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 September 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 45,324,054 shares outstanding at October 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
an 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 Nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net sales $270,884,000 $237,243,000 $820,771,000 $715,895,000
Costs and expenses:
Cost of sales (187,865,000) (162,999,000) (565,184,000) (496,011,000)
Selling, general and
administrative (51,843,000) (49,415,000) (163,092,000) (148,274,000)
Restructuring charges (837,000) (912,000)
----------- ---------- ----------- -----------
Operating income 30,339,000 24,829,000 91,583,000 71,610,000
Interest expense (8,217,000) (6,578,000) (23,179,000) (17,128,000)
Other income (expense),
net 133,000 921,000 (933,000) 1,388,000
----------- ----------- ----------- -----------
Income from continuing
operations before
income taxes 22,255,000 19,172,000 67,471,000 55,870,000
Income taxes (6,540,000) (5,799,000) (21,447,000) (17,581,000)
----------- ----------- ----------- -----------
Income from continuing
operations 15,715,000 13,373,000 46,024,000 38,289,000
Income from discontinued
operations, net of tax (25,000) 416,000 1,086,000 2,239,000
----------- ----------- ----------- -----------
Net income $ 15,690,000 $ 13,789,000 $ 47,110,000 $ 40,528,000
=========== =========== =========== ===========
COMMON STOCK DATA:
Basic net income per
share:
Income from continuing
operations $.35 $.29 $1.01 $.84
Income from discontinued
operations .00 .01 .02 .05
--- --- --- ---
Net income $.35 $.30 $1.04* $.89
=== === === ===
* amounts above do not add due to rounding
Diluted net income per
share:
Income from continuing
operations $.35 $.29 $1.01 $.83
Income from discontinued
operations .00 .01 .02 .05
--- --- --- ---
Net income $.35 $.30 $1.03 $.88
=== === ==== ===
Weighted average common
shares outstanding
Basic 45,302,000 46,140,000 45,407,000 45,679,000
Diluted 45,468,000 46,295,000 45,526,000 45,897,000
Cash dividends per
share of common stock $.1900 $.1850 $.5700 $.5550
See notes to condensed consolidated financial statements.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net income $15,690,000 $13,789,000 $47,110,000 $40,528,000
Other comprehensive
income (loss),
net of tax -
Foreign currency
translation
adjustments (3,794,000) 804,000 (7,626,000) (3,110,000)
---------- ---------- ---------- ----------
Comprehensive income $11,896,000 $14,593,000 $39,484,000 $37,418,000
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999 (a)
---------- ----------
(Unaudited)
ASSETS
Manufacturing activities
Current assets:
Cash and cash equivalents $ 7,233,000 $ 8,764,000
Trade accounts receivable, net of
allowances for doubtful accounts 160,913,000 152,956,000
Inventories:
Raw materials 68,930,000 58,487,000
Work in process 53,757,000 60,894,000
Finished goods 45,882,000 40,589,000
Prepaid expenses 8,198,000 8,895,000
----------- -----------
Total current assets 344,913,000 330,585,000
Properties and equipment:
Land 5,648,000 5,717,000
Buildings and improvements 52,451,000 50,365,000
Machinery and equipment 182,519,000 169,110,000
Accumulated depreciation (126,464,000) (113,980,000)
----------- -----------
Net properties and equipment 114,154,000 111,212,000
Intangible assets, net of accumulated
amortization 275,366,000 273,844,000
Other deferred charges and assets 25,986,000 23,592,000
----------- -----------
Total manufacturing assets 760,419,000 739,233,000
Net assets of discontinued operations,
including financial assets 19,490,000 20,767,000
Financial services activities - Lease
financing receivables, net of allowances
for doubtful accounts 210,631,000 191,261,000
----------- -----------
Total assets $ 990,540,000 $ 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
September 30, December 31,
2000 1999 (a)
----------- -----------
(Unaudited)
LIABILITIES
Manufacturing activities
Current liabilities:
Short-term borrowings $ 151,316,000 $ 99,204,000
Trade accounts payable 61,860,000 68,533,000
Accrued liabilities and income taxes 82,154,000 92,026,000
----------- -----------
Total current liabilities 295,330,000 259,763,000
Long-term borrowings 131,994,000 134,410,000
Deferred income taxes 23,306,000 30,445,000
------------ -----------
Total manufacturing liabilities 450,630,000 424,618,000
Financial services activities - Borrowings 188,436,000 172,610,000
SHAREHOLDERS' EQUITY
Common stock - par value 46,998,000 46,889,000
Capital in excess of par value 67,913,000 66,762,000
Retained earnings 298,150,000 276,951,000
Treasury stock (34,303,000) (17,023,000)
Deferred stock awards (2,350,000) (2,238,000)
Accumulated other comprehensive income (24,934,000) (17,308,000)
----------- -----------
Total shareholders' equity 351,474,000 354,033,000
------------ -----------
Total liabilities and shareholders'
equity $ 990,540,000 $ 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 STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
Operating activities:
Net income $ 47,110,000 $ 40,528,000
Depreciation 14,692,000 12,561,000
Amortization 7,229,000 5,961,000
Working capital changes and other (25,839,000) (21,153,000)
----------- ----------
Net cash provided by operating activities 43,192,000 37,897,000
Investing activities:
Purchases of properties and equipment (17,241,000) (18,532,000)
Principal extensions under lease financing
agreements (107,880,000) (95,037,000)
Principal collections under lease financing
agreements 88,510,000 79,389,000
Payments for purchases of companies, net of
cash acquired (24,401,000) (60,033,000)
Other, net 2,833,000 1,067,000
----------- ----------
Net cash used for investing activities (58,179,000) (93,146,000)
Financing activities:
Additional short-term borrowings, net 67,938,000 99,052,000
Reduction of long-term borrowings (2,416,000) (1,498,000)
Purchases of treasury stock (17,280,000) (3,592,000)
Cash dividends paid to shareholders (34,534,000) (33,574,000)
Other, net (252,000) 1,953,000
----------- ----------
Net cash provided by financing activities 13,456,000 62,341,000
Increase (decrease) in cash and cash
equivalents (1,531,000) 7,092,000
Cash and cash equivalents at beginning of
period 8,764,000 15,316,000
----------- ----------
Cash and cash equivalents at end of period $ 7,233,000 $ 22,408,000
=========== ==========
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 statements of income, balance sheet and cash flows have been
restated. The net book value of the Sign Group's assets aggregated
$19,490,000 at September 30, 2000; management believes that the value
ultimately to be received for these assets will exceed the recorded net
book value.
3. Management of the Registrant has announced it is consolidating its
Alabama-based industrial vacuum truck manufacturing operations into its
Illinois-based operations. In addition, the Registrant is eliminating
certain manufacturing facilities in its Tool Group that became redundant
with a recent acquisition. The Registrant has incurred costs related to
these restructuring activities, which principally have been relocation of
people and inventories and recruiting and training of new personnel.
4. 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 nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the full year
of 2000.
5. Interest paid for the nine-month periods ended September 30, 2000 and 1999
was $23,510,000 and $17,100,000, respectively. Income taxes paid for these
same periods were $20,528,000 and $15,438,000, respectively.
6. The following table summarizes the information used in computing basic and
diluted income per share:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Numerators for both
basic and diluted income
per share computations:
Income from continuing
operations $15,715,000 $13,373,000 $46,024,000 $38,289,000
Income (loss) from
discontinued operations (25,000) 416,000 1,086,000 2,239,000
---------- ---------- ---------- ----------
Net income $15,690,000 $13,789,000 $47,110,000 $40,528,000
========== ========== ========== ==========
Denominator for
basic income per
share - weighted
average shares
outstanding 45,302,000 46,140,000 45,407,000 45,679,000
Effect of employee
stock options
(dilutive potential
common shares) 166,000 155,000 119,000 218,000
---------- ---------- ---------- ----------
Denominator for
diluted income per
share - adjusted
shares 45,468,000 46,295,000 45,526,000 45,897,000
========== ========== ========== ==========
<PAGE>
7. The following table summarizes the Registrant's operations by segment for
the three-month and nine-month periods ended September 30, 2000 and 1999.
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net sales
Environmental Products $ 65,631,000 $ 61,914,000 $195,893,000 $187,971,000
Fire Rescue 93,115,000 70,075,000 274,138,000 218,798,000
Safety Products 63,938,000 62,959,000 203,222,000 193,461,000
Tool 48,200,000 42,295,000 147,518,000 115,665,000
----------- ----------- ----------- -----------
Total net sales $270,884,000 $237,243,000 $820,771,000 $715,895,000
=========== =========== =========== ===========
Operating income
Environmental Products $ 7,262,000 $6,468,000 $21,246,000 $20,097,000
Fire Rescue 5,646,000 2,182,000 15,764,000 6,100,000
Safety Products 11,150,000 9,985,000 33,660,000 28,562,000
Tool 8,469,000 8,439,000 28,623,000 23,521,000
Corporate expense (2,188,000) (2,245,000) (7,710,000) (6,670,000)
---------- ---------- ---------- ----------
Total operating income 30,339,000 24,829,000 91,583,000 71,610,000
Interest expense (8,217,000) (6,578,000) (23,179,000) (17,128,000)
Other income (expense) 133,000 921,000 (933,000) 1,388,000
---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes $22,255,000 $19,172,000 $67,471,000 $55,870,000
========== ========== ========== ==========
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>
10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
THIRD QUARTER 2000
Comparison with Third Quarter 1999
Federal Signal Corporation reported diluted earnings per share from continuing
operations of $.35 for the third quarter up from $.29 last year. Diluted net
income per share including the results of the discontinued Sign operations was
$.35 compared to $.30 in 1999. Diluted per share amounts for continuing
operations and net income in 2000 both include $.01 related to charges recorded
for restructurings of the company's Environmental Products and Tool groups.
Diluted earnings per share from continuing operations rose 21% (24% excluding
restructuring charges). Net income was $15.7 million, up from $13.8 million in
1999. Sales and net income were at record levels for the third quarter.
In the third quarter, sales and income growth were led by the Fire Rescue Group.
Fire Rescue Group income more than doubled on a 33% sales increase, driven by
even greater increases in sales and income from North American operations.
Orders were up 6% sequentially versus the second quarter, and many orders were
again delayed into the fourth quarter.
Environmental Products Group sales were up 6% on a 2% increase in orders. Before
restructuring charges approximating $.6 million, income rose 21%. Sales growth
was solid across the group, but new orders for the industrial market were slow.
The consolidation of the two vacuum truck manufacturing plants is generating the
restructuring charges in this group; the consolidation will be essentially
complete at the end of the fourth quarter and is expected to produce savings
beginning in the first quarter of 2001. Total 2000 restructuring charges for the
Environmental Products Group are expected to be approximately $.04 per share,
with approximately $.03 of the total expected to occur in the fourth quarter.
Safety Products Group earnings rose 12% on a 2% increase in sales. The strong
margin improvement came mostly on strong sales of higher-margin products and
expense reductions. Orders were down 10% mainly as a result of oilfield-related
orders that were down in a market that remains very weak and the negative effect
of currency translation on our European orders.
Tool Group sales rose 14% and orders were up 17%. Excluding the PCS mold tooling
business acquired in March of this year, orders were up 2% and sales were
essentially flat. As anticipated, tool orders slowed somewhat during the
quarter, but still grew modestly over last year's third quarter. Cutting tool
orders remained somewhat stronger than punch and die component orders. Income
rose 3% before restructuring charges of $.3 million in the quarter; the
restructuring charges resulted from a consolidation of two cutting tool
manufacturing plants that will be completed in the fourth quarter. A similar
charge is expected in the fourth quarter, with benefits to begin in the first
quarter of 2001.
Gross profit as percent of net sales declined to 30.6% in the third quarter of
2000 from 31.3% in the third quarter of 1999. The percentage decrease was
largely attributable to the significant increase in sales in the Fire Rescue
Group compared to the sales increases in other groups; the Fire Rescue Group has
a lower gross profit percentage than the company's other groups. Selling,
general and administrative expenses as a percent of net sales improved to 19.4%
(19.1% excluding restructuring charges) in the third quarter of 2000 compared to
20.8% last year reflecting the significant increase in sales volume.
Restructuring charges of approximately $.8 million incurred during the third
quarter represent expenses related principally to relocation of people and
inventories and recruiting and training of new personnel. Interest expense
increased to $8.2 million from $6.6 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 third quarter of 2000 declined to 29.4% from
30.2% in 1999 largely as a result of the closure of certain tax issues in
previously filed tax returns.
<PAGE>
Comparison of First Nine Months 2000 to Same Period 1999
Diluted net income per share from continuing operations for the first nine
months, including approximately $.01 in restructuring charges discussed above,
rose 22% to $1.01. Diluted net income per share including the results of the
discontinued Sign operations was $1.03 and net income was $47.1 million for the
first nine months. For the first nine months, sales were up 15% and group
operating income, including restructuring charges of approximately $.9 million,
was up 27%.
Gross profit as a percent of net sales increased to 31.1% in the first nine
months of 2000 from 30.7% in the first nine months of 1999. Selling, general and
administrative expenses as a percent of net sales decreased to 20.0% (19.9%
excluding restructuring charges) in the first nine months of 2000 from 20.7% in
the same period a year ago. The improvement in the gross profit percentage
largely resulted from productivity improvements in the company's Fire Rescue
Group operations. The improvement in the ratio of selling, general and
administrative expenses resulted largely from the significant sales improvement
and an improved cost structure of the company's operations. Interest expense
increased to $23.2 million from $17.1 million largely as a result of the same
reasons cited above for the third quarter. The effective tax rate of 31.8% for
the first nine months of 2000 was not significantly different from the 31.5% in
the same period for 1999.
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 street sweeping, outdoor warning, municipal
emergency signal products, parking systems, fire rescue products and signage.
Financial Position and Liquidity at September 30, 2000
The current ratio applicable to manufacturing activities was 1.2 at September
30, 2000 compared to 1.3 at December 31, 1999. Working capital (manufacturing
operations) at September 30, 2000 was $49.6 million compared to $70.8 million at
the most recent year-end. The debt-to-capitalization ratio applicable to
manufacturing activities was 47% at September 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 September 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 were recently supplemented with guidance on
several types of specific transactions. At this time, the Registrant has not
determined the effects of the changes in reported results of operations that may
be required as a result of the SEC's bulletins.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and subsequently
amended by Statements 137 and 138, the adoption of which will be required by no
later than the beginning of 2001. This statement standardizes the accounting
treatment for derivative instruments. The company has not completed its final
determination of the effects, if any, this statement will have on its reported
results of operations, nor when it will adopt the provisions of this statement.
<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
11/8/00 By: /s/ Henry L. Dykema
Date Henry L. Dykema, Vice President and Chief
Financial Officer
