of 1995.
3. Interest paid for the nine-month periods ended September 30, 1995 and 1994
was $10,482,000 and $5,228,000, respectively. Income taxes paid for these
same periods were $20,539,000 and $11,721,000.
4. On August 4, 1995, the United States Fifth Circuit Court of Appeals vacated
a $17,745,000 judgment rendered against the Registrant in June 1993. The
judgment had been rendered against the Registrant by the Federal District
Court in the Western District of Texas for alleged violation of the Texas
Deceptive Trade Practices Act and misrepresentations to Duravision, Inc.
and Manufacturers Product Research Group of North America, Inc. (MPR) in
connection with a 1988 research and development project for indoor
advertising. The Court of Appeals determined that the damages found by the
jury were not sufficiently supported by the evidence and remanded the case
for retrial on what damages, if any, Duravision and MPR can prove. The
Registrant intends to vigorously defend the matter upon retrial. In advance
of retrial, the Registrant is engaged in mediation pursuant to a motion in
the trial court. It is not known what the outcome of this mediation will be
at this time. The Registrant believes that the ultimate resolution of this
contingency will not have a material effect on its financial condition nor
on its results of operations or cash flows. The Registrant cannot
reasonably estimate the ultimate amount of a loss, if any, which may result
from resolution of the case. Accordingly, the Registrant has not recorded
any accruals for potential losses which may result.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
THIRD QUARTER 1995
Comparison with Third Quarter 1994
Third quarter sales of $207.9 million increased 15% over last year's $181.3
million. Net income rose 18% to $14.6 million compared to $12.4 million in the
third quarter of 1994. Earnings per share of $.32 increased 19% over last
year's third quarter of $.27. New business for the quarter totaled $184.3
million compared to $184.7 million in the third quarter of 1994. Backlogs stood
at $257.6 million at September 30, 1995 compared to $249.4 million a year ago.
In the third quarter, the Vehicle, Tool and Sign groups achieved significant
increases in earnings while the Safety Products Group earnings were about even
with a very strong prior year third quarter. All four of the company's groups
achieved higher sales compared to a year ago. The Vehicle Group's earnings
increased 15% over last year's third quarter while sales increased 25%. About
half of the sales increase resulted from the acquisition of Bronto Skylift which
occurred August 4, 1995. The group's fire apparatus and street sweeping
businesses both achieved double-digit sales and earnings increases in the third
quarter. Vehicle Group new business was 2% below last year due to timing of
orders received at Emergency One and the impact on last year's third quarter
of a strong promotional program to penetrate the rural fire market.
Earnings for the Tool Group increased 54% while sales increased 4%. The group's
1994 third quarter earnings included the adverse effects of certain
non-recurring charges. Excluding these charges from last year's results,
1995 third quarter earnings would have increased 11%.
The Sign Group's earnings increased 61% on a sales increase of 7%. Operating
margins again improved as a result of higher manufacturing margins reflecting
the group's strategic focus on high value projects. Third quarter new business
was 17% lower compared to the very strong results achieved a year ago. The
Safety Products Group's sales and earnings were essentially flat with those of a
year ago. Strong sales and a favorable product mix at Signal Products reported
in last year's third quarter made it difficult for the group to improve over
that performance. However, new business for the group did increase solidly over
the prior year with all of the group's units showing improved results.
Cost of sales as a percent of net sales increased from 69.4% in the third
quarter of 1994 to 69.8% in the third quarter of 1995. The percentage increase
was primarily due to the large sales increase in the Vehicle Group, which tends
to have lower gross margins than the other groups. Selling, general and
administrative expenses as a percent of net sales decreased to 18.2% in the
third quarter of 1995 from 19.1% in the third quarter of 1994. 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 1995 was 33.0%,
compared to the third quarter 1994 rate of 32.9%.
Comparison of First Nine Months 1995 to Same Period 1994
Sales for the first nine months were $594.4 million, 23% higher than the $483.4
million reported for the similar period in 1994. Net income for the first nine
months of 1995 increased 21% to $39.9 million compared to $33.0 million in 1994.
For the first nine months, earnings per share were $.87, 21% higher than the
$.72 reported for the same period a year ago.
Cost of products sold as a percent of net sales increased to 69.6% in the first
nine months of 1995 from 69.0% in the first nine months of 1994. The percentage
increase was principally due to the reasons cited above for the third quarter.
Selling, general and administrative expenses decreased to 18.8% of net sales in
the first nine months of 1995 from 19.7% 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 1995 was 33.6%,
compared to the 33.5% reported for the first nine months of 1994.
Seasonality of Registrant's Business
Certain of the Registrant's businesses are susceptible to the influences of
seasonal buying or delivery patterns. The Registrant's businesses which tend
to have lower sales in the first calendar quarter compared to other quarters as
a result of these influences are signage, street sweeping, outdoor warning,
other municipal emergency signal products and parking systems manufacturing
operations.
Financial Position and Liquidity at September 30, 1995
The current ratio applicable to manufacturing activities was 1.3 at
September 30, 1995 compared to 1.4 at December 31, 1994. Working capital
(manufacturing operations) at September 30, 1995 was $57.4 million compared to
$53.9 million at the most recent year end. The decrease in the current ratio is
due to a high level of short-term borrowings which were incurred for the recent
purchase of Bronto Skylift. The increase in working capital results from record
setting shipment levels in the third quarter. The debt to capitalization ratio
applicable to manufacturing activities was 30% at September 30, 1995 compared to
22% at December 31, 1994. The debt to capitalization ratio applicable to
financial services activities was 87% at September 30, 1995 and December 31,
1994. The increase in manufacturing debt resulted from short-term debt incurred
to purchase the recent acquisition, as mentioned above, as well as increases in
working capital, capital expenditures, taxes paid and dividend payments.
Capital expenditures during the first nine months of 1995 were $12.4 million
compared to $7.6 million for the same period a year ago. Capital expenditures
for the full year 1994 were $11.1 million. The Registrant anticipates that
capital expenditures for the full year 1995 will be approximately 40% to 50%
greater than 1994 full year amounts. At September 30, 1995 the Registrant held
512,418 shares of treasury stock at a cost of $10.3 million. Included in these
amounts were 117,305 shares at a cost of $2.4 million purchased during the
nine-month period ended September 30, 1995. Modest amounts of additional shares
are being considered for purchase in the open market during the remainder of
1995. Current financial resources and anticipated funds from the Registrant's
operations are expected to be adequate to meet future cash requirements.
See Note 4 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 six are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 1. Legal Proceedings
See Note 4 of the Notes to Consolidated Condensed Financial Statements.
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 10, 1995
Henry L. Dykema
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT'S
CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND CONSOLIDATED
CONDENSED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1144
<SECURITIES> 0
<RECEIVABLES> 137549
<ALLOWANCES> 0
<INVENTORY> 103502
<CURRENT-ASSETS> 246901<F1>
<PP&E> 165702
<DEPRECIATION> 87338
<TOTAL-ASSETS> 613549
<CURRENT-LIABILITIES> 189515<F1>
<BONDS> 40119
<COMMON> 45826
0
0
<OTHER-SE> 197687
<TOTAL-LIABILITY-AND-EQUITY> 613549
<SALES> 594367
<TOTAL-REVENUES> 594367
<CGS> 413394
<TOTAL-COSTS> 413394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9925
<INCOME-PRETAX> 60066
<INCOME-TAX> 20165
<INCOME-CONTINUING> 39901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39901
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
<FN>
<F1>MANUFACTURING OPERATIONS ONLY
</FN>
</TABLE>
