SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 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
(Exact name of the 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) The Registrant's telephone number, including area code (630) 954-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered Common Stock, par value $1.00
per share, New York Stock Exchange with preferred share purchase rights
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 1, 1997.
Common stock, $1.00 par value -- $992,989,974
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of March 1, 1997.
Common stock, $1.00 par value -- 45,427,574 shares
Documents Incorporated by Reference
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held on April 16, 1997, are incorporated by reference into Parts I, II and III.
<PAGE>
PART I
Item 1. Business.
Federal Signal Corporation, founded in 1901, was reincorporated as a
Delaware Corporation in 1969. The company is a manufacturer and worldwide
supplier of safety, signaling and communications equipment, fire rescue
products, street sweeping and vacuum loader vehicles, parking control equipment,
custom on-premise signage, carbide cutting tools, precision punches and related
die components.
Products produced and services rendered by the Registrant and its
subsidiaries (referred to collectively as the "Registrant" herein, unless
context otherwise indicates) are divided into groups (business segments) as
follows: Safety Products, Sign, Tool and Vehicle. This classification of
products and services is based upon the Registrant's historical divisional
structure established by management for the purposes of internal control,
marketing and accounting.
Developments, including acquisitions and divestitures of businesses,
considered significant to the company or individual segments are described under
the following discussions of the applicable groups.
The Financial Review sections, "Consolidated Results of Operations", "Group
Operations", "Financial Position and Cash Flow", and Note M - Segment
Information contained in the Proxy Statement for the Annual Meeting of
Shareholders to be held on April 16, 1997, are incorporated herein by reference.
Safety Products Group
The Safety Products Group includes the Signal Products Division, Target
Tech, Aplicaciones Tecnologicas VAMA S.A. (VAMA), Victor Industries Ltd.
(Victor), Justrite Manufacturing Company (Justrite), and Federal APD.
Safety Products Group products manufactured by the Registrant consist of:
(1) a variety of visual and audible warning, signaling and lighting devices used
by private industry, federal, state and local governments, building contractors,
police, fire and medical fleets, utilities and civil defense; (2) safety
containment products for handling and storing hazardous materials used by a wide
variety of industrial and laboratory customers as well as military agencies and
municipal, state and federal governments; and (3) parking, revenue control, and
access control equipment and systems for parking facilities, commercial
businesses, bridge and pier installation and residential developments.
Visual and audible signaling devices include emergency vehicle warning
lights, electromechanical and electronic vehicle sirens and industrial signal
lights, sirens, horns, bells and solid state audible signals, hazardous area
lighting, audio/visual emergency warning and evacuation systems, including
weather and nuclear power plant warning notification systems and fire alarm
system panels and devices.
The safety containment products include safety cabinets for flammables and
corrosives; safety and dispenser cans; waste receptacles and disposal cans;
spill control pallets and overpacks; and hazardous material storage buildings,
lockers, pallets and platforms. These products are designed in accordance with
various regulatory codes and standards, and meet agency approvals such as
Factory Mutual (FM) and Underwriters Laboratory (UL).
Parking, revenue control, and access control equipment and systems include
parking and security gates, card access readers, ticket issuing devices, coin
and token units, fee computers, automatic paystations, various forms of
electronic control units and personal computer based revenue and access control
systems.
Warning and signaling products, which account for the principal portion of
the group's business, are marketed to both industrial and governmental users.
Products are sold to industrial customers through manufacturers' representatives
who sell to approximately 1,400 wholesalers. Products are also sold to
governmental customers through more than 900 active independent distributors as
well as through original equipment manufacturers and direct sales. International
sales are made through the Registrant's independent foreign distributors or on a
direct basis.
Because of the large number of the Registrant's products, the Registrant
competes with a variety of manufacturers and suppliers and encounters varying
competitive conditions among its different products and different classes of
customers. Because of the variety of such products and customers, no meaningful
estimate of either the total number of competitors or the Registrant's overall
competitive position can be made. Generally, competition is intense as to all of
the Registrant's products and, as to most such products, is based on price,
including competitive bidding, product reputation and performance, and product
servicing. Although some competitors in certain product lines are larger than
the Registrant, the Registrant believes it is the leading supplier of particular
products.
The backlog of orders of the Safety Products Group products believed to be
firm at December 31, 1996 and 1995 were $18.6 million and $15.7 million,
respectively. The backlog at December 31, 1996, included approximately $2.9
million of backlog attributable to Victor, which was acquired in June 1996.
Almost all of the backlog of orders at December 31, 1996, are reasonably
expected to be filled within the current fiscal year.
During the period 1992-1996, the following businesses were acquired and became
part of the Safety Products Group:
Principal
Entity Headquarters Acquired Principal Products/Services
Victor England June 1996 Hazardous area industrial
lighting products
Target Tech Illinois December 1995 Amber signaling products for
construction and work vehicles
Justrite Illinois May 1994 Safety equipment for the
storage, transfer, use and
disposal of flammable and
hazardous materials
VAMA Spain May 1992 Emergency vehicular signaling
products
Sign Group
The Sign Group, operating principally under the name "Federal Sign",
designs, engineers, manufactures, installs and maintains illuminated and
non-illuminated sign displays, for both sale and lease. The Registrant
additionally provides sign repair services and also enters into maintenance
service contracts for signs it manufactures as well as signs produced by other
manufacturers. Its operations are oriented to custom designing and engineering
of commercial and industrial signs or groups of signs for its customers.
<PAGE>
The sale and lease of signs and the sale of maintenance contracts are
conducted primarily through the Registrant's direct sale organization which
operates from its twenty-three principal sales and manufacturing facilities
located strategically throughout the continental U.S. Customers for sign
products and services consist of local commercial businesses, as well as major
national and multi-national companies.
Some of the Registrant's displays are leased to customers for terms of
typically three to five years, with both the lease and the maintenance portions
of many such contracts then renewed for successive periods.
The Registrant is nationally a principal producer of high-end custom and
custom-quantity signs. The Registrant has modified its marketing strategies to
focus on a narrower market segment to which it can provide a more unique set of
services. As a result of this change, the Registrant estimates that it now has
approximately 100 regional and national competitors. Competition for sign
products and services is intense and competitive factors consist largely on
quality, price, project and program management capabilities, aesthetic and
design considerations, and lease/maintenance services.
Total backlog at December 31, 1996, applicable to sign products and services
was approximately $52.4 million compared to approximately $61.4 million at
December 31, 1995. A significant part of the Registrant's sign products and
services backlog relates to sign maintenance contracts since such contracts are
usually performed over long periods of time. At December 31, 1996, the Sign
Group had a backlog of approximately $41.2 million compared to approximately
$41.4 million at December 31, 1995, represented by in-service sign maintenance
contracts. With the exception of the sign maintenance contracts, most of the
backlog orders at December 31, 1996, are reasonably expected to be filled within
the current fiscal year.
Tool Group
Tool Group products are produced by the Registrant's wholly-owned
subsidiaries. The die components and precision tooling operations include:
Dayton Progress Corporation, Schneider Stanznormalien GmbH (Schneider),
Jamestown Precision Tooling, Inc., Technical Tooling, Inc. (TTI), and M.J.
Industries (MJI). The cutting tool operations include Manchester Tool Company
and Dico Corporation. Over the past five years, sales and revenue were also
generated by Bassett Rotary Tool, a manufacturer of rotary carbide cutting
tools, which was sold at the end of December 1996.
The die components and precision tooling operations manufacture and purchase
for resale an extensive variety of consumable standard and special die
components for the metal stamping industry. These components consist of piercing
punches, matched die matrixes, punch holders or retainers, can and body punches,
precision ground high alloy parts and many other products related to a metal
stamper's needs. The die components and precision tooling operations also
produce a large variety of consumable precision metal products for customers'
nonstamping needs, including special heat exchanger tools, beverage container
tools, powder compacting tools and molding components.
<PAGE>
During the period 1992-1996, the die components and precision tooling
operations continued to broaden the markets they serve through the following
acquisitions:
Principal
Entity Headquarters Acquired Principal Products/Services
MJI France August 1996 Precision punch and die
components
TTI Minnesota July 1996 Body punch tooling
Schneider Germany March 1992 Precision punch and die
components
The acquisitions of these businesses provide manufacturing capabilities on
the European continent and greater access to European markets and complement and
broaden the operations' can and body punch product lines.
The carbide cutting tool operations manufacture consumable carbide and
superhard insert tooling for cutoff and deep grooving metal cutting
applications. In November 1992, the operations acquired Dico Corporation, a
manufacturer of polycrystalline diamond and cubic boron nitride cutting tools.
This product line complements the operations' carbide insert products and
allowed for entry into new market niches within business areas already served.
Because of the nature of and market for the Registrant's products,
competition is keen at both domestic and international levels. Many customers
have some ability to produce the product themselves, but at a cost disadvantage.
Major market emphasis is placed on quality of product, delivery and level of
service.
Tool Group products are capital intensive with the only significant outside
cost being the purchase of the tool steel, carbide, cubic boron nitride and
polycrystalline diamond material, as well as items necessary for manufacturing.
Inventories are maintained to assure prompt service to the customer with the
average order for standard tools filled in less than one week for domestic
shipments and within two weeks for international shipments.
Tool Group customers include metal and plastic fabricators and tool and die
shops throughout the world. Because of the nature of the products, volume
depends mainly on repeat orders from customers numbering in the thousands. These
products are used in the manufacturing process of a broad range of items such as
automobiles, appliances, construction products, electrical motors, switches and
components and a wide variety of other household and industrial goods. Almost
all business is done with private industry.
The Registrant's products are marketed in the United States, and many
international markets, principally through industrial distributors.
Foreign-owned manufacturing, sales and distribution facilities are located in
Weston, Ontario; Tokyo, Japan; Warwickshire, England; Frankfurt, Germany; and
Meaux, France.
The order backlog of the Tool Group as of December 31, 1996, and December
31, 1995, were $7.6 million and $7.7 million, respectively. All of the backlog
of orders at December 31, 1996, are expected to be filled within the current
fiscal year.
Vehicle Group
The Vehicle Group is composed of Emergency One, Inc., Bronto Skylift Oy
Ab (Bronto), Superior Emergency Vehicles, Ltd., Elgin Sweeper Company,
Vactor Manufacturing, Inc. (Vactor), Guzzler Manufacturing, Inc. (Guzzler),
and Ravo International.
Emergency One, Inc. is a leading manufacturer of fire rescue vehicles
including four-, six- and eight-wheel drive rescue trucks, tankers, pumpers,
aerial ladder trucks, custom chassis, and airport rescue and fire fighting
vehicles (each of aluminum construction for rust-free operation and energy
efficiency).
Superior Emergency Vehicles, Ltd. manufactures and distributes a full
range of fire truck bodies primarily for the Canadian market.
Acquired in August 1995, and headquarted in Tampere, Finland, Bronto is a
leading manufacturer of vehicle-mounted aerial access platforms for fire rescue
and heavy duty industrial markets. The acquisition enabled the Vehicle Group to
expand its worldwide fire apparatus product offering and distribution.
Elgin Sweeper Company is the leading manufacturer in the United States of
self-propelled street cleaning vehicles. Utilizing three basic cleaning methods
(mechanical sweeping, vacuuming and recirculating air), Elgin's products are
primarily designed for large-scale cleaning of curbed streets and other paved
surfaces.
Ravo International is a leading European manufacturer and marketer of
self-propelled street and sewer cleaning vehicles. Utilizing the vacuuming
cleaning method, Ravo's products are primarily designed for cleaning of curbed
streets and other paved surfaces.
Vactor, acquired in June 1994, is an Illinois-based manufacturer of
municipal combination catch basin/sewer cleaning vacuum trucks. This acquisition
provided a significant expansion of the Vehicle Group offering of municipal
equipment and enhanced the domestic and international dealer networks of both
Elgin Sweeper and Vactor.
Guzzler, acquired in March 1993, is an Alabama-based manufacturer and
marketer of waste removal vehicles, using vacuum based technology, for worldwide
industrial and environmental markets. The acquisition of Guzzler complemented
Elgin Sweeper Company's product distribution and provided for increased exposure
to the industrial marketplace for both Elgin and Guzzler.
All of the Vehicle Group companies also sell accessories and replacement
parts for their products. Ravo International also provides after-market service
and support for its products in the Netherlands.
Some products and components thereof are not manufactured by the Registrant
but are purchased for incorporation with products of the Registrant's
manufacture.
A majority of Vehicle Group sales are made to domestic and overseas
municipalities and other governmental units. Vacuum loader vehicles produced by
Guzzler are principally sold to industrial customers. Worldwide sales are
conducted by domestic and international dealers, in most areas, with some sales
being made on a direct-to-user basis.
The Registrant competes with several domestic and foreign manufacturers and
due to the diversity of products offered, no meaningful estimate of either the
number of competitors or the Registrant's relative position within the market
can be made, although the Registrant does believe it is a major supplier within
these product lines. The Registrant competes with numerous foreign
manufacturers, principally in international markets.
At December 31, 1996, the Vehicle Group backlog was $201.5 million compared
to $166.7 million at December 31, 1995. A substantial majority of the orders in
the backlog at December 31, 1996, are reasonably expected to be filled within
the current fiscal year.
<PAGE>
Additional Information
The Registrant's sources and availability of materials and components are
not materially dependent upon either a single vendor or very few vendors.
The Registrant owns a number of patents and possesses rights under others to
which it attaches importance, but does not believe that its business as a whole
is materially dependent upon any such patents or rights. The Registrant also
owns a number of trademarks which it believes are important in connection with
the identification of its products and associated goodwill with customers, but
no material part of the Registrant's business is dependent on such trademarks.
The Registrant's business is not materially dependent upon research
activities relating to the development of new products or services or the
improvement of existing products and services, but such activities are of
importance as to some of the Registrant's products. Expenditures for research
and development by the Registrant were approximately $11.2 million in 1996, $7.0
million in 1995 and $7.0 million in 1994.
Note M - Segment Information, presented in the Registrant's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 16, 1997, contains
information concerning the Registrant's foreign sales, export sales and
operations by geographic area, and is incorporated herein by reference.
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, parking systems and aerial access platform
manufacturing operations.
No material part of the business of the Registrant is dependent either upon
a single customer or very few customers. The Registrant is in substantial
compliance with federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment. These provisions have had no
material adverse impact upon capital expenditures, earnings or competitive
position of the Registrant and its subsidiaries. The Registrant employed 6,233
people in ongoing businesses at the close of 1996. The Registrant believes
relations with its employees have been very good.
Item 2. Properties.
As of March 1, 1997, the Registrant utilized twenty-seven principal
manufacturing plants located throughout North America, as well as eleven in
Europe, one in South Africa, and one in the Far East. In addition, there were
forty-four sales and service/warehouse sites, with thirty-nine being
domestically based and five located overseas. About half of the manufacturing
facilities are owned, whereas all the sales and service/warehouse facilities are
leased.
In total, the Registrant devoted approximately 1,710,000 square feet to
manufacturing and 960,000 square feet to service, warehousing and office space,
as of March 1, 1997. Of the total square footage, approximately 35% is devoted
to the Safety Products Group, 11% to the Sign Group, 11% to the Tool Group and
43% to the Vehicle Group. Approximately 64% of the total square footage is owned
by the Registrant, with the remaining 36% being leased.
All of the Registrant's properties, as well as the related machinery and
equipment, are considered to be well-maintained, suitable and adequate for their
intended purposes. In the aggregate, these facilities are of sufficient capacity
for the Registrant's current business needs.
Capital expenditures for the years ended December 31, 1996, 1995 and 1994
were $16.9 million, $15.7 million, and $11.1 million, respectively. The
Registrant anticipates total capital expenditures in 1997 will be approximately
20% to 30% greater than 1996 amounts.
Item 3. Legal Proceedings.
The Registrant is subject to various claims, other pending and possible
legal actions for product liability and other damages and other matters arising
out of the conduct of the Registrant's business. The Registrant believes, based
on current knowledge and after consultation with counsel, that the outcome of
such claims and actions will not have a material adverse effect on the
Registrant's consolidated financial position or the results of operations.
On December 29, 1995, the Registrant settled a lawsuit with Duravision, Inc.
and Manufacturers Product Research Group of North America, Inc. for $6.7
million. As a result of the settlement, the Registrant recorded a net after-tax
charge to income of $4.2 million, or $.09 per share. The charge, included in
other income and expense, was recorded in the fourth quarter of 1995. The
resolution of this case will have no effect on the Registrant's future operating
performance as it involved a discontinued product line. The Registrant is
actively seeking recoveries from its original trial counsel.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise during the three months ended December 31,
1996.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters.
Federal Signal Corporation's Common Stock is listed and traded on the New
York Stock Exchange under the symbol FSS. Market price range and dividend per
share data listed in Note N - Selected Quarterly Data (Unaudited) contained in
the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 16, 1997 is incorporated herein by reference. As of March 1, 1997,
there were 5,194 holders of record of the Registrant's common stock.
Certain long-term debt agreements impose restrictions on the Registrant's
ability to pay cash dividends on its common stock. All of the retained earnings
at December 31, 1996, were free of any restrictions.
Item 6. Selected Financial Data.
Selected Financial Data contained in the Registrant's Proxy Statement for
the Annual Meeting of Shareholders to be held on April 16, 1997, is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Financial Review sections "Consolidated Results of Operations", "Group
Operations", "Financial Services Activities", and "Financial Position and Cash
Flow" contained in the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on April 16, 1997, are incorporated herein by reference.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and accompanying footnotes of the
Registrant and the report of the independent auditors set forth in the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
on April 16, 1997, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information under the caption "Election of Directors" contained in the
the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 16, 1997, is incorporated herein by reference.
The following is a list of the Registrant's executive officers, their ages,
business experience and positions and offices as of March 1, 1997:
Joseph J. Ross, age 51, was elected Chairman, President and Chief Executive
Officer in February 1990.
John A. DeLeonardis, age 49, was elected Vice President-Taxes in January
1992.
Duane A. Doerle, age 41, was elected Vice President-Corporate Development in
July 1996. Previously, he served as Director-Corporate Development since April
1992. He has worked for the Registrant in various capacities since October 1984.
Henry L. Dykema, age 57, joined the Registrant as Vice President and
Chief Financial Officer in January 1995. Mr. Dykema was self-employed from
September 1993 to December 1994 and served as Vice President-Finance and
Chief Financial Officer of Kennametal, Inc. from October 1989 to August 1993.
Robert W. Racic, age 48, was elected Vice President and Treasurer in April
1984.
Richard L. Ritz, age 43, was elected Vice President and Controller in
January 1991.
Kim A. Wehrenberg, age 45, was elected Vice President, General Counsel and
Secretary effective October 1986.
These officers hold office until the next annual meeting of the Board of
Directors following their election and until their successors shall have been
elected and qualified.
There are no family relationships among any of the foregoing executive
officers.
Item 11. Executive Compensation.
The information contained under the caption "Executive Compensation" of the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
April 16, 1997, is incorporated herein by reference.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the caption "Security Ownership of Certain
Beneficial Owners" of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 16, 1997, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information contained under the caption "Executive Compensation" of the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
April 16, 1997, is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)1. Financial Statements
The following consolidated financial statements of Federal Signal
Corporation and Subsidiaries included in the Registrant's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 16, 1997, are
filed as a part of this report and are incorporated by reference in Item
8:
Consolidated Balance Sheets -- December 31, 1996 and 1995
Consolidated Statements of Income -- Years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial statement schedule of Federal Signal
Corporation and Subsidiaries, for the three years ended December 31, 1996,
is filed as a part of this report in response to Item 14(d):
Schedule II -- Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore, have been omitted.
3. Exhibits
3. a. Restated Certificate of Incorporation of the Registrant.
b. By-laws of the Registrant.
4. a. Rights Agreement, filed as Exhibit (4)(a) to the Registrant's
Form 10-K for the year ended December 31, 1993, is incorporated
herein by reference.
<PAGE>
b. The Registrant has no long-term debt agreements for which the
related outstanding debt exceeds 10% of consolidated total assets as
of December 31, 1996. Copies of debt instruments for which the
related debt is less than 10% of consolidated total assets will be
furnished to the Commission upon request.
10.a. 1996 Stock Benefit Plan. The 1988 Stock Benefit Plan was filed
as Exhibit (10)(a) to the Registrant's Form 10-K for the year
ended December 31, 1991, is incorporated herein by reference.
b. Corporate Management Incentive Bonus Plan, filed as Exhibit (10)(b)
to the Registrant's Form 10-K for the year ended December 31, 1994,
is incorporated herein by reference.
c. Supplemental Pension Plan, filed as Exhibit (10)(c) to the
Registrant's Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference.
d. Executive Disability, Survivor and Retirement Plan, filed as Exhibit
(10)(d) to the Registrant's Form 10-K for the year ended December
31, 1995, is incorporated herein by reference.
e. Supplemental Savings and Investment Plan, filed as Exhibit (10)(f)
to the Registrant's Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
f. Employment Agreement with Joseph J. Ross, filed as Exhibit
(10)(g) to the Registrant's Form 10-K for the year ended
December 31, 1994, is incorporated herein by reference.
g. Change of Control Agreement with Kim A. Wehrenberg, filed as
Exhibit (10)(h) to the Registrant's Form 10-K for the year ended
December 31, 1994, is incorporated herein by reference.
h. Director Deferred Compensation Plan, filed as Exhibit (10)(j) to the
Registrant's Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
i. Director Retirement Plan, filed as Exhibit (10)(k) to the
Registrant's Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
11.Computation of net income per common share
13.1996 Proxy Statement for the Annual Meeting of Shareholders to be held
April 16, 1997. Such report, except for those portions thereof which
are expressly incorporated by reference in this Form 10-K, is furnished
for the information of the Commission only and is not to be deemed
"filed" as part of this filing.
21.Subsidiaries of the Registrant
23.Consent of Independent Auditors
27.Financial Data Schedule
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31,
1996.
(c) and (d)
The response to this portion of Item 14 is being submitted as a separate
section of this report.
Other Matters
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned, the Registrant, hereby undertakes as follows, which undertaking
shall be incorporated by reference into the Registrant's Registration Statements
on Form S-8 Nos. 33-14251, 33-12876, 33-22311, 33-38494, 33-41721 and 33-49476,
dated October 16, 1996, April 14, 1987, June 26, 1988, December 28, 1990, July
15, 1991 and June 9, 1992, respectively:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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: /s/ Joseph J. Ross
Chairman, President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below, on March 27, 1997, by the following persons on behalf of
the Registrant and in the capacities indicated.
/s/ Henry L. Dykema /s/ Walter R. Peirson
Vice President and Chief Director
Financial Officer
/s/ Richard L. Ritz /s/ J. Patrick Lannan, Jr.
Vice President and Controller Director
/s/ James A. Lovell, Jr.
Director
/s/ Thomas N. McGowen, Jr.
Director
/s/ Richard R. Thomas
Director
SCHEDULE II
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the Years Ended December 31, 1996, 1995 and 1994
Deductions
Additions Accounts
Balance at Charged to written off Balance
beginning costs and net of at end
Description of year expenses recoveries of year
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts
Manufacturing activities $3,058,000 $2,602,000
Financial service activities 1,124,000 1,348,000
---------- ----------
Total $4,182,000 $1,719,000$1,951,000 $3,950,000
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts
Manufacturing activities $2,848,000 $3,058,000
Financial service activities 1,174,000 1,124,000
---------- ----------
Total $4,022,000 $1,716,000$1,556,000 $4,182,000
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts
Manufacturing activities $2,215,000 $2,848,000
Financial service activities 976,000 1,174,000
---------- ----------
Total $3,191,000 $1,809,000 $978,000 $4,022,000
Exhibit 3.a.
RESTATED CERTIFICATE OF INCORPORATION
OF
FEDERAL SIGNAL CORPORATION
FEDERAL SIGNAL CORPORATION, a Corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is FEDERAL SIGNAL
CORPORATION.
The name under which the Corporation was originally incorporated was
Delaware Fedco, Inc. The date of filing of its original Certificate of
Incorporation was January 31, 1969.
2. This Restated Certificate of Incorporation restates and integrates and
further amends the Certificate of Incorporation of this corporation by adopting
a new Article SEVENTH which states that the response of the Corporation to any
Acquisition Proposal is to be based on the Board of Directors' evaluation of
what is in the best interests of the Corporation.
3. The text of the Certificate of Incorporation as amended and
supplemented heretofore is further amended hereby to read as herein set forth in
full:
FIRST. The name of the Corporation is FEDERAL SIGNAL
CORPORATION.
SECOND. The address of its registered office in the State of Delaware
is 100 West Tenth Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is the Corporation Trust Company.
THIRD. The nature of the business or purposes to be
conducted or promoted is:
To carry on and conduct any and every kind of manufacturing,
distribution and service business; to manufacture, process, fabricate, rebuild,
service, purchase or otherwise acquire, to design, invent or develop, to import
or export, and to distribute, lease, sell, assign or otherwise dispose of and
generally deal in and with raw materials, products, goods, wares, merchandise
and real and personal property of every kind and character; and to conduct and
participate in every kind of enterprise permitted by the General Corporation Law
of Delaware.
To conduct any lawful business, to exercise any lawful purpose and
power, and to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other law of
Delaware or by this Certificate of Incorporation together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or purposes
of the Corporation.
FOURTH. The total number of shares which the Corporation shall have
authority to issue shall be 90,800,000 shares, divided into two classes, namely:
800,000 shares of Preference Stock of the par value of $1 per share (hereinafter
sometimes referred to as the "Preference Stock"); and 90,000,000 shares of
Common Stock of the par value of $1 per share (hereinafter sometimes referred to
as the "Common Stock").
The relative rights, preferences and limitations of the shares of
each class; the authority of the Board of Directors of the Corporation to
establish and to designate series of the Preference Stock and to fix the
variations in the relative rights, preferences and limitations as between such
series, and the relative rights, preferences and limitations of such series,
shall be as follows:
1. Preference Stock.
(a) The Board of Directors of the Corporation is authorized, subject
to limitations prescribed by law and the provisions of this Section 1, to
provide for the issuance of the Preference Stock in series, to establish or
change the number of shares to be included in each such series and to fix the
designation, relative rights, preferences and limitations of the shares of each
such series. The authority of the Board of Directors of the Corporation with
respect to each series shall include, but not be limited to, determination of
the following:
(i) The number of shares constituting that
series and the distinctive designation of that series;
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dated;
(iii) Whether and to what extend the shares of that series shall
have voting rights in addition to the voting rights provided by law, which might
include the right to elect a specified number of Directors in any case or if
dividends on such series were not paid for specified periods of time;
(iv) Whether the shares of that series shall be convertible into
shares of stock of any other series or class, and, if so, the terms and
conditions of such conversion, including the price or prices or the rate or
rates of conversion and the terms of adjustment thereof;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) The rights of the shares of that series in
the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
(vii) Any other relative rights, preferences and
limitations of that series.
(b) Subject to the designations, relative rights, preferences and
limitations provided pursuant to Subsection 1(a) of this Article FOURTH, each
share of Preference Stock shall be of equal rank with each other share of
Preference Stock.
2. Common Stock.
(a) Dividends. Subject to all of the rights of the Preference Stock,
such dividend or distribution as may be determined by the Board of Directors of
the Corporation may from time to time be declared and paid or made upon the
Common Stock out of any source at the time lawfully available for the payment of
dividends.
(b) Liquidation. The holders of the Common Stock shall be entitled to
share ratably upon any liquidation, dissolution or winding up of the affairs of
the Corporation (voluntary or involuntary) in all assets of the Corporation, if
any, remaining after payment in full to the holders of Preference Stock of the
preferential amounts to which they are entitled. Neither the consolidation nor
the merger of the Corporation with or into any other corporation or
corporations, nor a reorganization of the Corporation alone, nor the sale or
transfer by the Corporation of all or any part of its assets, shall be deemed to
be a liquidation, dissolution or winding up of the Corporation for the purposes
of this Section 2.
(c) Voting. Each holder of shares of Common Stock shall be entitled
to one vote for each share of Common Stock held. Except as may be determined by
the Board of Directors of the Corporation pursuant to Subsection 1(a) of this
Article FOURTH with respect to the Preference Stock and except as otherwise may
be required by law, the holders of the Common Stock shall vote together share
for share with the holders of voting shares of Preference Stock as one class for
the election of Directors and for all other purposes.
<PAGE>
3. General Provisions With Respect to All Classes of
Stock.
(a) Reduction of Capital. A dividend or distribution to stockholders
from net profits or surplus earned after the date of any reduction of capital
shall not be deemed to be a distribution resulting from such reduction of
capital.
(b) Pre-emptive Rights. No holders of any shares of capital stock of
the Corporation shall be entitled as such, as a matter of right, to subscribe
for or purchase any part (i) of any stock of the Corporation whether now
authorized or hereafter created, or (ii) of any securities convertible into or
evidencing the right to purchase or acquire stock of any class whatsoever,
whether now authorized or hereafter created, and whether in either case, issued
or sold for cash, property, services or otherwise.
(c) Issue of Stock. Shares of capital stock of the Corporation may be
issued by the Corporation from time to time in such amounts and proportions and
for such consideration (not less than the par value thereof in the case of
capital stock having par value) as may be fixed and determined from time to time
by the Board of Directors and as shall be permitted by law.
(d) Changes in Authorized Shares. The number of authorized shares of
any class of stock of the Corporation, including but without limitation the
Preference Stock and the Common Stock, may be increased or decreased by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote without regard to class.
(e) Unclaimed Dividends. Any and all right, title, interest and claim
in or to any dividends declared by the Corporation, whether in cash, stock or
otherwise, which are unclaimed by the stockholder entitled thereto for a period
of six years after the close of business on the payment date, shall be and be
deemed to be extinguished and abandoned; and such unclaimed dividends in the
possession of the Corporation, its transfer agents or other agents or
depositories, shall at such time become the absolute property of the
Corporation, free and clear of any and all claims of any persons whatsoever.
FIFTH. In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly
authorized:
To make, alter, or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
To designate one or more committees, by resolution of a majority
of the whole Board, each committee to consist of two or more of the Directors of
the Corporation. The Board may designate one or more Directors as alternate
members of any Committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent provided in the
resolution or in the by-laws of the Corporation, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be
impressed on all papers which may require it; provided, however, the by-laws may
provide that in the absence or disqualification of any member of such committee
or committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
To sell, lease or exchange all or substantially all of the
property and assets of the Corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such consideration,
which may consist in whole or in part of money or property including shares of
stock in, and/or other securities of, any other corporation or corporation, as
the Board of Directors shall deem expedient and for the best interests of the
Corporation, when and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power, or such grater
amount of such stock as may be required by the provisions of Article SIXTH when
applicable, given at a stockholders' meeting duly called upon such notice as is
required by statute, or by the written consent of such holders without a meeting
of stockholders provided, however, that the vote of such holders shall be in
addition to any vote by classes or series of stock of the Corporation which may
be required by the provisions of Article FOURTH.
To provide indemnification to the full extent permitted by
Delaware law, it being the policy of this Corporation to safeguard its
Directors, officers, management and employees from expense and liability for
actions they take in good faith in furtherance of the interest of the
Corporation and its stockholders.
SIXTH. In the event that the stockholders of the Corporation are
asked to vote on a merger or consolidation with any Person (as hereinafter
defined) or on a proposal that the Corporation sell, lease or exchange
substantially all of its assets or business to or with any Person or that any
Person sell, lease or exchange substantially all of its assets or business to or
with the Corporation, and such Person owns or controls, directly or indirectly,
shares representing five percent (5%) or more of the voting power of the
Corporation at the record date for determining Stockholders entitled to vote,
the favorable vote of not less than sixty-six and two-thirds percent (66 2/3%)
of all of the votes which the holders of the issued and outstanding shares of
the voting stock of the Corporation, voting as a single class, regardless of
class or series of stock, are entitled to cast thereon shall be required for the
approval of any such action; provided, however that the foregoing shall not
apply to any merger, consolidation or sale, lease or exchange of assets or
business which was approved by resolutions of the Board of Directors of the
Corporation prior to the acquisition of the ownership or control of shares
representing at least five percent (5%) of the voting power of the Corporation
by such Person, nor shall it apply to any such merger, consolidation or sale,
lease or exchange of assets or business between the Corporation and another
Person of which shares or other ownership interests representing fifty percent
(50%) or more of the voting power of such Person is owned by the Corporation.
For the purpose hereof, a "Person" shall mean any corporation,
partnership, association, trust, business entity, estate or individual or any
Affiliate (as hereinafter defined) of any of the foregoing. An "Affiliate" shall
mean any corporation, partnership, association, trust, business entity, estate
or individual who, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, a Person.
"Control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
This Article SIXTH may not be amended, not may it repealed in
whole or in part, unless authorized by the favorable vote of not less than
sixty-six and two-thirds percent (66 2/3%) of all the votes entitled to be cast
thereon by the holders o the issued and outstanding shares of voting stock of
the Corporation voting as a single class, regardless of class or series of
stock.
SEVENTH. It is hereby declared to be a proper corporate purpose,
reasonably calculated to benefit stockholders, for the Board of Directors to
base the response of the Corporation to any "Acquisition Proposal" on the Board
of Directors' evaluation of what is in the best interests of the Corporation and
for the Board of Directors, in evaluating what is in the best interests of the
Corporation, to consider:
(i) the best interests of the stockholders; for this purpose,
the Board shall consider, among other factors, Proposal, in relation to the then
current market price, but also in relation to the then current value of the
Corporation in a freely negotiated transaction and in relation to the Board of
Directors;' then estimate of the future value of the Corporation as an
independent entity; and
(ii) such other factors as the Board of Directors determines to
be relevant, including, among other factors, the social, legal and economic
effects upon employees, suppliers, customers and business.
"Acquisition Proposal" means any proposal of any person (a) for a
tender offer or exchange offer for any equity security of the Corporation, (b)
to merge or consolidate the Corporation with another corporation, or (c) to
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation.
EIGHTH. The number of Directors of the Corporation shall be eight
until fixed by the by-laws, and thereafter shall be the number from time to time
fixed in the manner provided in the by-laws; provided that such number of
directors shall not be less than five or more than ten (exclusive of such number
of Directors elected by any classes or series of stock of the Corporation other
than Common Stock, on account of arrearages of dividends, pursuant to provisions
of Article FOURTH) and provided further that any change in such minimum or
maximum number of Directors shall be made only by amendment of this Certificate
of Incorporation.
The Directors shall be divided into three classes: Class I, Class II
and Class III. Such classes shall be as nearly equal in number as possible. The
term of office of the initial Class I Directors shall expire at the annual
meeting of stockholders in 1970; the term of office of the initial Class II
Directors shall expire at the annual meeting of stockholders in 1971; and the
term of office of the initial Class III Directors shall expire at the annual
meeting of stockholders in 1972; or thereafter when their respective successors
in each case are elected and qualified.
At each annual election held hereafter the Directors elected to
succeed those whose terms then expire shall be identified as being of the same
class as the Directors they succeed and shall be elected for a term expiring at
the third succeeding annual meeting or thereafter when their respective
successors in each case are elected and qualified.
NINTH. Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the Corporation may
be kept (subject to any provisions contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the by-laws of the Corporation. Elections of
Directors need not be by written ballot unless the by-laws of the Corporation
shall so provide.
TENTH. When recommended by the favorable vote of all the Directors of
the Corporation entitled to vote thereon, any corporate action upon which a vote
of stockholders is required or permitted by be taken without a meeting or vote
of stockholders with the written consent of stockholders having not less than a
majority of the total numbers of votes entitled to be cast upon the action, or
such larger percentage required by statute or by this Certificate of
Incorporation, if a meeting were held. Prompt notice shall be given to all
stockholders of the taking of corporate action without a meeting by less than
unanimous written consent.
ELEVENTH. In the absence of fraud, no contract or other transaction
between the Corporation and any other firm, corporation or other entity, and no
act of the Corporation, shall in any way be invalidated or otherwise affected by
the fact that any one or more of the Directors of the Corporation are
pecuniarily or otherwise interest in, or are directors or officers of, such
other firm, corporation or other entity. Any Director of the Corporation
individually, or any firm, corporation or other entity of which any Director may
be a member, may be a party to, or may be pecuniarily or otherwise interested
in, any contract or transaction of the Corporation , provided that the fact that
he individually or such firm, corporation or other entity is so interested shall
be disclosed or shall have been known to the Board of Directors of the
Corporation; and any Directors of the Corporation, who is also a director or
officer of such other firm, corporation or other entity, or who is so
interested, may be counted in determining the existence of a quorum at any
meeting of the Board of Directors or of any committee of the Corporation which
shall authorize any such contract or transaction and may vote thereat to
authorize any such contract or transaction, with like force and effect as if he
were not such director or officer of such other firm, corporation or other
entity, or not so interested. Any contract, transaction or act of the
Corporation or of the Directors or of any committee which shall be ratified by a
majority vote of a quorum of the stockholders entitled to vote thereon at any
annual meeting, or at any special meeting called for such purpose, shall so far
as permitted by law and by this Certificate of Incorporation, be as valid and as
binding as though ratified by every stockholder of the Corporation.
TWELFTH. The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and by this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
THIRTEEN. So long as the stockholders of the Corporation shall be
empowered by law to adopt, amend or repeal by-laws of the Corporation, such
action may be taken by the stockholders by the favorable vote of not less than a
majority of the votes which the holders of the issued and outstanding
shares of the voting stock of the Corporation, voting as a single class,
regardless of class or series of stock, are entitled to cast thereon if such
action first has been recommended by the favorable vote of at least seventy-five
percent (75%) of the Directors of the Corporation entitled to vote thereon, but
if not so recommended, then the favorable vote of at least sixty-six and
two-thirds percent (66 2/3%) of all the votes which the holders of the issued
and outstanding shares of voting stock of the Corporation, voting as a single
class, regardless of class or series of stock, are entitled to cast thereon
shall be required to have the stockholders adopt, amend, or repeal such by-laws.
This Article may not be amended, nor may it be repealed in whole or
in part, unless authorized by the favorable vote of not less than sixty-six and
two-thirds percent (66 2/3%) of all the votes entitled to be cast thereon by the
holders of the issued and outstanding shares of voting stock of the Corporation
voting as a single class, regardless of class or series of stock.
FOURTEENTH. A Director of this corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the Delaware General Corporation
Law. If the Delaware General Corporation Law is amended after approval by the
stockholders of this Article FOURTEENTH to authorize corporate action further
eliminating or limiting the personal liability of Directors, then the liability
of a Director of the corporation shall be eliminated or limited to the fullest
extend permitted by the Delaware General Corporation Law, as so amended from
time to time without further action by the stockholders.
Any repeal or modification of this Article FOURTEENTH shall not
increase the personal liability of any Director of this corporation for any act
or occurrence taking place prior to such repeal or modification, or otherwise
adversely affect any right or protection of a Director of the corporation
existing at the time of such repeal or modification.
The provisions of this Article FOURTEENTH shall not be deemed to
limit or preclude indemnification of a Director by the Corporation for any
liability of a Director which has not been eliminated by the provisions of this
Article FOURTEENTH.
4. This Restated Certificate of Incorporation was duly adopted by an
affirmative vote of the holders of the majority of all outstanding stock
entitled to vote at a meeting of stockholders in accordance with the applicable
provisions of Sections 242 of the General Corporation Law of the State of
Delaware.
5. The capital of the Corporation will not be reduced
under or by any reason of the amendment hereby certified.
Signed and attested to on this 19th day of March 1992.
FEDERAL SIGNAL CORPORATION
By: /s/ Joseph J. Ross
Chairman, President and
Chief Executive Officer
ATTEST:
By: /s/ Kim A. Wehrenberg
Secretary
Exhibit 3.b.
BY-LAWS
OF
FEDERAL SIGNAL CORPORATION
(a Delaware Corporation)
ARTICLE I
Offices. Books and Records.
Section 1.1 Offices. The registered office of FEDERAL SIGNAL CORPORATION
(herein called the "Corporation") within the State of Delaware shall be in the
City of Wilmington, County of New Castle. The Corporation may also have such
other offices at such other places both within or without the State of Delaware
as the Board of Directors of the Corporation (herein called the "Board) may from
time to time determine or the business of the Corporation may require.
Section 1.2. Books and records. The books and records of the Corporation
shall be kept at the principal business office of the Corporation, or at such
other place or places as the Board shall from time to time determine.
ARTICLE II
Meetings of Stockholders.
Section 2.1. Place of meetings. Meetings of stockholders shall be held at
such place, within or without the State of Delaware, as may be fixed from time
to time by the Board and specified in the respective notices or waivers of
notice thereof, provided that if the Board shall not so fix the place of any
meeting of stockholders or if any special meeting of stockholders is called by a
person or persons other than the Board, such meeting shall be held at the
principal business office of the Corporation.
Section 2.2. Annual Meetings. An annual meeting of stock-holders for the
purpose of electing directors and the transaction of such other business as may
properly be brought before the meeting shall be held each year at such time as
may from time to time be determined by the Board. In the absence of such a
determination by the Board prior to twenty (20) days before the fourth Friday in
April of each year, such annual meeting shall be held on the fourth Friday in
April at the hour of 11:00 A.M., unless a legal holiday, and if a legal holiday,
then on the next succeeding business day which is not a legal holiday. If, for
any reason, the annual meeting shall not be held at the time herein provided,
the same may be held at any time thereafter upon notice as hereinafter provided
or the business thereof may be transacted at any special meeting of stockholders
called for that purpose.
Section 2.3. Special meetings of stockholders. Special meetings of
stockholders for any purpose or purposes, unless otherwise prescribed by law,
may be called at any time by the Board or the President and Chief Executive
Officer (amended 12/18/87). The business transacted at any special meeting of
stockholders shall be limited to the purpose or purposes stated in the call
thereof.
Section 2.4. Notice of meetings. Written notice of every meeting of
stockholders stating the place, day and hour of the meeting, unless otherwise
prescribed by law or the Certificate of Incorporation (meaning always herein the
Certificate of Incorporation of the Corporation as the same may be amended from
time to time), shall be given, personally or by mail, not less than ten nor more
than sixty days before the date of the meeting, to each stock-holder of record
entitled to vote at such meeting. The notice of a special meeting shall state
the purpose for which the meeting is called and shall also indicate that it is
being issued by or at the direction of the person or persons calling the
meeting.
Section 2.5. List of stockholders. The Secretary of the Corporation shall
make, at least ten days before each meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, showing the address of and the number of shares of each class of stock of
the Corporation registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place in the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. Such list shall be
produced at the time and place of the meeting and kept during the whole time
thereof for inspection by any stockholder who is present.
Section 2.6. Quorum and adjournments. For the purpose of any action to be
taken by stockholders at any meeting, the presence in person or by proxy of the
holders of those of the shares of stock of the Corporation issued and
outstanding and entitled to vote thereat as shall have a majority of the voting
power of all such shares shall be necessary and sufficient to constitute a
quorum for the transaction of business, except as otherwise expressly provided
by law or by the Certificate of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat present in person or represented by proxy
shall have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The absence from any meeting of the number
required by law, or by the Certificate of Incorporation or these by-laws, for
action upon any given matter shall not prevent action at such meeting upon any
other matter or matters which may properly come before the meeting and subject
was on the agenda of the meeting, if the number required in respect of such
other matter or matters shall be present. Nothing in these by-laws shall affect
the right to adjourn any meeting from time to time where a quorum is present.
Section 2.7. Organization. At any meeting of stockholders, the President
and Chief Executive Officer (amended 12/18/87), or in his absence, a Vice
President, or in the absence of all of the foregoing, a person chosen by a
majority of the votes entitled to be cast by the stockholders of the Corporation
present in person or by proxy and entitled to vote thereat shall act as
chairman; and the Secretary, or in his absence an Assistant Secretary; or in the
absence of the Secretary and all Assistant Secretaries, a person whom the
chairman of the meeting shall appoint shall act as secretary of the meeting. The
Board, in advance of any meeting of stockholders, may appoint one or more
inspectors of election to act at such meeting or any adjournment thereof. If
inspectors are not so appointed, the chairman of such meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint one or more
inspectors. In case any person appointed fails to appear or to act, the vacancy
may be filled by the chairman of the meeting. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The duties of the inspectors shall be to
ascertain and report the number of shares represented at the meeting, to
determine the validity and effect of all proxies, to count all votes and report
the results thereof, and to do such other acts as are proper to conduct
elections and voting with impartiality and fairness to the stockholders. If no
inspector is appointed as herein provided, such duties shall be performed by the
secretary of the meeting.
The chairman of the meeting shall have the right to decide, without
appeal, the order of business for such meeting and all procedural motions,
questions and other matters (including the right to limit discussion as being
unreasonably cumulative or prolonged or irrelevant to a pending question)
pending before the meeting. The Corporation shall keep minutes of the
proceedings of its stockholders.
Section 2.8. Voting by stockholders. Except as otherwise expressly
provided by law or by the Certificate of Incorporation or these by-laws, each
stockholder present in person or by proxy at any meeting shall have, on each
matter on which such stockholder is entitled to vote, one vote with respect to
each share of stock registered in his name on the books of the Corporation:
(a) On the date fixed pursuant to Section 8.5 hereof as the record
date for the determination of stockholders entitled to notice of and
to vote at such meeting, or
(b) If no record date is so fixed, then at the close of business on
the day next preceding the day on which notice of such meeting is
given, or, if no notice is given and notice is waived, at the close
of business on the day next preceding the day on which such meeting
is held.
Any stockholder entitled to vote at any meeting may vote either in person
or by proxy appointed by an instrument in writing, signed by such stockholder
(or by his attorney-in-fact thereunto authorized in writing) and delivered to
the secretary of the meeting; provided, however, that no proxy shall be valid
after eleven months from the date of its execution unless otherwise provided in
the proxy.
Every matter other than the election of Directors to be decided by
stockholders at any meeting (except as otherwise expressly provided by law or by
the Certificate of Incorporation) shall be decided, if a quorum be present, by
the vote of the majority of the shares voting with respect to the issue to be
decided. In the election of directors, these persons shall be elected who
receive the highest number of votes cast in the election.
Unless directed by the chairman of the meeting or demanded by the holders
of a majority of the shares of stock of the Corporation present in person or by
proxy at any meeting and entitled to vote thereon, the vote on any matter need
not be by ballot. Upon any such direction or demand for a vote by ballot upon
any matter, such vote shall be so taken. On a vote by ballot, each ballot shall
be signed by the stockholder voting or by his proxy, if there be such proxy, and
shall state the number of shares voted by him.
ARTICLE III
Board of Directors
Section 3.1. General powers. The business and affairs of the Corporation
shall be managed by the Board as from time to time constituted. The Board may
exercise all powers, rights and privileges of the Corporation (whether expressed
or implied in the Certificate of Incorporation or conferred by law) and do all
acts and things which may be done by the Corporation, as are not by law, the
Certificate of Incorporation or these by-laws directed or required to be
exercised or done by the stockholders.
Section 3.2. Number, qualifications and term of office. The entire Board
shall consist of six (6) directors (amended 5/1/94). The directors shall be
divided into three classes; Class I, Class II and Class III. The number of
directors in each class shall be as nearly equal as possible. The term of office
of each of the initial Class I directors shall expire at the annual meeting of
stockholders in 1970, the term of office of each of the initial Class II
directors shall expire at the annual meeting of stockholders in 1971 and the
term of office of each of the initial Class III directors shall expire at the
annual meeting of stockholders in 1972. Subsequent term of office of directors
of each class shall expire at the third annual meeting succeeding the annual
meeting at which the preceding term of office of directors of that class expire.
Notwithstanding the foregoing, the term of office of a director shall continue
after the annual meeting at which it is to expire until the successor to such
director shall be elected and qualified unless the directorship is eliminated in
which case the term of office shall expire at the appropriate annual meeting, or
at any earlier time when such office, being lawfully vacant, is eliminated.
Directors shall be at least twenty-one years of age. A person elected as a
director shall be deemed to have qualified as a director if he shall have met
the qualifications of directors prescribed by law, the Certificate of
Incorporation and these by-laws and if he shall have indicated, in any form
whatever, his willingness to serve as a director of the Corporation.
Section 3.3. Election of directors. Directors of the class whose terms
then expire shall be elected, as provided in these by-laws, at each annual
meeting of the stockholders, or if for any reason the election shall not have
been held at an annual meeting, at any special meeting called for that purpose
after proper notice. Directors shall be elected solely from a list of persons
nominated for directors at the meeting. Nominations of candidates for election
as directors of the Corporation at any meeting of stock-holders to elect
director(s) (an "Election Meeting") may be made by the Board of Directors at a
meeting of the Board, or by written consent of directors in lieu of a meeting,
not less than 30 days prior to the date of the Election Meeting. At the request
of the Secretary of the Corporation each proposed nominee shall provide the
corporation with such information concerning himself as is required under the
proxy solicitation rules of the Securities and Exchange Commission. Any
stockholder eligible to vote at the Election Meeting who intends to make a
nomination at the meeting may do so by first delivering notice, at least 30 days
prior to the date of the Election Meeting, to the Secretary of the Corporation
setting forth: the name, age, business and residence addresses, the principal
occupation or employment, the number of Corporation shares beneficially owned
and a consent to serve as a director if elected for each such nominee that would
be required for a nominee under the Securities and Exchange Commission rules for
solicitation of proxies on behalf of the Corporation. In the event that a person
is validly designated as a nominee in accordance with this Section 3.3 and shall
thereafter become unable or unwilling to stand for election to the Board of
Directors, such person's nominator may designate a substitute nominee. If the
Chairman of the Election Meeting determines that a nomination was not made in
accordance with foregoing procedures, such nomination shall be void and not
allowed. (amended 6/19/87)
Section 3.4. Removal of directors. A director may be removed from office
during the term of such office but only upon a showing of good cause, such
removal to be by affirmative vote of a majority of the outstanding shares
entitled to vote for the election of such director and which removal may only be
taken at a special meeting of stockholders called for that purpose.
A special meeting of the stockholders as herein referred to may only be
held after a hearing on the matter of cause claimed to exist has been held by
the full Board of Directors of the Company at which hearing the director or
directors proposed for removal shall be given an adequate opportunity for
preparation and attendance in person (together with representation by counsel);
provided, however, that such hearing shall be held only after written notice has
been given to said director or directors proposed for removal specifying the
matters of cause claimed to exist. The conclusions of said hearing shall be
reported by the Board of Directors in writing accompanying the notice of the
special stock-holders' meeting sent to each stockholder eligible to vote at said
special meeting. (amended 6/19/87)
Section 3.5. Newly created directorships and vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board for any reason may be filled by the affirmative
vote of a majority of the remaining directors then in office, although less than
a quorum of the Board exists. A director elected to fill a vacancy shall be
elected for the unexpired portion of the term of his predecessor in office. A
director elected to fill a newly created directorship shall serve for the term
provided herein for the class of directors for which such director was elected.
(amended 6/19/87)
Section 3.6. Place of meetings. The Board may hold its meetings at any
place within or without the State of Delaware.
Section 3.7. Annual meeting. A meeting of the Board for the purposes of
organization, election of officers and transaction of other business shall be
held, if practicable, on the day of each annual meeting of stockholders for
election of directors and at the place of the holding of said annual meeting. No
notice of any such meeting held at such time and place need be given. Such
meeting may be held at any other time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board.
Section 3.8. Regular meetings. Regular meetings of the Board may be held
without notice, or with such notice thereof given by the Secretary as may be
prescribed from time to time, at such time and place as may from time to time be
specified in a resolution or resolutions adopted by the Board.
Section 3.9. Special meetings. Special meetings of the Board may be
called at any time by the Board, the President and Chief Executive Officer
(amended 12/18/87), or any three directors. Notice of such meetings shall be
given by the Secretary, either personally or by telephone or by mail or by
telegram or by cable-gram, to each director not less than 48 hours before the
time of such meeting, which shall be fixed by the person or persons calling such
meeting, but need not state the purposes thereof except as otherwise required by
law or these by-laws. (amended 6/19/87)
Section 3.10. Quorum and manner of acting. At each meeting of the Board,
the presence of a majority of the entire Board shall be necessary to constitute
a quorum for the transaction of business. Any vote of a majority of the
directors present at the time of taking such vote, if a quorum shall be present
at such time, shall be the act of the Board, except as may be otherwise
specifically provided by law, the Certificate of Incorporation or these by-laws.
Any meeting of the Board may be adjourned from time to time by a majority vote
of the directors present at such meeting. In the absence of a quorum at such a
meeting, a majority of the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present thereat. Notice of any adjourned meeting need not be
given.
Section 3.11. Presence at meetings. Directors may participate in any
meeting of the Board, or any meeting of the Executive Committee or any other
committee of the Board of which they are members, by means of conference
telephone or similar communications equipment by means of which all persons
participating in such meeting (whether participating by virtue of this provision
or otherwise) can hear each other, and participation in a meeting pursuant to
this provision shall constitute presence in person at such meeting.
Section 3.12. Organization and procedure. At each meeting of the Board,
the President and Chief Executive Officer, or in the absence of the President
and Chief Executive Officer (amended 12/18/87), a director chosen by the Board,
shall act as Chairman of the meeting. The Secretary of the Board (if one shall
be appointed pursuant to Section 3.16 of these by-laws), or in his absence (or
if one shall not be so appointed) the Secretary of the Corporation, or in his
absence an Assistant Secretary of the Corporation, or in the absence of all of
the foregoing a person appointed by the Chairman of the meeting, shall act as
Secretary of the meeting. The Chairman of the meeting shall, without
relinquishing the chairmanship of the meeting, have full power of discussion and
voting power in respect of any matter before the meeting.
Section 3.13. Minutes of meetings. The Board shall have
minutes kept of its proceedings.
Section 3.14. Informal action by unanimous consent. Unless otherwise
restricted by statute, the provisions of the Certificate of Incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the Board or the Executive Committee or any other committee of the Board may be
taken without a meeting if all members of the Board or Executive Committee or
other committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board, Executive
Committee or other committee.
Section 3.15. Compensation. Directors shall be entitled to receive such
fees and expenses, if any, for attendance at meetings of the Board, and in
addition such fixed compensation for services as directors, as may be fixed from
time to time by resolution of the Board; provided that no such fee or
compensation shall be paid to any director who is at the time a regularly
salaried officer or employee of the Corporation. Directors shall also be
entitled to receive such compensation for services rendered to the Corporation
as officers, members of committees, or in any other capacity, other than as
directors, as may be provided from time to time by resolution of the Board, and
shall also be entitled to reimbursement for expenses incurred in the performance
of any such services.
ARTICLE IV
Committees of the Board.
Section 4.1. Committees of the Board. The committees of the Board shall
consist of an Executive Committee, an Audit Committee, a Compensation/Stock
Option Committee, and such other committees of the Board as may from time to
time be established by a resolution of the Board. Except as otherwise provided
in these by-laws, each committee of the Board shall consist of not less than two
members of the Board.
Section 4.2. Appointment and term of office of committee members,
designation of alternates and chairmen. The members of each committee of the
Board shall be appointed by the Board as the Board in its discretion may
determine, subject however, to any specific requirements of law, the Certificate
of Incorporation or these by-laws regarding membership on such committees. The
Board may designate one or more other directors to serve as alternates for the
members of any committee of the Board in such order and manner as may be fixed
by the Board. Unless otherwise provided by these by-laws or by the resolution of
the Board designating or establishing any such committee, the members of each
such committee shall serve thereon for a term of office beginning with the date
of appointment thereto and until the next annual meeting of the Board and until
their respective successors shall be appointed; provided, however, that any
member of any such committee may be removed or his office declared vacant at any
time by the Board without assigning (and without there existing) any reason or
cause as the basis thereof. A chairman of each committee of the Board may be
designated by the Board from among the members of each such committee subject to
any limitations imposed by these by-laws, but in the absence of any such
designation, or in the absence of a designated chairman at any meeting of any
such committee, the members of such committee may designate one of its members
as chairman of such committee or the meeting, as the case may be.
Section 4.3. Procedure, meetings, voting and records. Each committee of
the Board may prescribe for the conduct of its business such rules and
regulations, not inconsistent with these by-laws or with such resolutions for
the guidance and control of such committee as may from time to time be passed by
the Board, as it shall deem necessary or desirable, including, without
limitation, rules fixing the time and place of meetings and the notice to be
given thereof, if any. A majority of the members of a committee of the Board
shall constitute a quorum. The adoption of any resolution or the taking of any
other action by any committee of the Board shall require the affirmative vote of
a majority of the members of such committee as from time to time constituted. In
the absence or disqualification of any member of such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. The Executive Committee shall keep
minutes of its proceedings, but, unless required by resolution of the Board,
other committees of the Board need not keep minutes of their proceedings but
shall maintain such written records of actions taken by such committees as may
be necessary or appropriate to evidence such actions. All actions taken by
committees of the Board shall be reported to the Board at the meeting thereof
held next after the taking of such action.
Section 4.4. General power and authority and limitations. The committees
of the Board shall have and may exercise such power and authority as are
expressly provided by these by-laws or from time to time conferred by resolution
of the Board, and such other power and authority implicit in or incidental
thereto, subject in all instances to all specific limitation imposed by law or
by the Certificate of Incorporation. No committee of the Board, however, shall
have the power or authority of the Board with reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution or amending the by-laws of the Corporation. In
addition, and unless such power and authority shall be conferred in whole or in
part by resolution of the Board, no committee of the Board shall have the power
or authority of the Board to establish any other committee of the Board, to
confer or withdraw the power or authority of any other committee of the Board,
or to appoint or remove any member of any other committee of the Board. Any
power or authority of any committee of the Board conferred by resolution of the
Board may at any time and from time to time thereafter be altered or withdrawn
by resolution of the Board, provided, however, that any such alteration or
withdrawal shall not impair or invalidate any exercise of such power or
authority prior thereto.
Section 4.5. Executive Committee. The Executive Committee shall consist
of not less than two members of the Board, as from time to time appointed by
resolution of the Board, one of whom shall be the President and Chief Executive
Officer (amended 12/18/87). The Board shall also designate a member of the
Executive Committee to be the Chairman of the Executive Committee. The Executive
Committee shall have, to the fullest extent permitted by law, but subject to any
specific limitation imposed by the Certificate of Incorporation, these by-laws
or a resolution of the Board, all of the power and authority vested in or
retained by the Board (whether or not the Executive Committee is specifically
mentioned in the statute, the provision of the Certificate of Incorporation or
these by-laws, the resolution or other instrument vesting or retaining any such
power or authority); and the Executive Committee may exercise such power and
authority in such manner as it shall deem for the best interests of the
Corporation in all cases in which specific directions shall not have been given
by the Board. (amended 6/19/87)
Section 4.6. Audit Committee. The Audit Committee shall consist of not
less than two members of the Board as from time to time appointed by resolution
of the Board. No member of the Board who is also an employee of the Corporation
shall be eligible to serve on the Audit Committee. The Audit Committee shall
review and, as it shall deem appropriate, recommend to the Board internal
accounting and financial controls of the Corporation and accounting principles
and auditing practices and procedures employed in the preparation of financial
statements of the Corporation and the review thereof of independent public
accountants for the Corporation. The Audit Committee shall make recommendations
to the Board concerning the engagement of independent public accountants to
audit the annual financial statements of the Corporation and the scope of the
audit to be undertaken by such accountants.
Section 4.7. Compensation/Stock Option Committee. The Compensation/Stock
Option Committee shall consist of not less than two members of the Board as from
time to time appointed by resolution of the Board. No member of the Board who is
also an employee of there Corporation shall be eligible to serve on the
Compensation/ Stock Option Committee. The Compensation/Stock Option Committee
shall review and, as it deems appropriate, recommend to the President and Chief
Executive Officer (amended 12/18/87)and the Board policies, practices and
procedures relating to compensation of managerial employees and the
establishment and administration of employee benefit plans, shall have and
exercise all authority under employee stock option plans as the committee
therein designated to administer such plans, and shall otherwise advise and
consult with the President and Chief Executive Officer (amended 12/18/87) as may
be requested regarding managerial personnel policies.
Section 4.8. Other committees of the Board. Other committees of the Board
shall have such power and authority, and such functions, duties and compensation
as the Board may designate.
ARTICLE V
Officers
Section 5.1. Designation. The principal officers of the Corporation shall
be a President and Chief Executive Officer (amended 12/18/87), one or more Vice
Presidents, a Chief Financial Officer, a Secretary, a Treasurer, and a
Controller; and there may be such other officers, and such agents and employees,
as shall be appointed in accordance with the provisions of Section 5.5 of these
by-laws. Any two or more offices may be held by the same person.
Section 5.2. Election and qualifications. The principal officers of the
Corporation shall be elected annually by the Board at a meeting on the day of
the annual meeting of stockholders. The President and Chief Executive Officer
(amended 12/18/87) shall be chosen from among the Directors.
Section 5.3. Term of office. Each principal officer of the corporation
shall hold office until the next annual meeting of the Board following his
election and until his successor shall have been elected and qualified, or until
his death, or until he shall resign, or until he shall have been removed at any
time by the Board with or without cause. The removal of an officer without cause
shall be without prejudice to his contract rights, if any. The election of an
officer shall not of itself create contract rights.
Section 5.4. Vacancies. A vacancy in the office of a principal officer
shall be filled for the unexpired portion of the term in a manner prescribed in
these by-laws for regular election to such office. In the interim between the
occurrence of any such vacancy and a meeting of the Board, the President and
Chief Executive Officer (amended 12/18/87) may by appointment fill such vacancy
for a term which shall expire at the next meeting of the Board unless such
appointment shall be confirmed at such meeting.
Section 5.5. Appointive officers and agents. The Board or the President
and Chief Executive Officer may appoint such officers, other than principal
officers, including one or more Assistant Vice Presidents, Assistant
Secretaries, Assistant Treasurers, Assistant Controllers, and Divisional Vice
Presidents and other divisional officers, and such agents and employees, as the
Board or the President and Chief Executive Officer may deem necessary or
advisable, each of whom shall hold his office or his position, as the case may
be, for such period, have such authority, and perform such duties as may be
provided in these by-laws or as the Board may from time to time determine. The
President and Chief Executive Officer may prescribe additional duties to be
performed by such officers, agents and employees, and the President and Chief
Executive Officer may at any time suspend the duties, of whatever nature, of any
such officer, agent or employee.
Section 5.6. Compensation. The compensation of the President and Chief
Executive Officer (amended 12/18/87) shall be fixed from time to time by the
Board. The President and Chief Executive Officer (amended 12/18/87) shall fix
and determine, or delegate in any manner he shall select the power to fix and
determine, the compensation of all other officers, agents and employees of the
Corporation, unless the Board shall by resolution otherwise direct.
Section 5.7. Bonds. The Treasurer and any Assistant Treasurer, and such
other officers and agents of the Corporation as the Board or the President and
Chief Executive Officer (amended 12/18/87) shall prescribe, may be required each
to give bond to the Corporation in such form and amount and with such surety as
the Board or the President and Chief Executive Officer (amended 12/18/87) may
determine, conditioned upon the faithful performance of the duties of his
office, and upon the restoration to the Corporation in the case of his death,
resignation, retirement or removal, of all books, vouchers, moneys or other
papers or things in his possession or under his control belonging to the
Corporation. The Corporation shall pay the premium cost of such bonds.
Section 5.8. Employment contracts. Every employment for personal services
to be rendered to the Corporation shall be at the pleasure of the Corporation
unless under a contract in writing which has been duly executed on behalf of the
Corporation and has been approved, authorized or ratified by the Board or
executed or approved by the President and Chief Executive Officer (amended
12/18/87).
Section 5.9. Chief Executive Officer. The Chief Executive Officer shall
be the chief executive officer of the Corporation and shall preside at meetings
of the shareholders and the Board of Directors. Subject to the Board of
Directors, he shall be in general and active charge of the entire business and
all the affairs of the company and shall be its chief policy-making officer. He
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or provided in the By-Laws. Whenever the President is
unable to serve, by reason of sickness, absence or otherwise, the Chief
Executive Officer shall perform all the duties and functions and exercise all
the powers of the President. (amended 12/18/87)
Section 5.10. President. Under the direction of the Chief Executive
Officer, and subject to the Board of Directors, the President shall have general
charge of the business operations. Whenever the Chief Executive Officer is
unable to serve, by reason of sickness, absence or otherwise, the President
shall have the powers and perform the duties of the Chief Executive Officer. He
shall have such other powers and perform such other duties as may be prescribed
by the Chief Executive Officer or the Board of Directors of as may be provided
in the By-Laws. (amended 12/18/87)
Section 5.11. Vice Presidents. Each Vice President shall have such power
and perform such duties as the Board may from time to time prescribe or as the
President and Chief Executive Officer may from time to time delegate to him. At
the request of the President and Chief Executive Officer, any Vice President
may, in the case of the absence or inability to act of the President and Chief
Executive Officer, temporarily act in his place. In the case of the death of the
President and Chief Executive Officer, or in the case of his absence or
inability to act without having designated a Vice President to act temporarily
in his place, the Vice President or Vice Presidents so to perform the duties, or
any particular duty, of the President and Chief Executive Officer shall be
designated by the Board. (amended 12/18/87)
Section 5.12. Chief Financial Officer. The Chief Financial Officer of the
Corporation shall, under the direction of the President and Chief Executive
Officer, be responsible for all financial and accounting matters and for the
direction of the offices of Treasurer and Controller. Such officer shall have
such other powers and shall perform such other duties as the Board may from time
to time prescribe or the President and Chief Executive Officer may from time to
time delegate to him. (amended 12/18/87)
Section 5.13. Secretary. The Secretary of the Corporation shall attend
all meetings of the stockholders and shall be and act as the secretary of such
meetings. Except where the Board has appointed a person to act as Secretary of
the Board, he shall attend all meetings of the Board and Executive Committee and
shall be and act as the secretary of such meetings. He shall give, or cause to
be given, all notices provided for in these by-laws or required by the
Certificate of Incorporation or by law; he shall be custodian of the records an
of the seal of the Corporation and see that the seal is affixed to all documents
the execution of which on behalf of the Corporation under its seal is duly
authorized in accordance with these by-laws; he shall have charge of the stock
certificate books of the Corporation, and keep or cause to be kept the stock
certificate books, stock transfer books and stock ledgers in such manner as to
show, at all times, the amount of the capital stock issued and outstanding, the
classes and series thereof, if any, the names alphabetically arranged, the
places of residence of the holders of record thereof, the number of shares held
by each and the time when each became a holder of record; he shall have charge
of all books, records and papers of the Corporation relating to its organization
as a Corporation, and shall see that all reports, statements and other documents
required by law are properly kept or filed, except to the extent that the same
are to be kept or filed by the Controller or any appointive officer, agent or
employee; he may sign with the President and Chief Executive Officer or any Vice
President any of all certificates of stock of the Corporation; and in general
shall exercise all powers and perform all duties incident to the office of
Secretary and such other powers and duties as may from time to time be assigned
to him by the Board or the President and Chief Executive Officer or be
prescribed by these by-laws. (amended 12/18/87)
Section 5.14. Assistant Secretaries. The Assistant Secretaries shall
assist at all times in the performance of the duties of the Secretary, subject
to his control and direction, and, in the absence of the Secretary, the
Assistant Secretary designated therefor by the Board or President and Chief
Executive Officer, or in the absence of such designation, any Assistant
Secretary, shall exercise the powers and perform the duties of the Secretary.
The Assistant Secretaries shall exercise such other powers and perform such
other duties as may from time to time be assigned to them by the Board, the
President and Chief Executive Officer or the Secretary, or be prescribed by
these by-laws. (amended 12/18/87)
Section 5.15. Treasurer. The Treasurer shall have charge of
and be responsible for the collection, receipt, custody and
disbursements of the corporate funds and securities; he shall be
responsible for the deposit of all moneys, and other valuable
effects, in the name and to the credit of the Corporation in such
depositories as may be designated by the Board (or by an officer of
the corporation pursuant to any delegation of such authority by the
Board); he shall disburse the funds of the Corporation as may be
ordered by the Board or as may be pursuant to authorizations of the
Board or these by-laws, taking proper vouchers for such
disbursements; he shall, subject to the supervision and direction of
the Chief Financial Officer, be responsible for carrying out policies
of the Corporation with respect to the approving, granting or
extending of credit by the Corporation; he shall, subject to the
supervision and direction of the Chief Financial Officer, have the
custody of such books, receipted vouchers and other books and papers
as in the practical business operations of the Corporation shall
naturally belong to the office or custody of the Treasurer, or as
shall be placed in his custody by the Board, by the Executive
Committee, by the President and Chief Executive Officer or the Chief
Financial Officer, and the Treasurer shall give to the Board or any
committee thereof, whenever they may require it, an account of all
his transactions as Treasurer; and in general he shall exercise all
powers and perform all duties incident to the office of Treasurer and
such other powers and duties as may from time to time be assigned to
him by the Board or President and Chief Executive Officer or Chief
Financial Officer or be prescribed by these by-laws. (amended
12/18/87)
Section 5.16. Assistant Treasurers. The Assistant Treasurers shall assist
at all times in the performance of the duties of the Treasurer, subject to his
control and direction, and, in the absence of the Treasurer, the Assistant
Treasurer designated therefor by the Board, the President and Chief Executive
Officer, or in the absence of such designation, any Assistant Treasurer shall
exercise the powers and perform the duties of the Treasurer. The Assistant
Treasurers shall exercise such other powers and perform such other duties as may
from time to time be assigned to them by the Board, the President and Chief
Executive Officer, the Chief Financial Officer, or the Treasurer, or be
prescribed by these by-laws. (amended 12/18/87)
Section 5.17. Controller. The Controller shall be the Chief Accounting
Officer of the Corporation and shall have charge of the Corporation's books of
accounts, and, subject to the provisions of this Section 5.17, shall be under
the direction of the Chief Financial Officer. He shall maintain full and
accurate records of all assets, liabilities, commitments and financial
transactions of the Corporation; he shall see that an adequate system of
internal control is maintained and that all reasonable measures are taken to
protect the Corporation's assets; he shall supervise the approval of all
expenditures; he shall compile costs of production and distribution; he shall
prepare and interpret all statistical records and reports of the Corporation; he
shall render such financial statements and other information as may be directed
by the Board; and, in general, he shall perform all the duties ordinarily
connected with the office of Controller and such other duties as from time to
time may be assigned to him by the Board or any committee thereof or the
President and Chief Executive Officer or the Chief Financial Officer. His duties
shall extend to all subsidiary corporations and, so far as the Board or the
President and Chief Executive Officer or the Chief Financial Officer may deem
practicable, to all affiliated corporations. The Controller shall report to the
President and Chief Executive Officer and the Chief Financial Officer from time
to time all matters affecting the financial affairs of the Corporation. He may
also consult with the President and Chief Executive Officer from time to time in
respect of matters affecting the financial affairs of the Corporation; he shall
furnish the President and Chief Executive Officer with such information as the
President and Chief Executive Officer may from time to time request; and he
shall report to the President and Chief Executive Officer all matters which in
his opinion should be brought to the attention of the Board; and in the event
such matters are not reasonably brought to the attention of the Board, he may
present the same to the Board in writing. When requested by the Board or a
committee thereof, he shall report directly to the Board or such committee in
reference to any and all matters pertaining to his duties and falling within the
function of his office. (amended 12/18/87)
Section 5.18. Assistant Controllers. The Assistant Controllers shall
assist at all times in the performance of and duties of the Controller, subject
to his control and direction, and, in the absence of the Controller, the
Assistant Controller designated therefor by the Board, the President and Chief
Executive Officer, or the Chief Financial Officer, or in the absence of such
designation, any Assistant Controller, shall exercise the powers and perform the
duties of the Controller. The Assistant Controllers shall exercise such other
powers and perform such other duties as may from time to time be assigned to
them by the Board, the President and Chief Executive Officer, the Chief
Financial Officer, or the Controller, or be prescribed by these by-laws.
(amended 12/18/87)
ARTICLE VI
Indemnification.
Section 6.1. Indemnification of directors and officers. The Corporation
shall, to the fullest extent to which it is empowered to do so by the general
Corporation Law of Delaware, or any other applicable laws, as from time to time
in effect, indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding. Any director, officer or employee of the Corporation
who is or was serving as a director or officer of a subsidiary of the
Corporation or of any entity in which the Corporation holds an equity interest
shall be deemed to serve in such capacity at the request of the Corporation.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount unless it shall ultimately be determined that he or
she is entitled to be indemnified by the Corporation as authorized in this
Article VI.
Section 6.2. Contract with the Corporation. The provisions of this
Article VI shall be deemed to be a contract between the Corporation and each
director or officer who serves in any such capacity at any time while this
Article and the relevant provisions of the General Corporation Laws of Delaware
or other applicable law, if any, are in effect, and any repeal or modification
of this Article VI or any such law shall not affect any rights or obligations
then existing with respect to any state of facts then or theretofore existing or
any action, suit or proceeding theretofore or thereafter brought or threatened
based in whole or in part upon any such state of facts.
Section 6.3. Indemnification of employees and agents. Persons who are not
covered by the foregoing provisions of this Article VI and who are or were
employees or agents of the Corporation, or are or were serving at the request of
the Corporation as employees or agents of another corporation, partnership,
joint venture, trust or other enterprise, may be indemnified to the extent
authorized at any time or from time to time by the Board.
Section 6.4. Other rights of indemnification. The indemnification
provided or permitted by this Article VI shall not be deemed exclusive of any
other rights to which those indemnified may be entitled by law or otherwise, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
Checks, Contracts, Loans and Bank Accounts.
Section 7.1. Checks, drafts, etc. All checks, drafts, bills of exchange
or other orders for the payment of money, obligations, notes, or other evidences
indebtedness, bills of lading, warehouse receipts and insurance certificates of
the corporation, shall be signed or endorsed as the Board may direct.
Section 7.2. Contracts. The Board may authorize one or more officers,
agents or employees of the Corporation to enter into any contract or execute and
deliver any contract or other instruments in the name and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
Section 7.3. Loans. No loans shall be contracted on behalf of
the Corporation and no evidence of indebtedness shall be issued in
its name unless authorized by a resolution of the Board. Such
authority may be general or confined to specific instances.
Section 7.4. Deposits. All funds of the Corporation shall be
deposited from time to time to the credit of the Corporation in such
general or special bank account or accounts in such banks, trust
companies or other depositories as the Board, the President and Chief
Executive Officer, or the Treasurer may from time to time designate;
and the Board may make such general or special rules and regulations
with respect thereto, not inconsistent with the provisions of these
by-laws, as it may deem expedient. (amended 12/18/87)
ARTICLE VIII
Shares and Their Transfer.
Section 8.1. Certificates of stock. Certificates of stock of the
Corporation shall be in such form, consistent with all applicable provisions of
law, as shall be approved by the Board. They shall be signed by the President
and Chief Executive Officer (amended 12/18/87) or a Vice President and by the
Secretary or an Assistant Secretary, which signatures may be by engraved or
imprinted facsimile on any certificate countersigned by a transfer agent or
registered by a registrar. In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of issue.
Section 8.2. Transfer of stock. Transfers of shares of stock of the
Corporation shall be made on payment of all taxes thereon and presentment to the
Corporation or its transfer agent for cancellation of the certificate or
certificates for such shares (except as hereinafter provided in the case of
loss, destruction, theft or mutilation of certificates) properly endorsed by the
registered holder thereof or accompanied by proper evidence of succession,
assignment or authority to transfer, together with such reasonable assurance as
the Corporation or its transfer agent may require that the said endorsement is
genuine and effective. A person in whose name shares of stock are registered on
the books of the Corporation shall be deemed the owner thereof by the
Corporation, and, upon any transfer of shares, the person or persons into whose
name or names such shares shall be transferred shall be substituted for the
person or persons out of whose name or names such shares shall have been
transferred, with respect to all rights, privileges and obligations of holders
of stock of the Corporation as against the Corporation or any other person or
persons.
Section 8.3. Lost, destroyed, stolen, and mutilated certificates. The
holder of any stock of the Corporation shall immediately notify the Corporation
of any loss, destruction, theft or mutilation of the certificates for any such
stock, and the Board may, in its discretion, cause to be issued to him a new
certificate or certificates of stock, upon the surrender of the mutilated
certificate, or in case of loss, destruction or theft, upon satisfactory proof
of such loss, destruction or theft; and, the Board may, in its discretion,
require the owner of the lost, destroyed or stolen certificate, or his legal
representative, to give the Corporation a bond in such sum and in such form and
with such surety or sureties as it may direct, to indemnify the Corporation
against any claim that may be made against it with respect to the certificate or
certificates alleged to have been lost, destroyed or stolen. The powers
hereinabove vested in the Board may be delegated by it to any officer or
officers of the Corporation.
Section 8.4. Transfer agent and registrar and regulations. The
Corporation shall, if and whenever the Board shall so determine, maintain one or
more transfer offices or agencies, each in the charge of a transfer agent
designated by the Board, where the shares of the stock of the Corporation shall
be directly transferable, and also one or more registry offices, each in the
charge of a registrar designated by the Board, where such shares of stock shall
be registered, and no certificate for shares of stock of the Corporation in
respect of which a transfer agent and registrar shall have been designated shall
be valid unless countersigned by such transfer agent and registered by such
registrar. The Board may also make such additional rules and regulations as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the stock of the Corporation. The Corporation may
itself, at the discretion of the Board, act as transfer agent in such a manner
as the Board shall direct.
Section 8.5. Record date. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining the stockholders entitled
to receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board may fix, in advance, a date as the record
date for any such determination of stockholders. Such date shall not be more
than sixty nor less than ten days before the date of any meeting nor more than
sixty days prior to any such action. When a determination of stockholders of
record entitled to notice of or to vote at any meeting of stockholders has been
made as provided herein, such determination shall apply to any adjournment
thereof, unless the Board fixes a new record date for the adjourned meeting.
ARTICLE IX
Miscellaneous Provisions.
Section 9.1. Seal. The seal of the Corporation shall be in circular form,
with the name of the Corporation on the circumference, and the words
"Incorporated under the laws of the State of Delaware" in the center. Said seal
may be used by causing it or a facsimile or equivalent thereof to be impressed
or affixed or reproduced.
Section 9.2. Fiscal year. The Fiscal year of the Corporation shall end on
December 31 of each year.
Section 9.3. Notices. Any notice required by these by-laws or otherwise,
to be given shall be deemed to have been given in person if delivered in person
to the person to whom such notice is addressed, and shall be deemed to have been
deposited in the United States mail, enclosed in a postage prepaid envelope, and
shall be deemed to have been given by wireless, telegraph or cable when the same
shall have been delivered for prepaid transmission into the custody of a company
ordinarily engaged in the transmission of such messages; such postage prepaid
envelope or such wireless, telegraph or cable message being addressed to such
person at his address as it appears on such books and records of the
Corporation, or if no address appears on such book and records, then at such
address as shall be otherwise known to the Secretary, or if no such address
appears on such books and records or is otherwise known to the Secretary, then
in care of the registered agent of the Corporation in the State of Delaware.
Whenever, by any provisions of the Certificate of Incorporation or these
by-laws, or otherwise, any notice is required to be given any specified number
of days before any meeting or event, the day on which such notice was given
shall be counted, but the day of such meeting or other event shall not be
counted, in determining whether or not notice has been given in proper time in a
particular case.
Section 9.4. Waiver of notice. Whenever any notice is required to be
given under the provisions of the laws of the State of Delaware, the Certificate
of Incorporation or these by-laws, a waiver thereof in writing, signed by the
person entitled to such notice, or his proxy in the case of a stockholder,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Except as may be otherwise specifically provided by law, any waiver by
mail, telegraph, cable or wireless, bearing the name of the person entitled to
notice shall be deemed a waiver in writing duly signed. The presence of any
stockholder at any meeting, either in person or by proxy, without protesting
prior to the conclusion of the meeting the lack of notice of such meeting, shall
constitute a waiver of notice by him; and attendance by a director at any
meeting of the Board, without protesting prior to such meeting, or at its
commencement the lack of notice to him, shall constitute a waiver of notice by
him of such meeting.
Section 9.5. Resignations. Any officer or director may resign at any time
by giving written notice to the President and Chief Executive Officer (amended
12/18/87) or the Secretary. Such resignation shall take effect at the time
specified in the notice, or if no time is specified, at the time such notice
shall be given. Unless otherwise specified in any notice of resignation, the
acceptance of such resignation shall not be necessary to make it effective. No
such resignation shall serve to release the person submitting it from any
liability or duty to the Corporation, whether created by law, the Certificate of
Incorporation, these by-laws, a resolution or directive of the Board or under
any contract between such person and the Corporation, unless the Board shall
expressly and specifically release such person from any such liability or duty.
Section 9.6. Emergency by-laws. The Board may adopt emergency by-laws, as
permitted by law to be operative during any emergency resulting from an attack
on the United States or on a locality in which the Corporation conducts its
business or customarily holds meetings of the Board or its stockholders, or
during any nuclear or atomic disaster, or during the existence of any
catastrophe, or other similar emergency condition as a result of which a quorum
of the Board or of the Executive Committee cannot readily be convened for
action. The provisions of such Emergency by-laws shall, while operative,
supersede all contrary provisions of law, the Certificate of Incorporation, or
these by-laws.
<PAGE>
ARTICLE X
Severability; Amendments.
Section 10.1. Severability. If any provision of these by-laws, or its
application thereof to any person or circumstance is held invalid, the remainder
of these by-laws and the application of such provision to other persons or
circumstances shall not be affected thereby.
Section 10.2. Amendments. These by-laws may be amended or
repealed by the Board at any annual, regular or special meeting
thereof by an affirmative vote of 2/3's of the directors. (amended
6/19/87).
Exhibit 10.a.
FEDERAL SIGNAL CORPORATION
STOCK BENEFIT PLAN
1. Purpose of the Plan.
The purpose of this Stock Benefit Plan (the "Plan") is to secure for
Federal Signal Corporation, a Delaware corporation (the "Corporation"), and its
stockholders the benefits of incentive compensation of the management personnel
of the Corporation and its subsidiaries and to ensure a tax deduction for the
Corporation for certain compensation under the Plan. By virtue of the benefits
available under the Plan, directors and employees who are responsible for the
future growth and continued success of the Corporation have an opportunity to
participate in the appreciation in the value of the stock of the Corporation
which furnishes them with an incentive to work for and contribute to such
appreciation through the growth and success of the Corporation. In addition, it
is generally recognized that incentive compensation programs aid in retaining
and encouraging key employees of ability and in recruiting additional able
employees.
2. Shares Subject to the Plan.
An aggregate of 1,000,000 shares of Common Stock ($1.00 par value) of the
Corporation shall be subject to the Plan and such shares may be issued under the
Plan pursuant to Stock Options, Stock Awards or such other Stock Unit Awards
(collectively "Benefits") as the Committee, as defined below, in its discretion,
may determine and the total number of Benefit shares or units that can be
granted under the Plan shall not exceed 1,000,000 shares except as set forth in
the next paragraph. Such shares may be either authorized but unissued shares or
shares now or hereafter held in the treasury of the Corporation.
In the event that any option under the Plan expires or is terminated
without being exercised for any reason prior to the end of the period during
which options may be granted under the Plan, the shares theretofore subject to
such option, or the unexercised portion thereof, shall again become available
for grant under the Plan. In the event that any shares granted as stock awards
or stock unit awards expire, terminate or become the property of the Corporation
pursuant to the Plan, the number of such shares shall again become available for
granting as Benefits awards under the Plan.
3. Administration of the Plan.
A. The Committee.
The Plan shall be administered by the Compensation/Stock Option Committee
of the Board of Directors or such other committee as shall be designated by the
Board of Directors (the "Committee"). The Committee shall consist of not less
than two Directors of the Corporation, and shall be appointed by the Board of
Directors. Any decision or determination reduced to writing and signed by all
the members of the Committee shall be fully as effective as if it had been made
by a majority vote at a meeting duly called and held. The Committee may appoint
a secretary (who need not be a member of the Committee) and may make such rules
and regulations for the conduct of its business as it shall deem advisable. No
member of the Committee shall be liable, in the absence of bad faith, for any
act or omission with respect to his or her service on the Committee. Service on
the Committee shall constitute service as a Director of the Corporation so that
members of the Committee shall be entitled to indemnification and reimbursement
as Directors of the Corporation.
<PAGE>
B. Authority of the Committee.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority, in its discretion, to determine the employees to whom, and
the time or times at which, Benefits shall be granted and the number of shares
to be subject to each Benefit provided, however, no individual may receive more
than 100,000 of the shares per year under the Plan. In making such
determinations, the Committee may take into account the nature of the services
rendered or expected to be rendered by the respective employees, their present
and potential contributions to the Corporation's success, the anticipated number
of years of effective service remaining and such other factors as the Committee
in its discretion shall deem relevant. Subject to the express provisions of the
Plan, the Committee shall also have plenary authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the terms and conditions of the respective Benefits (which terms and conditions
need not be the same in each case), to impose restrictions on any shares issued
as or pursuant to the Benefits and to determine the manner in which such
restrictions may be removed, and to make all other determinations deemed
necessary or advisable in administering the Plan. The Committee may specify in
the original terms of any Benefit or, if not so specified, shall determine
whether any authorized leave of absence or absence on military or governmental
service or for any other reason shall constitute a termination of employment for
purposes of the Plan. The Committee shall have the authority to issue shares of
Common Stock or pursuant to the Benefits and to determine the consideration
received by the Corporation for such Benefits granted pursuant to the Plan. The
determination of the Committee on the matters referred to in this paragraph
shall be conclusive.
C. Granting Date.
The action of the Committee with respect to the granting of a Benefit
shall take place on such date as a majority of the members of the Committee at a
meeting shall make a determination with respect to the granting of a Benefit or,
in the absence of a meeting, on such date as a written designation covering such
Benefit shall have been authorized by all members of the Committee. The
effective date of the grant of a Benefit (the "Granting Date") shall be the date
specified by the Committee in its determination or designation relating to the
award of such Benefit, provided that the Committee may not designate a Granting
Date with respect to any Benefit which shall be earlier than the date on which
the granting of such Benefit shall have been approved by the Committee.
4. Eligibility.
Benefits may be granted to key employees (which term shall be deemed to
include officers) who on the Granting Date (or, with respect to Benefits that
are not incentive stock options, within 30 days thereafter in the instance of
newly hired employees) (i) are in the employ of the Corporation or one of its
then subsidiary corporations (the "subsidiaries"), as defined in Section 425 of
the Internal Revenue Code of 1954, as amended (the "Code"), and (ii) have
administrative, managerial, supervisory, professional, scientific, engineering
or similar responsibilities. Below market stock options may also be granted to
any Director of the Corporation in lieu of part or all of their Directors' fees
in accordance with Section 8 of this Plan.
<PAGE>
5. Terms and Conditions of Options.
A. Purchase Price and Terms of Options.
(i) The purchase price of the Common Stock under each option shall be
determined by the Committee, but for options granted under Section 5 of the
Plan, the price shall not be less than 100% of the fair market value of the
Common Stock, as determined by the Committee, on the Granting Date for such
option.
(ii) Options granted under this Plan may be either Incentive Stock Options
(as defined in Section 422A of the Code) or Non-Incentive Stock Options (i.e.,
options which are not within the Section 422A definition).
a. Incentive Stock Options: Subject to the minimum option price
specified in subparagraph 5(A)(i) hereof, the terms of each incentive
stock option granted under the Plan, which may be different in each case,
shall include those terms which are required by Section 422A of the Code,
and such other terms not inconsistent therewith as the Committee may
determine.
b. Non-Incentive Stock Options: Subject to minimum option price
specified in subparagraph 5(A)(i) hereof, the terms of each stock option
granted under this Plan that is not an incentive stock option, which terms
may be different in each case, shall be determined by the Committee.
B. Term of Options.
The term of each option granted under the Plan shall be for a period of
ten years unless otherwise determined by the Committee. Each option shall become
exercisable, unless otherwise determined by the Committee in its discretion,
with respect to one-half the number of shares subject thereto after the first
anniversary following the Granting Date, and shall be exercisable with respect
to all shares subject thereto after the second anniversary following the
Granting Date.
C. Restrictions on Transfer and Exercise.
(i) Except as hereinafter provided, no option granted pursuant to the Plan
may be exercised at any time unless the holder thereof is then an employee of
the Corporation or of a subsidiary. Options granted under the Plan shall not be
affected by any change of employment so long as the grantee continues to be an
employee of the Corporation or of a subsidiary. Retirement pursuant to the
Corporation's then prevailing retirement policies and plans shall be deemed to
be a termination of employment.
(ii) Unless the Committee determines otherwise, in the event of the
termination of employment of a grantee of an option (otherwise than by reason of
death), such option may be exercised (only to the extent that the employee was
entitled to do so at the termination of his employment) at any time within (1)
for options that are not incentive stock options, (a) two years after such
termination if such termination is due to disability (as defined in Section
105(d)(4) of the Code) or retirement unless, at the time of employment
termination, the Committee extends the period of exercise., (b) three months
after such termination in all other cases, unless such period shall be extended
by the Committee in its discretion; or (2) in the case of incentive stock
options, (a) one year after such termination if such termination is due to
disability (as defined in Section 105(d)(4) of the Code) or such lesser time as
the Committee may specify from time to time, or (b) three months after such
termination in all other cases unless such period shall be extended by the
Committee in its discretion. In no event shall an option be exercisable after
the expiration date of the option.
(iii) Unless the Committee determines otherwise, if a grantee shall die
while an employee of the Corporation or a subsidiary or within three months
after the termination of employment of the grantee, an option held by such
grantee may be exercised to the extent the option was exercisable by such
grantee at the date of death, by a legatee or legatees of such option under the
grantee's last will, or by the grantee's personal representative or
distributees, at any time within one year after the grantee's death, provided
that in no event shall the option be exercised after the expiration of the
period of the option.
(iv) No option granted under the Plan shall be transferable otherwise than
by will or the law of descent and distribution and an option may be exercised,
during the lifetime of the grantee thereof, only by the grantee thereof.
D. Exercise of Options; Alternative Settlement Methods.
(i) Subject to the limitations set forth in the Plan and the original
terms of the option, any option granted and exercisable pursuant to the Plan may
be exercised in whole or in part from time to time. Except in the case of the
election of an alternative settlement method as hereinafter provided, payment
for shares of Common Stock purchased shall be made in full at the time that an
option, or any part thereof, is exercised. Unless the Committee determines
otherwise in its discretion, a grantee holding an option may make all or a
portion of payment upon exercise of an option through delivery of shares of
Common Stock of the Corporation. Any shares so delivered shall be valued at the
closing price on the New York Stock Exchange on the date of the exercise of the
option (or, if no such closing price is available, the value shall be determined
in such other manner as the Committee may deem appropriate).
(ii) The Committee, in its discretion, may provide that any option granted
pursuant to the Plan may, by its terms, confer upon the grantee the right to
elect any of the alternative settlement methods set forth in subparagraph (iv)
below.
(iii) The Committee may, in its discretion and at the request of a grantee
holding an option granted pursuant to the Plan that does not by its terms
include the right to elect any of such alternative settlement methods, permit
the election of any of such alternative methods by the grantee. The Committee,
in its discretion, may at the request of the holder of an option on the Common
Stock of the Corporation, which option is exercisable at the time of the request
and which was granted pursuant to any stock option plan or other similar plan
heretofore established for the benefit of employees of the Corporation, permit
the election of any of such alternative methods by such holder. The authority of
the Committee to permit such elections of alternative settlement methods shall
not confer upon the grantee or holder of any option the right to such an
election.
(iv) The alternative settlement methods are: (a) cash equal to the excess
of the value of one share of Common Stock over the purchase price set forth in
the option times the number of shares as to which the option is exercised; (b)
the number of full shares of Common Stock having an aggregate value not greater
than the cash amount calculated under alternative (a); (c) any combination of
cash and full shares having an aggregate value not greater than the cash amount
calculated under alternative (a). Notwithstanding the other provisions of the
Plan, election of an alternative settlement method involving the receipt of cash
shall be subject to the approval of the Committee at the time of such election.
For purposes of determining an alternative settlement, the value per share of
Common Stock shall be the closing price on the New York Stock Exchange on the
date of the exercise of the option (or, if no such closing price is available,
the value shall be determined in such other manner as the Committee may deem
appropriate).
(v) In the event that an option granted or to be granted under the Plan is
not an incentive stock option under Section 422A of the Code, then the Committee
may, in its discretion, commit the Corporation to pay to the option holder, at
the time the taxes or an amount of cash equal to the amount of income tax
payable by the grantee as a result of the option exercise and as a result of
this tax reimbursement.
(vi) Exercise of an option in any manner, including an exercise involving
an election of an alternative settlement method, shall result in a decrease in
the number of shares which thereafter may be available for purposes of granting
options under the Plan by the number of shares as to which the option is
exercised.
E. Manner of Exercise.
An option shall be exercised by giving a written notice to the Secretary
of the Corporation stating the number of shares of Common Stock with respect to
which the option is being exercised and containing such other information as the
Secretary may request, including the election requesting authorization of an
alternative settlement method.
6. Stock Awards.
A. Award of Shares.
Stock awards will consist of shares of Common Stock of the Corporation
issued to eligible officers.
B. Restrictions on Transfer.
Stock awards shall be subject to such terms and conditions as the
Committee determines to be appropriate, including, without limitation,
restrictions on the sale or other disposition of such shares. Except as
hereinafter provided, or unless the Committee determines otherwise (either at
the time of the grant of a stock award or at any time thereafter), shares
granted as stock awards pursuant to the Plan shall not be sold, transferred,
assigned or otherwise disposed of by the grantee. In the event of termination of
full time employment (including, but not limited to, the retirement of the
grantee) for any reason prior to the termination date of any restrictions
pertaining to the stock award, the shares then subject to restrictions shall
become the property of the Corporation, provided, however, that the obligation
not to dispose of shares acquired pursuant to a stock award and the right of the
Corporation to receive such shares shall lapse, unless the Committee determines
otherwise in its discretion, as to one-fourth (or such other portion as the
Committee shall establish in the stock award) of the shares received in one
stock award on each of the first four anniversary dates following the Granting
Date thereof (or on such other date(s) as the Committee shall establish in the
stock award), and provided further that the Committee may determine (either at
the time of the grant of a stock award or at any time thereafter) that in the
event a grantee's employment is terminated on account of death, the permanent
disability of such grantee or upon such other conditions as the Committee may
approve, all restrictions remaining on shares granted to such grantee shall
lapse and such shares shall not become the property of the Corporation.
All restrictions applicable to any stock award shall apply to any shares
resulting from a stock dividend, stock split, or other distribution of shares of
the Corporation with respect to the stock award, effective as of the Granting
Date of such stock award.
All restrictions applicable to any stock award shall lapse (1) as to all
shares granted in such award, in the event any tender offer subject to Section
14(d) of the Securities Exchange Act of 1934, or any successor thereto, shall be
made for any of the outstanding Common Stock of the Corporation, or (2) as to
any securities, property, cash or combinations thereof received in exchange for
stock award shares pursuant to any merger, consolidation, liquidation or
dissolution of the Corporation.
7. Stock Unit Awards.
In order to enable the Corporation and Committee to respond quickly to
significant developments in applicable tax and other legislation and regulations
and interpretations thereof, and to trends in executive compensation practices,
the Committee shall also be authorized to grant to participants, either alone or
in addition to other Benefits granted under the Plan, awards of stock and other
awards that are valued in whole or in part by reference to, or are otherwise
based on Common Stock of the Corporation ("stock unit awards") such as phantom
stock, below market options, performance units, etc. Other stock unit awards may
be paid in Common Stock of the Corporation, cash or any other form of property
as the Committee shall determine.
The Committee shall determine the key employees to whom other stock unit
awards are to be made, the times at which such awards are to be made, the number
of shares to be granted pursuant to such awards and all other conditions of such
awards. The provisions of the stock unit awards need not be the same with
respect to each recipient. The participant shall not be permitted to sell,
assign, transfer, pledge, or otherwise encumber the shares prior to the later of
the date on which the shares are issued, or the date on which any applicable
restriction, performance or deferral period lapses. Stock (including securities
convertible into stock) granted pursuant to other stock unit awards may be
issued for no cash consideration or for such minimum consideration as may be
required by applicable law. Stock (including securities convertible into stock)
purchased pursuant to purchase rights granted pursuant to other stock unit
awards may be purchased for such consideration as the Committee shall determine
which price shall not be less than par value of such stock or other securities
on the date of grant.
8. Director Options.
Directors of the Corporation may elect to receive below-market stock
options in lieu of part or all of their Director fees. Such options shall be
granted at a price of $1.00 (par value of the Common Stock) per share. The
number of shares to be granted shall be determined by dividing the amount of
Director fees (that the Director irrevocably elected to take in the form of
below market options instead of cash) by the fair market value of a share of
Common Stock on the date of grant after subtracting the $1.00 option price from
such fair market value. These options shall be 100% vested on the date of grant,
but shall not be exercisable until six months after the date of grant. The term
of these options shall be for ten years and they shall not be transferable
otherwise than by will or the laws of descent and distribution and may only be
exercised by the Director, his guardian or legal representative during the
Director's lifetime. Election of an alternative settlement method shall not be
available for these options.
9. Stockholder and Employment Rights.
A holder of an option shall have none of the rights of a stockholder with
respect to any of the shares subject to option until such shares shall be issued
upon the exercise of the option.
Subject to the other provisions of the Plan, upon the date of issuance of
certificates representing a stock award, the grantee shall have all the rights
of a stockholder including the right to receive dividends and to vote the
shares. However, the certificates representing such shares and any shares of the
Corporation issued with respect thereto or in exchange therefor shall be held by
the Corporation for account of the grantee and the grantee shall deliver to the
Corporation upon request a stock power or powers executed in blank, covering
such shares. As and when restrictions lapse, the certificates representing such
shares shall be released to the grantee.
Nothing in the Plan or in any Benefit granted pursuant to the Plan shall,
in the absence of an express provision to the contrary, confer on any individual
any right to be or to continue in the employ of the Corporation or any of its
subsidiaries or shall interfere in any way with the right of the Corporation or
any of its subsidiaries to terminate the employment of any individual at any
time.
10. Adjustments in Common Stock.
The aggregate number of shares of Common Stock of the Corporation on which
Benefits may be granted hereunder, the number of shares thereof covered by each
outstanding Benefit, the price per share thereof in each such Benefit may all be
approximately adjusted, as the Board of Directors or the Committee may
determine, for any increase or decrease in the number of shares of Common Stock
of the Corporation resulting from a subdivision or consolidation of shares
whether through reorganization, recapitalization, stock split-up or combination
of shares, or the payment of a stock dividend or other increase or decrease in
such shares effected without receipt of consideration by the Corporation.
Subject to any required action by the stockholders, if the Corporation
shall be the surviving corporation in any merger or consolidation, any Benefit
granted hereunder shall pertain to and apply to the securities to which a holder
of the number of shares of Common Stock subject to the Benefit would have been
entitled pursuant to the merger or consolidation. Upon a dissolution of the
Corporation, or a merger or consolidation in which the Corporation is not the
surviving corporation, every Benefit outstanding hereunder shall terminate,
provided, however, that in the case of such dissolution, merger or
consolidation, then during the period thirty days prior to the record date of
such event, each holder of an Benefit granted pursuant to the Plan shall have a
right to exercise the Benefit, in whole or in part, notwithstanding any other
provision of the Plan or Benefit agreement.
11. Amendment and Termination.
Unless the Plan shall theretofore have been terminated, the Plan shall
terminate on, and no Benefit shall be granted hereunder after, April 17, 2006,
provided that the Board of Directors of the Corporation may at any time prior to
that date terminate the Plan.
The Board of Directors shall have complete power and authority to amend
the Plan, provided, however, that except as expressly permitted in the Plan, the
Board of Directors shall not, without the affirmative vote of the holders of a
majority of the voting stock of the Corporation, increase the maximum number of
shares on which Benefits may be granted amend the formula for determination of
the purchase price of shares on which options may be granted, extend the period
during which Benefits may be granted, or amend the requirements as to the class
of employees eligible to receive Benefits.
No termination or amendment of the Plan may, without the consent of the
holder of any outstanding Benefit, adversely affect the rights of such holder or
grantee. The termination of the Plan shall not affect restrictions applicable to
any Benefits, outstanding or existing at the time of such termination.
12. Effectiveness of the Plan.
The Plan shall become effective on adoption by the Board of Directors of
the Corporation, and approval by the holders of a majority of the voting stock
of the Corporation. Should such holders fail so to approve it, the Plan and all
actions taken thereunder shall be and become null and void. Any other provisions
of the Plan to the contrary notwithstanding, no Benefits granted under the Plan
may be exercised or vested until after such stockholder approval.
13. Government and Other Regulations.
The obligation of the Corporation to sell or deliver shares under Benefits
granted pursuant to the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies as may be
required.
EXHIBIT 11
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Computation of Income Per Common Share
Income per common share was computed by dividing income by the weighted average
number of common and common equivalent shares outstanding during each year. The
treasury stock method was applied to those stock options that would have a
dilutive effect on income per share. The average market price of the
Registrant's stock was used in determining income per common share, while the
year-end market price (if greater than the average market price) was used in
determining income per common share - assuming full dilution.
The weighted average number of common and common equivalent shares used in these
computations were:
Income Per Common Share 1996 1995 1994
- ------------------------------- ---- ---- ----
(in thousands except per share data)
Weighted average shares outstanding 45,362 45,313 45,458
Effect of dilutive options 590 546 499
------ ------ ------
Total 45,952 45,859 45,957
====== ====== ======
Net income $62,033 $51,610 $46,770
====== ====== ======
Net income per share $ 1.35 $ 1.13 $ 1.02
====== ====== ======
Assuming Full Dilution
(in thousands except per share data)
Weighted average shares outstanding 45,362 45,313 45,458
Effect of dilutive options 592 665 515
------ ------ ------
Total 45,954 45,978 45,973
====== ====== ======
Net income $62,033 $51,610 $46,770
====== ====== ======
Net income per share $ 1.35 $ 1.12 $ 1.02
====== ====== ======
FEDERAL SIGNAL LOGO
1415 West 22nd Street
Oak Brook, Illinois 60521
Notice of Annual Meeting of Shareholders
To Be Held on April 16, 1997
To the Stockholders of
Federal Signal Corporation
The Annual Meeting of Shareholders of Federal Signal Corporation
("Federal") for the year 1997 will be held at the Chicago Marriott Hotel-Oak
Brook, 1401 West 22nd Street, Oak Brook, Illinois, on Wednesday, April 16, 1997,
at 11:00 a.m., local time, for the following purposes:
1. To elect two directors of Federal; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business, February 20 1997,
as the record date for determining the holders of Common Stock of Federal
entitled to notice of and to vote at the meeting or any adjournment thereof.
A copy of Federal's Financial Statements and its Annual Report for the year
ended December 31, 1996 and a Proxy Statement accompany this notice.
IMPORTANT! TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING,
PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED.
No postage is required if the proxy is mailed in the United States.
By order of the Board of Directors
KIM A. WEHRENBERG
Secretary
March 10, 1997
<PAGE>
FEDERAL SIGNAL LOGO
1415 West 22nd Street
Oak Brook, Illinois 60521
MAILING DATE
on or about
March 10, 1997
------------------
Proxy Statement for Annual Meeting of Shareholders
To Be Held on April 16, 1997
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Federal Signal Corporation ("Federal") for
use at the Annual Meeting of Shareholders to be held on Wednesday, April 16,
1997, and any adjournment thereof. Costs of solicitation will be borne by
Federal. Following the original solicitation of proxies by mail, certain
officers and regular employees of Federal may solicit proxies by
correspondence, telephone, telegraph, or in person, but without
extra compensation. Federal will reimburse brokers and other nominee holders for
their reasonable expenses incurred in forwarding the proxy materials to the
beneficial owners.
Each proxy solicited herewith will be voted as to each matter as the
stockholder directs thereon, but in the absence of such directions it will be
voted for the nominees specified herein. Any proxy solicited herewith may be
revoked by the stockholder at any time prior to the voting thereof, bu t a
revocation will not be effective until satisfactory evidence thereof has been
received by the Secretary of Federal.
VOTING SECURITIES
The holders of record of the Common Stock of Federal at the close of
business on February 20, 1997, will be entitled to vote at the meeting. At such
record date, there were outstanding 45,357,400 shares of Common Stock. A
majority of the outstanding shares will constitute a quorum at the meeti ng.
Abstentions and broker non-votes are counted to determine if a quorum is
present. Abstentions are counted as votes cast, whereas broker non-votes are not
counted as votes cast for determining whether a proposition has been approved.
Each stockholder of record will be entitled to one vote for each share of Common
Stock standing in the name of the holder on the books of Federal on the record
date.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
The following table sets forth information as of December 31, 1996 (unless
otherwise noted) with respect to (i) any person who is known to Federal to be
the beneficial owner of more than 5% of Federal's Common Stock, which is
Federal's only class of outstanding voting securities, and (ii) each director,
and all directors and officers as a group:
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Name Ownership Class
---- ---------- ----------
<S> <C> <C>
Beneficial Owner of More than 5% of Federal's Common
Stock:.................................................... None
Each Director and Five Executive Officers and Executive
Officers
and Directors as a Group:(1)
J. Patrick Lannan, Jr., Director....................... 262,328(2) .58%
James A. Lovell, Jr., Director......................... 28,413(3) .06%
Thomas N. McGowen, Jr., Director....................... 34,666 .08%
Walter R. Peirson, Director............................ 28,359(3) .06%
Joseph J. Ross, Director and Executive Officer......... 811,751(3) 1.79%
Richard R. Thomas, Director............................ 136,848(3) .30%
Henry L. Dykema, Executive Officer..................... 21,441(3) .04%
Kim A. Wehrenberg, Executive Officer................... 200,547(3) .44%
Richard L. Ritz, Executive Officer..................... 56,805(3) .12%
Robert W. Racic, Executive Officer..................... 44,439(3) .10%
All Directors and Executive Officers as a group (12
persons).............................................. 1,669,948 3.68%
</TABLE>
- ---------------
(1) The information contained in this table is based upon information furnished
to Federal by the individuals named above. Except as set forth in the following
footnotes, each director claims sole voting and investment power with respect to
these shares.
(2) This figure includes 17,899 shares owned by Mr. Lannan's wife. Mr. Lannan
disclaims beneficial ownership with respect to these shares. It also includes
18,848 shares for which he shares voting and investment power.
(3) These figures include options shares exercisable within 60 days as follows:
Mr. Lovell, 15,303; Mr. Peirson, 6,594; Mr. Ross, 620,181; Mr. Dykema, 3,500;
Mr. Wehrenberg, 105,399; Mr. Ritz, 34,722; and Mr. Racic, 11,266. These figures
also include stock award shares pursuant to Federal's Stock Benefit Plan which
are subject to certain restrictions under the plan, as follows: Mr. Ross, 13,334
; Mr. Dykema, 12,250; Mr. Wehrenberg, 5,493; Mr. Ritz, 3,251 and
Mr. Racic, 1,493.
2
<PAGE>
ELECTION OF DIRECTORS
Federal's Board of Directors consists of six directors divided into three
classes with one class term expiring each year. Mr. Walter R. Peirson and Mr.
Joseph J. Ross are nominated as Class I directors for election at this Annual
Meeting for a term to expire at the 2000 Annual Meeting or until their
successors are elected and qualified.
The accompanying proxy card permits a stockholder to direct whether his or
her shares are to be voted for, or withheld from the vote for the nominees.
Each proxy will be voted as the stockholder directs thereon; however, if no
such direction is given, it is the present intention of the persons named in
the proxy card to vote such proxies for the election of the above-named
nominees as directors. If on account of death or unforeseen contingencies the
nominees shall not be available for election, the
persons named in the proxy will vote the proxies for such other persons as the
Nominating Committee may nominate as directors so as to provide a full board.
The nominees receiving the highest number of votes cast will be elected as
directors.
Information regarding the nominees for election and the directors
continuing in office is set forth below:
<TABLE>
<CAPTION>
Year First Year Present Principal Occupation
Became Term or Employment for
Name Age Director Expires Last Five Years(1)
---- --- ---------- ------------ --------------------
<S> <C> <C> <C> <C>
Nominees:
Joseph J. Ross.................... 51 1986 1997 Mr. Ross is Chairman, President and
Chief Executive Officer of Federal.
He has served as President and Chief
Executive Officer since December,
1987 and also became Chairman in
February, 1990 and is a director of
Varlen Corporation.
Walter R. Peirson................. 70 1987 1997 Mr. Peirson retired in 1989 as
Executive Vice President and as a
director of Amoco Corporation (a
petroleum company) and he serves as a
director of Consolidated Natural Gas
Company.
Continuing Directors:
Thomas N. McGowen, Jr. ........... 71 1974 1998 Mr. McGowen is an attorney. He is
also a director of Energy West
Corporation and Ribi Immunochem
Research, Inc.
Richard R. Thomas................. 63 1994 1998 Mr. Thomas retired in 1994 as
President of the Tool Group of
Federal Signal Corporation.
J. Patrick Lannan, Jr. ........... 58 1978 1999 Mr. Lannan is President and a
director of the Lannan Foundation for
the support of the visual arts,
literature and rural native American
communities.
James A. Lovell, Jr. ............. 68 1984 1999 Mr. Lovell is President of Lovell
Communications (a consulting
company). He retired in 1990 as
Executive Vice President, Corporate
Staff and as a director of Centel
Corporation (a telecommunications
company).
</TABLE>
- ---------------
(1) The information contained in this table is based upon information furnished
to Federal by the individuals named above.
3
<PAGE>
BOARD OF DIRECTORS AND COMMITTEES
Pursuant to its by-laws, Federal has established standing audit,
nominating, compensation/stock option, pension and executive committees.
The Audit Committee reviews and recommends to the Board of Directors
internal accounting and financial controls, auditing practices and procedures
and accounting principles to be employed in the preparation of Federal's
financial statements and the review of financial statements by independent
public accountants. The Audit Committee also makes recommendations concerning
the engagement of independent public accountants to audit the annual financial
statements and the scope of the audit to be undertaken by such accountants.
In addition, the Audit Committee considers the performance of non-audit services
by such accountants, including the effect which the performance of such
non-audit services may have upon the independence of the accountants. The
by-laws prohibit a director who is also an employee of Federal from serving on
the Audit Committee. The members of the Audit Committee are
James A. Lovell, Jr., Chairman, Richard R. Thomas and Walter R. Peirson.
The Nominating Committee evaluates and recommends to the Board of Directors
candidates for election or re-election as directors. No determination has been
made regarding the consideration of or procedure for the recommendation of
nominees by stockholders. The members of the Nominating Committee are
Joseph J. Ross, Chairman, Thomas N. McGowen, Jr. and James A. Lovell, Jr.
The Compensation/Stock Option Committee reviews and recommends to the Board
of Directors policies, practices and procedures relating to compensation of
managerial employees and the establishment and administration of employee
benefit plans. The members of the Compensation/Stock Option Committee are
Walter R. Peirson, Chairman, Thomas N. McGowen, Jr. and J. Patrick Lannan, Jr.
The Pension Committee reviews and recommends to the Board of Directors
policies, practices and procedures relating to Federal's various pension,
savings and similar retirement plans and programs and to the investment of the
funds associated with these plans. The members of the Pension Committe e are J.
Patrick Lannan, Jr., Chairman, and Walter R. Peirson.
During 1996, the Board of Directors held a total of five meetings and the
Executive Committee of the Board, which generally exercises the power and
authority of the Board in the intervals between full board meetings, held one
meeting. The members of the Executive Committee are Thomas N. McGowe n, Jr.,
Chairman, Joseph J. Ross and James A. Lovell, Jr. During 1996, the
Compensation/Stock Option Committee held five meetings; the Nominating Committee
held two meetings; the Audit Committee held three meetings; and the Pension
Committee met twice. No director attended less than 75% of the meetings of the
Board and of each committee of which he was a member.
As compensation for services to Federal, each director who is not also an
officer of Federal receives director's fees at a current annual rate of $22,000.
In addition, each such director receives additional fees for serving on
committees of the Board as follows: Executive Committee chairman--$ 5,000, other
members--$2,500; Audit or Compensation/Stock Option Committee chairman--$3,500,
other members--$2,500; Pension Committee chairman--$3,500, other
members--$2,500; and Nominating Committee members--$2,500. Directors are also
reimbursed for their expenses relating to attendance at meetings. Mr. Thomas
also received $9,000 for consulting for the Tool Group in 1996. Directors may
receive options in lieu of director's fees, as described in the stock option
section of this proxy statement . Directors who retire as a director of Federal
after attaining age 68 and meeting years of service requirements are eligible
for a director retirement benefit. The maximum benefit is $15,000 per year for
ten years if the director retires after age 70.
4
<PAGE>
EXECUTIVE COMPENSATION
The following is the Summary Compensation Table for the Chief Executive
Officer and four other top executive officers of Federal for compensation earned
during the 1996 fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
AWARDS
-----------------------
Annual Compensation Restricted Number
Name and ---------------------------- Stock of All Other
Principal Position Year Salary Bonus Awards(1) Options Compensation(3)
------------------ ---- -------- -------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Ross.................. 1996 $375,000 $300,000 $222,750 65,000 $33,378
Chairman, President 1995 348,000 334,080 0 0 68,208
and Chief Executive Officer 1994 325,000 338,000 159,375 30,000 72,104
Henry L. Dykema................. 1996 190,000 113,288 74,250 14,500 5,274
Vice President and 1995 182,500 95,813 258,750(2) 20,000 3,670
Chief Financial Officer 1994 0 0 0 0 0
Kim A. Wehrenberg............... 1996 158,000 99,540 86,625 14,500 13,726
Vice President, General 1995 152,000 109,440 0 0 14,646
Counsel and Secretary 1994 145,000 113,100 75,000 7,000 13,743
Richard L. Ritz................. 1996 108,000 56,700 49,500 19,500 12,268
Vice President, Controller 1995 101,000 61,358 0 0 12,098
1994 96,000 62,275 46,875 4,000 10,365
Robert W. Racic................. 1996 103,000 54,075 22,275 2,000 4,500
Vice President, Treasurer 1995 99,000 57,544 0 0 4,500
1994 96,000 61,452 20,625 1,000 3,146
</TABLE>
- ---------------
(1) Stock awards generally vest 25% on each anniversary date after date of
grant. The number and aggregate value of unvested stock awards as of December
31, 1996 were: for Mr. Ross 13,334 shares ($345,017), for Mr. Dykema 12,250
shares ($316,968), for Mr. Wehrenberg 5,493 shares ($142,131), for Mr. Ritz
3,251 shares ($84,119) and for Mr. Racic 1,493 shares ($38,631). Dividends are
paid at the regular rate to these people on the unvested shares.
(2) Stock awards vest 25% on each anniversary date between the third and seventh
year after date of grant.
(3) This compensation consists of the Company matching contribution under
Federal's 401(k) savings plan in which most employees participate and
supplemental savings and retirement plans and auto allowance which break out as
follows, respectively, Mr. Ross $4,500, $16,778, $12,100, $0; Mr. Dykema $2
,745, $2,529, $0, $0; Mr. Wehrenberg $4,500, $3,226, $0, $6,000; Mr. Ritz
$4,500, $568, $0, $7,200; Mr. Racic $4,500, $0, $0, $0. Of these officers who
put part of their bonus into the Company's supplemental savings plan,
Mr. Wehrenberg invested $99,540, and Mr. Dykema invested $113,288 of their
bonuses in Federal Signal stock.
5
<PAGE>
EMPLOYMENT AGREEMENTS
Federal has an employment agreement with Joseph J. Ross. The agreement
continues until the December 31 following the employee's 65th birthday subject
to earlier termination by either Federal or the employee. As of January 1, 1997,
termination salary under this agreement was $405,000 for Mr. Ro ss and the
annual salary of Mr. Ross, which is approved by the Compensation Committee, is
not set by this employment agreement. In the discretion of the Board of
Directors, annual compensation may be increased during the term of the
agreement. If terminated by Federal under circumstances not involving cause,
Federal would be obligated to pay in monthly installments an amount equal to the
then applicable salary for one year (or, if less, the amount of minimum salary
payable through the December 31 followi ng such employee's 65th birthday). In
the event of death prior to termination of employment, the employee's estate is
entitled to receive in monthly installments an amount equal to one year's
minimum compensation. Mr. Ross and Mr. Wehrenberg have change of control
agreements. In the event Federal is subject to a "change of control" (as
specifically defined), the agreements permit the employee to elect to terminate
employment during a specified period and to receive termination payments
calculat ed as if Federal had terminated employment without cause, except that
such payment shall be based on three years' W-2 compensation rather than one.
Upon termination of employment for any reason, each employee is obligated not to
engage in specified competitive activities for a period of three years.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Grant Date
Individual Grants Value
- ----------------------------------------------------------------------------------------------------- -------------
Number of Number of Number of
Securities Securities Securities
Underlying Underlying Underlying
Options Granted Options Granted Options Granted
1/29/96 at 7/11/96 at 12/12/96 at % of Total Grant Date
$24.75 $22.125 $24.00 Options Present Value
per share exercise per share exercise per share
exercise Granted to $ Based on or base price and or
base price and or base price and Employees in
Black-Scholes
Name expire 1/29/06 expire 7/11/06 expire 12/12/06 Fiscal Year Method(2)
---- ------------------ ------------------ ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Joseph J. Ross.......... 30,000 0 35,000 12% $395,625
Henry L. Dykema......... 7,000 0 7,500 3% 88,312
Kim A. Wehrenberg....... 7,000 0 7,500 3% 88,312
Richard L. Ritz......... 4,500 10,000(1) 5,000 4% 113,155
Robert W. Racic......... 1,000 0 1,000 .4% 12,187
</TABLE>
- ---------------
(1) No SARs were granted. These options become 50% and 100% exercisable on the
first and second anniversary date, respectively, except these 10,000 shares
become 100% exercisable on the fourth anniversary date.
(2) The following assumptions were used under the Black-Scholes method:
volatility .18; risk free rate of return 6.2%; dividend yield 2.3%; exercise
period, 6.7 years.
6
<PAGE>
Option Exercises and Year-End Value Table
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Value
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End(#) FY-End($)
------------- ----------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($)(1) Unexercisable Unexercisable(2)
---- --------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Joseph J. Ross......................... 0(3) $0 605,181 $10,798,756
74,600 154,275
Henry L. Dykema........................ 0 0 0 0
34,500 130,938
Kim A. Wehrenberg...................... 0 0 101,899 1,624,573
14,500 21,938
Richard L. Ritz........................ 0 0 32,472 523,373
32,833 128,185
Robert W. Racic........................ 0 0 10,766 143,392
2,000 3,000
</TABLE>
- ---------------
(1) Market value of underlying securities at exercise, minus the exercise or
base price.
(2) "Spread" calculated by subtracting the exercise or base price from the
closing stock price of $25.875 on December 31, 1996.
(3) Mr. Ross has a stock option exercise loan totaling $65,991, including $4,317
of interest in 1996 at 7.61%. Such loans are available to all employees
participating in the Plan.
Retirement Plans
Federal's Retirement Plan provides retirement benefits for salaried and
hourly employees including officers. Contributions are made on an actuarial
group basis, and no specific amount of contributions is set aside for any
individual participant. Under the method of computing the annual contrib ution,
the Internal Revenue Service's full funding limitation prohibits a contribution
to the plan for 1996. The following table sets forth the approximate annual
pension benefit based on years of service and compensation, but does not reflect
dollar limitations under the Internal Revenue Code, as amended, which limits the
annual benefits which may be paid from a tax qualified retirement plan. For
employees covered by Federal's supplemental pension plan, amounts in excess of
such limitations will be pai d from the general funds of Federal, pursuant to
the terms of such plan. The amount of pension benefits is reduced by one-half of
the amount of available individual Social
7
<PAGE>
Security benefits. Estimated credited years of service are as follows: Mr. Ross,
12.5, Mr. Dykema, 1; Mr. Wehrenberg, 9; Mr. Ritz, 11.5 and Mr. Racic, 22.75.
Pension Plan Table
<TABLE>
<CAPTION>
Average Annual Compensation Approximate Annual Straight-Life Annuity
for the Five Consecutive Pension Upon Retirement at 65
Calendar Years of the Last --------------------------------------------------------------
Ten for Which Compensation 10 years 15 years 20 years 25 years 30 years
is Highest of Service of Service of Service of Service of Service
- --------------------------- ---------- ---------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C>
300,000..................... $ 50,000 $ 75,000 $100,000 $125,000 $150,000
400,000..................... 66,667 100,000 133,334 166,167 200,000
500,000..................... 83,334 125,000 166,667 208,334 250,000
600,000..................... 100,000 150,000 200,000 250,000 300,000
700,000..................... 116,667 175,000 233,333 291,667 350,000
800,000..................... 133,333 200,000 266,667 333,334 400,000
</TABLE>
For purposes of the Retirement Plan, an employee's compensation is his
Annual Compensation as set forth in the Summary Compensation Table.
Pursuant to Federal's supplemental pension plan, various officers of
Federal are entitled to pension supplements which have the effect of assuring
that, regardless of their actual years of service, if they remain in the
employment of Federal until age 65, they will receive benefits as if they had
been continuously employed by Federal since their thirty-fourth birthday. Giving
effect to such pension supplements, the additional years of service credited
under Federal's Supplemental Retirement Plan as of December 31, 1996 to Mr. Ross
is 3 1/4 years. The supplemental pension benefit for Mr. Ross makes up the
difference between his actual pension benefit and what it would have been with
30 years of service under the 1976 plan.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors consists of three
independent outside directors. The Committee meets without the Chief Executive
Officer present to evaluate his performance and establish his compensation.
Compensation for Federal's executive officers consists of three majo r
components: salary, bonus and stock options/awards. The officers' compensation
is based on the individual's skill level, years of experience, job duties and
the individual's and Company's performance. The Committee uses its subjective
evaluation of these factors, without a mechanical weighting, to determine the
officers' salary and level of participation in the bonus plan; Mr. Ross
participates at 40% of his salary and the other officers participate at 25% to
30% of their salary.
The Company's total return to shareholders has been about 15% for the last
five years. Based on the performance of Mr. Ross and the entire management team
(among other items, this performance included maintaining cash flow above $60
million, increasing the return on equity to 23.8%, increasing net income by 20%
and improving the Sign Group's profitability) and the Company over the last
several years, the Committee granted Mr. Ross an 8% increase to $405,000 in his
base salary for 1997. The Committee
also approved an average 1997 salary increase for the other four officers of
4.6%.
The officers' bonuses are tied directly to company performance. Bonus
targets are established for the officers based on their level of responsibility.
The amount of bonus to which an officer is entitled is based on Federal's
pre-tax profits (before extraordinary items, interest on long-term de bt and
bonus payments) as a percentage of Federal's average stockholders' equity plus
average long-term debt, as well as on goals for growth of the Company. The
officers' bonus targets remain the same for 1997. Therefore, if the Company's
return on capital is the same as it was in 1996, the officers' bonuses will also
be about the same for 1997. The 1996 bonus target achievement was 91%. The other
officers' bonuses generally constitute about 40% of their cash compensation.
8
<PAGE>
The third major component of the officers' compensation consists of stock
options and awards. This is long-term compensation which provides value to the
officers based on the increased market value of the Company for all
stockholders. For example, over the last eight years the total market val ue of
the Company has increased well over five-fold from about $200 million to more
than $1.1 billion of stockholder value. The Performance Graph on page 10 shows
that Federal has out-performed the Standard & Poor Industrials and companies
comparable to Federal. In view of this performance, and to give the officers
even greater incentive to continue to increase shareholder value, the
Compensation Committee intends to grant the officers additional stock options
and restricted stock awards in 1997. The Co mmittee subjectively determines the
number of shares to be granted and there is no mechanical relationship between
the number of options and restricted share awards to be granted, nor is there a
mechanical relationship to prior grants.
WALTER R. PEIRSON J. PATRICK LANNAN, JR. THOMAS N. McGOWEN, JR.
9
<PAGE>
COMPARISON FOR FIVE YEAR CUMULATIVE TOTAL RETURN*
FOR FEDERAL SIGNAL CORPORATION
<TABLE>
<CAPTION>
91 92 93 94 95 96
<S> <C> <C> <C> <C> <C> <C>
FSC 100 113 151 149 193 198
S & P IND. 100 102 111 116 156 191
DJIDI 100 114 136 122 156 198
</TABLE>
Assumes $100 invested on December 31, 1991 in Federal Signal Corporation Common
Stock (FSC), S&P Industrials Index (S&P Ind.) and the Dow Jones
Industrial - Diversified Index (DJIDI).
* Total return assumes reinvestment of dividends and is based on fiscal years
ending December 31.
ACCOUNTING INFORMATION
Ernst & Young has been selected by Federal to serve as its independent
public accountants for the fiscal year ending December 31, 1997. A
representative of that firm will be present at the Annual Meeting with the
opportunity to make a statement if he desires to do so and to respond to
question s of stockholders. The appointment of the auditors is approved annually
by the Board of Directors based upon the recommendation of the Audit Committee.
FUTURE STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy statement for the 1998
Annual Meeting of Shareholders, stockholder proposals must be received by
Federal on or before November 21, 1997.
10
<PAGE>
OTHER BUSINESS
As of the date hereof, the foregoing is the only business which management
intends to present, or is aware that others will present, at the meeting. If any
other proper business should be presented to the meeting, the proxies will be
voted in respect thereof in accordance with the discretion a nd judgment of the
person or persons voting the proxies.
By order of the Board of Directors
Kim A. Wehrenberg
Secretary
Federal Signal Corporation
11
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Results (dollars in millions):
Net sales................... $896.4 $816.1 $677.2 $565.2 $518.2 $466.9 $439.4 $398.4 $361.4 $305.8 $273.3
Income before income taxes
(a,b)..................... $ 93.4 $ 77.3 $ 70.2 $ 58.8 $ 49.9 $ 45.6 $ 42.5 $ 34.6 $ 28.4 $ 23.8 $ 20.9
Income from continuing
operations (a,b).......... $ 62.0 $ 51.6 $ 46.8 $ 39.8 $ 34.5 $ 31.0 $ 28.1 $ 22.1 $ 18.2 $ 14.5 $ 12.3
Operating margin............ 11.5% 11.8% 11.6% 11.3% 10.6% 10.8% 10.8% 10.6% 9.6% 8.6% 8.5%
Return on average common
shareholders' equity
(a,b)..................... 23.8% 22.0% 22.3% 21.0% 20.0% 20.0% 20.4% 18.7% 17.0% 14.5% 12.2%
Common Stock Data
(per share) (c):
Income from continuing
operations................ $ 1.35 $ 1.13 $ 1.02 $ 0.86 $ 0.75 $ 0.67 $ 0.61 $ 0.48 $ 0.40 $ 0.31 $ 0.26
Cash dividends.............. $ 0.58 $ 0.50 $ 0.42 $ 0.36 $ 0.31 $ 0.27 $ 0.22 $ 0.19 $ 0.16 $ 0.15 $ 0.15
Market price range:
High...................... $28 1/4 $25 7/8 $21 3/8 $ 21 $17 5/8 $15 1/4 $10 3/4 $7 1/8 $4 7/8 $4 7/8 $4 1/2
Low....................... $20 7/8 $19 5/8 $16 7/8 $15 3/4 $12 3/8 $9 1/4 $6 1/4 $4 1/4 $3 1/2 $2 7/8 $3 1/8
Average common shares
outstanding (in
thousands)................ 45,952 45,859 45,957 46,293 46,128 46,126 46,038 46,103 45,639 47,137 46,767
Financial Position at Year-End
(dollars in millions):
Working capital (d)......... $ 40.6 $ 48.8 $ 53.9 $ 52.8 $ 49.5 $ 44.9 $ 42.7 $ 63.8 $ 59.5 $ 53.9 $ 52.8
Current ratio (d)........... 1.2 1.3 1.4 1.5 1.6 1.5 1.5 2.1 2.0 1.9 2.2
Total assets................ $703.9 $620.0 $521.6 $405.7 $363.7 $341.2 $295.8 $271.3 $251.1 $233.3 $191.4
Long-term debt, net of
current portion........... $ 34.3 $ 39.7 $ 34.9 $ 21.1 $ 16.2 $ 15.6 $ 15.8 $ 16.8 $ 18.6 $ 24.8 $ 21.9
Shareholders' equity........ $272.8 $248.1 $220.3 $199.2 $179.0 $164.8 $146.4 $130.4 $115.5 $103.2 $102.4
Debt to capitalization ratio
(d)....................... 28% 29% 22% 1% 2% 1% 2% 10% 18% 22% 4%
Other (dollars in millions)
(e):
New business................ $924.6 $780.5 $700.3 $584.2 $510.3 $462.7 $467.6 $429.9 $382.4 $328.3 $276.4
Backlog..................... $280.0 $251.4 $261.0 $221.8 $198.0 $203.2 $199.9 $171.7 $140.2 $119.2 $ 96.7
Net cash provided by
operating activities...... $ 61.4 $ 62.9 $ 53.8 $ 48.8 $ 40.2 $ 43.9 $ 48.3 $ 34.6 $ 22.5 $ 20.1 $ 22.7
Net cash (used for)
investing activities...... $(54.2) $(88.1) $(96.9) $(38.1) $(26.9) $(47.8) $(14.7) $(24.1) $(20.8) $(37.7) $(12.8)
Net cash provided by (used
for) financing
activities................ $ (4.1) $ 29.9 $ 45.1 $(10.3) $(11.2) $ 2.5 $(34.6) $ (8.9) $ (3.3) $ 17.8 $ (9.9)
Capital expenditures........ $ 16.9 $ 15.7 $ 11.1 $ 10.1 $ 8.8 $ 12.0 $ 8.3 $ 9.2 $ 7.3 $ 6.9 $ 6.3
Depreciation................ $ 13.2 $ 11.8 $ 10.3 $ 9.2 $ 8.7 $ 8.2 $ 7.8 $ 7.9 $ 7.1 $ 5.5 $ 5.2
Employees................... 6,233 6,015 5,243 4,426 4,268 4,212 4,158 4,142 3,880 3,653 3,183
</TABLE>
- ---------------
(a) in 1996, includes gain on sale of subsidiary of $4.7 million pre-tax,
$2.8 million after-tax or $.06 per share
(b) in 1995, includes the impact of a nonrecurring charge for a litigation
settlement of $6.7 million pre-tax, $4.2 million after-tax or $.09 per share
(c) reflects 10% stock dividends each paid in 1988 and 1989, 3-for-2 stock
splits in 1990, 1991 and 1992, and a 4-for-3 stock split in 1994
(d) manufacturing operations only
(e) continuing operations only
F-1
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Assets
Manufacturing activities:
Current assets
Cash and cash equivalents............................ $ 12,431,000 $ 9,350,000
Accounts receivable, net of allowances for doubtful
accounts
of $2,602,000 and $3,058,000, respectively........ 141,203,000 122,913,000
Inventories--Note B.................................. 108,293,000 97,448,000
Prepaid expenses..................................... 5,079,000 5,763,000
------------ ------------
Total current assets.............................. 267,006,000 235,474,000
Properties and equipment--Note C....................... 82,825,000 78,454,000
Other assets
Intangible assets, net of accumulated amortization... 165,854,000 146,774,000
Other deferred charges and assets.................... 17,228,000 11,722,000
------------ ------------
Total manufacturing assets........................ 532,913,000 472,424,000
------------ ------------
Financial services activities
Lease financing and other receivables, net of
allowances for doubtful accounts of $1,348,000 and
$1,124,000, respectively, and net of unearned finance
revenue--Note D...................................... 170,988,000 147,535,000
------------ ------------
Total assets...................................... $703,901,000 $619,959,000
============ ============
Liabilities and Shareholders' Equity
Manufacturing activities:
Current liabilities
Short-term borrowings--Note E........................ $ 69,987,000 $ 58,760,000
Accounts payable..................................... 64,088,000 53,277,000
Accrued liabilities
Compensation and withholding taxes................ 20,293,000 20,949,000
Other............................................. 61,419,000 49,559,000
Income taxes--Note F................................. 10,626,000 4,115,000
------------ ------------
Total current liabilities......................... 226,413,000 186,660,000
Other liabilities
Long-term borrowings--Note E......................... 34,311,000 39,702,000
Deferred income taxes--Note F........................ 22,183,000 17,826,000
------------ ------------
Total manufacturing liabilities................... 282,907,000 244,188,000
------------ ------------
Financial services activities--Borrowings--Note E......... 148,205,000 127,690,000
------------ ------------
Total liabilities................................. 431,112,000 371,878,000
------------ ------------
Shareholders' equity--Notes I and J
Common stock, $1 par value, 90,000,000 shares
authorized, 45,986,000 and 45,832,000 shares issued,
respectively......................................... 45,986,000 45,832,000
Capital in excess of par value......................... 57,138,000 54,464,000
Retained earnings--Note E 190,181,000 162,095,000
Treasury stock, 668,000 and 542,000 shares,
respectively, at cost................................ (14,404,000) (10,949,000)
Deferred stock awards.................................. (1,508,000) (1,046,000)
Foreign currency translation adjustment................ (4,604,000) (2,315,000)
------------ ------------
Total shareholders' equity........................ 272,789,000 248,081,000
------------ ------------
Total liabilities and shareholders' equity........ $703,901,000 $619,959,000
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales.......................................... $896,357,000 $816,127,000 $677,228,000
Costs and expenses
Cost of sales.................................... 619,951,000 567,772,000 467,494,000
Selling, general and administrative.............. 173,514,000 152,456,000 131,466,000
------------ ------------ ------------
Operating income................................... 102,892,000 95,899,000 78,268,000
Interest expense................................... (15,359,000) (13,359,000) (8,499,000)
Other income (expense), net--Notes K and L......... 5,882,000 (5,261,000) 412,000
------------ ------------ ------------
Income before income taxes......................... 93,415,000 77,279,000 70,181,000
Income taxes--Note F............................... 31,382,000 25,669,000 23,411,000
------------ ------------ ------------
Net income......................................... $ 62,033,000 $ 51,610,000 $ 46,770,000
============ ============ ============
Net income per share............................... $1.35 $1.13 $1.02
============ ============ ============
Average common shares outstanding.................. 45,952,000 45,859,000 45,957,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income..................................... $ 62,033,000 $ 51,610,000 $ 46,770,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of subsidiary................ (4,663,000)
Depreciation.............................. 13,201,000 11,806,000 10,302,000
Amortization.............................. 5,209,000 4,085,000 3,971,000
Provision for doubtful accounts........... 1,719,000 1,716,000 1,809,000
Deferred income taxes..................... 4,429,000 2,454,000 3,544,000
Other, net................................ (5,490,000) (1,578,000) 1,547,000
Changes in operating assets and
liabilities net of effects from
acquisitions of companies
Accounts receivable.................... (15,256,000) (6,368,000) (20,050,000)
Inventories............................ (6,168,000) (6,837,000) (4,458,000)
Prepaid expenses....................... 699,000 (669,000) (108,000)
Accounts payable....................... 5,416,000 3,676,000 5,217,000
Accrued liabilities.................... (6,748,000) 4,454,000 2,713,000
Income taxes........................... 6,980,000 (1,402,000) 2,505,000
------------- ------------- ------------
Net cash provided by operating
activities........................ 61,361,000 62,947,000 53,762,000
------------- ------------- ------------
Investing activities
Purchases of properties and equipment.......... (16,889,000) (15,701,000) (11,108,000)
Principal extensions under lease financing
agreements.................................. (119,747,000) (119,833,000) (97,988,000)
Principal collections under lease financing
agreements.................................. 96,294,000 99,536,000 81,182,000
Payments for purchases of companies, net of
cash acquired............................... (27,615,000) (46,611,000) (69,563,000)
Proceeds from sale of subsidiary............... 13,500,000
Other, net..................................... 250,000 (5,478,000) 613,000
------------- ------------- ------------
Net cash used for investing
activities........................ (54,207,000) (88,087,000) (96,864,000)
------------- ------------- ------------
Financing activities
Addition to short-term borrowings.............. 28,892,000 50,970,000 59,699,000
Principal payments on long-term borrowings..... (2,233,000) (3,595,000) (1,811,000)
Principal extensions under long-term
borrowings.................................. 8,018,000 15,000,000
Purchases of treasury stock.................... (6,275,000) (4,130,000) (9,736,000)
Cash dividends paid to shareholders............ (25,487,000) (21,767,000) (18,462,000)
Other, net..................................... 1,030,000 389,000 441,000
------------- ------------- ------------
Net cash provided by (used for)
financing activities.............. (4,073,000) 29,885,000 45,131,000
------------- ------------- ------------
Increase in cash and cash equivalents............ 3,081,000 4,745,000 2,029,000
Cash and cash equivalents at beginning of year... 9,350,000 4,605,000 2,576,000
------------- ------------- ------------
Cash and cash equivalents at end of year......... $ 12,431,000 $ 9,350,000 $ 4,605,000
============= ============= ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A--Significant Accounting Policies
Principles of consolidation: The consolidated financial statements include
the accounts of Federal Signal Corporation and all of its subsidiaries.
Cash equivalents: The company considers all highly liquid investments with
a maturity of three months or less, when purchased, to be cash equivalents.
Inventories: Inventories are stated at the lower of cost or market. At
December 31, 1996 and 1995, approximately 51% and 55%, respectively, of the
company's inventories are costed using the LIFO (last-in, first-out) method. The
remaining portion of the company's inventories are costed using th e FIFO
(first-in, first-out) method.
Properties and depreciation: Properties and equipment are stated at cost.
Depreciation, for financial reporting purposes, is computed principally on the
straight-line method over the estimated useful lives of the assets.
Intangible assets: Intangible assets principally consist of costs in excess
of fair values of net assets acquired in purchase transactions and are generally
being amortized over forty years. Accumulated amortization aggregated
$16,995,000 and $12,718,000 at December 31, 1996 and 1995, respecti vely. The
company makes regular periodic assessments to determine if factors are present
which indicate that an impairment of intangibles may exist. If factors indicate
that an impairment may exist, the company makes an estimate of the related
future cash flows. The undiscounted cash flows, excluding interest, are compared
to the related book value including the intangibles. If such cash flows are less
than the book value, the company makes an estimate of the fair value of the
related business to determin e the amount of impairment loss, if any, to be
recorded as a reduction of the recorded intangibles.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue recognition: Substantially all of the company's sales are recorded
as products are shipped or services are rendered. The percentage-of-completion
method of accounting is used in certain instances for custom-manufactured
products where, due to the nature of specific orders, production a nd delivery
schedules exceed normal schedules.
Income per share: Income per share was computed on the basis of the
weighted average number of common and common equivalent shares (dilutive stock
options) outstanding during the year.
Note B--Inventories
Inventories at December 31 are summarized as follows:
1996 1995
---- ----
Finished goods..................................... $ 23,154,000 $24,675,000
Work in process.................................... 29,088,000 32,286,000
Raw materials...................................... 56,051,000 40,487,000
------------ -----------
Total inventories.................................. $108,293,000 $97,448,000
============ ===========
If the first-in, first-out cost method, which approximates replacement
cost, had been used by the company, inventories would have aggregated
$117,258,000 and $106,934,000 at December 31, 1996 and 1995, respectively.
F-5
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note C--Properties and Equipment
A comparative summary of properties and equipment at December 31 is as
follows:
1996 1995
---- ----
Land..............................................$ 5,250,000 $ 5,703,000
Buildings and improvements........................ 40,044,000 38,493,000
Machinery and equipment........................... 132,099,000 120,554,000
Accumulated depreciation.......................... (94,568,000) (86,296,000)
------------ ------------
Total properties and equipment....................$ 82,825,000 $ 78,454,000
============ ============
Note D--Lease Financing and Other Receivables
As an added service to its customers, the company is engaged in financial
services activities. These activities primarily consist of providing long-term
financing for certain customers of the company's sign and vehicle operations. A
substantial portion of the lease financing receivables of the Vehicle Group are
due from municipalities. Financing is provided through sales-type lease
contracts with terms which range typically as follows:
Sign-related leases. 3-5 years
Vehicle-related leases...................................... 2-10 years
At the inception of the lease, the company records the product sales price
and related costs and expenses of the sale. Financing revenues are included in
income over the life of the lease. The amounts recorded as lease financing
receivables represent amounts equivalent to normal selling prices less
subsequent customer payments.
Lease financing and other receivables will become due as follows:
$56,242,000 in 1997, $31,994,000 in 1998, $25,963,000 in 1999, $18,624,000 in
2000, $12,400,000 in 2001 and $27,113,000 thereafter. At December 31, 1996 and
1995, unearned finance revenue on these leases aggregated $30,408,000 a nd
$27,378,000, respectively.
Note E--Debt
Short-term borrowings at December 31 consisted of the following:
1996 1995
---- ----
Commercial paper.................................. $ 13,987,000 $ 26,779,000
Notes payable..................................... 198,807,000 157,040,000
Current maturities of long-term debt.............. 5,398,000 2,631,000
------------ ------------
Total short-term borrowings....................... $218,192,000 $186,450,000
============ ============
F-6
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-term borrowings at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
4.25% unsecured note payable in quarterly installments
ending in 2001............................................ $ 5,057,000 $ 6,871,000
7.59% unsecured note payable in 2001 ($4,000,000) and 2002
($8,000,000).............................................. 12,000,000 12,000,000
7.99% unsecured note payable in 2004........................ 15,000,000 15,000,000
6.58% unsecured discounted notes payable in annual
installments of $1,000,000 ending in 2001................. 4,374,000 5,094,000
Other....................................................... 3,278,000 3,368,000
----------- -----------
39,709,000 42,333,000
Less current maturities..................................... 5,398,000 2,631,000
----------- -----------
Total long-term borrowings $34,311,000 $39,702,000
=========== ===========
</TABLE>
Aggregate maturities of long-term debt amount to approximately $5,398,000
in 1997, $2,058,000 in 1998, $2,081,000 in 1999, $2,080,000 in 2000 and
$5,092,000 in 2001. The company believes that the fair values of borrowings are
not substantially different from recorded amounts.
The 7.59% and 7.99% notes contain various restrictions relating to
maintenance of minimum working capital, payments of cash dividends, purchases
of the company's stock, and principal and interest of any subordinated debt.
All of the company's retained earnings at December 31, 1996 were free of any
restrictions.
The company paid interest of $15,350,000 in 1996, $13,411,000 in 1995 and
$6,943,000 in 1994. Weighted average interest rates on short-term borrowings
were 5.5% and 5.6% at December 31, 1996 and 1995, respectively. See Note H
regarding the company's utilization of derivative financial instrume nts
relating to outstanding debt.
At December 31, 1996, the company had unused credit lines of $100,000,000,
which expire on January 15, 2000. Commitment fees, paid in lieu of compensating
balances, were insignificant.
Note F--Income Taxes
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal and foreign....................... $23,814,000 $20,922,000 $17,775,000
State and local........................... 3,139,000 2,293,000 2,092,000
----------- ----------- -----------
26,953,000 23,215,000 19,867,000
Deferred (credit):
Federal and foreign....................... 4,117,000 2,201,000 3,333,000
State and local........................... 312,000 253,000 211,000
----------- ----------- -----------
4,429,000 2,454,000 3,544,000
----------- ----------- -----------
Total income taxes.......................... $31,382,000 $25,669,000 $23,411,000
=========== =========== ===========
</TABLE>
F-7
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Differences between the statutory federal income tax rate and the effective
income tax rate are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit.............. 2.4 2.1 2.1
Tax-exempt interest......................................... (2.5) (2.8) (2.6)
Other, net.................................................. (1.3) (1.1) (1.1)
---- ---- ----
Effective income tax rate................................... 33.6% 33.2% 33.4%
==== ==== ====
</TABLE>
The company had net current deferred income tax benefits of $2,883,000 and
$2,956,000 recorded in the balance sheet at December 31, 1996 and 1995,
respectively. The company paid income taxes of $20,509,000 in 1996, $24,940,000
in 1995 and $17,735,000 in 1994.
Deferred tax liabilities (assets) comprised the following at December 31,
1996: Depreciation and amortization--$20,205,000; revenue recognized on lease
financing receivables and custom manufacturing contracts--$4,750,000; accrued
expenses deductible in future periods--$(4,910,000); and other $ (745,000).
Deferred tax liabilities (assets) comprised the following at December 31, 1995:
Depreciation and amortization--$17,065,000; revenue recognized on lease
financing receivables and custom manufacturing contracts--$5,768,000; accrued
expenses deductible in future periods--$(8,844,000); and other $881,000.
Note G--Postretirement Benefits
The company and its subsidiaries sponsor a number of defined benefit
retirement plans covering certain of its salaried employees and hourly employees
not covered by plans under collective bargaining agreements. Benefits under
these plans are primarily based on final average compensation and ye ars of
service as defined within the provisions of the individual plans. The company's
policy is to contribute amounts sufficient to meet the minimum funding
requirements of applicable laws and regulations. The company also participates
in several multiemployer retirement plans which provide benefits to employees
under certain collective bargaining agreements.
U.S. Benefit Plans
Pension expense (credit) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Company-sponsored plans
Service cost.......................... $ 2,208,000 $ 1,452,000 $ 1,687,000
Interest cost......................... 3,304,000 2,864,000 2,437,000
Return on plan assets................. (6,769,000) (9,054,000) 581,000
Other amortization and deferral....... 551,000 3,664,000 (5,521,000)
----------- ----------- -----------
(706,000) (1,074,000) (816,000)
Multiemployer plans..................... 550,000 465,000 337,000
----------- ----------- -----------
Total pension expense (credit).......... $ (156,000) $ (609,000) $ (479,000)
=========== =========== ===========
</TABLE>
F-8
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following summarizes the funded status of the company-sponsored plans
at December 31, 1996 and 1995 and the major assumptions used to determine these
amounts.
<TABLE>
<CAPTION>
Plans in which
--------------
Plan assets ABO exceeds
exceed ABO plan assets
----------- 1996 -----------
----------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation................................. $27,873,000 $5,180,000
Nonvested benefits........................................ 1,446,000 136,000
----------- ----------
Accumulated benefit obligation (ABO)........................ $29,319,000 $5,316,000
=========== ==========
Actuarial present value of projected benefit obligation..... $38,645,000 $5,316,000
Plan assets at market value................................. 50,644,000 5,122,000
----------- ----------
Plan assets in excess of (less than) projected benefit
obligation................................................ 11,999,000 (194,000)
Unrecognized net obligation at January 1, 1996.............. (2,363,000) 316,000
Unrecognized net experience (gain) loss..................... (7,634,000) 112,000
----------- ----------
Net pension asset........................................... $ 2,002,000 $ 234,000
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation................................. $27,427,000 $5,214,000
Nonvested benefits........................................ 1,565,000 120,000
----------- ----------
Accumulated benefit obligation (ABO)........................ $28,992,000 $5,334,000
=========== ==========
Actuarial present value of projected benefit obligation..... $38,803,000 $5,334,000
Plan assets at market value................................. 46,010,000 4,733,000
----------- ----------
Plan assets in excess of (less than) projected benefit
obligation................................................ 7,207,000 (601,000)
Unrecognized net obligation at January 1, 1995.............. (2,618,000) 379,000
Unrecognized net experience (gain) loss..................... (3,363,000) 387,000
----------- ----------
Net pension asset........................................... $ 1,226,000 $ 165,000
=========== ==========
</TABLE>
Plan assets consist principally of a broadly diversified portfolio of
equity securities, corporate and U.S. government obligations and
guaranteed-return insurance contracts.
The following significant assumptions were used in determining pension
costs for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
---- ---- ----
Discount rate......................................... 7.2% 8.9% 7.6%
Rate of increase in compensation levels............... 4% 5% 4%
Expected long-term rate of return on plan assets...... 12% 11% 11%
The weighted average discount rates used in determining the actuarial
present value of all pension obligations at December 31, 1996 and 1995 were 7.8%
and 7.2%, respectively.
The company also sponsors a number of defined contribution pension plans
covering a majority of its employees. Participation in the plans is at each
employee's election. Company contributions to these plans are based on a
percentage of employee contributions. The cost of these plans, including the
plans of companies
F-9
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
acquired during the three-year period ended December 31, 1996, was $3,711,000 in
1996, $2,975,000 in 1995 and $2,900,000 in 1994.
The company also provides certain medical, dental and life benefits to
certain eligible retired employees. These benefits are funded when the claims
are incurred. Participants generally become eligible for these benefits at age
60 after completing at least fifteen years of service. The plan pr ovides for
the payment of specified percentages of medical and dental expenses reduced by
any deductible and payments made by other primary group coverage and government
programs. The corporation will continue to reduce the percentage of the cost of
benefits that it will pay since the company's future costs are limited to 150%
of the 1992 cost. Accumulated postretirement benefit liabilities of $2,688,000
and $2,461,000 at December 31, 1996 and 1995, respectively, were fully accrued.
The net periodic postret irement benefit costs have not been significant during
the three-year period ended December 31, 1996.
Non-U.S. Benefit Plan
The company acquired Victor Products in June 1996. Victor Products sponsors
a defined benefit plan for substantially all of its employees in the United
Kingdom. Benefits under this plan are based on final compensation and years of
service as defined within the provisions of the plan.
Net periodic pension expense under the plan is not significant. The
following table presents the funded status of the plan at September 30, 1996.
Actuarial present value:
Vested benefit obligation................................. $25,441,000
Nonvested benefits........................................ --
-----------
Accumulated benefit obligation (ABO)........................ $25,441,000
===========
Actuarial present value of projected benefit obligation..... $26,067,000
Plan assets at market value................................. 32,014,000
-----------
Plan assets in excess of projected benefit obligation....... 5,947,000
Unrecognized net experience (gain).......................... (1,579,000)
-----------
Net pension asset........................................... $ 4,368,000
===========
Plan assets consist principally of a broadly diversified portfolio of
equity securities, U.K. government obligations and fixed interest securities.
The discount rate used to determine the actuarial present value of the pension
obligation at September 30, 1996 was 8.5%.
Note H--Derivative Financial Instruments
The company enters into agreements (derivative financial instruments) to
manage the risks associated with certain aspects of its business. The company
does not actively trade such instruments nor enter into such agreements for
speculative purposes. The company principally utilizes two types of derivative
financial instruments: 1) interest rate swaps to manage its interest rate risk,
and 2) foreign currency forward exchange contracts to manage risks associated
with sales and purchase commitments
denominated in foreign currencies.
At December 31, 1996, the company had four agreements with financial
institutions to swap interest rates. One agreement, the purpose of which is to
convert variable rate short-term debt to a fixed rate, is based on a notional
amount of $125 million and expires in January 1997. The company pays a fixed
rate of interest of 5.47% and receives the three-month London Interbank Offered
Rate (LIBOR). The second agreement is based on a notional amount of $10 million
and expires in February 1997. The agreement
provides that the company will receive a fixed rate of interest at 5.08% and
will pay interest at the six-month LIBOR with a maximum floating rate of 7.50%
for the last twelve months of the agreement.
F-10
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The third agreement is based on a notional amount of $25,000,000. This
agreement commences January, 1997 and expires in January 1999, at which time the
counterparty has the one-time right to extend the swap through January, 2001.
The company will pay interest at a fixed rate of 5.99% and recei ve interest at
the three-month LIBOR rate.
The fourth agreement is also based on a notional amount of $25,000,000.
This agreement commences January, 1997, and expires in January, 2000. The
company will pay interest at a fixed rate of interest of 5.92% and will receive
interest at the three-month LIBOR rate, with a cap on the LIBOR rate of 7.50%
throughout the entire term of the swap.
At December 31, 1995, the company had similar swap agreements on notional
amounts totalling $135 million. The differential between the amount received and
the amount paid is accrued as interest rates change and recognized as an
adjustment to interest expense; the related amount payable to or r eceivable
from the counterparties is included in accrued liabilities or other assets. The
estimated cost to terminate these agreements was $231,000 and $237,000 at
December 31, 1996 and 1995, respectively.
At December 31, 1996, the company had foreign currency forward exchange
contracts designated and effective as hedges which become due in various amounts
and at various dates through 1997 totalling $13,206,000. At December 31, 1995
such contracts totalled $17,800,000. All such contracts at Dece mber 31, 1996
and 1995 were for the purpose of hedging purchase or sales commitments.
Unrealized gains and losses on the forward exchange contracts are deferred and
will be recognized in income in the same period as the hedged transaction. The
differences between the contract values and the fair values were insignificant
at December 31, 1996 and 1995.
Note I--Stock-Based Compensation
The company's stock benefit plans, approved by the company's shareholders,
authorize the grant of benefit shares or units to key employees and directors.
The plan approved in 1988 authorizes, until May 1998, the grant of up to
2,737,500 benefit shares or units (as adjusted for subsequent stock splits and
dividends). The plan approved in 1996 authorizes the grant of up to 1,000,000
benefit shares or units until April 2006. These share or unit amounts exclude
amounts which were issued under predecessor
plans. Benefit shares or units include stock options, both incentive and
non-incentive, stock awards and other stock units.
Stock options are primarily granted at the fair market value of the shares
on the date of grant and become exercisable one year after grant at a rate of
one-half annually and are exercisable in full on the second anniversary date.
All options and rights must be exercised within ten years from date of grant. At
the company's discretion, vested stock option holders are permitted to elect an
alternative settlement method in lieu of purchasing common stock at the option
price. The alternative settlement method permits the employee to receive,
without payment to the company, cash, shares of common stock or a combination
thereof equal to the excess of market value of common stock over the option
purchase price.
The company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25, no
compensation expense is recognized when the exercise price of stock options
equals the market price of the underlying stock on the date of grant.
F-11
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock option activity for the three-year period ended December 31, 1996
follows (number of shares in 000's, prices in dollars per share):
<TABLE>
<CAPTION>
Option shares Weighted-average price
----------------------- -----------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 1,792 1,815 1,694 11.54 11.22 10.05
Granted............................. 519 41 211 24.13 21.06 19.49
Canceled or expired................. (16) (9) (17) 21.24 18.25 15.66
Exercised........................... (110) (55) (73) 10.93 7.32 6.78
----- ----- -----
Outstanding at end of year.......... 2,185 1,792 1,815 14.49 11.54 11.22
===== ===== =====
Exercisable at end of year.......... 1,609 1,615 1,303 11.43 10.81 9.38
</TABLE>
For options outstanding at December 31, 1996, the number (in thousands),
weighted-average exercise prices in dollars per share, and weighted-average
remaining terms were as follows:
<TABLE>
<CAPTION>
Period in which options were granted
------------------------------------------------------
96-95 94-93 92-91 90-89 88-87 Aggregate
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Number............................. 553 380 511 282 459 2,185
Exercise price range:
High............................. 24.75 20.62 15.87 9.75 4.37 24.75
Low.............................. 20.12 16.00 11.17 4.85 3.33 3.33
Weighted-average:
Exercise price................... 23.91 19.70 13.74 7.67 3.87 14.49
Remaining term (years)........... 9 7 5 3 1 6
</TABLE>
For options granted during 1996, the weighted average fair value of options
was $6.13 per share. The fair value of these options was estimated at the grant
date using a Black-Scholes option pricing model with the following weighted
average assumptions: dividend yield of 2.3%, risk-free interes t rate of 6.2%,
market volatility of the company's common stock of .18, and weighted-average
expected life of the option of approximately 7 years. The aggregate number and
fair value of shares granted in 1995 were insignificant. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the option's vesting period. On a pro forma basis, the company's
net income for the year ended December 31, 1996, would have been $61,569,000 or
$1.34 per share. The pro fo rma impact of options granted in 1995 on net income
and net income per share for the year ended December 31, 1995, was
insignificant. The calculated pro forma impact on 1996 and 1995 net income and
net income per share are not necessarily indicative of future amounts until
application of the disclosure rules are applied to all outstanding, nonvested
awards.
The intent of the Black-Scholes option valuation model is to provide
estimates of fair values of traded options which have no vesting restrictions
and are fully transferable. Option valuation models require the use of highly
subjective assumptions including expected stock price volatility. The company
has utilized the Black-Scholes method to produce the pro forma disclosures
required under Financial Accounting Standard No. 123, "Accounting and
Disclosure of Stock-Based Compensation". In management's
opinion, existing valuation models do not necessarily provide a reliable single
measure of the fair value of its employee stock options because the company's
employee stock options have significantly different characteristics from those
of traded options and the assumptions used in applying option valuation
methodologies, including the Black-Scholes model, are highly subjective.
Stock award shares are granted to employees at no cost. Awards primarily
vest at the rate of 25% annually commencing one year from the date of award,
provided the recipient is still employed by the company on the vesting date. The
cost of stock awards, based on the fair market value at the dat e of grant, is
being charged to expense over the four-year vesting period. The company granted
stock award shares of 56,000 in 1996, 10,000
F-12
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
in 1995 and 43,000 in 1994. The fair values of these shares were $1,385,000,
$202,000, and $813,000, respectively. Compensation expense related to stock
award shares recorded during these periods was $932,000, $844,000, and $777,000,
respectively.
Under the 1988 plan, 383,000 benefit shares or units were available for
future grant at December 31, 1995 with none available for future grant at
December 31, 1996. Under the 1996 plan, 697,000 benefit shares or units were
available for future grant at December 31, 1996.
Note J--Shareholders' Equity
The company has 90,000,000 authorized shares of common stock, $1 par value
and 800,000 authorized and unissued shares of preference stock, $1 par value.
F-13
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The changes in shareholders' equity for each of the three years in the
period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Foreign
Common Capital in Deferred currency
stock excess of Retained Treasury stock translation
par value par value earnings stock awards adjustment
--------- ---------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993--
45,738,000 shares issued............... $45,738,000 $54,045,000 $105,471,000 $ -- $(1,715,000) $(4,331,000)
Net income............................... 46,770,000
Cash dividends declared.................. (19,103,000)
Exercise of stock options:
Cash proceeds.......................... 67,000 393,000
Exchange of shares..................... 6,000 21,000 (27,000)
Stock awards granted..................... 43,000 770,000 (813,000)
Stock awards canceled.................... (4,000) (59,000) 63,000
Tax benefits related to stock
compensation plans..................... 206,000
Retirement of treasury stock............. (12,000) (213,000) 225,000
Purchases of 466,000 shares of treasury
stock.................................. (9,339,000)
Shares purchased subsequent to December
31, 1993 used to effect 4-for-3 stock
split.................................. (71,000) (1,387,000) 1,458,000
Amortization of deferred stock awards.... 777,000
Foreign currency translation
adjustment............................. 1,552,000
Other.................................... (20,000) (197,000)
----------- ----------- ------------ ------------ ----------- -----------
Balance at December 31, 1994--
45,767,000 shares issued............... 45,767,000 53,756,000 133,138,000 (7,880,000) (1,688,000) (2,779,000)
Net income............................... 51,610,000
Cash dividends declared.................. (22,653,000)
Exercise of stock options:
Cash proceeds.......................... 42,000 312,000
Exchange of shares..................... 14,000 38,000 (52,000)
Stock awards granted..................... 10,000 192,000 (202,000)
Tax benefits related to stock
compensation plans..................... 247,000
Retirement of treasury stock............. (19,000) (437,000) 456,000
Purchases of 147,000 shares of treasury
stock.................................. (3,068,000)
Amortization of deferred stock awards.... 844,000
Foreign currency translation
adjustment............................. 464,000
Other.................................... 18,000 356,000 (405,000)
----------- ----------- ------------ ------------ ----------- -----------
Balance at December 31, 1995--
45,832,000 shares issued 45,832,000 54,464,000 162,095,000 (10,949,000) (1,046,000) (2,315,000)
Net income............................... 62,033,000
Cash dividends declared.................. (33,947,000)
Exercise of stock options:
Cash proceeds.......................... 97,000 1,053,000
Exchange of shares..................... 13,000 39,000 (52,000)
Stock awards granted..................... 56,000 1,329,000 (1,385,000)
Tax benefits related to stock
compensation plans..................... 541,000
Retirement of treasury stock............. (12,000) (276,000) 288,000
Purchases of 126,000 shares of treasury
stock.................................. (3,455,000)
Amortization of deferred stock awards.... 932,000
Foreign currency translation
adjustment............................. (2,289,000)
Other.................................... (12,000) (236,000) (9,000)
----------- ----------- ------------ ------------ ----------- -----------
Balance at December 31, 1996--
45,986,000 shares issued............... $45,986,000 $57,138,000 $190,181,000 $(14,404,000) $(1,508,000) $(4,604,000)
=========== =========== ============ ============ =========== ===========
</TABLE>
In June 1988, the company declared a dividend distribution of one preferred
share purchase right on each share of common stock outstanding on and after July
5, 1988. The rights are not exercisable until the rights
F-14
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
distribution date, defined as the earlier of: 1) the tenth day following a
public announcement that a person or group of affiliated or associated persons
acquired or obtained the right to acquire beneficial ownership of 20% or more of
the outstanding common stock or 2) the tenth day following the c ommencement or
announcement of an intention to make a tender offer or exchange offer, the
consummation of which would result in the beneficial ownership by a person or
group of 30% or more of such outstanding common shares. Each right, when
exercisable, entitles the holder to purchase from the company one one-hundredth
of a share of Series A Preferred stock of the company at a price of $90 per one
one-hundredth of a preferred share, subject to adjustment. The company is
entitled to redeem the rights at $.10 per right, payable in cash or common
shares, at any time prior to the expiration of twenty days following the public
announcement that a 20% position has been acquired. In the event that the
company is acquired in a merger or other business combination transaction or 50%
or more of its consolidated assets or earning power is sold, proper provision
will be made so that each holder of a right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of a
right, that number of shares of common stock of the acquiring company which at
the time of such transaction would have a market value of two times the exercise
price of the right. The rights expire on July 5, 1998 unless earlier redeemed by
the company. Until exercised, the holder of a right, as such, will have no
rights as a shareholder, including, without limitation, the right to vote or to
receive dividends.
Note K--Acquisitions and Divestiture
During the three-year period ended December 31, 1996, the company made the
following acquisitions, principally all for cash. In June 1996, the company
acquired the equity of Victor Industries Limited ("Victor Products"). Victor
Products, headquartered in Newcastle, England, is a manufacturer o f hazardous
area industrial lighting products. The company also made two small Tool Group
acquisitions during the year. As a result of the 1996 acquisitions, the company
recorded approximately $3.6 million of working capital, $10.2 million of fixed
and other assets and $19.0 million of costs in excess of fair values. The
assigned values of these acquisitions are based on preliminary estimates. In
August 1995, the company acquired the net operating assets of Bronto Skylift Oy
Ab ("Bronto"), a Finland-bas ed manufacturer of truckmounted aerial access
platforms for the fire rescue and industrial markets. In December 1995, the
company acquired the assets of the Target Tech brand of warning lights from
Dominion Automotive Industries. Target Tech, now located in Illinois,
manufactures amber signaling products for construction and access vehicles. In
addition to Bronto and Target Tech, the company also made some small Safety
Products Group acquisitions during 1995. As a result of the 1995 acquisitions,
the company recorded approximately $12.7 million of working capital, $12.8
million of fixed and other assets and $36.6 million of costs in excess of fair
values. In June 1994, the company acquired the principal operating assets and
assumed the principal operating liabilities of Peabody Myers Corporation
("Vactor"). Vactor is an Illinois-based manufacturer of municipal combination
catch basin/sewer cleaning vacuum trucks. In May 1994, the company acquired the
principal operating assets and assumed the prin cipal operating liabilities of
Justrite Manufacturing Company, an Illinois-based manufacturer of safety
equipment for the storage, transfer, use and disposal of flammable and hazardous
materials. As a result of the 1994 acquisitions, the company recorded
approximately $9.9 million of working capital, $10.3 million of fixed and other
assets and $49.6 million of costs in excess of fair values.
All of the acquisitions in the three-year period ended December 31, 1996
have been accounted for as purchases. Accordingly, the results of operations of
the acquired companies have been included in the consolidated statements of
income from the effective dates of the acquisitions. Assuming the 1996 and 1995
acquisitions occurred on January 1, 1995, the company estimates that
consolidated net sales would have been increased 2% and 8% in 1996 and 1995,
respectively, while net income would have increased
1% in 1996 and decreased 3% in 1995.
In December 1996, the company sold Bassett Rotary Tool ("Bassett"), its
rotary carbide cutting tool subsidiary for cash. Sales and operating income of
the divested subsidiary in 1996 were $9.4 million and $1.6
F-15
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
million, respectively. This transaction did not have a material effect on the
results of operations of any of the years presented and the consolidated
statements of income have not been restated.
Note L--Litigation Settlement
On December 29, 1995, the company settled a lawsuit with Duravision, Inc.
and Manufacturers Product Research Group of North America, Inc. for $6.7
million. As a result of the settlement, the company recorded a net after-tax
charge to income of $4.2 million, or $0.09 per share. The charge, incl uded in
other income and expense, was recorded in the fourth quarter of 1995. The
resolution of this case will have no effect on the company's future operating
performance as it involved a discontinued product line. The company is actively
seeking recoveries from its original trial counsel.
Note M--Segment Information
The principal activities of the company's primary industry segments are as
follows:
Safety Products Group: The Safety Products Group produces: a variety of
visual and audible warning and signal devices; paging, local signaling, and
building security, parking and access control systems; and equipment for
storage, transfer, use and disposal of flammable and hazardous materials.
The group's products are sold primarily to industrial, municipal and government
customers.
Sign Group: The Sign Group manufactures for sale or lease illuminated,
non-illuminated and electronic advertising sign displays primarily for
commercial and industrial markets. It also enters into contracts to provide
maintenance service for the signs it manufactures as well as for signs manuf
actured by others.
Tool Group: The Tool Group manufactures a variety of perishable tools which
include die components for the metal stamping industry, a large selection of
precision metal products for nonstamping needs and a line of precision cutting
and deep grooving tools. The group's products are sold predomi nately to
industrial markets.
Vehicle Group: The Vehicle Group manufactures: chassis; fire trucks
including Class A pumpers, mini-pumpers and tankers; airport and other rescue
vehicles, aerial access platforms, ambulances and aerial ladder trucks; a
variety of self-propelled street cleaning vehicles; vacuum loader vehicles and
municipal catch basin/sewer cleaning vacuum trucks. The Vehicle Group sells
primarily to municipal customers, volunteer fire departments and government
customers.
Total revenue by business segment reflects sales to unaffiliated customers,
as reported in the company's consolidated statements of income. Operating
income includes all costs and expenses directly related to the segment
involved. In determining operating income, neither corporate nor interest
expenses were included. Business segment depreciation expense, identifiable
assets and capital expenditures relate to those assets that are utilized by the
respective business segment. Corporate assets consist
principally of cash and cash equivalents, notes and other receivables and fixed
assets. See Note K for a discussion of the company's acquisition and divestiture
activity during the three-year period ended December 31, 1996.
Foreign sales, including export and foreign operations, aggregated
$223,870,000 in 1996, $188,094,000 in 1995 and $129,896,000 in 1994. Export
sales aggregated $95,488,000 in 1996, $85,241,000 in 1995 and $67,341,000 in
1994.
F-16
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the company's operations by segment for the three-year period
ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales
Safety Products.................................. $196,567,000 $160,669,000 $135,424,000
Sign............................................. 82,342,000 71,170,000 66,090,000
Tool............................................. 140,911,000 131,776,000 121,657,000
Vehicle.......................................... 476,537,000 452,512,000 354,057,000
------------ ------------ ------------
Total net sales............................... $896,357,000 $816,127,000 $677,228,000
============ ============ ============
Operating income
Safety Products.................................. $ 30,467,000 $ 28,931,000 $ 23,313,000
Sign............................................. 6,743,000 6,131,000 3,988,000
Tool............................................. 31,693,000 28,454,000 23,475,000
Vehicle.......................................... 40,681,000 39,191,000 33,531,000
Corporate expense................................ (6,692,000) (6,808,000) (6,039,000)
------------ ------------ ------------
Total operating income........................ 102,892,000 95,899,000 78,268,000
Interest expense................................... (15,359,000) (13,359,000) (8,499,000)
Other income (expense)............................. 5,882,000 (5,261,000) 412,000
------------ ------------ ------------
Income before income taxes......................... $ 93,415,000 $ 77,279,000 $ 70,181,000
============ ============ ============
Depreciation
Safety Products.................................. $ 3,983,000 $ 3,348,000 $ 2,693,000
Sign............................................. 1,368,000 1,341,000 1,400,000
Tool............................................. 3,068,000 2,740,000 2,386,000
Vehicle.......................................... 4,711,000 4,336,000 3,772,000
Corporate........................................ 71,000 41,000 51,000
------------ ------------ ------------
Total depreciation............................ $ 13,201,000 $ 11,806,000 $ 10,302,000
============ ============ ============
Identifiable assets
Manufacturing activities
Safety Products............................... $164,296,000 $124,765,000 $ 98,438,000
Sign.......................................... 25,510,000 22,303,000 26,771,000
Tool.......................................... 81,368,000 71,312,000 66,729,000
Vehicle....................................... 251,949,000 244,581,000 192,436,000
Corporate..................................... 9,790,000 9,463,000 10,038,000
------------ ------------ ------------
Total manufacturing activities.............. 532,913,000 472,424,000 394,412,000
------------ ------------ ------------
Financial services activities
Sign.......................................... 18,790,000 18,715,000 13,836,000
Vehicle....................................... 152,198,000 128,820,000 113,352,000
------------ ------------ ------------
Total financial services activities......... 170,988,000 147,535,000 127,188,000
------------ ------------ ------------
Total identifiable assets $703,901,000 $619,959,000 $521,600,000
============ ============ ============
Capital expenditures
Safety Products.................................. $ 5,445,000 $ 3,173,000 $ 2,409,000
Sign............................................. 1,696,000 1,454,000 1,218,000
Tool............................................. 4,423,000 7,104,000 4,200,000
Vehicle.......................................... 5,249,000 3,958,000 3,245,000
Corporate........................................ 76,000 12,000 36,000
------------ ------------ ------------
Total capital expenditures.................... $ 16,889,000 $ 15,701,000 $ 11,108,000
============ ============ ============
</TABLE>
F-17
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the company's operations by geographic area for the three-year
period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States
Net sales........................................ $767,975,000 $713,274,000 $614,673,000
Operating income................................. 99,547,000 92,929,000 76,190,000
Identifiable assets.............................. 562,595,000 515,725,000 463,621,000
All foreign (principally Europe, Canada and Japan)
Net sales........................................ $128,382,000 $102,853,000 $ 62,555,000
Operating income................................. 3,345,000 2,970,000 2,078,000
Identifiable assets.............................. 141,306,000 104,234,000 57,979,000
</TABLE>
Note N--Selected Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
For the three month period ended
------------------------------------------------------------------------------------------
1996 1995
------------------------------------------ ------------------------------------------
March June September December March June September December
31 30 30 31 31 30 30 31
----- ---- --------- -------- ----- ---- --------- --------
(in thousands of dollars except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $210,793 $232,272 $230,348 $222,944 $187,132 $199,355 $207,880 $221,760
Gross margin............. 63,130 70,421 70,676 72,179 56,863 61,297 62,813 67,382
Net income............... 11,851 15,978 15,887 18,317(a) 10,793 14,479 14,629 11,709(b)
Per share data:
Net income............. .26 .35 .35 .40(a) .24 .32 .32 .26(b)
Dividends paid......... .145 .145 .145 .145 .125 .125 .125 .125
Market price range
High................. 27 5/8 27 1/4 24 5/8 28 1/4 21 7/8 23 24 1/8 25 7/8
Low.................. 23 3/4 22 1/2 20 7/8 23 1/8 19 5/8 20 3/8 21 1/8 21 3/8
</TABLE>
- ---------------
(a) includes after-tax gain on sale of subsidiary of $2.8 million or $.06 per
share (see Note K)
(b) includes after-tax charge for litigation settlement of $4.2 million or $.09
per share (see Note L)
F-18
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors
of Federal Signal Corporation
We have audited the accompanying consolidated balance sheets of Federal
Signal Corporation and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1996. These financial state ments are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, ev idence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Federal Signal
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for ea ch of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 24, 1997
F-19
<PAGE>
FEDERAL SIGNAL CORPORATION
FINANCIAL REVIEW
Consolidated Results of Operations
Federal Signal Corporation again achieved record levels of net sales, net
income and earnings per share in 1996. Net sales increased to $896.4 million,
10% higher than 1995's $816.1 million. Operating income increased 7% from $95.9
million in 1995 to $102.9 million in 1996. Net income in 1996 of $62.0 million
increased 20% from $51.6 million in 1995. Net income per share for 1996
increased 19% to $1.35 per share compared to $1.13 in 1995 and $1.02 per share
in 1994. Net income in 1996 included a $2.8 million after-tax gain on the sale
of a small tool business while net income in 1995 included a nonrecurring
after-tax charge of $4.2 million related to a litigation settlement. Excluding
these items, earnings increased 6% to $59.2 million, or $1.29 per share, in 1996
from $55.8 million, or $1.22 p er share, in 1995.
The 1996 sales increase of 10% resulted from volume increases of 8%
(including 4% resulting from the acquisition of Victor Products in June 1996 and
Bronto in August 1995) and price increases of 2%. Domestic sales increased 7% in
1996 while foreign sales increased 19%. Excluding Bronto and Vic tor Products,
foreign sales increased 10%. Foreign sales accounted for 25% of the company's
total sales in 1996 compared to 23% of total sales in 1995.
The 1996 sales increase follows a 21% increase in sales in 1995. The
increase in sales in 1995 was due to volume increases of 20% (including 4% from
the acquisition of Bronto) and price increases of 1%. Domestic sales increased
15% in 1995 while foreign sales increased 45%. Excluding Bronto, f oreign sales
increased 22%.
Operating margins have generally increased over the last five years from
10.6% in 1992 to 11.5% in 1996, despite generally declining gross profit margins
as the following table shows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(percent of sales)
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 69.2 69.6 69.0 67.8 68.2
----- ----- ----- ----- -----
Gross profit margin................................. 30.8 30.4 31.0 32.2 31.8
Selling, general and administrative expenses........ 19.3 18.6 19.4 20.9 21.2
----- ----- ----- ----- -----
Operating margin.................................... 11.5% 11.8% 11.6% 11.3% 10.6%
===== ===== ===== ===== =====
</TABLE>
Gross profit margins have generally declined principally due to sales of
the Vehicle Group increasing faster than sales of the other groups. The Vehicle
Group normally experiences higher cost of sales percentages but lower operating
expense percentages than the other groups. This trend tempora rily reversed in
1993 due to improving gross margins of three of the company's four groups, most
notably Safety Products and Sign. In 1993 through 1995 reductions in the
percentage of S,G&A expenses occurred as a result of: 1) higher sales with fixed
costs being spread over those higher sales, 2) the increasing percentage of
Vehicle Group sales to total sales, and 3) operational improvements made,
particularly in the Sign Group. In 1996, the Vehicle and Tool groups experienced
improved gross margins largely
as a result of improved productivity. In 1996, the percentage of S,G&A expenses
rose principally due to the increase in new product development expenses
combined with the acquisition of Victor Products.
Because of the varied nature of its operations, the company recognizes that
changes in operating income as a percentage of net sales on a consolidated basis
may sometimes distort its real operating performance. In order to monitor the
operating performance of its operations, the company utiliz es various methods,
one of which is return on net assets. Return on net assets is defined as
operating income divided by the identifiable net assets (total assets of a
business unit less its accounts payable and accrued liabilities).
The company acquires businesses which meet the company's growth and other
strategic objectives. In large part as a result of intangible assets arising
from acquisitions, it is anticipated that businesses acquired will not generate
the same levels of returns as the company's other businesses fo r some time
following their
F-20
<PAGE>
FEDERAL SIGNAL CORPORATION
FINANCIAL REVIEW--(Continued)
respective acquisition. However, the company's strategies include making
constant improvements in all of its businesses. In 1996, the company's
manufacturing operations achieved a 24% return on net assets compared to 28% in
1995. The decline in return was caused largely by recent acquisitions and a n
increase of more than 50% in new product development spending. Excluding these
items, the company's return for 1996 was essentially the same as achieved in
1995.
Interest expense increased $2.0 million in 1996 following an increase of
$4.9 million in 1995. The increase in 1996 was the result of increased
borrowings caused by: 1) approximately $28 million incurred in 1996 and
$15.5 million incurred late in the fourth quarter of 1995 for the acquisition of
companies for cash and 2) $23.5 million increase in financial services assets.
The increase of $4.9 million in 1995 was the result of substantially increased
borrowings caused largely by similar factors: 1)approximately $31 million
incurred due to acquisitions of companies for cash during the first nine months
of 1995, 2) a $20.3 million increase in financial services assets which occurred
during the year, and 3) additional repurchases of the company's common stock.
Weighted average interest rates on short-term borrowings experienced in 1996
were 5.5% compared to 6.0% in 1995.
The company's effective tax rate of 33.6% in 1996 increased from the 1995
and 1994 rates of 33.2% and 33.4%, respectively. The increase in 1996 was due to
an increase in state income taxes resulting from a change in earnings mix and a
lower percentage of tax-exempt interest income. The .2% dec rease in 1995
resulted from tax-exempt interest income becoming a higher percentage of the
company's total income.
At the end of 1996, the company changed its assumptions for discount rates
used in determining the actuarial present values of accumulated and projected
benefit obligations for its United States postretirement plans from 7.2% to
7.8%. This increase resulted from the increase in the interest ra te environment
experienced at the end of 1996. The company expects that the change in
assumptions will not have a significant impact on 1997 results of operations.
Certain of the company's businesses are susceptible to the influences of
seasonal buying or delivery patterns. The company'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, parking systems and aerial access platform
manufacturing operations.
Group Operations
Domestic markets were stronger in 1996 for all four of the company's
groups. As mentioned previously, foreign sales increased 19% (10% excluding
acquisitions) in 1996. The Safety Products and Tool groups achieved much
improved foreign sales in 1996. For the fourth consecutive year in a row, al l
four groups achieved increases in both sales and earnings.
Safety Products
Safety Products Group sales increased 22% in 1996 resulting from an
increase in sales at all Safety Products companies, plus the acquisition of
Victor Products in June 1996. Domestic sales were up 14% while foreign sales
increased 55%. Earnings increased 5% in 1996 reflecting investment in the
hazardous area lighting market, the start up of a new product development unit
and a temporary interruption in police warning light bar growth. The group's
return on net manufacturing assets was 22% in 1996
compared to 32% in 1995. As noted earlier, the company significantly increased
the total investment in new product development in 1996 and the company's
strategy includes the acquisition of companies which may not initially produce
returns at levels of its existing businesses. Excluding the dilutiv e impact of
Victor Products, which was acquired in mid-1996, and the additional product
development investment, the group's return on net manufacturing assets was 28%.
F-21
<PAGE>
FEDERAL SIGNAL CORPORATION
FINANCIAL REVIEW--(Continued)
Sign
The Sign Group achieved a sales increase of 16% in 1996 and operating
profits increased 10% from $6.1 million in 1995 to $6.7 million; higher costs
incurred on certain major projects reduced margins. As a result of the higher
costs, the group's return on net manufacturing assets decreased from 26% in
1995 to 23% in 1996.
Tool
The die component and precision tooling operations experienced strong
growth in international markets and moderate sales gains in domestic catalog
products. The cutting tool operations also achieved strong gains in earnings in
1996. Overall, the Tool Group achieved a 7% increase in sales and a 11%
increase in income. Domestic sales increased 3% in 1996 while foreign sales
increased 25%. In addition, the Tool Group acquired two strategically
significant companies during the year. As a result of the
group's strong performance, return on net manufacturing assets remained
comparable in 1996 to 1995 at 49% in spite of the acquisitions.
Vehicle
Earnings for the Vehicle Group increased 4% in 1996 on a sales increase of
5%. Domestic sales increased 4% in 1996 and foreign sales increased 9% (3%
excluding Bronto). Fire Rescue sales increased 8% over 1995 but due to unusually
high investment in new products, the initial investment in long -term cost
reduction programs, and a major reorganization at Bronto, earnings were down 8%.
Environmental sales increased 1% while earnings increased 26%. Aggressive
employee-led cost reduction efforts helped produce a strong increase in the
group's gross margin while improving product quality. The group's return on net
manufacturing assets declined from 18% in 1995 to 17% in 1996 as a result of the
Fire Rescue issues enumerated above. Excluding the additional product
development investment made in 1996 , the group's return increased to 19%.
Financial Services Activities
The company maintains a large investment ($171.0 million at December 31,
1996) in lease financing and other receivables which are generated principally
by its vehicle operations with the balance generated by its sign operations.
These assets continued to be conservatively leveraged in accordan ce with the
company's stated financial objectives for these assets for the five-year period
ending December 31, 1996 (see further discussion in Financial Position and Cash
Flow).
Financial services assets have repayment terms generally ranging from two
to ten years. The increases in these assets resulted from increasing sales of
the Vehicle Group as well as continuing greater acceptance by customers of the
benefits of using the company as their source of financing vehi cle purchases.
Financial Position and Cash Flow
The company emphasizes generating strong cash flows from operations. During
1996, cash flow from operations aggregated $61.4 million compared to $62.9
million in 1995 and $53.8 million in 1994. The decrease in cash flow from
operations in 1996 relative to 1995 is largely attributable to 1996 f ourth
quarter receivable collections which were below 1995's fourth quarter and
year-end inventories increased reflecting important purchases of chassis. The
increase in cash flow from operations in 1995 was largely attributed to
increases in sales as well as improvement in the company's operating margin. As
expected, the company's operating working capital (accounts receivable,
inventory and accounts payable) as a percent of sales did not change
significantly during the three-year period ending 1996.
Nevertheless, the company expects further improvement in its operating cash flow
as it continues to focus aggressively on its efficiencies and costs as well as
its working capital management.
F-22
<PAGE>
FEDERAL SIGNAL CORPORATION
FINANCIAL REVIEW--(Continued)
During the 1992-1996 period, the company has utilized its strong cash flows
from operations to: 1) fund in whole or in part strategic acquisitions of
companies operating in markets related to those already served by the company;
2) purchase increasing amounts of equipment principally to provide for further
cost reductions and increased productive capacity for the future as well as
tooling for new products; 3) increase its investment in financial services
activities; 4) pay increasing amounts in cash dividends to shareholders; and 5)
repurchase a small percentage of its outstanding common stock each year.
Cash flows for the five-year period ending December 31, 1996 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C>
Cash provided by (used for):
Operating activities......... $ 61.4 $ 62.9 $ 53.8 $ 48.8 $ 40.2
Investing activities......... (54.2) (88.1) (96.9) (38.1) (26.9)
Financing activities......... (4.1) 29.9 45.1 (10.3) (11.2)
</TABLE>
In order to show the distinct characteristics of the company's investment
in its manufacturing activities and its investment in its financial services
activities, the company has presented separately these investments and their
related liabilities. Each of these two types of activities are sup ported by
different percentages of debt and equity.
One of the company's financial objectives is to maintain a strong financial
position. The company defines its goal as normally having a debt to
capitalization ratio of 30% or less for its manufacturing operations. At
December 31, 1996 and 1995, the company's debt to capitalization ratios of it s
manufacturing operations were 28% and 29%, respectively. The company also
believes that its financial assets, due to their overall quality, are capable of
sustaining a leverage ratio of 87%. At December 31, 1996 and 1995, the company's
debt to capitalization ratios for its financial services activities were 87%.
The company intends to maintain this leverage for its financial activities in
the future and at the same time fulfill its financial objective with respect to
its manufacturing debt to capitali zation ratio. These intentions are consistent
with its investment grade credit rating obtained in connection with its
commercial paper program.
As indicated earlier, substantial effort is focused on improving the
utilization of the company's working capital. The company's current ratio for
its manufacturing operations was 1.2 at December 31, 1996 and 1.3 at December
31, 1995. These ratios are slightly lower than those in prior years a s a result
of increased short-term debt. The company anticipates that its financial
resources and major sources of liquidity, including cash flow from operations,
will continue to be adequate to meet its operating and capital needs in addition
to its financial commitments.
F-23
EXHIBIT 21
FEDERAL SIGNAL CORPORATION
Subsidiaries of the Registrant
The following table sets forth information concerning significant subsidiaries
of the Registrant.
Jurisdiction
in which
Name Organized
Aplicaciones Tecnologicas VAMA S.A. Spain
Bronto Skylift Oy Ab Finland
Dayton Progress Canada, Ltd. Ontario, Canada
Dayton Progress Corporation Ohio
Dayton Progress International Corporation Ohio
Dayton Progress (U.K.), Ltd. United Kingdom
Dico Corporation Michigan
Dunbar-Nunn Corporation California
Elgin Sweeper Company Delaware
Emergency One, Inc. Delaware
Federal APD, Inc. Michigan
Federal Signal Credit Corporation Delaware
Federal Signal International (FSC), Ltd. Jamaica, W.I.
Guzzler Manufacturing, Inc. Alabama
Jamestown Punch and Tooling, Inc. New York
Justrite Manufacturing Company, L.L.C. Delaware
Manchester Tool Company Delaware
M.J. Industries, S.A. France
Nippon Dayton Progress K.K. Japan
Ravo International (Van Raaij Holdings BV
and its subsidiaries) Netherlands
Schneider Stanznormalien GmbH Germany
Superior Emergency Vehicles, Ltd. Alberta, Canada
Technical Tooling, Inc. Minnesota
Vactor Manufacturing, Inc. Illinois
Victor Industrial Equipment Ltd. South Africa
Victor Industries, Ltd. United Kingdom
Victor Products USA Inc. Delaware
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Federal Signal Corporation of our report dated January 24, 1997, included in
the Federal Signal Corporation Proxy Statement for the Annual Meeting of
Shareholders to be held April 16, 1997.
Our audits also included the financial statement schedule of Federal Signal
Corporation listed in Item 14(a)2. This schedule is the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-12876, 33-22311, 33-38494, 33-41721, 33-49476 and 33-14251)
pertaining to the Stock Option Plan and Employee Savings and Investment Plans of
our report dated January 24, 1997, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of Federal Signal Corporation.
Ernst & Young LLP
Chicago, Illinois
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Registrant's consolidated condensed balance sheet as
of December 31, 1996 and consolidated condensed statement of income
for the twelve months ended December 31, 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> DEC-31-1996
<CASH> 12431
<SECURITIES> 0
<RECEIVABLES> 143805
<ALLOWANCES> 2602
<INVENTORY> 108293
<CURRENT-ASSETS> 267006 <F1>
<PP&E> 177393
<DEPRECIATION> 94568
<TOTAL-ASSETS> 703901
<CURRENT-LIABILITIES> 226413 <F1>
<BONDS> 34311
0
0
<COMMON> 45986
<OTHER-SE> 226803
<TOTAL-LIABILITY-AND-EQUITY> 703901
<SALES> 896357
<TOTAL-REVENUES> 896357
<CGS> 619951
<TOTAL-COSTS> 619951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15359
<INCOME-PRETAX> 93415
<INCOME-TAX> 31382
<INCOME-CONTINUING> 62033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62033
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
<FN>
<F1>MANUFACTURING OPERATIONS ONLY
</FN>
</TABLE>
