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, 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
State or other jurisdiction of (I.R.S. Employer incorporation or
organization Identification No.)
Delaware 36-1063330
Federal Signal Corporation
1415 West 22nd Street
Oak Brook, IL 60521
(708) 954-2000
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 the latest practicable date.
Title Outstanding
Common Stock, $1.00 par value 45,426,346
<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.
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<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31
1996 1995
------------ --------
Net sales $210,793,000 $187,132,000
Costs and expenses:
Cost of sales 147,663,000 130,269,000
Selling, general and administrative 41,918,000 37,286,000
Other (income) and expenses:
Interest expense 3,630,000 3,162,000
Other (income) expense (282,000) 13,000
----------- -----------
192,929,000 170,730,000
Income before income taxes 17,864,000 16,402,000
Income taxes 6,013,000 5,609,000
----------- -----------
Net income $ 11,851,000 $ 10,793,000
=========== ===========
COMMON STOCK DATA:
Net income per share $ .26 $ .24
=========== ===========
Average common shares outstanding 45,963,000 45,816,000
Cash dividends per share of
common stock $ .145 $ .125
See notes to consolidated condensed financial statements.
3
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31 December 31
1996 1995 (a)
----------- ----------
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $ - $ 9,350,000
Trade accounts receivable, net of
allowances for doubtful accounts 124,281,000 122,913,000
Inventories:
Raw materials 49,947,000 40,487,000
Work in process 27,988,000 32,286,000
Finished goods 26,341,000 24,675,000
Prepaid expenses 6,160,000 5,763,000
----------- -----------
Total current assets 234,717,000 235,474,000
Properties and equipment:
Land 5,733,000 5,703,000
Buildings and improvements 39,121,000 38,493,000
Machinery and equipment 124,291,000 120,554,000
Accumulated depreciation (90,216,000) (86,296,000)
----------- -----------
Net properties and equipment 78,929,000 78,454,000
Intangible assets, net of
accumulated amortization 146,761,000 146,774,000
Other deferred charges and assets 12,403,000 11,722,000
----------- -----------
Total manufacturing assets 472,810,000 472,424,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 151,109,000 147,535,000
----------- -----------
Total assets $623,919,000 $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.
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<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS -- Continued
March 31 December 31
1996 1995 (a)
----------- ----------
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $ 64,394,000 $ 58,760,000
Trade accounts payable 45,517,000 53,277,000
Accrued liabilities and income taxes 74,505,000 74,623,000
----------- -----------
Total current liabilities 184,416,000 186,660,000
Long-term borrowings 38,606,000 39,702,000
Deferred income taxes 17,826,000 17,826,000
----------- -----------
Total manufacturing liabilities 240,848,000 244,188,000
Financial services activities -
Short-term borrowings 130,789,000 127,690,000
----------- -----------
Total liabilities 371,637,000 371,878,000
SHAREHOLDERS' EQUITY
Common stock - par value 45,911,000 45,832,000
Capital in excess of par value 56,002,000 54,464,000
Retained earnings 167,385,000 162,095,000
Treasury stock (10,890,000) (10,949,000)
Deferred stock awards (2,194,000) (1,046,000)
Foreign currency translation (3,932,000) (2,315,000)
----------- -----------
Total shareholders' equity 252,282,000 248,081,000
----------- -----------
Total liabilities and
shareholders' equity $623,919,000 $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.
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<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31
1996 1995
------------ --------
Operating activities:
Net income $ 11,851,000 $ 10,793,000
Depreciation 3,277,000 2,923,000
Amortization 1,095,000 1,136,000
Working capital changes and other (12,078,000) (4,494,000)
----------- -----------
Net cash provided by operating
activities 4,145,000 10,358,000
Investing activities:
Purchases of properties and
equipment (4,028,000) (4,008,000)
Principal extensions under
lease financing agreements (23,726,000) (26,388,000)
Principal collections under
lease financing agreements 20,152,000 22,749,000
Payments for purchases of companies,
net of cash acquired (685,000) (65,000)
Other, net 276,000 (1,417,000)
----------- -----------
Net cash used for investing
activities (8,011,000) (9,129,000)
Financing activities:
Addition to short-term
borrowings 7,439,000 3,291,000
Addition (reduction) to
long-term borrowings (987,000) 5,560,000
Purchases of treasury stock (3,049,000)
Cash dividends paid to
shareholders (12,240,000) (10,435,000)
Other, net 304,000 95,000
----------- -----------
Net cash used for financing
activities (5,484,000) (4,538,000)
----------- -----------
Decrease in cash and cash
equivalents (9,350,000) (3,309,000)
Cash and cash equivalents at
beginning of period 9,350,000 4,605,000
----------- -----------
Cash and cash equivalents at
end of period $ --- $ 1,296,000
=========== ===========
See notes to consolidated condensed financial statements.
6
<PAGE>
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 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 ended March 31, 1996, are not necessarily
indicative of the results to be expected for the full year of 1996.
3. Interest paid for the three-month periods ended March 31, 1996 and 1995
was $3,535,000 and $3,052,000, respectively. Income taxes paid for these
same periods were $604,000 and $1,533,000, respectively.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
FIRST QUARTER 1996
Comparison with First Quarter 1995
First quarter net income of $11.9 million, or $.26 per share, increased 10% over
the $10.8 million, or $.24 per share, achieved in the first quarter of 1995.
First quarter sales of $210.8 million increased 13% over last year's $187.1
million. New business of $222.0 million increased 23% over the $180.3 million
booked in last year's first quarter. Excluding the impact of the acquisition of
Bronto which occurred in mid-1995, sales increased 7% and new business increased
17% over last year. Backlogs stood at $263.4 million compared with $254.2
million a year ago.
The Safety Products, Tool and Sign groups all posted strong earnings increases
in the first quarter compared with a year ago. Earnings for the Vehicle Group,
which were adversely affected by Bronto, declined.
The Safety Products Group achieved a 22% increase in operating income on a 21%
increase in sales. All of the group's operations contributed to these results
except Justrite which experienced lower sales and earnings. While Justrite's
U.S.- oriented markets are weak, the Registrant expects improvement through the
course of the year.
The Vehicle Group's sales increased 14% while earnings declined 9% compared to
last year's first quarter. Excluding the impact of Bronto, which was acquired in
mid-1995 and which experienced a first quarter operating loss, the group's sales
and earnings were essentially flat with last year's first quarter results, a
quarter which was bolstered by unusually high sales and earnings achieved by the
fire apparatus businesses. In addition to Bronto's historical pattern of late
year earnings, it is proceeding with a planned reorganization of the non-fire
related industrial aerial lift business which is adversely impacting short term
earnings performance. New business for the group increased 28% over the prior
year, notwithstanding continued slowness in its European vehicle markets.
Domestically, municipal markets were fairly strong while domestic industrial
markets for vehicles, while much smaller, continued to be slow.
Tool Group earnings increased 8% while sales declined slightly from the strong
first quarter results posted a year ago. The group's die components and
precision parts businesses continued to achieve improving levels of productivity
offsetting the impact of slightly lower domestic sales during the quarter;
however, domestic orders in the first quarter exceeded the strong orders
experienced a year ago. The group's cutting tool businesses achieved strong
earnings increases; however, sales gains were modest, in part the result of
discontinuing certain lines of low margin rotary cutting tools.
The Sign Group continued to achieve significantly improved results during the
first quarter. The group's earnings increased 39% on a sales increase of 15%.
These results reflect the group's improved market segment focus and actions
taken to increase productivity. Also, the group's orders increased 65% over the
prior year's first quarter. While the Registrant does not anticipate that rate
of increase to continue throughout the year, it is confident of a full year of
strong orders and resultant increase in market share.
Due to the timing of certain of the Registrant's new orders, as well as lead
times in the fire apparatus businesses, the Registrant continues to expect the
latter part of the year to be stronger than the earlier part. Despite weaknesses
in the European vehicle markets and the Registrant's need to address the
non-strategic, non-fire related industrial businesses at Bronto, the Registrant
anticipates that the domestic municipal markets and overall international
markets will remain strong.
Cost of sales as a percent of net sales increased from 69.6% in the first
quarter of 1995 to 70.1% in the first quarter of 1996. The percentage increase
was attributed to the sales increase in the Vehicle Group, which tends to have
lower gross margins than the other groups, as well as the adverse impact of
Bronto which experienced lower gross margins than the rest of the Vehicle Group.
Selling, general and administrative expenses as a percent of net sales remained
a constant 19.9% at both March 31, 1996 and 1995. The effective tax rate for the
first quarter of 1996 was 33.7% compared to the first quarter 1995 rate of
34.2%. The decrease mainly resulted from increased tax-exempt interest income as
a percent of total income.
8
<PAGE>
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 March 31, 1996
The current ratio applicable to manufacturing activities was 1.3 at March 31,
1996 and December 31, 1995. Working capital (manufacturing operations) at March
31, 1996 was $50.3 million compared to $48.8 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 inventory purchases made in anticipation of
orders that are expected to ship in the second quarter of 1996, particularly in
the Vehicle Group. The debt to capitalization ratio applicable to manufacturing
activities was 29% at March 31, 1996 and December 31, 1995. The debt to
capitalization ratio applicable to financial services activities was 87% at
March 31, 1996 and December 31, 1995.
Capital expenditures were $4.0 million for the first three months of 1996 and
1995. Capital expenditures for the full year 1995 were $15.7 million. The
Registrant anticipates that capital expenditures for the full year 1996 will be
approximately 30% to 50% greater than 1995 full year amounts. At March 31, 1996
the Registrant held 540,058 shares of treasury stock at a cost of $10.9 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, two, three, five and six are omitted since these
items are either inapplicable or the response thereto would be negative.
Item 4. Submission of Matters to a Vote of Security Holders.
At its Annual Meeting of Stockholders on April 17, 1996, the stockholders of the
Registrant voted to elect two directors and to approve the Federal Signal
Corporation Stock Benefit Plan.
J. Patrick Lannan, Jr. was re-elected a director for a three-year term. Holders
of 35,644,252 shares voted for the re-election, 193,588 shares withheld votes,
9,535,341 shares did not vote and there were no broker nonvotes.
James A. Lovell, Jr. was re-elected a director for a three-year term. Holders
of 35,663,945 shares voted for the re-election, 173,895 shares withheld votes,
9,535,341 shares did not vote and there were no broker nonvotes.
Holders of 32,747,896 shares voted for the Federal Signal Corporation Stock
Benefit Plan and 1,619,290 voted against it.
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
By:_____________________________________________________
Henry L. Dykema
Vice President and Chief Financial Officer
Date: May 8, 1996
9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED CONDENSED BALANCE SHEET AS OF MARCH 31, 1996 AND CONSOLIDATED
CONDENSED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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