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, 1996
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, IL 60521
(Address of principal executive offices) (Zip code)
(630) 954-2000
(Registrant's telephone number including area code)
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 registrant's classes of
common stock, as of October 31, 1996.
Title Outstanding
Common stock, $1.00 par value 45,396,182
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
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 Proxy Statement for the Annual Meeting of Shareholders held on
April 17, 1996.
<PAGE>
<TABLE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $230,348,000 $207,880,000 $673,413,000 $594,367,000
Costs and expenses:
Cost of sales 159,672,000 145,067,000 469,186,000 413,394,000
Selling, general and administrative 43,073,000 37,865,000 128,345,000 111,772,000
Other (income) and expenses:
Interest expense 4,047,000 3,427,000 11,381,000 9,925,000
Other (income) expense (139,000) (315,000) (1,157,000) (790,000)
----------- ----------- ----------- -----------
206,653,000 186,044,000 607,755,000 534,301,000
----------- ----------- ----------- -----------
Income before income taxes 23,695,000 21,836,000 65,658,000 60,066,000
Income taxes 7,808,000 7,207,000 21,942,000 20,165,000
----------- ----------- ----------- -----------
Net income $ 15,887,000 $ 14,629,000 $ 43,716,000 $ 39,901,000
=========== =========== =========== ===========
COMMON STOCK DATA:
Net income per share $ .35 $ .32 $ .95 $ .87
=========== =========== =========== ===========
Average common shares outstanding 45,879,000 45,894,000 45,940,000 45,862,000
Cash dividends per share of common stock $ .145 $ .125 $ .435 $ .375
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30 December 31
1996 1995(a)
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ 4,078,000 $ 9,350,000
Trade accounts receivable, net of
allowances for doubtful accounts 143,083,000 122,913,000
Inventories:
Raw materials 50,752,000 40,487,000
Work in process 24,753,000 32,286,000
Finished goods 28,402,000 24,675,000
Prepaid expenses 4,601,000 5,763,000
----------- -----------
Total current assets 255,669,000 235,474,000
Properties and equipment:
Land 5,278,000 5,703,000
Buildings and improvements 40,424,000 38,493,000
Machinery and equipment 134,400,000 120,554,000
Accumulated depreciation (96,076,000) (86,296,000)
----------- -----------
Net properties and equipment 84,026,000 78,454,000
Intangible assets, net of
accumulated amortization 170,873,000 146,774,000
Other deferred charges and assets 12,161,000 11,722,000
----------- -----------
Total manufacturing assets 522,729,000 472,424,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 165,151,000 147,535,000
----------- -----------
Total assets $687,880,000 $619,959,000
=========== ===========
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS -- Continued
September 30 December 31
1996 1995(a)
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $ 87,598,000 $ 58,760,000
Trade accounts payable 49,057,000 53,277,000
Accrued liabilities and income taxes 81,322,000 74,623,000
----------- -----------
Total current liabilities 217,977,000 186,660,000
Long-term borrowings 37,866,000 39,702,000
Deferred income taxes 17,826,000 17,826,000
----------- -----------
Total manufacturing liabilities 273,669,000 244,188,000
Financial services activities -
Short-term borrowings 143,032,000 127,690,000
----------- -----------
Total liabilities 416,701,000 371,878,000
SHAREHOLDERS' EQUITY
Common stock - par value 45,938,000 45,832,000
Capital in excess of par value 56,280,000 54,464,000
Retained earnings 186,036,000 162,095,000
Treasury stock (11,470,000) (10,949,000)
Deferred stock awards (1,665,000) (1,046,000)
Foreign currency translation (3,940,000) (2,315,000)
----------- -----------
Total shareholders' equity 271,179,000 248,081,000
----------- -----------
Total liabilities and
shareholders' equity $687,880,000 $619,959,000
=========== ===========
See notes to consolidated condensed financial statements.
(a) The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30
1996 1995
------------ ------------
Operating activities:
Net income $ 43,716,000 $39,901,000
Depreciation 9,846,000 8,886,000
Amortization 3,869,000 3,366,000
Working capital changes and other (19,611,000) (22,535,000)
----------- -----------
Net cash provided by operating
activities 37,820,000 29,618,000
Investing activities:
Purchases of properties and
equipment (11,471,000) (12,351,000)
Principal extensions under
lease financing agreements (86,047,000) (87,925,000)
Principal collections under
lease financing agreements 68,431,000 70,620,000
Payments for purchases of companies,
net of cash acquired (27,615,000) (31,066,000)
Other, net 778,000 (6,199,000)
----------- -----------
Net cash used for investing
activities (55,924,000) (66,921,000)
Financing activities:
Addition to short-term
borrowings 44,470,000 53,685,000
Addition (reduction) to
long-term borrowings (1,939,000) 4,723,000
Purchases of treasury stock (4,877,000) (3,049,000)
Cash dividends paid to
shareholders (25,487,000) (21,767,000)
Other, net 665,000 250,000
----------- -----------
Net cash provided by financing
activities 12,832,000 33,842,000
----------- -----------
Decrease in cash and cash
equivalents (5,272,000) (3,461,000)
Cash and cash equivalents at
beginning of period 9,350,000 4,605,000
----------- -----------
Cash and cash equivalents at
end of period $ 4,078,000 $ 1,144,000
=========== ===========
See notes to consolidated condensed financial statements.
<PAGE>
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 Proxy Statement for the Annual Meeting of
Shareholders held on April 17, 1996.
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, 1996, are
not necessarily indicative of the results to be expected for the full year
of 1996.
3. Interest paid for the nine-month periods ended September 30, 1996 and 1995
was $11,592,000 and $10,482,000, respectively. Income taxes paid for these
same periods were $15,881,000 and $20,539,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Comparison of Third Quarter 1996 with Third Quarter 1995
Net income in the third quarter of $15.9 million, or $.35 per share, increased
9% over the $14.6 million, or $.32 per share, earned a year ago. Third quarter
sales of $230.3 million increased 11% over the $207.9 million reported in the
third quarter of 1995. New business increased 28% over the prior year to $230.7
million. A portion of the sales and new business increases resulted from the
acquisitions of Bronto and Victor Industries which occurred August 4, 1995 and
June 3, 1996, respectively. Backlogs decreased to $246.7 million compared to
$257.6 a year ago.
All four groups increased sales and earnings in the third quarter, with the
strongest performances coming from the Vehicle and Tool groups.
The Vehicle Group's earnings increased 17% in the third quarter on a sales
increase of 5%; orders were up 40%. Strong orders earlier this year at Emergency
One contributed to significant increases in fire apparatus sales and earnings.
Fire apparatus order strength continued, rising more than 70% over last year's
third quarter with substantial gains at both Emergency One and Bronto. In
addition to increased market strength, Bronto's restructured focus on the fire
market enabled it to post an operating profit following losses in the first two
quarters of this year. Environmental products' increase in earnings was led by
strong performances from all companies except Ravo, which continued to suffer
from a slow order rate earlier in the year. Ravo's new orders showed nice
improvement this past quarter compared to last year.
The Tool Group achieved a sales and earnings increase of 10% while order rates
in both carbide cutting and precision punch and die components were strong. The
group further enhanced its competitive position in both the can tooling and
European precision punch markets through two small acquisitions in the third
quarter.
Safety Products Group sales increased 27% but earnings increased just 3%. The
group's results were enhanced by the recently acquired Victor Products as well
as strong performances by the group's parking and environmental safety
businesses; but, the group's operating margin was narrowed again by this year's
planned increase in product development expenses and a short-term change in
product mix.
Sales for the Sign Group increased 18% while earnings increased just 6%. While
orders in the third quarter declined 6% after a strong first half, markets
continue to be strong and orders for the near term are expected to improve over
recent levels. Earnings growth for the group did not keep pace with the sales
increase due largely to an unusually high margin level in last year's third
quarter.
Cost of sales as a percent of net sales decreased from 69.8% in the third
quarter of 1995 to 69.3% in the third quarter of 1996. The percentage decrease
was principally attributed to productivity improvements in the Vehicle Group.
Selling, general and administrative expenses as a percent of net sales increased
to 18.7% in the third quarter of 1996 from 18.2% in the third quarter of 1995.
The increase was primarily attributed to an increase in research and development
programs. The effective tax rate for the third quarter of 1996 was 33.0% and was
consistent with the rate in the third quarter of 1995.
Comparison of First Nine Months 1996 to Same Period 1995
For the first nine months, earnings per share totaled $.95, an increase of 9%
over the $.87 per share achieved in the same period a year ago. Net income for
the first nine months reached $43.7 million, increasing 10% over the $39.9
million last year. Sales for the period increased 13% to $673.4 million compared
to $594.4 million reported last year. Orders for the first nine months of 1996
were 18% higher than a year ago.
Cost of sales as a percent of net sales increased slightly to 69.7% in the first
nine months of 1996 from 69.6% in the first nine months of 1995. Selling,
general and administrative expenses increased to 19.1% of net sales in the first
nine months of 1996 from 18.8% in the same period a year ago. The percentage
increase was mainly due to the reasons cited above for the third quarter of
1996. The effective tax rate was 33.4% for the first nine of 1996 compared to
33.6% for the first nine months of 1995.
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,
municipal emergency signal products, parking systems and aerial access platform
operations.
Financial Position and Liquidity at September 30, 1996
The current ratio applicable to manufacturing activities was 1.2 at September
30, 1996 compared to 1.3 at December 31, 1995. Working capital (manufacturing
operations) at September 30, 1996 was $37.7 million compared to $48.8 million at
the most recent year end. The decrease in working capital resulted from
additional short term borrowing for the acquisition of Victor on June 3, 1996.
The debt to capitalization ratio applicable to manufacturing activities was 32%
at September 30, 1996 compared to 29% at December 31, 1995. The debt to
capitalization ratio applicable to financial services activities was 87% at
September 30, 1996 and December 31, 1995. The increase in manufacturing debt
resulted primarily from debt arising from the acquisitions of Victor and the two
tool companies mentioned earlier.
Capital expenditures during the first nine months of 1996 were $11.5 million
compared to $12.4 million for the same period a year ago. Over half of the 1996
year-to-date capital expenditures relate to investments made in the Tool and
Safety Products Groups to increase capacity and improve productivity. Capital
expenditures for the full year 1995 were $15.7 million. The Registrant
anticipates that capital expenditures for the full year 1996 will be comparable
to the prior year amounts. At September 30, 1996 the Registrant held 550,958
shares of treasury stock at a cost of $11.5 million. Modest amounts of
additional shares are being considered for purchase in the open market during
the remainder of 1996. Current financial resources and anticipated funds from
the Registrant's operations are expected to be adequate to meet future cash
requirements.
Part II. Other Information
Responses to items one through six are omitted since these items are
either inapplicable or the response thereto would be negative.
SIGNATURES
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
11/14/96 By:__________________________________________________
Date Henry L. Dykema, Vice President and Chief Financial
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, 1996 and consolidated condensed statement of income
for the nine months ended September 30, 1996, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4078
<SECURITIES> 0
<RECEIVABLES> 145671
<ALLOWANCES> 2588
<INVENTORY> 103907
<CURRENT-ASSETS> 255669 <F1>
<PP&E> 180102
<DEPRECIATION> 96076
<TOTAL-ASSETS> 687880
<CURRENT-LIABILITIES> 217977 <F1>
<BONDS> 37866
0
0
<COMMON> 45938
<OTHER-SE> 225241
<TOTAL-LIABILITY-AND-EQUITY> 687880
<SALES> 673413
<TOTAL-REVENUES> 673413
<CGS> 469186
<TOTAL-COSTS> 469186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11381
<INCOME-PRETAX> 65658
<INCOME-TAX> 21942
<INCOME-CONTINUING> 43716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43716
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.94
<FN>
<F1>MANUFACTURING OPERATIONS ONLY
</FN>
</TABLE>
