FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
(Address of principal executive offices) (Zip code)
(630) 954-2000
(Registrant's telephone number including area code)
Not applicable
(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 45,707,840 shares outstanding at April
30, 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>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31
1998 1997
---------- ----------
Net sales $231,230,000 $224,485,000
Costs and expenses:
Cost of sales 160,180,000 154,061,000
Selling, general and administrative 50,783,000 46,624,000
Other (income) and expenses:
Interest expense 4,467,000 3,937,000
Other (income), net (161,000) (526,000)
----------- -----------
215,269,000 204,096,000
Income before income taxes 15,961,000 20,389,000
Income taxes 5,115,000 6,773,000
----------- -----------
Net income $ 10,846,000 $ 13,616,000
=========== ===========
COMMON STOCK DATA:
Basic and diluted net income per share $ .24 $ .30
========= ==========
Weighted average common shares outstanding
Basic 45,674,000 45,256,000
Diluted 45,959,000 45,827,000
Cash dividends per share of
common stock $ .1775 $ .1675
See notes to condensed consolidated financial statements.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended March 31
1998 1997
----------- -----------
Net income $10,846,000 $13,616,000
Other comprehensive loss, net of tax -
Foreign currency translation adjustments (1,842,000) (4,082,000)
Comprehensive income $9,004,000 $9,534,000
========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31
1998 1997 (a)
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $16,995,000 $10,686,000
Trade accounts receivable, net of
allowances for doubtful accounts 140,021,000 142,973,000
Inventories:
Raw materials 62,888,000 55,524,000
Work in process 27,048,000 25,043,000
Finished goods 33,932,000 28,816,000
Prepaid expenses 4,986,000 5,580,000
----------- -----------
Total current assets 285,870,000 268,622,000
Properties and equipment:
Land 5,820,000 5,134,000
Buildings and improvements 44,586,000 40,190,000
Machinery and equipment 147,588,000 142,043,000
Accumulated depreciation (106,372,000) (102,658,000)
----------- ------------
Net properties and equipment 91,622,000 84,709,000
Intangible assets, net of
accumulated amortization 197,428,000 188,002,000
Other deferred charges and assets 20,339,000 19,482,000
----------- -----------
Total manufacturing assets 595,259,000 560,815,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 167,265,000 167,090,000
----------- -----------
Total assets $762,524,000 $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
March 31 December 31
1998 1997 (a)
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $115,888,000 $86,158,000
Trade accounts payable 52,590,000 50,385,000
Accrued liabilities and income taxes 92,428,000 90,486,000
----------- -----------
Total current liabilities 260,906,000 227,029,000
Long-term borrowings 31,061,000 32,110,000
Deferred income taxes 23,581,000 23,581,000
----------- -----------
Total manufacturing liabilities 315,548,000 282,720,000
Financial services activities - Borrowings 145,605,000 145,413,000
Total liabilities 461,153,000 428,133,000
SHAREHOLDERS' EQUITY
Common stock - par value 46,590,000 46,501,000
Capital in excess of par value 62,619,000 61,029,000
Retained earnings 229,101,000 226,432,000
Treasury stock (19,639,000) (19,695,000)
Deferred stock awards (2,681,000) (1,718,000)
Accumulated other comprehensive income (14,619,000) (12,777,000)
----------- -----------
Total shareholders' equity 301,371,000 299,772,000
----------- -----------
Total liabilities and
shareholders' equity $762,524,000 $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)
Three Months Ended March 31
1998 1997
---------- -------
Operating activities:
Net income $10,846,000 $13,616,000
Depreciation 4,039,000 3,629,000
Amortization 1,684,000 1,376,000
Working capital changes and other 3,157,000 (11,080,000)
----------- -----------
Net cash provided by operating
activities 19,726,000 7,541,000
Investing activities:
Purchases of properties and
equipment (5,484,000) (5,240,000)
Principal extensions under
lease financing agreements (21,446,000) (31,770,000)
Principal collections under
lease financing agreements 21,271,000 27,524,000
Payments for purchases of companies,
net of cash acquired (23,433,000)
Other, net 1,545,000 1,652,000
----------- -----------
Net cash used for investing
activities (27,547,000) (7,834,000)
Financing activities:
Additional short-term
borrowings, net 29,933,000 13,899,000
Reduction of long-term borrowings (192,000) (1,206,000)
Purchases of treasury stock (157,000) (5,252,000)
Cash dividends paid to
shareholders (15,856,000) (14,131,000)
Other, net 402,000 99,000
----------- -----------
Net cash provided by (used for) financing
activities 14,130,000 (6,591,000)
----------- -----------
Increase (decrease) in cash and cash
equivalents 6,309,000 (6,884,000)
Cash and cash equivalents at
beginning of period 10,686,000 12,431,000
----------- -----------
Cash and cash equivalents at
end of period $ 16,995,000 $ 5,547,000
=========== ===========
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 ended
March 31, 1998, are not necessarily indicative of the results to be
expected for the full year of 1998.
3. Interest paid for the three-month periods ended March 31, 1998 and
1997 was $4,679,000 and $4,020,000, respectively. Income taxes paid
for these same periods were $1,085,000 and $4,914,000,
respectively.
4. The following table summarizes the information used in computing
basic and diluted income per share:
Three Months Ended March 31
1998 1997
Numerator for both basic
and diluted income per share
computations - net income $10,846,000 $13,616,000
========== ==========
Denominator for basic income
per share - weighted average
shares outstanding 45,674,000 45,256,000
Effect of employee stock options
(dilutive potential common shares) 285,000 571,000
Denominator for diluted income
per share - adjusted shares 45,959,000 45,827,000
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
FIRST QUARTER 1998
Comparison with First Quarter 1997
First quarter net income of $10.8 million declined from the $13.6 million
reported in the first quarter of 1997 largely as a result of
truck-chassis supply constraints in the Vehicle Group and lower Sign
sales. Diluted earnings per share of $.24 also declined from last year's
$.30. Sales increased to $231.2 million from last year's first quarter of
$224.5 million. Backlog increased 33% to $336.1 million, up from $253.5
million a year ago and up 9% from December 31, 1997, with most of the
increase in the Vehicle Group.
All four groups enjoyed increases in new orders over last year's first
quarter. The Safety Products and Tool groups reported increased sales and
earnings over last year's first quarter while the Vehicle and Sign
groups' sales and earnings were lower.
Safety Products Group orders increased 29%, led by a sharp increase in
non-U.S. orders, as all operating units had good markets and achieved
increases over the prior year. Sales increased 22% and operating income
increased 56%. The strong sales growth was the principal reason for the
group's significantly improved operating margin. Improved product mix in
the group's signaling businesses and excellent results achieved by the
group's recently acquired U.S.-based hazardous area lighting unit also
contributed significantly to the group's sales and earnings growth, as
well as to margin expansion.
Vehicle Group orders increased 24% mainly as a result of strength in the
fire rescue business in the U.S., the acquisition of Saulsbury Fire early
in the quarter and good order growth in all environmental product lines
except European sweepers. Vehicle Group sales declined 4% primarily
because truck-chassis supply shortages continued to constrain deliveries,
particularly in U.S. fire rescue products and municipal sewer cleaners.
Operating income declined 42% for the Vehicle Group as the continuing
inability of our suppliers to provide us with sufficient truck-chassis
caused production inefficiencies in addition to the lower sales volume. A
temporary unfavorable sales mix also reduced margins in the fire rescue
business. The truck-chassis shortage is an industry-wide situation; the
current industry outlook, based on input from our suppliers, is that the
supply shortage will alleviate somewhat in the second half of 1998.
Tool Group orders rose 7% and sales increased 6% over the prior year. New
marketing and sales initiatives helped drive particularly strong orders
in the Tool Group's cutting tool segment. Operating income increased 1%
as planned first quarter marketplace spending in the cutting tool
segment, as well as a short-term mix change in the precision punch
segment, temporarily reduced margins.
The Sign Group's new orders were up 7% in the first quarter. Sales were
down 11% on weak orders and backlog from last year's fourth quarter. The
group reported an operating loss of $.8 million compared to a profit of
$.5 million in last year's first quarter. About one-third of the first
quarter loss was caused by one-time costs related to closing the group's
Las Vegas manufacturing plant. The plant closing will lower future
manufacturing costs since improved throughput at Sign's other plants will
allow those plants to handle the volume formerly manufactured in Las
Vegas.
Cost of sales as a percent of net sales increased from 68.6% in the first
quarter of 1997 to 69.3% in the first quarter of 1997. The percentage
increase was largely attributable to the production inefficiencies
experienced in the Vehicle Group. Selling, general and administrative
expenses as a percent of net sales increased to 22.0% from 20.8% in the
first quarter of 1997 reflecting a higher percentage of sales in the
Safety Products Group. The Safety Products Group's selling, general and
administrative expenses tend to be higher as a percentage of sales than
the company's other groups. Interest expense increased from $3.9 million
to $4.5 million largely as a result of increased borrowings to finance
recent business acquisitions. The effective tax rate for the first
quarter of 1998 was 32.0% compared to the first quarter 1997 rate of
33.2%. The decrease mainly resulted from higher percentages of tax-exempt
interest income and foreign income taxed at lower rates.
<PAGE>
Seasonality of Registrant's Business
Certain of the Registrant's businesses are susceptible to the influences
of seasonal buying or delivery patterns. The Registrant's businesses
which tend to have lower sales in the first calendar quarter compared to
other quarters as a result of these influences are signage, street
sweeping, outdoor warning, municipal emergency signal products, parking
systems and fire rescue products.
Financial Position and Liquidity at March 31, 1998
The current ratio applicable to manufacturing activities was 1.1 at March
31, 1998 and 1.2 at December 31, 1997. Working capital (manufacturing
operations) at March 31, 1998 was $25.0 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 33% at March 31, 1998 compared to 28% at
December 31, 1997. The debt to capitalization ratio applicable to
financial services activities was 87% at March 31, 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, two, three, five and six are omitted since these
items are either inapplicable or the response thereto would be negative.
Item 4. Submission of Matters to a Vote of Security Holders.
At its Annual Meeting of Stockholders on April 15, 1998, the stockholders
of the Registrant voted to elect two directors and to amend the Federal
Signal Corporation Stock Benefit Plan.
Thomas N. McGowen, Jr. was re-elected a director for a three-year term.
Holders of 37,870,000 shares voted for the re-election, 589,118 shares
withheld votes, 7,529,369 shares did not vote and there were no broker
nonvotes.
Richard R. Thomas was re-elected a director for a three-year term.
Holders of 37,920,246 shares voted for the re-election, 538,942 shares
withheld votes, 7,529,369 shares did not vote and there were no broker
nonvotes.
Holders of 36,800,366 shares voted for the FSC Stock Benefit Plan
amendment, 1,249,519 shares voted against, 409,301 shares withheld votes,
7,529,369 shares did not vote and there were two broker nonvotes.
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.
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
05/14/98 By: /s/ Henry L. Dykema
Date Henry L. Dykema, Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's consolidated condensed balance sheet as of March 31, 1998
and consolidated condensed statement of income for the three months ended
March 31, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 16995
<SECURITIES> 0
<RECEIVABLES> 142885
<ALLOWANCES> 2864
<INVENTORY> 123868
<CURRENT-ASSETS> 285870 <F1>
<PP&E> 197994
<DEPRECIATION> 106372
<TOTAL-ASSETS> 762524
<CURRENT-LIABILITIES> 260906 <F1>
<BONDS> 31061
0
0
<COMMON> 46590
<OTHER-SE> 254781
<TOTAL-LIABILITY-AND-EQUITY> 762524
<SALES> 231230
<TOTAL-REVENUES> 231230
<CGS> 160180
<TOTAL-COSTS> 160180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4467
<INCOME-PRETAX> 15961
<INCOME-TAX> 5115
<INCOME-CONTINUING> 10846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10846
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<FN>
<F1>MANUFACTURING OPERATIONS ONLY
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's consolidated condensed balance sheet as of March 31, 1997
and consolidated condensed statement of income for the three months ended
March 31, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5547
<SECURITIES> 0
<RECEIVABLES> 141944
<ALLOWANCES> 2825
<INVENTORY> 120357
<CURRENT-ASSETS> 270165 <F1>
<PP&E> 180811
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<TOTAL-ASSETS> 708201
<CURRENT-LIABILITIES> 221806 <F1>
<BONDS> 33113
0
0
<COMMON> 46073
<OTHER-SE> 232993
<TOTAL-LIABILITY-AND-EQUITY> 708201
<SALES> 224485
<TOTAL-REVENUES> 224485
<CGS> 154061
<TOTAL-COSTS> 154061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-TAX> 6773
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<CHANGES> 0
<NET-INCOME> 13616
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30 <F2>
<FN>
<F1>MANUFACTURING OPERATIONS ONLY
<F2>RESTATED FROM PRIOR SUBMISSION
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's consolidated condensed balance sheet as of September 30,
1996 and consolidated condensed statement of income for the nine months
ended September 30, 1996, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4078
<SECURITIES> 0
<RECEIVABLES> 145671
<ALLOWANCES> 2588
<INVENTORY> 103907
<CURRENT-ASSETS> 255669 <F1>
<PP&E> 180102
<DEPRECIATION> 96076
<TOTAL-ASSETS> 687880
<CURRENT-LIABILITIES> 217977 <F1>
<BONDS> 37866
0
0
<COMMON> 45938
<OTHER-SE> 225241
<TOTAL-LIABILITY-AND-EQUITY> 687880
<SALES> 673413
<TOTAL-REVENUES> 673413
<CGS> 469186
<TOTAL-COSTS> 469186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11381
<INCOME-PRETAX> 65658
<INCOME-TAX> 21942
<INCOME-CONTINUING> 43716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43716
<EPS-PRIMARY> 0.96 <F2>
<EPS-DILUTED> 0.95 <F2>
<FN>
<F1>MANUFACTURING OPERATIONS ONLY
<F2>RESTATED FROM PRIOR SUBMISSION
</FN>
</TABLE>
