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, 1998
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, 1999.
Common stock, $1.00 par value -- $909,540,072
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of March 1, 1999.
Common stock,$1.00 par value - 45,533,921 shares
Documents Incorporated by Reference
Portions of the Annual Report to Shareholders for the year ended December
31, 1998 are incorporated by reference into Parts I & II. Portions of the
proxy statement for the Annual Meeting of Shareholders to be held on
April 15, 1999 are incorporated by reference in Part 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, hazardous
area lighting, 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 four identified groups:
Safety Products, Sign, Tool and Vehicle. For financial reporting
purposes, the Registrant operates in five operating segments as defined
under Statement of Financial Accounting Standards No. 131 (the
Environmental Products and Fire Rescue segments comprise the "Vehicle
Group"). Business units are organized under each segment because they
share certain characteristics, such as technology, marketing, and product
application, that create long-term synergies. The Financial Review and
Note M - Segment Information included in the Notes to Consolidated
Financial Statements contained in the Annual Report to Shareholders for
the year ended December 31, 1998, are incorporated herein by reference.
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.
Safety Products Group
Significant subsidiaries or operations of the Safety Products Group
include the Signal Products Division, Aplicaciones Tecnologicas VAMA S.A.
(VAMA), Victor Industries Ltd. (Victor), Pauluhn Electric Mfg. Co.,
Justrite Manufacturing Company (Justrite), and Federal APD. The group
also includes a number of other business units most of which have been
acquired within the past five years and which are described later below.
Safety Products Group products manufactured by the Registrant
principally consist of: (1) a variety of visual and audible warning,
signaling, and communications devices used by private industry, federal,
state and local governments, building contractors, police, fire and
medical fleets, utilities and civil defense; (2) hazardous area lighting
and communications products used by mines, petrochemical plants, offshore
oil platforms and other hazardous industrial sites; (3) 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 (4) parking,
revenue control, and access control equipment and systems for parking
facilities, commercial businesses, bridge and pier installation and
residential developments.
Visual and audible warning and signaling devices include emergency
vehicle warning lights, electromechanical and electronic vehicle sirens
and industrial signal lights, sirens, horns, bells and solid state
audible signals, audio/visual emergency warning and evacuation systems,
including weather and nuclear power plant warning notification systems
and industrial intercoms and communications systems.
Hazardous area lighting and communications products include
specialized lights, control ballasts, connectors, and
microprocessor-based public address and multi-party paging systems.
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.
<PAGE>
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. Many of the group's products are designed in
accordance with various regulatory codes and standards, and meet agency
approvals such as Factory Mutual (FM) and Underwriters Laboratory (UL).
Products are sold to industrial customers through manufacturers'
representatives who sell to approximately 1,500 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 these particular products in the United States.
The backlog of orders of the Safety Products Group products believed
to be firm at December 31, 1998 and 1997 was $25.7 million and $22.1
million, respectively. Almost all of the backlog of orders at December
31, 1998, are reasonably expected to be filled within the current fiscal
year.
During the period 1994 through 1998, the following businesses were
acquired and became part of the Safety Products Group:
<TABLE>
<CAPTION>
Principal
Entity Headquarters Acquired Principal Products/Services
<S> <C> <C> <C>
Atkinson Dynamics Illinois August 1998 Industrial intercoms,
communications systems
Stinger Spike California September 1998 Tire deflation products
for the law enforcement
industry
Citicomp Brazil October 1998 Parking equipment - Brazil
NRL Corp. Canada November 1998 Explosion-proof lighting
for land based oil and gas
rigs
Extec Ltd. England December 1998 Explosion-proof telephone
housing
Akusta IFE England October 1997 Heavy duty and
explosion-proof
communications equipment
Pauluhn Electric Texas July 1997 Hazardous area and
explosion-proof electrical
products
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
</TABLE>
<PAGE>
Sign Group
The Sign Group, operating principally under the name "Federal Sign",
designs, engineers, manufactures, installs and maintains 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.
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-four 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's marketing strategies focus on
market segments to which it can provide a unique set of services. The
Registrant has multiple regional and national competitors. Competition
for sign products and services is intense and competitive factors are
largely quality, price, project and program management capabilities,
aesthetic and design considerations, and lease/maintenance services.
Total backlog at December 31, 1998, applicable to sign products and
services was approximately $54.7 million compared to approximately $53.5
million at December 31, 1997. 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, 1998, the Sign Group had a backlog of in-service sign
maintenance contracts of approximately $32.4 million compared to
approximately $36.8 million at December 31, 1997. With the exception of
the sign maintenance contracts, most of the backlog orders at December
31, 1998, 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. During the period 1993 to
1996, sales and revenue were also generated by Bassett Rotary Tool
Company, a manufacturer of rotary carbide cutting tools, which was sold
at the end of 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 1994 through 1998, 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
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.
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 backlogs of the Tool Group as of December 31, 1998, and
December 31, 1997, were $9.4 million and $9.5 million, respectively. All
of the backlog of orders at December 31, 1998, is expected to be filled
within the current fiscal year.
Vehicle Group
The Vehicle Group manufactures a full range of vehicles for the Fire
Rescue and Environmental Products markets. Fire/emergency apparatus,
rescue vehicles and aerial access platform comprise the Fire Rescue
Products operating segment. Street sweeping, industrial vacuuming,
municipal catch basin/sewer cleaning vehicles and high-pressure water
blasting equipment comprise the Environmental Products operating segment.
Fire Rescue Products ("Fire Rescue")
Fire Rescue is composed of Emergency One, Inc., Bronto
Skylift Oy Ab (Bronto), Superior Emergency Vehicles, Ltd., and
Saulsbury Fire Equipment Corp.
Emergency One, Inc. (E-One) is a leading manufacturer of fire
rescue vehicles including pumpers, tankers, 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 distri-
butes a full range of fire truck bodies primarily for the Canadian
market.
Acquired in August 1995, and headquartered 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 Fire Rescue to expand its worldwide fire
apparatus product offering and distribution.
<PAGE>
Acquired in January 1998, and located in Tully, NY, Saulsbury
Fire Equipment Corp. ("Saulsbury") is the leading manufacturer of
stainless steel-bodied fire trucks and rescue vehicles in the United
States. Saulsbury's steel-bodied products complement E-One's
aluminum-bodied fire apparatus and custom fire chassis. In addition,
Saulsbury provides Federal with additional distribution, as well as
a service center in the northeast United States.
At December 31, 1998, Fire Rescue backlog was $207.4 million
compared to $170.6 million at December 31, 1997. Approximately two-
thirds of this increase resulted from the Registrant's acquisition of
Saulsbury. A substantial majority of the orders in the backlog at
December 31, 1998, are reasonably expected to be filled within the
current fiscal year.
Environmental Products
Environmental Products is composed of Elgin Sweeper Company,
Vactor Manufacturing, Inc. (Vactor), Guzzler Manufacturing, Inc.
(Guzzler), Ravo International, Five Star Manufacturing and
Jetstream of Houston, Inc.
Environmental Products manufactures a variety of
self-propelled street cleaning vehicles, vacuum loader vehicles and
municipal catch basin/sewer cleaning vacuum trucks as well as high
pressure water blasting equipment. Most sales are made to municipal
customers, private contractors and government customers.
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.
Guzzler 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.
Vactor, acquired in 1994, is an Illinois-based manufacturer of
municipal combination catch basin/sewer cleaning vacuum trucks. This
acquisition provided a significant expansion of municipal equipment
and enhanced the domestic and international dealer networks of both
Elgin Sweeper and Vactor.
Acquired in January 1998 and based in Youngsville, North
Carolina, Five Star Manufacturing began in 1996 with a unique design
concept for street sweepers: the Broom Bear four-wheeled mechanical
street sweeper and the Air Bear four-wheeled recirculating air street
sweeper. This acquisition accelerates Federal's entry into a market
niche where the potential for substantial growth opportunities exist.
Jetstream of Houston, Inc. ("Jetstream"), acquired in August
1998, is a Houston-based manufacturer of water blasting equipment.
Jetstream sells its products predominately to the industrial vacuum
loader customer base. This provides product and service cross-selling
opportunities for the previously existing industrial customer base as
well as the customer set already being served by Jetstream.
At December 31, 1998, Environmental Products backlog was $62.5
million compared to $52.4 million at December 31, 1997. A substantial
majority of the orders in the backlog at December 31, 1998, are
reasonably expected to be filled within the current fiscal year.
All of the Vehicle Group companies also sell accessories and
replacement parts for their products.
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 primarily to municipal
customers, volunteer fire departments and government customers both
domestic and overseas.
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.
<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 $11.9
million in 1998, $12.0 million in 1997 and $11.2 million in 1996.
Note M - Segment Information, presented in the Registrant's Annual
Report to Shareholders for the year ended December 31, 1998, 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 7,000 people in ongoing
businesses at the close of 1998. The Registrant believes relations with
its employees have been good.
Item 2. Properties.
As of March 1, 1999, the Registrant utilized thirty-six principal
manufacturing plants located throughout North America, as well as
thirteen in Europe, one in South Africa, and one in the Far East. In
addition, there were forty-seven sales and service/warehouse sites, with
thirty-seven being domestically based and ten located overseas.
In total, the Registrant devoted approximately 1,975,000 square feet
to manufacturing and 1,044,000 square feet to service, warehousing and
office space, as of March 1, 1999. Of the total square footage,
approximately 39% is devoted to the Safety Products Group, 9% to the Sign
Group, 10% to the Tool Group and 42% to the Vehicle Group. Approximately
60% of the total square footage is owned by the Registrant, with the
remaining 40% 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.
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.
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, 1998.
<PAGE>
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 P - Selected Quarterly Data
(Unaudited) contained in the Annual Report to Shareholders for the year
ended December 31, 1998 is incorporated herein by reference. As of March
1, 1999, there were 4,854 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, 1998, were free of any
restrictions.
Item 6. Selected Financial Data.
Selected Financial Data contained in the Registrant's Annual Report
to Shareholders for the year ended December 31, 1998, is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The Financial Review contained in the Registrant's Annual Report to
Shareholders for the year ended December 31, 1998, is incorporated herein
by reference.
Item 7a. Qualitative and Quantitative Disclosures About Market Risk
The Financial Review caption "Market Risk Management" contained in
the Registrant's Annual Report to Shareholders for the year ended
December 31, 1998 is incorporated herein by reference.
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 Annual Report to Shareholders for the year ended
December 31, 1998, 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 Registrant's Proxy Statement for the Annual Meeting of Shareholders
to be held on April 15, 1999, 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, 1999:
Joseph J. Ross, age 53, was elected Chairman, President and Chief
Executive Officer in February 1990.
John A. DeLeonardis, age 51, was elected Vice President-Taxes in
January 1992.
Duane A. Doerle, age 43, 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 59, 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.
Richard G. Gibb, age 55, was appointed Executive Vice President in
January 1998. Previously, Mr. Gibb was President of the Safety Products
Group and the Signal Products Division, having served in those capacities
since April 1995 and February 1985, respectively.
Robert W. Racic, age 50, was elected Vice President and Treasurer in
April 1984.
Richard L. Ritz, age 45, was elected Vice President and Controller in
January 1991.
Kim A. Wehrenberg, age 47, 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.
<PAGE>
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 15, 1999, is incorporated herein by
reference.
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 15, 1999, 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 15, 1999, 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 Annual
Report to Shareholders for the year ended December 31, 1998, are
filed as a part of this report and are incorporated by reference in
Item 8:
Consolidated Balance Sheets -- December 31, 1998 and 1997
Consolidated Statements of Income -- Years ended December
31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income -- Years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows -- Years ended December
31, 1998, 1997 and 1996
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, 1998, 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,
filed as Exhibit (3)(a) to the Registrant's Form 10-K for the
year ended December 31, 1996, is incorporated herein by
reference.
b. By-laws of the Registrant, filed as Exhibit (3)(b) to the
Registrant's Form 10-K for the year ended December 31, 1996,
is incorporated herein by reference.
4. a. Rights Agreement dated 7/9/98, filed as Exhibit (4) to the
Registrant's Form 8-A dated July 28, 1998, is incorporated
herein by reference.
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, 1998. 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.
<PAGE>
10. a. The amended 1996 Stock Benefit Plan.
b. Corporate Management Incentive Bonus Plan.
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)(h)
to the Registrant's Form 10-K for the year ended December 31,
1997 is incorporated herein by reference.
i. Retirement Plan for Outside Directors (applies only to
individuals who became a director prior to October 9, 1997),
filed as Exhibit (10)(I) to the Registrant's Form 10-K for
the year ended December 31, 1997 is incorporated herein by
reference.
13. Annual Report to Shareholders for the year ended December 31,
1998. 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
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December
31, 1998.
(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. 33-12876, 33-22311,
33-38494, 33-41721, 33-49476 and 33-14251, dated April 14, 1987, June 26,
1988, December 28, 1990, July 15, 1991, June 9, 1992, and October 16,
1996, 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 30, 1999, 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/ Charles R. Campbell
Vice President and Controller Director
/s/ James A. Lovell, Jr.
Director
/s/ Thomas N. McGowen, Jr.
Director
/s/ Richard R. Thomas
Director
/s/ Paul W. Jones
Director
<PAGE>
SCHEDULE II
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Deductions
Additions Accounts
Balance at Charged to written off Balance
beginning costs and net of at end
Description of year expenses recoveries of year
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts
Manufacturing activities $2,527,000 $2,499,000
Financial service activities 1,772,000 1,607,000
--------- ---------
Total $4,299,000 $1,358,000 $1,551,000 $4,106,000
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts
Manufacturing activities $2,602,000 $2,527,000
Financial service activities 1,348,000 1,772,000
---------- ----------
Total $3,950,000 $2,421,000 $2,072,000 $4,299,000
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
</TABLE>
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 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) 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 Directors. 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.
<PAGE>
(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
<PAGE>
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.
<PAGE>
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 10.b.
FEDERAL SIGNAL CORPORATION
Corporate Management Incentive Bonus Plan
The incentive bonus plan has been established to provide an incentive to
key corporate officers and management employees of Federal Signal
Corporation to attain the highest performance possible in each year. The
plan provides key executives with an opportunity to add to their total
annual compensation, if the corporation attains prescribed levels of
return on capital and increases in net income and the participant
fulfills agreed upon objectives during the year. The details of the plan
follow.
I. Incentive bonus calculations
A) Target bonus
A target bonus amount will be established for each plan
participant in the plan. This target bonus amount will be based
upon a specified percentage of the participant's salary.
B) Bonus goals
1) Sixty percent (60%) of the bonus amount will be based on
corporate return on capital (ROC). For this purpose, ROC is
defined as the percent of pre-tax, pre-bonus income excluding
unusual or extraordinary items (see Section IID5) plus
interest on long-term debt divided by the year's monthly
average of the sum of stockholders' equity plus long-term debt.
With regard to this portion of the bonus determination, each
participant's bonus will be subject to calculation in accor-
dance with the scale on Attachment A for total corporate per-
formance.
2) Twenty-five percent (25%) of the bonus amount will be based on
the corporation's increase in net income for the year over the
prior year's net income. For this calculation, "net income" is
defined by generally accepted accounting principles subject to
inclusion or exclusion of unusual or extraordinary items as
decided by the President. With regard to this portion of the
bonus determination, each participant's bonus will be subject
to calculation in accordance with the scale on Attachment B
for total corporate performance.
3) Fifteen percent (15%) of the bonus amount is discretionary
based on an evaluation of the participant's performance. (See
Section IIC) This part of your bonus also constitutes payment
for any unused vacation and by accepting the bonus payment you
waive any claims for payment for unused vacation. With regard
to this portion of the bonus determination, each participant's
bonus will be subject to paragraph II.C. below.
II. Administration
A) Selection of participants and bonus level
Selection of corporate participants and bonus levels will be made
by the President of the corporation. The Compensation/Stock Option
Committee of the Board of Directors will review and give approval
for recommended material changes to the plan as submitted.
B) Determination of bonus award
Following the completion of the year-end audit, the actual bonus
for each participant will be calculated as follows:
1) Multiply the applicable target bonus by the respective bonus
factor as determined by Attachments A and B.
2) The discretionary award factor will be determined in
accordance with II.C. below by the employee's supervisor
(which in turn requires "one-over-one" approval) or by the
President, if applicable. The discretionary target bonus will
then be multiplied by the discretionary award factor.
<PAGE>
C) Determination of discretionary award
Each participant will be evaluated against the following criteria:
1) General performance of the participant's responsibilities.
2) Meeting the participant's objectives and/or priorities.
3) Evaluation of initiative, attitude, and dedication to the
company.
4) Management development of self and subordinates.
5) Professional and personal conduct.
The President, in his sole discretion, will have final approval of
the participant's discretionary bonus payment.
D) Other considerations
1) Bonus awards will be paid only to participants who are
actively employed as of the bonus payment date.
2) In the event of the retirement of a participant during the
management incentive bonus plan year, the amount of bonus
award will be based on the full year results with credit for
the number of completed months worked as a percent of the full
plan year.
3) The addition of new participants, including new employees to
the plan during the year, and the bonus levels for those
individuals, must be approved, in writing, by the President.
Any changes for participants regardless of the reason,
(promotion, change of responsibility, upgrading of salary in
the same position) must also be approved by the President.
Approval, in writing, in any case must be obtained prior to
communication to the individual concerned.
4) Unless otherwise approved by the President, in writing, this
incentive bonus plan will be the sole incentive plan under
which participants included in this plan may participate.
5) Pre-tax, pre-bonus income as used in Section I.B.1 will be
inclusive of any changes in reserves, but will exclude any
capital gains or losses and other unusual gains or losses such
as proceeds of fire or casualty insurance or changes in
accounting practices. In cases of uncertainty, the decision of
the President will be final.
Federal Signal Corporation and Subsidiaries
Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Operating Results (dollars in millions):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $1,002.8 $924.9 $896.4 $816.1 $677.2 $565.2 $518.2 $466.9 $439.4 $398.4 $361.4
Income before income taxes
(a,b) $ 86.2 $ 84.8 $ 93.4 $ 77.3 $ 70.2 $ 58.8 $ 49.9 $ 45.6 $ 42.5 $ 34.6 $ 28.4
Income from continuing
operations (a,b) $ 59.4 $ 59.0 $ 62.0 $ 51.6 $ 46.8 $ 39.8 $ 34.5 $ 31.0 $ 28.1 $ 22.1 $ 18.2
Operating margin 10.1% 10.8% 11.5% 11.8% 11.6% 11.3% 10.6% 10.8% 10.8% 10.6% 9.6%
Return on average common
shareholders' equity
(a,b) 19.1% 20.6% 23.8% 22.0% 22.3% 21.0% 20.0% 20.0% 20.4% 18.7% 17.0%
Common Stock Data (per
share) (c):
Income from continuing
operations - diluted
(d) $1.30 $1.29 $1.35 $1.13 $1.02 $0.86 $0.75 $0.67 $0.61 $0.48 $0.40
Cash dividends $0.71 $0.67 $0.58 $0.50 $0.42 $0.36 $0.31 $0.27 $0.22 $0.19 $0.16
Market price range:
High $27 1/2 $26 3/4 $28 1/4 $25 7/8 $21 3/8 $21 $17 5/8 $15 3/16 $10 3/4 $7 1/8 $4 13/16
Low $20 $19 7/8 $20 7/8 $19 5/8 $16 7/8 $15 3/4 $12 3/8 $ 9 1/4 $6 3/16 $4 1/4 $3 1/2
Average common shares
outstanding (in thousands) 45,846 45,840 45,885 45,776 45,948 46,155 46,157 46,126 46,038 46,103 45,639
Financial Position at Year-End (dollars in millions):
Working capital (d) $116.0 $ 41.6 $ 40.6 $ 48.8 $ 53.9 $ 52.8 $ 49.5 $ 44.9 $ 42.7 $ 63.8 $ 59.5
Current ratio (d) 1.6 1.2 1.2 1.3 1.4 1.5 1.6 1.5 1.5 2.1 2.0
Total assets $836.0 $ 727.9 $ 703.9 $620.0 $521.6 $ 405.7 $363.7 $341.2 $295.8 $271.3 $251.1
Long-term debt, net of
current portion $137.2 $ 32.1 $ 34.3 $ 39.7 $ 34.9 $ 21.1 $ 16.2 $ 15.6 $ 15.8 $ 16.8 $ 18.6
Shareholders' equity $321.8 $ 299.8 $ 272.8 $248.1 $220.3 $ 199.2 $179.0 $164.8 $146.4 $130.4 $115.5
Debt-to-capitalization
ratio (d) 37% 30% 28% 29% 22% 1% 2% 1% 2% 10% 18%
Other (dollars in millions) (e):
New business $1,038.2 $ 956.2 $ 924.6 $780.5 $700.3 $584.2 $510.3 $462.7 $467.6 $429.9 $382.4
Backlog $ 359.7 $ 308.2 $ 280.0 $251.4 $261.0 $221.8 $198.0 $203.2 $199.9 $171.7 $140.2
Net cash provided by
operating activities $ 75.5 $ 64.2 $ 61.4 $ 62.9 $ 53.8 $ 48.8 $ 40.2 $ 43.9 $ 48.3 $ 34.6 $ 22.5
Net cash (used for)
investing activities $ (93.0) $ (38.4) $ (54.2) $(88.1) $(96.9) $(38.1) $(26.9) $(47.8) $(14.7) $(24.1) $(20.8)
Net cash provided by (used for)
financing activities $ 22.2 $ (27.5) $ (4.1) $ 29.9 $ 45.1 $(10.3) $(11.2) $ 2.5 $(34.6) $ (8.9) $ (3.3)
Capital expenditures $ 20.4 $ 19.6 $ 16.9 $ 15.7 $ 11.1 $ 10.1 $ 8.8 $ 12.0 $ 8.3 $ 9.2 $ 7.3
Depreciation $ 16.3 $ 14.8 $ 13.2 $ 11.8 $ 10.3 $ 9.2 $ 8.7 $ 8.2 $ 7.8 $ 7.9 $ 7.1
Employees 7,006 6,591 6,233 6,015 5,243 4,426 4,268 4,212 4,158 4,142 3,880
</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
<PAGE>
Federal Signal Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 1997
------ ------
<S> <C> <C>
Assets
Manufacturing activities:
Current assets
Cash and cash equivalents $ 15,316,000 $ 10,686,000
Accounts receivable, net of allowances
for doubtful accounts of $2,499,000
and $2,527,000, respectively 159,080,000 142,973,000
Inventories - Note B 131,961,000 109,383,000
Prepaid expenses 4,850,000 5,580,000
----------- -----------
Total current assets 311,207,000 268,622,000
Properties and equipment - Note C 97,367,000 84,709,000
Other assets
Intangible assets, net of accumulated 232,233,000 188,002,000
Other deferred charges and assets 21,147,000 19,482,000
----------- -----------
Total manufacturing assets 661,954,000 560,815,000
----------- -----------
Financial services activities
Lease financing and other receivables,
net of allowances for doubtful accounts of $1,607,000 and
$1,772,000, respectively, and net of unearned
finance revenue - Note D 174,045,000 167,090,000
----------- -----------
Total assets $ 835,999,000 $ 727,905,000
=========== ===========
Liabilities and Shareholders' Equity
Manufacturing activities:
Current liabilities
Short-term borrowings - Note E $ 37,097,000 $ 86,158,000
Accounts payable 62,976,000 50,385,000
Accrued liabilities
Compensation and withholding taxes 21,897,000 16,278,000
Other 65,128,000 62,878,000
Income taxes - Note F 8,095,000 11,330,000
----------- -----------
Total current liabilities 195,193,000 227,029,000
Other liabilities
Long-term borrowings - Note E 137,152,000 32,110,000
Deferred income taxes - Note F 30,212,000 23,581,000
----------- -----------
Total manufacturing liabilities 362,557,000 282,720,000
----------- -----------
Financial services activities - Borrowings - Note E 151,660,000 145,413,000
----------- -----------
Total liabilities 514,217,000 428,133,000
----------- -----------
Shareholders' equity - Notes I and J
Common stock, $1 par value,
90,000,000 shares authorized,
46,668,000 and 46,501,000 shares
issued, respectively 46,668,000 46,501,000
Capital in excess of par value 63,461,000 61,029,000
Retained earnings - Note E 253,366,000 226,432,000
Treasury stock, 1,339,000 and 895,000
shares, respectively, at cost (29,161,000) (19,695,000)
Deferred stock awards (1,834,000) (1,718,000)
Accumulated other comprehensive income (10,718,000) (12,777,000)
----------- -----------
Total shareholders' equity 321,782,000 299,772,000
----------- -----------
Total liabilities and shareholders' $ 835,999,000 $ 727,905,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Federal Signal Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales $ 1,002,787,000 $ 924,912,000 $ 896,357,000
Costs and expenses
Cost of sales 694,659,000 634,068,000 619,951,000
Selling, general and administrative 206,378,000 191,170,000 173,514,000
------------ ----------- ----------
Operating income 101,750,000 99,674,000 102,892,000
Interest expense (19,336,000) (17,163,000) (15,359,000)
Other income, net - Note K 3,820,000 2,336,000 5,882,000
------------ ----------- ----------
Income before income taxes 86,234,000 84,847,000 93,415,000
Income taxes - Note F 26,838,000 25,878,000 31,382,000
------------ ----------- ----------
Net income $ 59,396,000 $ 58,969,000 $ 62,033,000
============ =========== ==========
Basic net income per share $ 1.30 $ 1.30 $ 1.37
============ =========== ==========
Diluted net income per share $ 1.30 $ 1.29 $ 1.35
============ =========== ==========
</TABLE>
See notes to consolidated financial statements.
Federal Signal Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net income $ 59,396,000 $ 58,969,000 $ 62,033,000
Other comprehensive income (loss) - Foreign
currency translation adjustment, net 2,059,000 (8,173,000) (2,289,000)
============ ============ ============
Comprehensive income $ 61,455,000 $ 50,796,000 $ 59,744,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Federal Signal Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income $ 59,396,000 $ 58,969,000 $ 62,033,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of subsidiary (4,663,000)
Depreciation 16,269,000 14,789,000 13,201,000
Amortization 7,317,000 5,756,000 5,209,000
Provision for doubtful accounts 1,358,000 2,421,000 1,719,000
Deferred income taxes 4,029,000 4,080,000 4,429,000
Other, net (1,162,000) (1,392,000) (5,490,000)
Changes in operating assets and liabilities,
net of effects from acquisitions of companies
Accounts receivable (5,943,000) (8,688,000) (15,256,000)
Inventories (13,213,000) (833,000) (6,168,000)
Prepaid expenses 1,116,000 (528,000) 699,000
Accounts payable 9,372,000 (10,839,000) 5,416,000
Accrued liabilities (1,562,000) 3,073,000 (6,748,000)
Income taxes (1,484,000) (2,611,000) 6,980,000
------------ ----------- -----------
Net cash provided by operating activities 75,493,000 64,197,000 61,361,000
------------ ----------- -----------
Investing activities
Purchases of properties and equipment (20,409,000) (19,611,000) (16,889,000)
Principal extensions under lease financing agreements (109,132,000) (113,148,000) (119,747,000)
Principal collections under lease financing agreements 102,342,000 116,622,000 96,294,000
Payments for purchases of companies, net of cash acquired (64,349,000) (29,601,000) (27,615,000)
Proceeds from sale of subsidiary 13,500,000
Other, net (1,481,000) 7,341,000 250,000
------------ ----------- -----------
Net cash used for investing activities (93,029,000) (38,397,000) (54,207,000)
------------ ----------- -----------
Financing activities
Addition to short-term borrowings, net 58,184,000 13,601,000 28,892,000
Increase (reduction) in long-term borrowings 4,902,000 (2,164,000) (2,233,000)
Purchases of treasury stock (9,842,000) (10,204,000) (6,275,000)
Cash dividends paid to shareholders (32,145,000) (29,307,000) (25,487,000)
Other, net 1,067,000 529,000 1,030,000
------------ ----------- -----------
Net cash provided by (used for) financing
activities 22,166,000 (27,545,000) (4,073,000)
------------ ----------- -----------
Increase (decrease) in cash and cash equivalents 4,630,000 (1,745,000) 3,081,000
Cash and cash equivalents at beginning of year 10,686,000 12,431,000 9,350,000
------------ ----------- -----------
Cash and cash equivalents at end of year $ 15,316,000 $ 10,686,000 $ 12,431,000
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
<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. All significant intercompany balances and transactions have
been eliminated.
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, 1998 and 1997, approximately 45% and 56%, respectively, of
the company's inventories are costed using the LIFO (last-in, first-out)
method. The remaining portion of the company's inventories is costed
using the 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 $27,184,000 and $21,505,000 at December 31, 1998 and 1997,
respectively. 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 determine 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.
Financial instruments: The company enters into agreements (derivative
financial instruments) to manage the risks associated with interest rates
and foreign exchange rates. 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.
The differential between the interest to be received and the interest to
be paid under interest rate swap agreements is accrued as interest rates
change and is recognized as an adjustment to interest expense; the
related amount payable to or receivable from the counterparties is
included in accrued liabilities or other assets. Unrealized gains and
losses on the forward exchange contracts are deferred and recognized in
income in the same period as the related hedged foreign currency
transaction.
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 limited
instances for custom-manufactured products where, due to the nature of
specific orders, production and delivery schedules exceed normal
schedules.
Income per share: Basic net income per share is calculated using income
available to common shareholders (net income) divided by the weighted
average number of common shares outstanding during the year. Diluted net
income per share is calculated in the same manner except that the
denominator is increased to include the weighted number of additional
shares that would have been outstanding had dilutive stock option shares
been actually issued. The company uses the treasury stock method to
calculate dilutive shares. See Note N for the calculation of basic and
diluted net income per share.
<PAGE>
Note B - Inventories
<TABLE>
<CAPTION>
Inventories at December 31 are summarized as follows:
1998 1997
---- ----
<S> <C> <C>
Finished goods $ 35,925,000 $ 28,816,000
Work in process 32,613,000 25,043,000
Raw materials 63,423,000 55,524,000
----------- -----------
Total inventories $131,961,000 $109,383,000
=========== ===========
</TABLE>
If the first-in, first-out cost method, which approximates replacement
cost, had been used exclusively by the company, inventories would have
aggregated $140,819,000 and $118,351,000 at December 31, 1998 and 1997,
respectively.
Note C - Properties and Equipment
A comparative summary of properties and equipment at December 31 is as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $ 5,922,000 $ 5,134,000
Buildings and improvements 47,785,000 40,190,000
Machinery and equipment 157,392,000 142,043,000
Accumulated depreciation (113,732,000) (102,658,000)
----------- ------------
Total properties and equipment $ 97,367,000 $ 84,709,000
=========== ===========
</TABLE>
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 environmental
products and fire rescue operations (vehicle-related) and sign
operations. A substantial portion of the vehicle-related receivables is
due from municipalities. Financing is provided through sales-type lease
contracts with terms that 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:
$55,048,000 in 1999, $33,160,000 in 2000, $27,501,000 in 2001,
$20,637,000 in 2002, $13,669,000 in 2003 and $25,637,000 thereafter. At
December 31, 1998 and 1997, unearned finance revenue on these leases
aggregated $29,261,000 and $29,219,000, respectively.
Note E - Debt
Short-term borrowings at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Commercial paper $ 86,365,000 $ 37,966,000
Notes payable 98,834,000 191,581,000
Current maturities of long-term debt 3,558,000 2,024,000
----------- -----------
Total short-term borrowings $188,757,000 $231,571,000
=========== ===========
</TABLE>
<PAGE>
Long-term borrowings at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
4.25% unsecured note payable in
quarterly installments ending in 2001 $ 2,856,000 $ 3,527,000
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 2,790,000 3,607,000
Floating rate (6.75% at December 31, 1998)
secured note payable in monthly
installments ending in 2004 6,591,000
Notes payable backed by long-term
credit lines 100,000,000
Other 1,473,000
----------- -----------
140,710,000 34,134,000
Less current maturities 3,558,000 2,024,000
----------- -----------
Total long-term borrowings $137,152,000 $ 32,110,000
=========== ===========
</TABLE>
Aggregate maturities of long-term debt amount to approximately $3,558,000
in 1999, $103,703,000 in 2000, $6,550,000 in 2001, $9,333,000 in 2002,
$1,333,000 in 2003 and $16,233,000 thereafter. 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. At December 31, 1998, all of the company's retained
earnings were free of any restrictions and the company was in compliance
with the financial covenants of its debt agreements.
The company paid interest of $18,600,000 in 1998, $16,800,000 in 1997 and
$15,350,000 in 1996. Weighted average interest rates on short-term
borrowings were 5.8% at December 31, 1998 and 1997, respectively. See
Note H regarding the company's utilization of derivative financial
instruments relating to outstanding debt.
At December 31, 1998, the company had unused credit lines of
$100,000,000, which expire in March 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 17,419,000 $ 17,034,000 $ 23,452,000
Foreign 2,486,000 2,138,000 362,000
State and local 2,904,000 2,626,000 3,139,000
----------- ----------- -----------
22,809,000 21,798,000 26,953,000
Deferred:
Federal 2,360,000 1,712,000 3,254,000
Foreign 1,619,000 1,994,000 863,000
State and local 50,000 374,000 312,000
----------- ----------- ----------
4,029,000 4,080,000 4,429,000
----------- ----------- ----------
Total income taxes $ 26,838,000 $ 25,878,000 $ 31,382,000
=========== =========== ===========
</TABLE>
<PAGE>
Differences between the statutory federal income tax rate and the
effective income tax rate are summarized below:
1998 1997 1996
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal
tax benefit 2.2 2.3 2.4
Tax-exempt interest (3.0) (3.1) (2.5)
Foreign sales corporation tax benefits (1.3) (1.7) (0.7)
Other, net (1.8) (2.0) (0.6)
---- ---- ----
Effective income tax rate 31.1% 30.5% 33.6%
==== ==== ====
The company had net current deferred income tax benefits of $2,803,000
and $201,000 recorded in the balance sheet at December 31, 1998 and 1997,
respectively. The company paid income taxes of $24,419,000 in 1998,
$23,354,000 in 1997 and $20,509,000 in 1996.
Net deferred tax liabilities (assets) comprised the following at December
31, 1998: Depreciation and amortization - $27,366,000; revenue recognized
on lease financing receivables and custom manufacturing contracts -
$4,974,000; accrued pension benefits $2,437,000; accrued expenses
deductible in future periods - $(7,246,000); and other - $(122,000).
Net deferred tax liabilities (assets) comprised the following at December
31, 1997: Depreciation and amortization - $23,739,000; revenue recognized
on lease financing receivables and custom manufacturing contracts -
$6,681,000; accrued pension benefits $2,001,000; accrued expenses
deductible in future periods - $(6,892,000); and other - $(2,149,000).
Income before income taxes consisted of the following:
1998 1997 1996
---- ---- ----
United States $73,760,000 $72,165,000 $90,678,000
Non-U.S. 12,474,000 12,682,000 2,737,000
---------- ---------- ----------
$86,234,000 $84,847,000 $93,415,000
========== ========== ==========
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 years of service as defined within the provisions of the
individual plans. The company also participates in several multiemployer
retirement plans that provide defined benefits to employees under certain
collective bargaining agreements.
U.S. Benefit Plans
The components of net periodic pension (credit) are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Company-sponsored plans
Service cost $ 2,546,000 $ 2,103,000 $ 2,208,000
Interest cost 3,947,000 3,536,000 3,304,000
Expected return on plan assets (7,225,000) (6,550,000) (6,026,000)
Amortization of transition amount (183,000) (183,000) (183,000)
Other (8,000) (107,000) (9,000)
----------- ------------ ------------
(923,000) (1,201,000) (706,000)
Multiemployer plans 661,000 618,000 550,000
----------- ----------- -----------
Net periodic pension (credit) $ (262,000) $ (583,000) $ (156,000)
=========== =========== ==========
</TABLE>
The following summarizes the changes in the projected benefit obligation
and plan assets, the funded status of the company-sponsored plans and the
major assumptions used to determine these amounts.
<PAGE>
1998 1997
---- ----
Projected benefit obligation,
January 1 $ 53,137,000 $ 43,961,000
Service cost 2,546,000 2,103,000
Interest cost 3,947,000 3,536,000
Actuarial loss 4,506,000 5,029,000
Benefits paid (2,057,000) (1,492,000)
----------- -----------
Projected benefit obligation,
December 31 $ 62,079,000 $ 53,137,000
=========== ===========
Fair value of plan assets,
January 1 $ 60,890,000 $ 55,766,000
Actual return on plan assets 13,454,000 6,405,000
Company contribution 616,000 211,000
Benefits paid (2,057,000) (1,492,000)
----------- -----------
Fair value of plan assets,
December 31 $ 72,903,000 $ 60,890,000
=========== ===========
Funded status of plan, December 31 $ 10,824,000 $ 7,753,000
Unrecognized actuarial gain (3,739,000) (2,017,000)
Unrecognized prior service cost (118,000) (126,000)
Unrecognized net transition obligation (1,538,000) (1,721,000)
----------- -----------
Net amount recognized as prepaid benefit
cost in the balance sheet $ 5,429,000 $ 3,889,000
=========== ===========
Plan assets consist principally of a broadly diversified portfolio of
equity securities, corporate and U.S. government obligations and
guaranteed-return insurance contracts. Included in plan assets at
December 31, 1998 and 1997 were 653,400 shares of the company's common
stock valued at $17,887,000 and $14,130,000, respectively. Dividends paid
on the company's common stock to the pension trusts aggregated $463,000
and $423,000, respectively, for the years ended December 31, 1998 and
1997.
The following significant assumptions were used in determining pension
costs for the three-year period ended December 31, 1998:
1998 1997 1996
---- ---- ----
Discount rate 7.2% 7.8% 7.2%
Rate of increase in
compensation levels 4% 4% 4%
Expected long-term rate of
return on plan assets 12% 12% 12%
The weighted average discount rates used in determining the actuarial
present value of all pension obligations at December 31, 1998 and 1997
were 6.8% 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 acquired during the three-year period
ended December 31, 1998, was $3,790,000 in 1998, $3,768,000 in 1997 and
$3,711,000 in 1996.
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 provides 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 $3,238,000 and
$2,975,000 at December 31, 1998 and 1997, respectively, were fully
accrued. The net periodic postretirement benefit costs have not been
significant during the three-year period ended December 31, 1998.
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.
<PAGE>
Net periodic pension credits during the three-year period ended December
31,1998 were not significant. The following summarizes the changes in the
projected benefit obligation and plan assets, the funded status of the
company-sponsored plans and the major assumptions used to determine these
amounts.
1998 1997
---- ----
Projected benefit obligation,
October 1 $ 31,399,000 $ 26,067,000
Service cost 758,000 688,000
Interest cost 2,354,000 2,207,000
Actuarial loss 5,941,000 3,013,000
Employee contributions 120,000 104,000
Benefits paid (1,796,000) (1,601,000)
Increase due to translation 1,744,000 921,000
----------- -----------
Projected benefit obligation,
September 30 $ 40,520,000 $ 31,399,000
=========== ===========
Fair value of plan assets,
October 1 $ 35,685,000 $ 32,014,000
Actual return on plan assets 3,408,000 4,252,000
Company contribution 135,000
Employee contributions 120,000 104,000
Benefits paid (1,796,000) (1,601,000)
Plan expenses (163,000) (196,000)
Increase due to translation 1,833,000 1,112,000
----------- -----------
Fair value of plan assets,
September 30 $ 39,222,000 $ 35,685,000
=========== ===========
Funded status of plan, September 30 $ (1,298,000) $ 4,286,000
Unrecognized actuarial loss 6,658,000 714,000
----------- -----------
Net amount recognized as prepaid benefit
cost in the balance sheet $ 5,360,000 $ 5,000,000
=========== ===========
Plan assets consist principally of a broadly diversified portfolio of
equity securities, U.K. government obligations and fixed interest
securities. The following significant assumptions were used in
determining pension costs for 1998 and 1997:
1998 1997
---- ----
Discount rate 7.5% 8.5%
Rate of increase in
compensation levels 4% 5%
Expected long-term rate of
return on plan assets 8% 9%
The weighted average discount rates used in determining the actuarial
present value of all pension obligations at September 30, 1998 and 1997
were 6.0% and 7.5%, respectively.
Note H - Derivative Financial Instruments
At December 31, 1998, the company had five agreements with financial
institutions to swap interest rates.
The first agreement is based on a notional amount of $25,000,000. This
agreement commenced in January 1997 and expires in January 2001. The
company will pay interest at a fixed rate of 5.99% and receive interest
at the three-month LIBOR rate.
The second agreement is also based on a notional amount of $25,000,000.
This agreement commenced in 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.
The third agreement is based on a notional amount of $50,000,000. This
agreement commenced in October 1997 and expires in October 1999. The
company pays interest at a fixed rate of 5.25% and receives interest at
the three-month LIBOR rate. The agreement allows the counterparty to
extend the swap at the same interest rate terms for successive
three-month periods beginning in October 1999 and ending in October 2007.
If at any three-month extension date the counterparty decides not to
extend the swap, it is terminated and no further obligations are due by
either party.
<PAGE>
The fourth agreement is based on a notional amount of $25,000,000. This
agreement commenced in February 1998 and expires in February 2001. The
company pays interest at a fixed rate of 5.13% and receives interest at
the three-month LIBOR rate. The agreement allows the counterparty to
extend the swap at the same interest rate terms for successive
three-month periods beginning in February 2001 and ending in February
2008. If at any three-month extension date the counterparty decides not
to extend the swap, it is terminated and no further obligations are due
by either party.
The fifth agreement is based on a notional amount of $25,000,000. This
agreement commenced in May 1998 and expires in May 2000. The company pays
interest at a fixed rate of 5.15% and receives interest at the
three-month LIBOR rate. The agreement allows the counterparty to extend
the swap at the same interest rate terms for successive three-month
periods beginning in May 2000 and ending in May 2008. If at any
three-month extension date the counterparty decides not to extend the
swap, it is terminated and no further obligations are due by either
party.
At December 31, 1997, the company had similar swap agreements on notional
amounts totaling $100 million. The estimated cost to terminate these
agreements was $4,878,000 and $735,000 at December 31, 1998 and 1997,
respectively.
Note I - Stock-Based Compensation
The company's stock benefit plans, approved by the company's
shareholders, authorize the grant of benefit shares or units to key
employees and directors. The plan approved in 1988 authorized, until May
1998, the grant of up to 2,737,500 benefit shares or units (as adjusted
for subsequent stock splits and dividends). The plan approved in 1996
authorizes the grant of up to 1,000,000 benefit shares or units until
April 2006. These share or unit amounts exclude amounts that were issued
under predecessor plans. Benefit shares or units include stock options,
both incentive and non-incentive, stock awards and other stock units.
Stock options are primarily granted at the fair market value of the
shares on the date of grant and become exercisable one year after grant
at a rate of one-half annually and are exercisable in full on the second
anniversary date. All options and rights must be exercised within ten
years from date of grant. At the company's discretion, vested stock
option holders are permitted to elect an alternative settlement method in
lieu of purchasing common stock at the option price. The alternative
settlement method permits the employee to receive, without payment to the
company, cash, shares of common stock or a combination thereof equal to
the excess of market value of common stock over the option purchase
price.
The company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25, no
compensation expense is recognized when the exercise price of stock
options equals the market price of the underlying stock on the date of
grant.
Stock option activity for the three-year period ended December 31, 1998
follows (number of shares in 000's, prices in dollars per share):
Option shares Weighted-average price ($)
1998 1997 1996 1998 1997 1996
Outstanding at
beginning of year 2,036 2,185 1,792 17.98 14.49 11.54
Granted 180 411 519 23.56 20.80 24.13
Canceled or expired (59) (36) (16) 22.43 23.47 21.24
Exercised (132) (524) (110) 11.77 5.27 10.93
----- ----- ------
Outstanding at
end of year 2,025 2,036 2,185 18.80 17.98 14.49
===== ===== =====
Exercisable at
end of year 1,523 1,332 1,609 18.00 16.09 11.43
===== ===== =====
<PAGE>
For options outstanding at December 31, 1998, the number (in thousands),
weighted-average exercise prices in dollars per share, and
weighted-average remaining terms were as follows:
Period in which options were granted
98-97 96-95 94-93 92-91 90-89 Aggregate
Number outstanding 560 483 333 437 212 2,025
Exercise price range ($):
High 25.38 24.75 20.62 15.87 9.75 25.38
Low 20.06 20.12 16.00 11.17 4.85 4.85
Weighted-average:
Exercise price ($) 21.69 23.98 19.78 13.78 7.85 18.80
Remaining term (years) 9 7 5 3 1 6
The weighted average fair value of options granted was $5.24 per share
during 1998, $5.06 per share during 1997 and $6.13 per share during 1996.
The fair value of those options was estimated at the grant date using a
Black-Scholes option pricing model with the following weighted average
assumptions; risk free interest rates of 4.6% in 1998, 5.6% in 1997, and
6.2% in 1996; dividend yield of 2.5% in 1998 and 2.3% in 1997 and 1996
respectively; market volatility of the company's common stock of .20 in
1998 and .18 in 1997 and 1996; and a weighted average expected life of
the options of approximately 7 years for 1996 through 1998. 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 would have been $58,202,000 or $1.27 per
share for the year ended December 31, 1998, $57,930,000 or $1.26 per
share for the year ended December 31, 1997 and $61,569,000 or $1.34 per
share for the year ended December 31, 1996. The calculated pro forma
impact on 1996 - 1998 net income and net income per share amounts 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 that 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 date of grant, is being charged to expense over the four-year vesting
period. The company granted stock award shares of 58,000 in 1998, 45,000
in 1997 and 56,000 in 1996. The fair values of these shares were
$1,289,000, $1,181,000 and $1,385,000, respectively. Compensation expense
related to stock award shares recorded during these periods was
$1,173,000, $971,000 and $932,000, respectively.
Under the 1988 plan, no benefit shares or units were available for future
grant at December 31, 1997 and 1998. Under the 1996 plan, the following
benefit shares or units were available for future grant: 697,000 at
December 31, 1996, 258,000 at December 31, 1997 and 69,000 at December
31, 1998.
<PAGE>
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.
The changes in shareholders' equity for each of the three years in the
period ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Accumulated
Common Capital in Deferred other
stock excess of Retained Treasury stock comprehensive
par value par value earnings stock awards income
<S> <C> <C> <C> <C> <C> <C>
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, net (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)
Net income 58,969,000
Cash dividends declared (22,718,000)
Exercise of stock options:
Cash proceeds 294,000 1,571,000
Exchange of shares 230,000 672,000 (902,000)
Stock awards granted 45,000 1,136,000 (1,181,000)
Tax benefits related to stock
compensation plans 1,805,000
Retirement of treasury stock (54,000) (1,293,000) 1,347,000
Purchases of 227,000 shares of
treasury stock (5,291,000)
Amortization of deferred stock
awards 971,000
Foreign currency translation
adjustment, net (8,173,000)
Other (445,000)
--------- ------------ ---------- ----------- ------------ ---------
Balance at December 31, 1997 -
46,501,000 shares issued 46,501,000 61,029,000 226,432,000 (19,695,000) (1,718,000) (12,777,000)
Net income 59,396,000
Cash dividends declared (32,462,000)
Exercise of stock options:
Cash proceeds 100,000 1,292,000
Exchange of shares 31,000 129,000 (160,000)
Stock awards granted 58,000 1,231,000 (1,289,000)
Tax benefits related to stock
compensation plans 265,000
Retirement of treasury stock (22,000) (482,000) 504,000
Purchases of 444,000 shares
of treasury stock (9,466,000)
Amortization of deferred stock
awards 1,173,000
Foreign currency translation
adjustment, net 2,059,000
Other (3,000) (344,000)
-------- ---------- ---------- ----------- ------------ ---------
Balance at December 31, 1998 -
46,668,000 shares issued $46,668,000 $ 63,461,000 $253,366,000 $(29,161,000) $(1,834,000) $(10,718,000)
========== ========== =========== ========== ========= ==========
</TABLE>
<PAGE>
In July 1998, the company declared a dividend distribution of one
preferred share purchase right on each share of common stock outstanding
on and after August 18, 1998. This plan replaces a similar plan approved
in 1988. The rights are not exercisable until the rights 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
commencement 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 $100 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 August 18, 2008 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, 1998, the company made
the following acquisitions, principally all for cash. In January 1998,
the company acquired Saulsbury Fire Equipment Corporation ("Saulsbury")
and Five Star Manufacturing Company ("Five Star"). In August 1998, the
company acquired Jetstream of Houston ("Jetstream"). Saulsbury, located
in Tully, New York, is the leading manufacturer of stainless steel-bodied
fire trucks and rescue vehicles in the United States. Five Star, based in
Youngsville, North Carolina, manufactures mechanical and recirculating
air street sweepers. Located in Houston, Texas, Jetstream is a leading
manufacturer of high-pressure water blasting equipment. The company also
made several small Safety Products Group acquisitions during the last
half of the year. As a result of the 1998 acquisitions, the company
recorded approximately $10.5 million of working capital, $8.0 million of
fixed and other assets and $47.9 million of costs in excess of fair
value. In July 1997, the company acquired the equity of Pauluhn Electric
Mfg. Co. ("Pauluhn"). Pauluhn, based near Houston, Texas, is a
manufacturer and marketer of hazardous area and explosion proof
electrical products. In October 1997, the company also acquired the
equity of Akusta IFE, Ltd. ("Akusta"). Akusta, based in the United
Kingdom, is a supplier of microprocessor based public address, general
alarm, paging and intercom systems for use in hazardous environments. As
a result of the 1997 acquisitions, the company recorded approximately
$6.6 million of working capital, $.8 million of fixed and other assets
and $29.2 million of costs in excess of fair value. The assigned values
of these acquisitions are based on preliminary estimates. In June 1996,
the company acquired the equity of Victor Industries Limited ("Victor
Products"). Victor Products, headquartered in Newcastle, England, is a
manufacturer of hazardous area industrial lighting products. The company
also made two small Tool Group acquisitions in 1996. 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.
All of the acquisitions in the three-year period ended December 31, 1998
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 1998 and 1997 acquisitions occurred January 1,
1997, the company estimates that reported consolidated net sales would
have been increased by 2% and 8% in 1998 and 1997, respectively, while
reported net income would have been increased by 2% in 1998 and 4% in
1997.
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
million, respectively. This transaction did not have a material effect on
the results of operations of any of the years presented.
<PAGE>
Note L - Legal Proceedings
The company 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 company's business. The company
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 company's consolidated financial position or the
results of operations.
Note M - Segment and Related Information
The company has adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information". This statement required the company to change the way it
reports information about its operations. Information for 1997 and 1996
has been restated to conform to the 1998 presentation of operating
segment information.
The company has four identified groups but five operating segments (the
Environmental Products and Fire Rescue segments comprise the "Vehicle
Group") as defined under SFAS No. 131. Business units are organized under
each segment because they share certain characteristics, such as
technology, marketing, and product application, that create long-term
synergies. The principal activities of the company's operating segments
are as follows:
Environmental Products - Environmental Products manufactures a variety of
self-propelled street cleaning vehicles, vacuum loader vehicles and
municipal catch basin/sewer cleaning vacuum trucks. The Environmental
Products segment of the Vehicle Group sells primarily to municipal
customers, contractors and government customers.
Fire Rescue - Fire Rescue manufactures chassis; fire trucks, including
Class A pumpers, mini-pumpers and tankers; airport and other rescue
vehicles, aerial access platforms and aerial ladder trucks. This segment
of the Vehicle Group sells primarily to municipal customers, volunteer
fire departments and government customers.
Safety Products - Safety Products produces a variety of visual and
audible warning and signal devices; paging, local signaling, and building
security, parking and access control systems; hazardous area lighting,
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 - Sign 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 manufactured
by others.
Tool - Tool 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
predominately to industrial markets.
Net sales by operating segment reflects sales of products and services
and financial revenues to external customers, as reported in the
company's consolidated statements of income. Intersegment sales are
insignificant. The company evaluates performance based on operating
income of the respective segment. Operating income includes all revenues,
costs and expenses directly related to the segment involved. In
determining operating income, neither corporate nor interest expenses are
included. Operating segment depreciation expense, identifiable assets and
capital expenditures relate to those assets that are utilized by the
respective operating segment. Corporate assets consist principally of
cash and cash equivalents, notes and other receivables and fixed assets.
The accounting policies of each operating segment are the same as those
described in the summary of significant accounting policies.
See Note K for a discussion of the company's acquisition and divestiture
activity during the three-year period ended December 31, 1998.
Non-U.S. sales, which include sales exported from the U.S. and sales made
by non-U.S. operations, aggregated $267,886,000 in 1998, $261,218,000 in
1997 and $223,870,000 in 1996. Sales exported from the U.S. aggregated
$99,459,000 in 1998, $89,163,000 in 1997 and $95,488,000 in 1996.
<PAGE>
A summary of the company's operations by segment for the three-year
period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales
Environmental Products $ 219,812,000 $ 185,629,000 $ 176,943,000
Fire Rescue 318,038,000 311,879,000 299,594,000
Safety Products 253,020,000 221,624,000 196,567,000
Sign 65,953,000 66,349,000 82,342,000
Tool 145,964,000 139,431,000 140,911,000
------------- ------------- -------------
Total net sales $1,002,787,000 $ 924,912,000 $ 896,357,000
============= ============= =============
Operating income
Environmental Products $ 19,559,000 $ 15,894,000 $ 13,620,000
Fire Rescue 14,526,000 26,877,000 27,061,000
Safety Products 40,601,000 29,779,000 30,467,000
Sign 3,878,000 3,306,000 6,743,000
Tool 31,426,000 30,841,000 31,693,000
Corporate expense (8,240,000) (7,023,000) (6,692,000)
----------- ----------- -----------
Total operating income 101,750,000 99,674,000 102,892,000
Interest expense (19,336,000) (17,163,000) (15,359,000)
Other income 3,820,000 2,336,000 5,882,000
----------- ----------- -----------
Income before income taxes $ 86,234,000 $ 84,847,000 $ 93,415,000
=========== =========== ===========
Depreciation and amortization
Environmental Products $ 3,869,000 $ 3,046,000 $ 3,057,000
Fire Rescue 4,605,000 4,001,000 3,899,000
Safety Products 8,210,000 7,030,000 5,608,000
Sign 1,507,000 1,628,000 1,496,000
Tool 4,448,000 4,130,000 3,831,000
Corporate 947,000 710,000 519,000
----------- ----------- -----------
Total depreciation and
amortization $ 23,586,000 $ 20,545,000 $ 18,410,000
=========== =========== ===========
Identifiable assets
Manufacturing activities
Environmental Products $139,819,000 $102,237,000 $109,973,000
Fire Rescue 178,818,000 146,233,000 141,976,000
Safety Products 224,605,000 199,113,000 164,296,000
Sign 22,896,000 21,485,000 25,510,000
Tool 85,013,000 80,554,000 81,368,000
Corporate 10,803,000 11,193,000 9,790,000
----------- ------------ -----------
Total manufacturing
activities 661,954,000 560,815,000 532,913,000
----------- ----------- -----------
Financial services activities
Environmental Products 51,499,000 37,606,000 33,954,000
Fire Rescue 114,163,000 118,937,000 118,244,000
Sign 8,383,000 10,547,000 18,790,000
----------- ----------- -----------
Total financial services
activities 174,045,000 167,090,000 170,988,000
----------- ----------- -----------
Total identifiable assets $835,999,000 $727,905,000 $703,901,000
=========== =========== ===========
<PAGE>
1998 1997 1996
---- ---- ----
Additions to long-lived assets
Environmental Products $ 32,685,000 $ 1,516,000 $ 2,523,000
Fire Rescue 18,603,000 3,223,000 2,726,000
Safety Products 17,348,000 38,232,000 26,145,000
Sign 1,236,000 1,430,000 1,696,000
Tool 6,404,000 5,127,000 12,923,000
Corporate 33,000 83,000 76,000
----------- ----------- -----------
Total additions to long-lived
assets $ 76,309,000 $ 49,611,000 $ 46,089,000
=========== =========== ===========
Financial revenues (included in
net sales)
Environmental Products $ 3,904,000 $ 3,254,000 $ 2,739,000
Fire Rescue 7,606,000 7,876,000 7,121,000
Sign 1,230,000 2,090,000 2,397,000
----------- ----------- -----------
Total financial revenues $ 12,740,000 $ 13,220,000 $ 12,257,000
=========== =========== ===========
</TABLE>
Due to the nature of the company's customers, a significant portion of
the Environmental Products and Fire Rescue financial revenues is exempt
from federal income tax.
A summary of the company's operations by geographic area for the
three-year period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States
Net sales $834,360,000 $752,857,000 $767,975,000
Operating income 87,077,000 85,849,000 99,547,000
Long-lived assets 289,899,000 237,373,000 208,844,000
All non-U.S. (principally
Europe)
Net sales $168,427,000 $172,055,000 $128,382,000
Operating income 14,673,000 13,825,000 3,345,000
Long-lived assets 60,848,000 54,820,000 55,476,000
</TABLE>
The company had no significant amounts of sales to or long-lived assets
in an individual country outside of the United States.
Note N - Net Income per Share
The following table summarizes the information used in computing basic
and diluted income per share:
<TABLE>
<CAPTION>
Year ending December 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator for both basic
and diluted income per share
computations - net income $ 59,396,000 $ 58,969,000 $ 62,033,000
=========== =========== ===========
Denominator for basic income
per share - weighted average
shares outstanding 45,568,000 45,332,000 45,362,000
Effect of employee stock options
(dilutive potential common shares) 278,000 508,000 523,000
----------- ----------- -----------
Denominator for diluted income
per share - adjusted shares 45,846,000 45,840,000 45,885,000
=========== =========== ===========
</TABLE>
Note O - Commitments
The company leases certain facilities and equipment under operating
leases, some of which contain options to renew. Total rental expense on
all operating leases was $8,426,000 in 1998, $7,613,000 in 1997 and
$7,671,000 in 1996. Sublease income and contingent rentals relating to
operating leases were insignificant. At December 31, 1998, minimum future
rental commitments under operating leases having noncancelable lease
terms in excess of one year aggregated $33,859,000 payable as follows:
$7,642,000 in 1999, $5,764,000 in 2000, $4,182,000 in 2001, $2,940,000 in
2002, $2,349,000 in 2003 and $10,982,000 thereafter.
<PAGE>
Federal Signal Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note P - Selected Quarterly Data (Unaudited) (in thousands of dollars
except per share amounts)
<TABLE>
<CAPTION>
For the three-month period ended
--------------------------------------------------------------------------------------------
1 9 9 8 1 9 9 7
------------------------------------------ ------------------------------------------
March June September December March June September December
31 30 30 31 31 30 30 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $231,230 $250,121 $248,914 $272,522 $ 224,485 $ 236,156 $ 229,318 $ 234,953
Gross margin 71,050 79,595 76,353 81,130 70,424 77,263 71,764 71,393
Net income 10,846 16,013 16,271 16,266 13,616 16,059 15,970 13,324
Per share data:
Net income - diluted .24 .35 .36 .36 .30 .35 .35 .29
Dividends paid .1775 .1775 .1775 .1775 .1675 .1675 .1675 .1675
Market price range
High 24 24 5/8 25 27 1/2 26 3/4 26 3/8 26 7/16 25 1/2
Low 20 1/4 21 1/8 20 1/8 20 23 1/4 23 5/8 24 3/16 19 7/8
</TABLE>
<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, 1998 and 1997 and
the related consolidated statements of income, comprehensive income and
cash flows for each of the three years in the period ended December 31,
1998. These financial statements 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, evidence 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, 1998 and
1997, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.
***** Ernst & Young LLP *****
(signature on right)
Chicago, Illinois
January 26, 1999
<PAGE>
Federal Signal Corporation
Financial Review
Consolidated Results of Operations
Federal Signal Corporation's net sales increased 8% to a record $1,003
million in 1998 compared to the $925 million recorded in 1997. Net income
in 1998 increased 1% to $59.4 million, or $1.30 per share on a diluted
basis. This compares to 1997's net income of $59.0 million, or $1.29 per
share.
The 8% sales increase in 1998 resulted from a 4% increase in volume and
4% due to acquisitions of businesses. Sales to customers in the United
States increased 11% including the effects of acquisitions. Sales to
non-U.S. customers increased 3%.
The 1997 sales increase of 3% resulted from price increases of 2%, a 2%
increase resulting from acquisitions of businesses and a 1% decline in
volume. Sales to customers in the United States declined 1% in 1997 while
sales to non-U.S. customers increased 17%.
In managing its businesses, the company recognizes that value creation
is, in large part, driven by sales growth and efficient utilization of
resources. In managing its resources, the principal value driver is
increasing operating margins and then maintaining them at appropriate
high levels. The distinct differences in the cost structures of the
company's businesses and varying growth rates, including those caused by
acquisitions, can affect the comparisons between years in the gross
margin ratio and the ratio of selling, general and administrative (SG&A)
expenses. Accordingly, the company will continue to focus primarily on
improving operating margins when reviewing its total company performance.
In looking at total profitability of the company's U.S. and non-U.S.
operations, the company recognizes that some of its U.S. operations have
benefited from selling their products through distribution channels of
non-U.S. operations. The following table summarizes the company's gross
margins and operating margins for the last five years (percent of sales):
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.3 68.6 69.2 69.6 69.0
----- ----- ----- ----- -----
Gross profit margin 30.7 31.4 30.8 30.4 31.0
SG&A expenses 20.6 20.6 19.3 18.6 19.4
----- ----- ----- ----- -----
Operating margin 10.1% 10.8% 11.5% 11.8% 11.6%
===== ===== ===== ===== =====
Gross profit margin in 1998 is modestly lower than the average of the
preceding four years (30.9%) and a little above the 30.4% in 1995, when
the company achieved its highest operating margin. SG&A expenses as a
percent of sales in 1998 were the same as 1997 and above the average of
the previous four years of 19.5%. The company's operating margin averaged
11.6% during the 1994-1996 period and has declined in 1997 and 1998.
Since operating margins have been declining from the company's high
achieved in 1995, an explanation of that trend is warranted. In 1996,
higher new product development expenses combined with the acquisition of
Victor Products to increase the percentage of SG&A expenses and reduce
the company's overall operating margin. In 1997, gross margins and the
ratio of SG&A expenses both increased again largely as a result of: 1)
the effects of the acquisitions of Victor Products and Pauluhn and 2) the
additive effect on gross margin and SG&A expenses from significant
commissions relating to certain large fire rescue vehicle sales. The
ratio of new product development expenses to sales in 1997 and 1998
remained at a level similar to that incurred in 1996. In 1997 and again
in 1998, significant operational issues in the Fire Rescue operations
adversely affected the company's margins. Chassis and related component
supply shortages, while affecting many of the company's vehicle-based
businesses in 1997 and 1998, had its most severe impact on the U.S.-based
Fire Rescue business (see "Group Operations" below).
Other income in 1998 increased to $3.8 million from $2.3 million in 1997.
The company recorded gains in 1998, including gains from the settlement
of litigation claims and from the sales of land and other underutilized
assets. In 1996, other income included a $4.7 million gain on the sale of
a small tool business.
<PAGE>
Operating cash flows improved in 1997 and again in 1998; yet interest
expense increased $2.2 million in 1998 following an increase of $1.8
million in 1997. The increase in interest expense occurred largely as a
result of increased borrowings caused by: 1) approximately $64 million
incurred in 1998 and $30 million incurred in 1997 for the acquisition of
companies for cash and 2) a $23.5 million increase in financial services
assets during 1996. Weighted average interest rates on short-term
borrowings were 5.8% in 1998 and 1997 and 5.5% in 1996.
The company's effective tax rate of 31.1% in 1998 increased from the
30.5% in 1997. This was largely due to benefits recorded in 1997 relating
to the company's amendment of certain previously filed federal income tax
returns based upon a refined method of determining income on its export
sales. Compared to the 33.6% effective rate in 1996, the 1997 effective
rate declined for several reasons. Chief among them were the following:
1) 1997 foreign sales and profits and certain of its tax-exempt revenues
increased at rates much higher than its other taxable income; and 2) the
recorded benefits relating to its amendment of tax returns mentioned
above.
At the end of 1998, the company changed its assumptions for discount
rates used in determining the actuarial present values of accumulated and
projected benefit obligations for its postretirement plans. The company
reduced the discount rate to 6.8% from the 7.2% used at the end of 1997
for its U.S. plan because of the lower interest rate environment
experienced at the end of 1998. The company expects that the change in
assumptions will not have a significant impact on 1999 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, municipal emergency signal products, parking systems and
fire rescue products.
Group Operations
The company is, and remains, divided into four identified groups. Because
of new accounting definitions of "operating segments", we will report
information on five segments "as defined".
Four of the company's five operating segments achieved higher sales with
Sign sales about even with last year. Safety Products and Environmental
Products sales increased significantly in 1998 while Tool and Fire Rescue
sales increased more modestly. Safety Products, Environmental Products
and Sign all achieved very strong earnings increases in 1998. Fire Rescue
earnings declined significantly while Tool earnings were up modestly.
Environmental Products
Environmental Products sales and earnings increased substantially in
1998. Sales of sewer cleaners and industrial vacuum trucks improved
significantly over the prior year producing much improved earnings in
these businesses. The acquisitions of Five Star and Jetstream also
contributed to the higher sales and earnings in 1998. Sewer cleaner
orders outpaced sales, which were negatively affected by the lack of
commercial truck chassis availability in late 1997 and into 1998. Chassis
supply constraints have substantially abated with year end sewer cleaner
backlogs at record levels at December 31, 1998. Sweeper sales increased
strongly with the newly acquired Five Star's results exceeding
expectations. The group's sales increased solidly in 1997 and earnings
increased significantly. Operating margins improved in 1997 in large part
due to improved productivity in the group's U.S. and European street
sweeper operations.
Fire Rescue
Fire Rescue sales increased moderately while earnings declined
substantially. Chassis and related component supply shortages, which
adversely affected 1997's results, continued well into 1998. Underlying
demand in the U.S. municipal market remained healthy. Fire Rescue sales
were up a little over last year largely as a result of the acquisition of
Saulsbury Fire in January 1998. While Saulsbury contributed to the
overall sales increase, its profitability was well below the rate
achieved by the remainder of the group. Operating income in the U.S.
continued to be negatively affected by the results of chassis shortages
earlier in the year and increases in operating expenses. As chassis
became available, the group's U.S. fire apparatus business began to
increase production, including hiring manufacturing employees and
changing certain manufacturing methods. While these actions adversely
affected productivity in the short run, they were effective in raising
production levels toward the end of the year. Fire Rescue sales increased
moderately in 1997 and earnings declined slightly, largely because the
chassis and component supply shortages began in the fourth quarter of
1997. Lower profitability of the U.S.-based operations in 1997 was nearly
offset by the significant improvements in sales and profitability of the
group's Finland-based fire rescue business.
<PAGE>
Safety Products
Safety Products Group sales and profits increased substantially in 1998.
All of the group's businesses saw increases in sales and earnings in
1998. The group's European warning lights business and hazardous area
lighting business saw dramatic earnings improvements on strong sales
gains. Profitability of the hazardous material container business also
improved in 1998. The group completed five acquisitions during 1998; the
size of the businesses and the timing of their purchases did not produce
a significant effect on 1998 results. The group's sales increased 13% in
1997 while operating income declined modestly. About half of the 1997
sales increase was attributable to acquisitions made in the second half
of 1997. The group's 1997 earnings declined as a result of: 1) lower
profitability of hazardous material container unit sales which
experienced heavy price pressure and 2) substantial one-time costs
incurred by Victor Products, the group's United Kingdom-based industrial
lighting products unit, which consolidated its two manufacturing
operations in 1997.
Sign
Sign's 1998 earnings increased strongly on sales that were about even
with the prior year. Continued aggressive cost reduction programs,
including closure of a manufacturing facility, and improved project
management were principal reasons for the increased earnings. In 1997,
the Sign Group's sales and earnings declined significantly. The group's
margins declined largely because of the lower sales volume.
Tool
Tool sales and earnings increased modestly. U.S. sales grew 3% reflecting
a more difficult industrial market while non-U.S. sales grew 11%.
Non-U.S. sales were bolstered by automotive die build programs in Germany
and Japan. In 1997, Tool sales and earnings declined modestly. Sales and
earnings comparisons to 1996 were adversely affected by the disposition
of a small tool business at the end of 1996 partially offset by the
addition of two smaller businesses during the latter half of 1996.
Excluding the effects of the acquisitions and disposal, the group's sales
and earnings both increased modestly in 1997 over 1996.
Financial Services Activities
The company maintains a large investment ($174.0 million and $167.1
million at December 31, 1998 and 1997, respectively) in lease financing
and other receivables which are generated principally by its
environmental products and fire rescue operations with the balance
generated by its sign operations. For the five-year period ending
December 31, 1998, these assets continued to be conservatively leveraged
in accordance with the company's stated financial objectives (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 environmental and fire rescue products as well as continuing
acceptance by customers of the benefits of using the company as their
source of financing vehicle purchases.
Financial Position and Cash Flow
The company emphasizes generating strong cash flows from operations,
reaching a record $75.5 million in 1998. This compares to the $64.2
million in 1997 and $61.4 million in 1996. At December 31, 1998 the
company's primary working capital (accounts receivable and inventory less
accounts payable) as a percent of sales increased slightly over 1997's
percent. The increase is largely because of carrying higher inventories,
in part due to the carryover effects of chassis and related component
supply shortages. The company expects further improvement in its
operating cash flow as it continues to focus aggressively on earnings
growth as well as its working capital management.
During the 1994-1998 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.
<PAGE>
Cash flows for the five-year period ending December 31, 1998 are
summarized as follows (in millions):
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Cash provided by (used for):
Operating activities $75.5 $ 64.2 $ 61.4 $62.9 $53.8
Investing activities (93.0) (38.4) (54.2) (88.1) (96.9)
Financing activities 22.2 (27.5) (4.1) 29.9 45.1
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 is supported by different ratios of debt and equity.
One of the company's financial objectives is to maintain a strong
financial position. At December 31, 1998, the company's
debt-to-capitalization ratio of its manufacturing operations was 37%
compared to 30% a year earlier. The increase largely reflects the $65
million used for acquisitions of businesses during 1998. The company
believes that its financial assets, due to their overall quality, are
capable of sustaining a leverage ratio of 87%. At both December 31, 1998
and 1997, the company's debt-to-capitalization ratio for its financial
services activities was 87%.
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 1.6 at December 31, 1998 and 1.2 at
December 31, 1997. The increase in 1998 is largely due to
reclassification of $100 million of short-term debt to long-term debt
(backed by a long-term credit agreement). 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.
Market Risk Management
The company is subject to risks associated with changes in interest rates
and foreign exchange rates. The company principally utilizes two types of
derivative financial instruments: 1) interest rate swaps and 2) foreign
currency forward exchange contracts to manage risks associated with sales
and purchase commitments denominated in foreign currencies. The company
does not hold or issue derivative financial instruments for trading or
speculative purposes and is not a party to leveraged derivatives.
The company uses interest rate swap agreements to reduce interest rate
risk. Interest rate swaps change the fixed/floating interest rate mix of
the company's debt portfolio. At December 31, 1998, the company was a
party to interest rate swap agreements with aggregate notional amounts
totaling $150,000,000. See Note H to the consolidated financial
statements for a description of these interest rate swap agreements.
The company manages its exposure to interest rate movements by
maintaining a proportionate relationship between fixed debt to total debt
within established percentages. The company uses actual fixed rate
borrowings as well as interest rate swap agreements to provide fixed
interest rates.
A substantial portion of the company's debt is used to support financial
services assets; the average remaining life of those assets is typically
under three years. The company is currently comfortable with a sizeable
portion of floating rate debt, since a rise in borrowing rates would
normally correspond with a rise in lending rates in a reasonable period
of time.
Significant interest rate sensitive instruments at December 31, 1998 were
as follows (dollars in millions):
<PAGE>
<TABLE>
<CAPTION>
Fair
1999 2000 2001 2002 2003 Thereafter Total value
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt
Fixed rate
Principal $3.5 $2.4 $5.2 $8.0 $15.0 $34.1 $36.4
Average interest rate 7.5% 7.6% 7.7% 7.9% 8.0% 7.7%
Variable rate
Principal $101.3 $1.3 $1.3 $1.4 $1.3 $106.6 $106.6
Average interest rate 5.9% 5.9% 6.8% 6.8% 6.8% 5.9%
Short-term debt -
variable rate
Principal $185.2 $185.2 $185.2
Average interest rate 5.8% 5.8%
Interest rate swaps (pay
fixed, receive variable)
Notional amount $50.0 $50.0 $50.0 $150.0 $(4.9)
Average pay rate 5.3% 5.5% 5.6%
Average receive rate 5.1% 5.1% 5.1%
</TABLE>
The company did not have a significant amount of forward exchange
contracts outstanding at December 31,1998.
<PAGE>
Other Matters
Asia/Pacific
The company has observed that recent events in the financial markets
relating to the Asia/Pacific Rim region have generated interest in the
potential impact on the company's future sales and earnings. In 1998,
sales made by the company to customers in this region approximated 4% of
total company sales, down from the 6% level in 1997. The company believes
that the effect on the company's 1999 sales and earnings resulting from
economic uncertainty in the Asia/Pacific Rim region will not be
significant.
Year 2000
The Year 2000 ("Y2K") issue refers to the risk that systems, products and
equipment using date-sensitive software or computer chips with two-digit
date fields may recognize a date using "00" as the year 1900 rather than
the year 2000. This situation could result in systems failures,
miscalculations and business interruptions that could have a materially
adverse impact on the company.
The company is a diversified and decentralized manufacturing concern and
has over twenty business units. Business unit management has primary
responsibility for achieving Y2K compliance and has appointed Y2K project
coordinators for each site within their divisions. These coordinators
report both to the management of the applicable business unit and the
company's director of internal audit, who is the overall coordinator of
the company's Y2K compliance effort. The director periodically reports to
the company's chairman and to the audit committee of the board of
directors.
The company has assessed its Y2K risks and established its priorities in
addressing these risks. The company is currently in the final phases of
correcting systems with identified deficiencies and plans to complete the
final validation testing of its Year 2000 compliance program by the third
quarter of 1999. The company currently believes all essential processes,
systems, and business functions will comply with the Year 2000
requirements by the third quarter of 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 also
surveying 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 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 the middle of 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.
New accounting pronouncements
In 1998, the company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income", No. 131, "Disclosures
about Segments of an Enterprise and Related Information" and No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits". In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", the adoption of which will be required by no later than the
beginning of 2000. This statement standardizes the accounting treatment
for derivative instruments. The company has not yet determined the
effects, if any, this statement will have on its reported results of
operations, nor when it will adopt the provisions of this statement.
EXHIBIT 21
FEDERAL SIGNAL CORPORATION
Subsidiaries of the Registrant
The following table sets forth information concerning significant
subsidiaries of the Registrant.
<TABLE>
<CAPTION>
Jurisdiction
in which
Name Organized
<S> <C>
Akusta IFE, Ltd. United Kingdom
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.
Five Star Manufacturing North Carolina
Guzzler Manufacturing, Inc. Alabama
Jamestown Punch and Tooling, Inc. New York
Jetstream of Houston Texas
Justrite Manufacturing Company, L.L.C. Delaware
Manchester Tool Company Delaware
M.J. Industries, S.A. France
Nippon Dayton Progress K.K. Japan
NRL Corp. Alberta, Canada
Pauluhn Electric Manufacturing Company New York
Ravo International (Van Raaij Holdings BV
and its subsidiaries) Netherlands
Saulsbury Fire Equipment Corp. New York
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
</TABLE>
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 26, 1999,
included in the Federal Signal Corporation Annual Report to Shareholders
for the year ended December 31, 1998.
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 Company'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 26, 1999, 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 29, 1999
<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, 1998 and consolidated condensed statement of income for
the twelve months ended December 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> DEC-31-1998
<CASH> 15316
<SECURITIES> 0
<RECEIVABLES> 161579
<ALLOWANCES> 2499
<INVENTORY> 131961
<CURRENT-ASSETS> 311207 <F1>
<PP&E> 211099
<DEPRECIATION> 113732
<TOTAL-ASSETS> 835999
<CURRENT-LIABILITIES> 195193 <F1>
<BONDS> 137152
0
0
<COMMON> 46668
<OTHER-SE> 275114
<TOTAL-LIABILITY-AND-EQUITY> 835999
<SALES> 1002787
<TOTAL-REVENUES> 1002787
<CGS> 694659
<TOTAL-COSTS> 694659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19336
<INCOME-PRETAX> 86234
<INCOME-TAX> 26838
<INCOME-CONTINUING> 59396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59396
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
<FN>
<F1>MANUFACTURING OPERATIONS ONLY
</FN>
</TABLE>
