FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-6003
Federal Signal Corporation
(Exact name of Registrant as specified in its charter)
Delaware 36-1063330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 West 22nd Street
Oak Brook, IL 60523-9945
(Address of principal executive offices) (Zip code)
(630) 954-2000
(Registrant's telephone number including area code)
1415 West 22nd Street
Oak Brook, IL 60523
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X
No ____
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Title
Common Stock, $1.00 par value 45,705,361 shares outstanding at
July 31, 1998
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
INTRODUCTION
The consolidated condensed financial statements of Federal Signal
Corporation and subsidiaries included herein have been prepared by the
Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Registrant believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
consolidated condensed financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in
the Registrant's Proxy Statement for the Annual Meeting of Shareholders
held on April 15, 1998.
<PAGE>
<TABLE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $250,121,000 $236,156,000 $481,351,000 $460,641,000
Costs and expenses:
Cost of sales 170,526,000 158,893,000 330,706,000 312,954,000
Selling, general and administrative 51,496,000 50,144,000 102,279,000 96,768,000
Other (income) and expenses:
Interest expense 4,865,000 4,154,000 9,332,000 8,091,000
Other (income) expense (225,000) (640,000) (386,000) (1,166,000)
----------- ----------- ----------- -----------
226,662,000 212,551,000 441,931,000 416,647,000
----------- ----------- ----------- -----------
Income before income taxes 23,459,000 23,605,000 39,420,000 43,994,000
Income taxes 7,446,000 7,546,000 12,561,000 14,319,000
----------- ----------- ----------- -----------
Net income $ 16,013,000 $ 16,059,000 $26,859,000 $29,675,000
=========== =========== ========== ==========
COMMON STOCK DATA:
Basic net income per share $ .35 $ .35 $ .59 $ .66
=========== =========== ========== ==========
Diluted net income per share $ .35 $ .35 $ .58 $ .65
=========== =========== ========== ==========
Weighted average common shares outstanding:
Basic 45,710,000 45,251,000 45,693,000 45,254,000
Diluted 45,988,000 45,820,000 45,974,000 45,824,000
Cash dividends per share of common stock $ .1775 $ .1675 $ .3550 $ .3350
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $16,013,000 $16,059,000 $26,859,000 $29,675,000
Other comprehensive income (loss)-
Foreign currency translation adjustments 435,000 (1,935,000) (1,407,000) (6,017,000)
---------- ---------- ---------- ----------
Comprehensive income $16,448,000 $14,124,000 $25,452,000 $23,658,000
========== ========== ========== ==========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 December 31
1998 1997 (a)
--------- --------
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $10,769,000 $10,686,000
Trade accounts receivable, net of
allowances for doubtful accounts 151,252,000 142,973,000
Inventories:
Raw materials 63,438,000 55,524,000
Work in process 34,408,000 25,043,000
Finished goods 33,435,000 28,816,000
----------- -----------
Total inventories 131,281,000 109,383,000
Prepaid expenses 5,038,000 5,580,000
----------- -----------
Total current assets 298,340,000 268,622,000
Properties and equipment:
Land 5,715,000 5,134,000
Buildings and improvements 44,796,000 40,190,000
Machinery and equipment 151,366,000 142,043,000
Accumulated depreciation (110,193,000) (102,658,000)
----------- -----------
Net properties and equipment 91,684,000 84,709,000
Intangible assets, net of
accumulated amortization 195,929,000 188,002,000
Other deferred charges and assets 20,567,000 19,482,000
----------- -----------
Total manufacturing assets 606,520,000 560,815,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 170,098,000 167,090,000
----------- -----------
Total assets $776,618,000 $727,905,000
=========== ===========
See notes to condensed consolidated financial statements.
(a)The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued
June 30 December 31
1998 1997 (a)
--------- --------
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $116,106,000 $86,158,000
Trade accounts payable 60,087,000 50,385,000
Accrued liabilities and income taxes 89,061,000 90,486,000
---------- -----------
Total current liabilities 265,254,000 227,029,000
Long-term borrowings 30,443,000 32,110,000
Deferred income taxes 23,581,000 23,581,000
----------- -----------
Total manufacturing liabilities 319,278,000 282,720,000
Financial services activities -Borrowings 148,148,000 145,413,000
Total liabilities 467,426,000 428,133,000
SHAREHOLDERS' EQUITY
Common stock - par value 46,611,000 46,501,000
Capital in excess of par value 62,939,000 61,029,000
Retained earnings 236,988,000 226,432,000
Treasury stock (20,727,000) (19,695,000)
Deferred stock awards (2,435,000) (1,718,000)
Accumulated other comprehensive income (14,184,000) (12,777,000)
----------- -----------
Total shareholders' equity 309,192,000 299,772,000
----------- -----------
Total liabilities and
shareholders' equity $776,618,000 $727,905,000
=========== ===========
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30
1998 1997
Operating activities:
Net income $26,859,000 $29,675,000
Depreciation 8,233,000 7,367,000
Amortization 3,377,000 2,776,000
Working capital changes and other (11,010,000) (26,919,000)
---------- ----------
Net cash provided by operating
activities 27,459,000 12,899,000
Investing activities:
Purchases of properties and
equipment (10,515,000) (9,737,000)
Principal extensions under
lease financing agreements (49,306,000) (59,327,000)
Principal collections under
lease financing agreements 46,298,000 54,020,000
Payments for purchases of companies,
net of cash acquired (23,080,000)
Other, net 69,000 2,678,000
---------- ----------
Net cash used for investing activities (36,534,000) (12,366,000)
Financing activities:
Additional short-term
borrowings, net 34,245,000 20,799,000
Reduction of long-term borrowings (1,667,000) (1,638,000)
Purchases of treasury stock (57,000) (5,282,000)
Cash dividends paid to shareholders (23,982,000) (21,716,000)
Other, net 619,000 257,000
---------- ----------
Net cash provided by (used for) financing
activities 9,158,000 (7,580,000)
Increase (Decrease) in cash and cash
equivalents 83,000 (7,047,000)
Cash and cash equivalents at
beginning of period 10,686,000 12,431,000
---------- ----------
Cash and cash equivalents at
end of period $10,769,000 $ 5,384,000
========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. It is suggested that the condensed consolidated financial
statements be read in conjunction with the financial statements and
the notes thereto included in the Registrant's Proxy Statement for
the Annual Meeting of Shareholders held on April 15, 1998.
2. In the opinion of the Registrant, the information contained herein
reflects all adjustments necessary to present fairly the
Registrant's financial position, results of operations and cash
flows for the interim periods. Such adjustments are of a normal
recurring nature. The operating results for the three months and
six months ended June 30, 1998, are not necessarily indicative of
the results to be expected for the full year of 1998.
3. Interest paid for the six-month periods ended June 30, 1998 and
1997 was $10,157,000 and $8,419,000, respectively. Income taxes
paid for these same periods were $11,383,000 and $16,843,000,
respectively.
4. The following table summarizes the information used in computing
basic and diluted income per share:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
--------------------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator for both basic
and diluted income per share
computations - net income $16,013,000 $16,059,000 $26,859,000 $29,675,000
========== ========== ========== ==========
Denominator for basic income
per share - weighted average
shares outstanding 45,710,000 45,251,000 45,693,000 45,254,000
Effect of employee stock options
(dilutive potential common shares) 278,000 569,000 281,000 570,000
---------- ---------- ---------- ----------
Denominator for diluted income
per share - adjusted shares 45,988,000 45,820,000 45,974,000 45,824,000
========== ========== ========== ==========
<FN>
</FN>
</TABLE>
5. In 1998, the company adopted Statement of Financial Accounting
Standard (SFAS) No. 130, "Reporting Comprehensive Income", which
requires companies to report all changes in equity during a period,
except those resulting from investments by owners and distributions
to owners, in a financial statement for the period in which they are
recognized. The prior year has been restated to conform to the
requirements of SFAS No. 130.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
SECOND QUARTER 1998
Comparison with Second Quarter 1997
Federal Signal Corporation achieved record quarterly sales during the
second quarter of 1998. New orders increased 9% and sales increased 6%
over the second quarter of 1997. Diluted earnings per share of $.35 for
the second quarter were even with last year's results. Sales increased to
$250.1 million compared to $236.2 million in the same period a year ago.
Net income of $16.0 million was essentially even with last year's second
quarter. Operating margins improved sharply over 1998's first quarter.
Backlogs at June 30, 1998 were $336.4 million, an increase of 36% over
the $246.6 million a year ago and up 9% from the beginning of the year
with most of the backlog increase generated by the Vehicle Group.
Three of the company's four groups achieved earnings increases over last
year's second quarter. The Safety Products and Tool groups again reported
growth in orders, sales and operating income over last year's results.
The Sign Group's earnings increased slightly in the second quarter though
sales declined from last year's comparatively strong second quarter.
Vehicle Group sales grew modestly in the second quarter while earnings
declined.
The Safety Products Group's orders rose 21% in the second quarter driven
by strong increases in lighting products, signaling and hazardous
material containment products. Sales increased 20% while earnings
increased 38% on strong margin expansion resulting from the continuing
excellent performance of the U.S.-based hazardous lighting business
acquired in mid-1997. The return to normal margins in the hazardous
material containment business, whose 1997 results were adversely affected
by a one-time charge, also benefited the group's performance.
Vehicle Group orders increased 9% with fire rescue growing at a somewhat
higher rate than environmental products. Fire rescue orders increased in
the U.S., reflecting higher orders for traditional aluminum-bodied
vehicles as well as the addition of stainless steel-bodied vehicles
resulting from the company's acquisition of Saulsbury Fire in January of
this year. Environmental products orders rose as increases in street
sweepers, sewer cleaners and industrial vacuum vehicles for use in the
U.S. more than offset a decline in non-U.S. street sweeper orders from a
very high level last year. Vehicle Group sales increased 3% while
earnings declined 15%. Truck chassis supply shortages again caused lower
sales volumes, productivity problems and lower margins in key U.S.-based
vehicle businesses. Based on input from the group's suppliers, we
continue to believe that the chassis supply shortage should alleviate in
the second half of 1998.
Tool Group orders increased a strong 8% in the second quarter. Orders for
punches and related components and cutting tool orders both improved over
last year with cutting tools growing at the highest rate. The group's
sales and earnings both increased 6% with operating margin improving
slightly over last year.
Orders and sales declined at the Sign Group, the smallest of the
company's four groups. Sign Group second quarter orders declined 22% from
year ago levels, although bidding activity remains good. The timing of
order placement in Sign's important large customer market continues to
result in uneven order patterns. Sales fell 16% as a result of slow
second quarter orders and low backlogs at the end of the first quarter.
Though sales were lower, the group produced earnings just above last
year's second quarter. Sign improved its gross margins and reduced
operating expenses, in part a result of implementing various new
processes which should continue to benefit the group. As a result, Sign's
operating margin substantially increased over the first quarter of 1998
and last year's second quarter.
Gross profit as a percent of net sales declined from 32.7% in the second
quarter of 1997 to 31.8% in the second quarter of 1998. The percentage
decline was largely attributable to production inefficiencies experienced
in the Vehicle Group coupled with the inclusion in the second quarter of
1997 of a significant fire rescue-related commission in the company's
sales inflating last year's gross profit margin. Partially offsetting
these items was a favorable improvement in customer mix on the company's
gross profit percentage. Selling, general and administrative expenses as
a percent of net sales decreased to 20.6% from 21.2% in the second
quarter of 1997 due primarily to reduced fire rescue sales commissions.
The effective tax rate for the second quarter of 1998 was 31.7% compared
to the second quarter 1997 rate of 32.0%. This decrease mainly resulted
from higher percentages of tax-exempt interest income and foreign income
taxed at lower rates.
Comparison of First Six Months 1998 to Same Period 1997
Orders for the first six months of 1998 increased 14% over the same
period a year ago. For the first six months of 1998, sales of $481.4
million increased 4% over the $460.6 million last year. Net income of
$26.9 million for the first six months of 1998 declined from last year's
$29.7 million. Diluted earnings per share declined to $.58 in 1998 from
$.65 in 1997. The earnings decline for the first six months occurred as a
result of lower first quarter earnings caused mainly by vendor-related
chassis supply shortages for the Vehicle Group.
Gross profit as a percent of net sales declined to 31.3% in the first six
months of 1998 from 32.1% in the first six months of 1997 due to the
reasons cited above for the second quarter. Selling, general and
administrative expenses increased modestly to 21.2% of net sales in the
first six months of 1998 from 21.0% in the same period a year ago.
Interest expense increased from $8.1 million to $9.3 million largely as a
result of increased borrowings to finance recent business acquisitions.
The effective tax rate was 31.9% for the first half of 1998 declining
from the 32.5% for the first half of 1997 due to the reasons cited above
for the second quarter.
Seasonality of Registrant's Business
Certain of the Registrant's businesses are susceptible to the influences
of seasonal buying or delivery patterns. The Registrant's businesses
which tend to have lower sales in the first calendar quarter compared to
other quarters as a result of these influences are signage, street
sweeping, outdoor warning, municipal emergency signal products, parking
systems and fire rescue products.
Financial Position and Liquidity at June 30, 1998
The current ratio applicable to manufacturing activities was 1.1 at June
30, 1998 compared to 1.2 at December 31, 1997. Working capital
(manufacturing operations) at June 30, 1998 was $33.1 million compared to
$41.6 million at the most recent year end. The decrease in working
capital principally resulted from the company's use of short-term debt to
fund two acquisitions in January 1998. The debt to capitalization ratio
applicable to manufacturing activities was 32% at June 30, 1998 compared
to 28% at December 31, 1997. The debt to capitalization ratio applicable
to financial services activities was 87% at June 30, 1998 and December
31, 1997.
Current financial resources and anticipated funds from the Registrant's
operations are expected to be adequate to meet future cash requirements
including capital expenditures and modest amounts of additional stock
purchases.
Part II. Other Information
Responses to items one through six are omitted since these items are
either inapplicable or the response thereto would be negative.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Federal Signal Corporation
08/13/98 By: /s/ Henry L. Dykema
Henry L. Dykema, Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's consolidated condensed balance sheet as of June 30, 1998 and
consolidated condensed statement of income for the six months ended June
30, 1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 10769
<SECURITIES> 0
<RECEIVABLES> 154037
<ALLOWANCES> 2785
<INVENTORY> 131281
<CURRENT-ASSETS> 298340 <F1>
<PP&E> 201877
<DEPRECIATION> 110193
<TOTAL-ASSETS> 776618
<CURRENT-LIABILITIES> 265254 <F1>
<BONDS> 30443
0
0
<COMMON> 46611
<OTHER-SE> 262581
<TOTAL-LIABILITY-AND-EQUITY> 776618
<SALES> 481351
<TOTAL-REVENUES> 481351
<CGS> 330706
<TOTAL-COSTS> 330706
<OTHER-EXPENSES> 102279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9332
<INCOME-PRETAX> 39420
<INCOME-TAX> 12561
<INCOME-CONTINUING> 26859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26859
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.58
<FN>
<F1>MANUFACTURING OPERATIONS ONLY
</FN>
</TABLE>
