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, 1999
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 46,175,342 shares outstanding at July 31, 1999
<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, 1999.
<PAGE>
<TABLE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $265,439,000 $250,121,000 $518,733,000 $481,351,000
Costs and expenses:
Cost of sales 186,158,000 170,526,000 362,377,000 330,706,000
Selling, general and administrative 53,645,000 51,496,000 106,622,000 102,279,000
Other (income) and expenses:
Interest expense 5,363,000 4,865,000 10,550,000 9,332,000
Other (income) (11,000) (225,000) (454,000) (386,000)
---------- ----------- ----------- ---------
245,155,000 226,662,000 479,095,000 441,931,000
----------- ----------- ----------- -----------
Income before income taxes 20,284,000 23,459,000 39,638,000 39,420,000
Income taxes 6,592,000 7,446,000 12,899,000 12,561,000
----------- ----------- ----------- -----------
Net income $ 13,692,000 $ 16,013,000 $26,739,000 $26,859,000
=========== =========== ========== ==========
COMMON STOCK DATA:
Basic net income per share $ .30 $ .35 $ .59 $ .59
=========== =========== ========== =========
Diluted net income per share $ .30 $ .35 $ .59 $ .58
=========== =========== ========== ==========
Weighted average common shares outstanding:
Basic 45,464,000 45,710,000 45,450,000 45,693,000
Diluted 45,699,000 45,988,000 45,699,000 45,974,000
Cash dividends per share of common stock $ .1850 $ .1775 $ .3700 $ .3550
</TABLE>
See notes to condensed consolidated financial statements.
<TABLE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $13,692,000 $16,013,000 $26,739,000 $26,859,000
Other comprehensive income (loss)-
Foreign currency translation adjustments (1,152,000) 435,000 (3,914,000) (1,407,000)
---------- ---------- ---------- ----------
Comprehensive income $12,540,000 $16,448,000 $22,825,000 $25,452,000
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 December 31
1999 1998 (a)
--------- --------
(Unaudited)
ASSETS
Manufacturing activities -
Current assets:
Cash and cash equivalents $20,377,000 $15,316,000
Trade accounts receivable, net of
allowances for doubtful accounts 155,663,000 159,080,000
Inventories:
Raw materials 63,657,000 63,423,000
Work in process 41,454,000 32,613,000
Finished goods 35,899,000 35,925,000
----------- -----------
Total inventories 141,010,000 131,961,000
Prepaid expenses 7,220,000 4,850,000
----------- -----------
Total current assets 324,270,000 311,207,000
Properties and equipment:
Land 6,059,000 5,922,000
Buildings and improvements 47,699,000 47,785,000
Machinery and equipment 168,415,000 157,392,000
Accumulated depreciation (119,074,000) (113,732,000)
----------- -----------
Net properties and equipment 103,099,000 97,367,000
Intangible assets, net of
accumulated amortization 225,123,000 232,233,000
Other deferred charges and assets 25,444,000 21,147,000
----------- -----------
Total manufacturing assets 677,936,000 661,954,000
Financial services activities -
Lease financing receivables, net of
allowances for doubtful accounts 181,717,000 174,045,000
----------- -----------
Total assets $859,653,000 $835,999,000
=========== ===========
See notes to condensed consolidated financial statements.
(a)The balance sheet at December 31, 1998 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
1999 1998 (a)
--------- --------
(Unaudited)
LIABILITIES
Manufacturing activities -
Current liabilities:
Short-term borrowings $58,043,000 $37,097,000
Trade accounts payable 64,508,000 62,976,000
Accrued liabilities and income taxes 83,474,000 95,120,000
---------- -----------
Total current liabilities 206,025,000 195,193,000
Long-term borrowings 135,357,000 137,152,000
Deferred income taxes 27,913,000 30,212,000
----------- -----------
Total manufacturing liabilities 369,295,000 362,557,000
Financial services activities -Borrowings 158,459,000 151,660,000
Total liabilities 527,754,000 514,217,000
SHAREHOLDERS' EQUITY
Common stock - par value 46,826,000 46,668,000
Capital in excess of par value 66,037,000 63,461,000
Retained earnings 263,254,000 253,366,000
Treasury stock (26,886,000) (29,161,000)
Deferred stock awards (2,700,000) (1,834,000)
Accumulated other comprehensive income (14,632,000) (10,718,000)
----------- -----------
Total shareholders' equity 331,899,000 321,782,000
----------- -----------
Total liabilities and
shareholders' equity $859,653,000 $835,999,000
=========== ===========
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 1998 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
1999 1998
Operating activities:
Net income $26,739,000 $26,859,000
Depreciation 8,893,000 8,233,000
Amortization 3,958,000 3,377,000
Working capital changes and other (14,075,000) (11,010,000)
---------- ----------
Net cash provided by operating
activities 25,515,000 27,459,000
Investing activities:
Purchases of properties and
equipment (13,895,000) (10,515,000)
Principal extensions under
lease financing agreements (59,689,000) (49,306,000)
Principal collections under
lease financing agreements 52,017,000 46,298,000
Payments for purchases of companies,
net of cash acquired (2,655,000) (23,080,000)
Other, net 1,648,000 69,000
---------- ----------
Net cash used for investing activities (22,574,000) (36,534,000)
Financing activities:
Additional short-term
borrowings, net 27,821,000 34,245,000
Reduction of long-term borrowings (1,874,000) (1,667,000)
Purchases of treasury stock (285,000) (57,000)
Cash dividends paid to shareholders (25,039,000) (23,982,000)
Other, net 1,497,000 619,000
---------- ----------
Net cash provided by financing
activities 2,120,000 9,158,000
Increase in cash and cash
equivalents 5,061,000 83,000
Cash and cash equivalents at
beginning of period 15,316,000 10,686,000
---------- ----------
Cash and cash equivalents at
end of period $20,377,000 $10,769,000
========== ==========
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, 1999.
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, 1999, are not
necessarily indicative of the results to be expected for the full year of
1999.
3. Interest paid for the six-month periods ended June 30, 1999 and 1998 was
$12,067,000 and $10,157,000, respectively. Income taxes paid for these
same periods were $9,720,000 and $11,383,000, 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
---------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for both basic
and diluted income per share
computations - net income $13,692,000 $16,013,000 $26,739,000 $26,859,000
========== ========== ========== ==========
Denominator for basic income
per share - weighted average
shares outstanding 45,464,000 45,710,000 45,450,000 45,693,000
Effect of employee stock options
(dilutive potential common shares) 235,000 278,000 249,000 281,000
---------- ---------- ---------- ----------
Denominator for diluted income
per share - adjusted shares 45,699,000 45,988,000 45,699,000 45,974,000
========== ========== ========== ==========
</TABLE>
5. The following table summarizes the registrant's operations by segment for
the three months and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales
Environmental Products $ 64,936,000 $ 56,222,000 $126,057,000 $106,828,000
Fire Rescue 75,616,000 77,281,000 148,723,000 147,715,000
Safety Products 66,305,000 63,507,000 130,502,000 124,133,000
Sign 22,448,000 15,982,000 40,081,000 28,857,000
Tool 36,134,000 37,129,000 73,370,000 73,818,000
----------- ----------- ----------- -----------
Total net sales $265,439,000 $250,121,000 $518,733,000 $481,351,000
=========== =========== =========== ===========
Operating income
Environmental Products $ 7,199,000 $ 5,095,000 $13,629,000 $ 8,813,000
Fire Rescue 2,514,000 5,562,000 3,918,000 8,631,000
Safety Products 9,456,000 10,216,000 18,577,000 19,100,000
Sign 1,647,000 1,544,000 2,953,000 713,000
Tool 7,160,000 7,822,000 15,082,000 15,322,000
Corporate expense (2,340,000) (2,140,000) (4,425,000) (4,213,000)
---------- ---------- ---------- ----------
Total operating income 25,636,000 28,099,000 49,734,000 48,366,000
Interest expense (5,363,000) (4,865,000) (10,550,000) (9,332,000)
Other income 11,000 225,000 454,000 386,000
---------- ---------- ---------- ----------
Income before income taxes $20,284,000 $23,459,000 $39,638,000 $39,420,000
========== ========== ========== ==========
</TABLE>
The basis of segmentation and the basis of measurement of segment profit or loss
are consistent with those used in the Registrant's last annual report. There
have been no material changes in total assets from the amount disclosed in the
Registrant's last annual report.
<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 1999
Comparison with Second Quarter 1998
Federal Signal Corporation reported record second quarter new orders, sales and
backlog. New orders were up 9% to $274 million, sales were up 6% to $265 million
and backlog rose 9% to $367 million. As anticipated, second quarter diluted
earnings per share declined to $.30 from $.35 last year, and net income declined
to $13.7 million from $16.0 million in 1998.
In the second quarter, all groups except the Tool Group increased new orders and
sales. New order growth was led by the Vehicle and Sign groups, with Sign also
leading the company's sales growth in the quarter. Weakness in many parts of the
U.S. industrial marketplace is adversely impacting performance in all Federal
Signal groups except Sign.
Vehicle Group new orders were up 9% in the second quarter, with municipal
markets generally strong except Asia-Pacific. Fire rescue segment orders were
particularly strong, with new orders up 20%. Vehicle Group sales were up 5%, led
by a 15% increase in the environmental products segment. Vehicle Group backlog
rose 11% to $273 million, a record, as manufacturing constraints held back fire
apparatus deliveries in the U.S. These manufacturing constraints were greatest
in April during the startup of a new management information system; productivity
and throughput rose through the remainder of the quarter. Vehicle Group
operating income declined 9%, with continued strong performance in the
environmental products segment and a weak performance in the U.S. fire rescue
segment. The fire rescue income comparison to last year's second quarter was
adversely affected by an unusually strong income performance by the non-U.S.
fire rescue segment in that quarter.
The Tool Group sells to broad industrial markets, and weakness in many of these
caused Tool orders and sales to decline 3% for the quarter. The only market that
is very active for the Tool Group is U.S. automotive manufacturing. Group income
was down 8%, mainly as a result of reduced sales.
The Safety Products Group's new orders rose 5% in the second quarter. Sales were
up 4%, as strength in emergency products and parking security devices offset
significant declines in hazardous area lighting (related to declines in oil and
gas exploration spending) and softness in industrial markets. The weak sales
areas are among the highest margin in the Safety Products Group, causing the
group's income to be down 7% for the quarter.
Sign Group second quarter sales increased 40% as new orders rose 67% over a weak
second quarter of 1998. Sign Group income grew 7%, as it reported against an
unusually high margin second quarter in 1998. The group continues to improve its
marketing execution and enjoy good market growth.
Gross profit as a percent of net sales declined from 31.8% in the second quarter
of 1998 to 29.9% in the second quarter of 1999. The percentage decline was
largely attributable to lower gross margins in the fire rescue and Sign segments
and a lower proportion of Tool Group sales partly offset by an improved margin
in the environmental products segment. Selling, general and administrative
expenses as a percent of net sales decreased to 20.2% from 20.6% in the second
quarter of 1998 due primarily to a lower ratio of marketing costs, largely as a
result of increased volume in the Sign and fire rescue segments. Interest
expense increased from $4.9 million in 1998 to $5.4 million in 1999 as a result
of increased borrowings to finance business acquisitions offset partially by
lower interest rates. The effective tax rate for the second quarter of 1999 was
32.5% compared to the second quarter 1998 rate of 31.7%. This increased tax rate
mainly resulted from a lower proportion of tax-exempt interest income and a
lower proportion of foreign income that is taxed at lower rates.
<PAGE>
Comparison of First Six Months 1999 to Same Period 1998
Orders for the first six months of 1999 increased 8% over the same period a year
ago. For the first six months of 1999, sales of $518.7 million increased 8% over
the $481.4 million last year. Net income of $26.7 million for the first six
months of 1999 declined from last year's $26.9 million. Diluted earnings per
share increased to $.59 in 1999 from $.58 in 1998. The essentially flat earnings
for the first six months occurred as a result of manufacturing constraints which
held back fire rescue deliveries in the U.S. combined with weakness in certain
industrial markets, both U.S. and non-U.S.
Gross profit as a percent of net sales declined to 30.1% in the first six months
of 1999 from 31.3% in the first six months of 1998. Selling, general and
administrative expenses decreased to 20.6% of net sales in the first six months
of 1998 from 21.2% in the same period a year ago. The percentage changes were
primarily due to the reasons cited above for the second quarter. Interest
expense increased from $9.3 million to $10.6 million largely as a result of
increased borrowings to finance recent business acquisitions partially offset by
lower interest rates. The effective tax rate was 32.5% for the first half of
1999 increased from the 31.9% for the first half of 1998 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, 1999
The current ratio applicable to manufacturing activities was 1.6 at both June
30, 1999 and December 31, 1998. Working capital (manufacturing operations) at
June 30, 1999 was $118.2 million compared to $116.0 million at the most recent
year end. The debt-to-capitalization ratio applicable to manufacturing
activities increased to 39% at June 30, 1999 compared to 37% at December 31,
1998 largely as a result of borrowings incurred to finance business
acquisitions. The debt to capitalization ratio applicable to financial services
activities was 87% at June 30, 1999 and December 31, 1998.
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.
Year 2000
Reference should be made to Registrant's discussion of the Year 2000 issue in
the Financial Review included in its Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
The company is continuing the final phases of correcting systems with identified
deficiencies and plans to complete the final validation testing of its Year 2000
compliance program by early fourth quarter 1999. The company currently believes
all essential processes, systems, and business functions will comply with the
Year 2000 requirements by early fourth quarter 1999. While the company does not
expect that the consequences of any unsuccessful modifications would
significantly affect the financial position, liquidity, or results of
operations, there can be no assurance that failure to be fully compliant by 2000
would not have an impact on the company. The company is continuing to survey
critical suppliers, distributors and customers to assure that their systems will
be Year 2000 compliant and anticipates this survey will essentially be complete
by early fourth quarter 1999. While the failure of a single third party to
timely achieve Year 2000 compliance should not have a material adverse effect on
the company's results of operations in a particular period, the failure of
several key third parties to achieve such compliance could have such an effect.
The company will develop contingency plans by early fourth quarter 1999 to alter
business relationships in the event certain third parties fail to become Year
2000 compliant.
The costs of the company's Year 2000 transition program are being funded with
cash flows from operations. Some of these costs relate solely to the
modification of existing systems, while others are for new systems, which will
improve business functionality. In total, these costs are not expected to be
substantially different from the normal, recurring costs that are incurred for
systems development and implementation. As a result, these costs are not
expected to have a material adverse effect on the company's overall results of
operations or cash flows.
<PAGE>
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
08/13/99 By: /s/ Henry L. Dykema
<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, 1999 and consolidated condensed statement of income
for the six months ended June 30, 1999, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 20377
<SECURITIES> 0
<RECEIVABLES> 157987
<ALLOWANCES> 2324
<INVENTORY> 141010
<CURRENT-ASSETS> 324270 <F1>
<PP&E> 222173
<DEPRECIATION> 119074
<TOTAL-ASSETS> 859653
<CURRENT-LIABILITIES> 206025 <F1>
<BONDS> 135357
0
0
<COMMON> 46826
<OTHER-SE> 285073
<TOTAL-LIABILITY-AND-EQUITY> 859653
<SALES> 518733
<TOTAL-REVENUES> 518733
<CGS> 362377
<TOTAL-COSTS> 362377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10550
<INCOME-PRETAX> 39638
<INCOME-TAX> 12899
<INCOME-CONTINUING> 26739
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26739
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.59
<FN>
<F1> MANUFACTURING OPERATIONS ONLY
</FN>
</TABLE>
