FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-6003
Federal Signal Corporation
(Exact name of Registrant as specified in its charter)
Delaware 36-1063330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 West 22nd Street
Oak Brook, IL 60523
(Address of principal executive offices) (Zip code)
(630) 954-2000
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Title
Common Stock, $1.00 par value 45,299,664 shares outstanding at July 31, 2000
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
INTRODUCTION
The consolidated condensed financial statements of Federal Signal Corporation
and subsidiaries included herein have been prepared by the Registrant, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Registrant believes that the disclosures are adequate
to make the information presented not misleading. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Net sales $278,217,000 $242,991,000 $549,887,000 $478,652,000
Costs and expenses:
Cost of sales (190,972,000) (169,409,000) (377,319,000) (333,012,000)
Selling, general and
administrative (55,514,000) (49,593,000) (111,324,000) (98,859,000)
----------- ----------- ----------- -----------
Operating income 31,731,000 23,989,000 61,244,000 46,781,000
Interest expense (7,992,000) (5,363,000) (14,962,000) (10,550,000)
Other income (expense),
net 176,000 21,000 (1,066,000) 467,000
---------- ----------- ----------- -----------
Income from continuing
operations before
income taxes 23,915,000 18,647,000 45,216,000 36,698,000
Income taxes (7,903,000) (5,970,000) (14,907,000) (11,782,000)
----------- ----------- ----------- -----------
Income from continuing
operations 16,012,000 12,677,000 30,309,000 24,916,000
Income from discontinued
operations, net of tax 172,000 1,015,000 1,111,000 1,823,000
----------- ----------- ----------- -----------
Net income $ 16,184,000 $ 13,692,000 $ 31,420,000 $ 26,739,000
=========== =========== =========== ===========
COMMON STOCK DATA:
Basic and diluted net
income per share:
Income from
continuing
operations $.35 $.28 $.67 $.55
Income from
discontinued
operations .00* .02 .02 .04
--- --- --- ---
Net income $.36 $.30 $.69 $.59
=== === === ===
* fractional amount
Weighted average common
shares outstanding
Basic 45,307,000 45,464,000 45,460,000 45,450,000
Diluted 45,436,000 45,699,000 45,555,000 45,699,000
Cash dividends per
share of common stock $.1900 $.1850 $.3800 $.3700
See notes to condensed consolidated financial statements.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Net income $16,184,000 $13,692,000 $31,420,000 $26,739,000
Other comprehensive
loss, net of tax -
Foreign currency
translation
adjustments (1,537,000) (1,152,000) (3,832,000) (3,914,000)
---------- ---------- ---------- ----------
Comprehensive income $14,647,000 $12,540,000 $27,588,000 $22,825,000
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999 (a)
--------- ----------
(Unaudited)
ASSETS
Manufacturing activities
Current assets:
Cash and cash equivalents $ 13,243,000 $ 8,764,000
Trade accounts receivable, net of
allowances for doubtful accounts 150,350,000 152,956,000
Inventories:
Raw materials 70,279,000 58,487,000
Work in process 53,470,000 60,894,000
Finished goods 48,264,000 40,589,000
Prepaid expenses 12,455,000 8,895,000
----------- -----------
Total current assets 348,061,000 330,585,000
Properties and equipment:
Land 5,731,000 5,717,000
Buildings and improvements 50,580,000 50,365,000
Machinery and equipment 180,407,000 169,110,000
Accumulated depreciation (122,793,000) (113,980,000)
----------- -----------
Net properties and equipment 113,925,000 111,212,000
Intangible assets, net of accumulated
amortization 279,286,000 273,844,000
Other deferred charges and assets 25,903,000 23,592,000
----------- -----------
Total manufacturing assets 767,175,000 739,233,000
Net assets of discontinued operations,
including financial assets 21,121,000 20,767,000
Financial services activities - Lease
financing receivables, net of allowances
for doubtful accounts 207,544,000 191,261,000
----------- -----------
Total assets $ 995,840,000 $ 951,261,000
=========== ===========
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued
June 30, December 31,
2000 1999 (a)
--------- ----------
(Unaudited)
LIABILITIES
Manufacturing activities
Current liabilities:
Short-term borrowings $ 148,837,000 $ 99,204,000
Trade accounts payable 65,424,000 68,533,000
Accrued liabilities and income taxes 89,780,000 92,026,000
----------- -----------
Total current liabilities 304,041,000 259,763,000
Long-term borrowings 132,058,000 134,410,000
Deferred income taxes 25,533,000 30,445,000
----------- -----------
Total manufacturing liabilities 461,632,000 424,618,000
Financial services activities - Borrowings 186,220,000 172,610,000
SHAREHOLDERS' EQUITY
Common stock - par value 47,002,000 46,889,000
Capital in excess of par value 67,989,000 66,762,000
Retained earnings 291,067,000 276,951,000
Treasury stock (34,307,000) (17,023,000)
Deferred stock awards (2,623,000) (2,238,000)
Accumulated other comprehensive income (21,140,000) (17,308,000)
----------- -----------
Total shareholders' equity 347,988,000 354,033,000
----------- -----------
Total liabilities and shareholders' $ 995,840,000 $ 951,261,000
=========== ===========
equity
See notes to condensed consolidated financial statements.
(a) The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
2000 1999
---- ----
Operating activities:
Net income $ 31,420,000 $ 26,739,000
Depreciation 9,730,000 8,234,000
Amortization 4,866,000 3,899,000
Working capital changes and other (8,064,000) (13,357,000)
---------- ----------
Net cash provided by operating
activities 37,952,000 25,515,000
Investing activities:
Purchases of properties and equipment (11,079,000) (13,474,000)
Principal extensions under lease financing
agreements (73,558,000) (58,026,000)
Principal collections under lease financing
agreements 57,275,000 49,209,000
Payments for purchases of companies, net of
cash acquired (24,401,000) (2,655,000)
Other, net 700,000 2,372,000
---------- ----------
Net cash used for investing activities (51,063,000) (22,574,000)
Financing activities:
Additional short-term borrowings, net 63,243,000 27,821,000
Reduction of long-term borrowings (2,352,000) (1,874,000)
Purchases of treasury stock (17,284,000) (285,000)
Cash dividends paid to shareholders (25,925,000) (25,039,000)
Other, net (92,000) 1,497,000
---------- ----------
Net cash provided by financing activities 17,590,000 2,120,000
---------- ----------
Increase in cash and cash equivalents 4,479,000 5,061,000
Cash and cash equivalents at beginning of
period 8,764,000 15,316,000
---------- ----------
Cash and cash equivalents at end of period $ 13,243,000 $ 20,377,000
========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. It is suggested that the condensed consolidated financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
2. Management of the Registrant has announced its intent to divest the
operations of the Sign Group. The condensed consolidated financial
statements have been prepared on a basis that reflects the operations of
the Sign Group as discontinued operations; accordingly the 1999 condensed
consolidated financial statements have been restated. The net book value
of the Sign Group's assets aggregated $21,121,000 at June 30, 2000;
management believes that the value ultimately to be received for these
assets will exceed the recorded net book value.
3. In the opinion of the Registrant, the information contained herein
reflects all adjustments necessary to present fairly the Registrant's
financial position, results of operations and cash flows for the interim
periods. Such adjustments are of a normal recurring nature. The operating
results for the three months and six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year of
2000.
4. Interest paid for the six-month periods ended June 30, 2000 and 1999 was
$15,525,000 and $12,067,000, respectively. Income taxes paid for these
same periods were $11,415,000 and $9,720,000, respectively.
5. The following table summarizes the information used in computing basic and
diluted income per share:
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Numerators for both
basic and diluted income
per share computations:
Income from continuing
operations $16,012,000 $12,677,000 $30,309,000 $24,916,000
Income from dicontinued
operations 172,000 1,015,000 1,111,000 1,823,000
---------- ---------- ---------- ----------
Net income $16,184,000 $13,692,000 $31,420,000 $26,739,000
========== ========== ========== ==========
Denominator for basic
income per share -
weighted average
shares outstanding 45,307,000 45,464,000 45,460,000 45,450,000
Effect of employee
stock options
(dilutive potential
common shares) 129,000 235,000 95,000 249,000
---------- ---------- ---------- ----------
Denominator for diluted
income per share -
adjusted shares 45,436,000 45,699,000 45,555,000 45,699,000
========== ========== ========== ==========
<PAGE>
6. The following table summarizes the Registrant's continuing operations by
segment for the three months and six months ended June 30, 2000 and 1999.
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Net sales
Environmental Products $67,741,000 $64,936,000 $130,262,000 $126,057,000
Fire Rescue 90,252,000 75,616,000 181,023,000 148,723,000
Safety Products 69,294,000 66,305,000 139,284,000 130,502,000
Tool 50,930,000 36,134,000 99,318,000 73,370,000
----------- ----------- ----------- -----------
Total net sales $278,217,000 $242,991,000 $549,887,000 $478,652,000
=========== =========== =========== ===========
Operating income
Environmental Products $ 7,967,000 $ 7,199,000 $13,984,000 $13,629,000
Fire Rescue 5,245,000 2,514,000 10,118,000 3,918,000
Safety Products 11,281,000 9,456,000 22,510,000 18,577,000
Tool 10,002,000 7,160,000 20,154,000 15,082,000
Corporate expense (2,764,000) (2,340,000) (5,522,000) (4,425,000)
---------- ---------- ---------- ----------
Total operating income 31,731,000 23,989,000 61,244,000 46,781,000
Interest expense (7,992,000) (5,363,000) (14,962,000) (10,550,000)
Other income (expense) 176,000 21,000 (1,066,000) 467,000
---------- ---------- ---------- ----------
Income from continuing
operations before income
taxes $23,915,000 $18,647,000 $45,216,000 $36,698,000
========== ========== ========== ==========
Except as discussed in Note 2 above, the basis of segmentation and the
basis of measurement of segment profit or loss are consistent with those
used in the Registrant's last annual report. There have been no material
changes in total assets from the amount disclosed in the Registrant's last
annual report.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
SECOND QUARTER 2000
Comparison with Second Quarter 1999
Federal Signal Corporation reported a 20% increase in diluted net income per
share to $.36 for the second quarter, from $.30 per share last year. Net income
rose to $16.2 million from $13.7 million in 1999. New orders, sales and net
income were at record levels for the second quarter.
In anticipation of the sale of the Sign Group, the Registrant is now reporting
results for that group on a discontinued operations basis. Continuing operations
consist of the Safety Products, Tool, Environmental Products and Fire Rescue
groups. Continuing operations results for the second quarter compared to last
year's second quarter were:
- 26% increase in after-tax income to $16.0 million from $12.7 million
- 32% increase in operating income
- 25% increase in diluted earnings per share to $.35 from $.28 per share
- 14% increase in sales to $278 million from $243 million
- 11% increase in quarter-end backlog to $346 million from $311 million
New orders related to continuing operations were up 8% to $273 million in the
second quarter.
In the second quarter, sales growth was led by the Fire Rescue and Tool groups
and income growth was led by the Fire Rescue Group with all four groups
reporting significant growth in operating income.
Fire Rescue Group income more than doubled on a 19% sales increase. North
American operations income rose significantly over last year's quarter on the
strength of improvements in Florida-based manufacturing. Fire Rescue Group new
orders declined 10% as a number of orders were deferred into the third quarter.
The municipal marketplace remains strong and the 10% order decline is solely a
matter of timing - the group expects the third quarter order rate to be up
sharply.
Tool Group income increased 40% on a 41% increase in sales. Group performance
without recent acquisitions showed good growth over the prior year; the two
acquisitions completed after the second quarter of 1999 contributed
substantially to the quarter's results and are continuing to perform well. New
orders also rose 42%. Most of the group's major markets are maintaining solid
momentum, but growth over the prior year is moderating somewhat in the punch and
die component segment.
Safety Products Group income was up 19% on a 5% sales increase. The strong
performance was led by the municipal signaling and warning products operations
which grew rapidly in both U.S. and international markets, expanding margins
substantially over last year. Overall, new orders were essentially flat as some
weakness in industrial orders combined with still weak oilfield-related orders
to offset strong municipal signaling/warning order growth.
Environmental Products Group income was up 11% as sales increased 4%. Orders
were up 28% on strong municipal markets in both North America and Europe.
Industrial orders were also strong. Low industrial backlog at the beginning of
the quarter caused sales and earnings declines in these operations during the
second quarter, offsetting strong sales and margin expansion performance in the
large municipal sweeper and sewer-cleaning vehicle operations.
Cost of sales as a percent of net sales decreased from 69.7% in the second
quarter of 1999 to 68.6% in the second quarter of 2000. The percentage decrease
was largely attributable to increased productivity and significant sales growth
in the Registrant's Fire Rescue Group and improved mix and significant sales
growth in the Safety Products Group. Selling, general and administrative
expenses as a percent of net sales decreased to 20.0% from 20.4% reflecting the
significant increase in sales volume. Interest expense increased to $8.0 million
from $5.4 million largely as a result of: 1) increased borrowings to finance
recent business acquisitions, increased financial services assets and additional
purchases of treasury shares and 2) higher interest rates. The effective tax
rate for the second quarter of 2000 increased to 33.0% from 32.0% in 1999
largely as a result of taxable earnings increasing faster than tax-exempt
earnings.
<PAGE>
Comparison of First Six Months 2000 to Same Period 1999
Orders for the first six months of 2000 increased 12% over the same period a
year ago. For the first six months of 2000, sales of $549.9 million increased
15% over the $478.7 million last year. Income from continuing operations of
$30.3 million increased 22% above last year's $24.9 million. Net income of $31.4
million for the first six months of 2000 increased from last year's $26.7
million. Diluted net income per share increased to $.69 in 2000 from $.59 in
1999. The increase in earnings for the first six months occurred as a result of
sales growth led by the Fire Rescue and Tool groups with all four groups
reporting significant growth in operating income.
Gross profit as a percent of net sales increased to 31.4% in the first six
months of 2000 from 30.4% in the first six months of 1999. Selling, general and
administrative expenses decreased to 20.2% of net sales in the first six months
of 2000 from 20.7% in the same period a year ago. The percentage changes were
primarily due to the reasons cited above for the second quarter. Interest
expense increased from $10.6 million to $15.0 million largely as a result of the
same reasons cited above for the second quarter. The effective tax rate of 33.0%
for the first half of 2000 increased from the 32.1% for the first half of 1999
due to the reasons cited above for the second quarter.
Seasonality of Registrant's Business
Certain of the Registrant's businesses are susceptible to the influences of
seasonal buying or delivery patterns. The Registrant's businesses which tend to
have lower sales in the first calendar quarter compared to other quarters as a
result of these influences are signage, street sweeping, outdoor warning,
municipal emergency signal products, parking systems and fire rescue products.
Financial Position and Liquidity at June 30, 2000
The current ratio applicable to manufacturing activities was 1.1 at June 30,
2000 compared to 1.3 at December 31, 1999. Working capital (manufacturing
operations) at June 30, 2000 was $44.0 million compared to $70.8 million at the
most recent year-end. The debt-to-capitalization ratio applicable to
manufacturing activities was 47% at June 30, 2000 compared to 42% at December
31, 1999. The decline in the current ratio and working capital since December
31, 1999 is attributable to an increase in short-term debt incurred to fund an
acquisition of a small tool company, payments of dividends to common
shareholders and purchases of additional treasury shares. The
debt-to-capitalization ratio applicable to financial services activities was 87%
at June 30, 2000 and December 31, 1999.
Current financial resources and anticipated funds from the Registrant's
operations are expected to be adequate to meet future cash requirements
including capital expenditures and modest amounts of additional stock
repurchases.
Other
The Securities and Exchange Commission (SEC) has issued Staff Accounting
Bulletins #101, #101A and #101B that provide rules governing revenue recognition
for exchange-listed companies. The Registrant's policy for the principal portion
of its revenues is to recognize revenue in its financial statements when goods
are shipped (see footnote A to the Registrant's 1999 consolidated financial
statements). The SEC's bulletins are expected to be supplemented with additional
guidance from the SEC. Accordingly, without this additional guidance, the
Registrant is not yet able to determine the effect of the SEC's Staff Accounting
Bulletins on its financial statements. At this time, the Registrant expects the
SEC's guidance will be necessary to implement the rule, probably in the fourth
quarter of 2000.
<PAGE>
Part II. Other Information
Responses to items one through six are omitted since these items are either
inapplicable or the response thereto would be negative.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Federal Signal Corporation
05/14/00 By: /s/ Henry L. Dykema
Date Henry L. Dykema, Vice President and Chief
Financial Officer
