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, 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 April 30, 1995.
Common Stock, $1.00 par value -- 45,329,420
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.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31
1995 1994
Net sales $187,132,000 $138,106,000
Costs and expenses:
Cost of sales 130,269,000 95,215,000
Selling, general and administrative 37,286,000 29,096,000
Other (income) and expenses:
Interest expense 3,162,000 1,347,000
Other (income) expense 13,000 109,000
Total costs and expenses 170,730,000 125,767,000
Income before income taxes 16,402,000 12,339,000
Income taxes 5,609,000 4,183,000
Net income $ 10,793,000 $ 8,156,000
COMMON STOCK DATA:
Net income per share $ .24 $ .18
Average common shares outstanding 45,816,000 46,156,000
Cash dividends per share of
common stock $ .13 $ .11
See notes to consolidated condensed financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31 December 31
1995 1994 (a)
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ 1,296,000 $ 4,605,000
Trade accounts receivable, net of
allowances for doubtful accounts 109,436,000 107,985,000
Inventories:
Raw materials 45,050,000 36,490,000
Work in process 21,032,000 22,355,000
Finished goods 23,063,000 20,054,000
Prepaid expenses 4,761,000 4,807,000
Total current assets 204,638,000 196,296,000
Properties and equipment:
Land 5,843,000 5,740,000
Buildings and improvements 37,994,000 38,045,000
Machinery and equipment 113,190,000 109,841,000
Accumulated depreciation (83,164,000) (80,788,000)
Net properties and equipment 73,863,000 72,838,000
Intangible assets, net of
accumulated amortization 115,555,000 115,306,000
Other deferred charges and assets 10,893,000 9,972,000
Total manufacturing assets 404,949,000 394,412,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 130,827,000 127,188,000
Total assets $535,776,000 $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
March 31 December 31
1995 1994 (a)
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $ 25,533,000 $ 25,222,000
Trade accounts payable 42,748,000 44,918,000
Accrued liabilities and income taxes 73,283,000 72,238,000
Total current liabilities 141,564,000 142,378,000
Long-term borrowings 41,655,000 34,878,000
Deferred income taxes 14,281,000 13,778,000
Total manufacturing liabilities 197,500,000 191,034,000
Financial services activities -
Short-term borrowings 113,479,000 110,252,000
Total liabilities 310,979,000 301,286,000
CONTINGENCY
SHAREHOLDERS' EQUITY
Common stock - par value 45,813,000 45,767,000
Capital in excess of par value 54,383,000 53,756,000
Retained earnings 138,270,000 133,138,000
Treasury stock (9,868,000) (7,880,000)
Deferred stock awards (1,656,000) (1,688,000)
Foreign currency translation (2,145,000) (2,779,000)
Total shareholders' equity 224,797,000 220,314,000
Total liabilities and
shareholders' equity $535,776,000 $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)
Three Months Ended March 31
1995 1994
Operating activities:
Net income $ 10,793,000 $ 8,156,000
Depreciation 2,923,000 2,441,000
Working capital changes and other (3,358,000) (6,469,000)
Net cash provided by operating
activities 10,358,000 4,128,000
Investing activities:
Purchases of properties and
equipment (4,008,000) (1,574,000)
Principal extensions under
lease financing agreements (26,388,000) (17,326,000)
Principal collections under
lease financing agreements 22,749,000 18,445,000
Payments for purchases of companies,
net of cash acquired (65,000)
Other, net (1,417,000) (499,000)
Net cash used for investing
activities (9,129,000) (954,000)
Financing activities:
Addition to short-term
borrowings 3,291,000 10,806,000
Addition (reduction) to
long-term borrowings 5,560,000 (962,000)
Purchases of treasury stock (3,049,000) (6,769,000)
Cash dividends paid to
shareholders (10,435,000) (8,924,000)
Other, net 95,000 99,000
Net cash used for financing
activities (4,538,000) (5,750,000)
Decrease in cash and cash
equivalents (3,309,000) (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 $ 1,296,000 $ ---
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
ended March 31, 1995, are not necessarily indicative of the
results to be expected for the full year of 1995.
3. Interest paid for the three-month periods ended March 31, 1995 and
1994 was $3,052,000 and $1,511,000, respectively. Income taxes
paid for these same periods were $1,533,000 and $815,000.
4. 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 $11,600,000. 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
FIRST QUARTER 1995
Comparison with First Quarter 1994
Net income of $10.8 million increased 32% over the $8.2 million
reported in the first quarter of 1994, while per share earnings
increased 33% to $.24 per share. First quarter sales of $187.1 million
increased 35% over last year's $138.1 million. New business of $180.3
million in the first quarter increased 32% over the prior year. A
portion of the sales and new business increases resulted from the
effects of the acquisitions of Justrite and Vactor which occurred after
last year's first quarter. The Registrant, however, achieved record
first quarter sales and new business before consideration of the
additive effects of these newly acquired businesses. Backlogs stood at
$254.2 million compared to $223.1 million a year ago.
All four of the Registrant's groups realized strong increases in sales
and earnings over the prior year. Vehicle Group earnings increased 25%
over the prior year on a sales increase of 39%. About one-third of the
sales increase was attributable to the additive effect of Vactor which
was acquired in mid-1994. As anticipated, fire apparatus sales and
earnings increased nearly one-third over 1994's first quarter due to
strong orders received in the latter portion of 1994. Emergency One's
international orders doubled over 1994's somewhat soft first quarter as
international fire apparatus markets showed very good activity.
Municipal sweeper and sewer cleaner sales increased largely due to the
acquisition of Vactor while earnings were essentially flat. Both
Elgin's domestic sweeper orders and Ravo's foreign sweeper orders
increased strongly over the prior year. The group's sales and earnings
from industrial vacuum loaders also improved over the prior year.
First quarter sales of the Tool Group increased 17% over the prior year
while operating profits increased 12%. The group's die components and
precision parts business continued to achieve strong sales increases as
production rates remained at high levels. Lower productivity continued
in the first quarter due to the addition of inexperienced new personnel
hired late last year as well as in the first quarter to address
increased production requirements. As a result, first quarter
operating margins declined slightly from the prior year but were
consistent with those achieved in late 1994. Carbide cutting tool
sales and earnings also increased over the prior year. The group's
operating margins are expected to remain at current levels in the near
term with improvement anticipated later in the year as productivity
increases.
The Safety Products Group achieved a 102% increase in operating income
on a sales increase of 61%. Excluding the effects of Justrite,
earnings increased 31% on an increase in sales of 20% as the Signal
Products Division continued to show strong improvements over the prior
year. New orders received in the quarter were also very strong, led by
Signal Products' 28% increase over last year's first quarter.
The Sign Group's earnings increased sharply in the first quarter to
$1.1 million compared to a profit level of $.2 million a year earlier,
as sales increased 18%. The group continued to benefit from
operational and marketing improvements.
Since the acquisitions made in 1994 occurred after the first quarter of
that year, the Registrant does not anticipate continuing the same
degree of quarterly increases over the prior year as was experienced in
the first quarter of 1995. However, the Registrant does expect
continuing sales and earnings improvements for the balance of the year.
Cost of sales as a percent of net sales increased from 68.9% in the
first quarter of 1994 to 69.6% in the first quarter of 1995. The
percentage increase was attributed to the large sales increase in the
Vehicle Group, which tends to have lower gross margins than the other
groups, as well as the lower productivity experienced by the Tool Group
mentioned above. Selling, general and administrative expenses as a
percent of net sales decreased to 19.9% in the first quarter of 1995
from 21.1% in the first quarter of 1994. The decrease was attributed
to the increase in sales and to cost reduction programs. The effective
tax rate for the first quarter of 1995 was 34.2% compared to the first
quarter 1994 rate of 33.9%. The increase mainly results from
incremental taxable income outpacing increases in tax credits and tax-
exempt interest income.
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 March 31, 1995
The current ratio applicable to manufacturing activities was 1.4 at
March 31, 1995 and December 31, 1994. Working capital (manufacturing
operations) at March 31, 1995 was $63.1 million compared to $53.9
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 inventory purchases made in anticipation of orders that are
expected to ship in the second quarter of 1995, particularly in the
Vehicle Group. The debt to capitalization ratio applicable to
manufacturing activities was 23% at March 31, 1995 compared to 22% at
December 31, 1994. The debt to capitalization ratio applicable to
financial services activities was 87% at March 31, 1995 and
December 31, 1994.
Capital expenditures during the first three months of 1995 were $4.0
million compared to $1.6 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 30% to 50% greater than 1994 full year amounts.
At March 31, 1995 the Registrant held 492,428 shares of treasury stock
at a cost of $9.9 million. Included in these amounts were 97,315
shares at a cost of $2.0 million purchased during the three-month
period ended March 31, 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, three, five and 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.
Item 4. Submission of Matters to a Vote of Security Holders
At its Annual Meeting of Stockholders on April 19, 1995, the
stockholders of the Registrant voted to elect two directors.
Thomas N. McGowen, Jr. was re-elected a director for a three-year term.
Holders of 36,936,505 shares voted for the re-election, 134,787 shares
withheld votes, 8,246,744 shares did not vote and there were no broker
nonvotes.
Richard R. Thomas was elected a director for a three-year term. Holders
of 36,952,593 shares voted for the election, 118,699 shares withheld
votes, 8,246,744 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 5, 1995
Henry L. Dykema
Vice President and Chief
Financial Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED CONDENSED BALANCE SHEET AS OF MARCH 31, 1995 AND
CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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<RECEIVABLES> 109,436
<ALLOWANCES> 0
<INVENTORY> 89,145
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<PP&E> 157,027
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<BONDS> 41,655
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0
<OTHER-SE> 178,984
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<SALES> 187,132
<TOTAL-REVENUES> 187,132
<CGS> 130,269
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