UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996 Commission file number 1-996
OR
( ) TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
GENERAL SIGNAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0445660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
High Ridge Park,
Box 10010, Stamford, Connecticut 06904
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (203) 329-4100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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),
X
(Yes) (No)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $1.00 49.6 million
(Class) (Outstanding at April 9, 1996)
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Statement of Earnings
(In millions, except per share data)
(Unaudited)
Three Months
Ended March 31,
1996 1995
Net sales $ 481.7 $ 434.1
Cost of sales 351.4 308.8
Selling, general and administrative
expenses 102.0 77.6
Gain on disposition (20.8) - -
------ ------
432.6 386.4
Operating earnings 49.1 47.7
Interest expense, net 6.8 4.5
------- -------
Earnings before income taxes 42.3 43.2
Income taxes 16.9 15.1
------- ---------
Net earnings $25.4 $28.1
======= =========
Earnings per share $0.51 $0.57
======= ========
Dividends declared per share $0.24 $0.24
======= ========
Average shares outstanding 49.5 49.0
======= ========
See accompanying notes to financial statements.
GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Balance Sheet
(In millions)
(Unaudited)
March 31, December 31,
Assets 1996 1995
Current assets:
Cash and cash equivalents $ 15.9 $ 1.0
Accounts receivable 319.3 323.6
Inventories 243.1 234.7
Prepaid expenses and other
current assets 30.3 30.1
Assets held for sale at estimated
realizable value 20.1 60.4
Deferred income taxes 62.1 71.6
Total current assets 690.8 721.4
Property, plant, and equipment 302.7 312.7
Intangibles 402.4 406.0
Other assets 159.1 161.6
Deferred income taxes 12.6 11.5
------ ------
$1,567.6 $1,613.2
======== ========
See accompanying notes to financial statements.
GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Balance Sheet-Continued
(In millions)
(Unaudited)
March 31, December 31,
Liabilities and Shareholders' Equity 1996 1995
Current liabilities:
Short-term borrowings and
current maturities of long-term
debt $ 5.2 $ 9.0
Accounts payable 180.6 158.1
Accrued expenses 229.0 233.8
Income taxes 34.1 31.2
------- ------
Total current liabilities 448.9 432.1
Long-term debt, less current
maturities 348.9 428.6
Accrued postretirement and
postemployment obligations 143.8 146.9
Other liabilities 27.6 27.5
-------- -------
Total long-term liabilities 520.3 603.0
------ --------
Shareholders' equity:
Common stock: authorized 150.0
shares; issued 64.4 shares
at March 31, 1996 and 64.3
shares at December 31, 1995 77.9 77.9
Additional paid-in capital 306.8 304.2
Retained earnings 596.4 582.9
Cumulative translation adjustments (3.2) (3.9)
Common stock in treasury, at cost:
14.8 shares at March 31,
1996 and 15.0 shares at
December 31, 1995 (379.5) (383.0)
------- -------
Total shareholders' equity 598.4 578.1
-------- --------
$1,567.6 $1,613.2
======== ========
See accompanying notes to financial statements.
GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Condensed Statement of Cash Flow
(In millions)
(Unaudited)
Three Months Ended
March 31,
1996 1995
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings $ 25.4 $ 28.1
Adjustments to reconcile earnings
to net cash from operating
activities:
Gain on disposition (20.8) - -
Non-cash charges 19.7 - -
Deferred taxes 4.9 2.8
Depreciation and amortization 17.4 14.6
Pension credits (2.7) (2.2)
Other, net 3.9 6.5
Changes in working capital (0.7) (56.0)
----- -----
Net cash from operating activities 47.1 (6.2)
CASH FLOW FROM INVESTING ACTIVITIES:
Divestitures 71.8 2.7
Capital expenditures (11.4) (12.8)
Acquisitions, net of cash acquired - - 7.8
Other, net 0.6 (5.1)
----- ------
Net cash from investing activities 61.0 (7.4)
CASH FLOW FROM FINANCING ACTIVITIES:
Net change in short and long-term
borrowings (83.5) 41.9
Dividends paid (11.8) (11.3)
Issuance of common stock 3.0 0.8
Shares repurchased (0.9) (5.9)
------ ------
Net cash from financing activities (93.2) 25.5
------ ------
Net change in cash and cash
equivalents 14.9 11.9
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1.0 0.3
------ ------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 15.9 $ 12.2
====== ======
Interest paid $ 6.8 $ 3.5
Income taxes paid $ 4.7 $ 2.3
See accompanying notes to financial statements.
GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Financial Statements
(Unaudited)
(In millions, except per share data)
1. The accompanying unaudited financial statements reflect all
adjustments (consisting of normal, recurring items) necessary for
the fair presentation of results for these interim periods.
These results are based upon generally accepted accounting principles
consistently applied with those used in the preparation of the company's
1995 Annual Report on Form 10-K.
2. Inventories
March 31, December 31,
1996 1995
Finished goods $ 74.8 $ 73.9
Work in process 68.8 66.5
Raw material and purchased parts 121.7 17.6
-------- ---------
Total FIFO cost 265.3 258.0
Excess of FIFO cost over LIFO
inventory value (22.2) (23.3)
-------- ---------
Net carrying value $ 243.1 $ 234.7
========= =========
3. Business Segment Information Three Months Ended March 31,
1996 1995
Net sales:
Process Controls $ 173.1 $ 175.6
Electrical Controls 222.6 160.1
Industrial Technology 86.0 98.4
------- -------
$ 481.7 $ 434.1
======= =======
Operating earnings:
Process Controls $ 38.5 $ 22.1
Electrical Controls 10.5 12.5
Industrial Technology 7.2 16.4
-------- --------
Total operating earnings before
unallocated expenses and
interest 56.2 51.0
Net interest expense (6.8) (4.5)
Unallocated expenses (7.1) (3.3)
--------- ---------
Earnings before income taxes $ 42.3 $ 43.2
========== ==========
4. Property, Plant and Equipment March 31, December 31,
1996 1995
Property, plant and equipment,
at cost $ 703.2 $ 717.8
Accumulated depreciation and
amortization (400.5) (405.1)
------- -------
Property, plant and equipment,
net $ 302.7 $ 312.7
====== ======
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except per share data)
Results of Operations
The amounts in the table below were derived from the Consolidated Financial
Statements.
1996 1995
Reported Reported Change
Net sales $481.7 $434.1 11.0%
Gross profit 130.3 125.3 4.0%
Selling general and
administrative
expenses 102.0 77.6 31.4%
Operating earnings 49.1 47.7 2.9%
Interest expense, net 6.8 4.5 51.1%
Net earnings 25.4 28.1 (9.6%)
Earnings per share $0.51 $0.57 (10.5%)
During the first quarter of 1996, the company recorded
the following charges and gains in net earnings:
Gain on Disposition: In January 1996, the company sold Kinney Vacuum
Company ("Kinney"), a unit of the Process Controls sector, for approximately
$29.0 million and recognized a pre-tax gain of approximately $21.0.
Included in the gain was a LIFO liquidation of approximately
$1.1 and transaction costs of approximately $0.5.
Product Warranty: In March 1996, the company decided to correct
defects in certain products sold in prior years in the Process
Controls sector for which the warranty period had expired, and provided
$4.0 to cover the cost of repairs. Management believes that this plan will
help the company meet the expectations of its customers. It is anticipated
that the amount accrued will be expended in 1996.
Capitalized Software: Based on an assessment of future market
potential made during the first quarter, the company decided to
write off $4.6 of capitalized software for a product in the Industrial
Technology sector.
Factory Closure and Other: As part of the company's ongoing review of
facilities, product lines and operations, the company decided in March
1996 to close a factory in the Electrical Controls sector and provided
$4.7 primarily for lease termination costs, asset write-downs and
severance. Management anticipates that the closure of this factory
will result in lower costs in the future from improved productivity.
Also in connection with this review, the company identified property,
plant and equipment that will not be utilized in future operations and,
therefore, recorded a $4.4 charge to write the assets off.
Environmental: During the quarter, the company changed its estimate of costs
to be incurred related to environmental matters at one of its Electrical
Controls sector facilities. The additional accrual of $2.0 was made based
on additional information received about the method and extent of
remediation required.
To facilitate a more meaningful comparison, the charges and gains
discussed above have been excluded from the following discussion of
results of operations.
1996 1995 Change
Adjusted(1) Reported
Net sales $481.7 $434.1 11.0%
Gross profit 143.3 125.3 14.4%
Margin 29.7% 28.9%
Selling general and
administrative expenses 95.3 77.6 22.8%
Percent of Sales 19.8% 17.9%
Operating earnings 48.0 47.7 0.6%
Interest expense 6.8 4.5 51.1%
Net earnings 24.7 28.1 (12.1%)
Earnings per share $0.50 $0.57 (12.3%)
(1) Excludes gain on sale of Kinney, product warranty costs, write-offs of
capitalized software and other assets, factory closure costs and
environmental charges.
Net Sales: Sales improved 11.0 percent over 1995 levels due primarily to
acquisitions of Best Power Technology Inc. ("Best Power") and
MagneTek Electric Inc. ("Waukesha Electric") in 1995.
International sales in 1996 totaled approximately 22 percent of the
company's net sales. Export sales increased approximately 5 percent and
foreign sales increased approximately 38 percent, primarily reflecting
the European sales of Best Power.
Process Control sector sales decreased 1.4 percent to $173.1,
due mainly to the disposition of Kinney which generated revenues of
$6.3 in the first quarter of 1995. This decline was partially offset
by increased shipments of crystal growing furnaces.
Sales in the Electrical Controls sector increased 39.0 percent to $222.6,
substantially all of which was due to the addition of Best Power and
Waukesha Electric. Stronger domestic demand for life safety products
was offset by lower volume caused by a major floor care customer's
production curtailments.
Industrial Technology sector sales decreased 12.6 percent to $86.0. The
completion of the U.S. Postal Service stamp vending machine contract
and other large farebox contracts in the first quarter of 1995, as well
as declines in the OEM bicycle and automotive component products were the
primary reasons for the decline.
Gross Profit: Gross profit as a percentage of sales improved from 28.9
percent to 29.7 percent. Higher margins at Best Power as well as improved
cost structures at several operating units were the primary reasons for
the improvement. Margin improvements were strongest for mixer, coal
feeder, electrical fitting and valve products.
Selling, general and administrative expenses: Selling, general and
administrative expenses as a percentage of sales increased from 17.9
percent to 19.8 percent primarily due to higher operating
expenses-to-sales at Best Power, as well as lower credits in
connection with the settlement of insured matters. Included in
selling, general and administrative expenses were pension credits of
$2.7 in 1996 and $2.2 in 1995.
Operating earnings: Operating earnings for the Process Controls
sector decreased 1.8 percent to $21.7 due primarily to the sale of
Kinney. This amount was partially offset by stronger sales of crystal
growing furnaces and the absence of low margin jobs in the mixer business
that were reported in the first quarter of 1995.
Electrical Controls sector operating earnings increased 72.8 percent to
$21.6 due to the 1995 acquisitions of Best Power and Waukesha Electric.
Improved productivity in the fittings business was offset by lower volume
in the motors and emergency lighting businesses.
The Industrial Technology sector operating earnings decreased 28.0 percent
to $11.8 primarily as a result of lower sales volume.
During 1996, the settlement of insured matters increased earnings of
Process Controls and Electrical Controls by $0.5 and $0.9, respectively.
During 1995, cash settlements (primarily for royalty and insured matters)
increased earnings of Electrical Controls by $1.8 and Industrial Technology
by $2.0, and reduced unallocated expenses by $1.9.
Unallocated expenses increased from $3.3 in the first quarter of 1995 to
$7.1 in the same period in 1996 as a result of the $1.9 of items disclosed
in the preceding paragraph and an increase in corporate activities,
partially offset by headcount reductions in certain departments.
Interest expense: Net interest expense increased 51.1 percent to
$6.8 from the higher average debt levels that resulted from the
acquisitions of Best Power and Waukesha Electric, partially offset
by lower average interest rates.
Net earnings were $24.7 or $0.50 per share in 1996 compared to $28.1
million or $0.57 per share in 1995. The company's effective tax rate is
40.0 percent in 1996 compared to 35.0 percent in the first quarter of 1995.
The increase was due to an increase in non-deductible goodwill, and deferred
tax valuation allowance reductions recorded in the prior year.
Financial Condition-March 31, 1996 Compared to December 31, 1995
Operations in the first quarter of 1996 provided cash of $47.1 reflecting
strong working capital management. Expenditures for previously divested
operations, restructuring activities and severance pay totaled $11.3 in
the first quarter of 1996. These expenditures were charged against accruals.
Proceeds from the disposition of businesses in 1996 totaled $71.8. In the
first quarter of 1996, the company expended $11.4 for capital expenditures
and paid $11.8 in dividends. Debt repayments, net of borrowings, aggregated
$83.5.
Long-term debt-to-total capitalization was 36.8 percent at March 31, 1996
reduced from 42.6 percent at year-end, reflecting the use of proceeds
generated from dispositions to pay down debt.
At March 31, 1996, the company had deferred tax assets of $215.5 that
were reduced by deferred tax liabilities of $107.2 and a valuation
allowance of $33.6. The valuation allowance is based on management's
assessment that it is more likely than not that the net deferred tax
assets will be realized through future taxable earnings or alternative
tax strategies. In the event that the tax benefits relating to the
valuation allowance are subsequently realized, $1.0 of such benefits
would reduce goodwill.
The company is well-positioned to finance future working capital
requirements and capital expenditures through current earnings and
significant available credit facilities.
Other Matters
Since the company is a producer of capital goods and equipment, its
results can vary with the relative strength of the economy. Demand
for products in the Process Controls sector follows the demand for
capital goods orders. The Electrical Controls sector depends upon
several markets, principally the nonresidential construction and computer
equipment industries. The Industrial Technology sector depends on several
markets, primarily automotive, mass transportation, and telecommunications
equipment. Mass transportation depends upon continued research and
development and the continued success of new products. While no one
marketplace or industry has a major impact on the company's operations
or results, the inherent pace of technological changes presents certain
risks that the company monitors carefully. Success within all of the
company's businesses is dependent upon the timely introduction and
acceptance of new products.
Forward-looking Statements: The company may from time to time make
projections concerning future operations and earnings. The company's
forward-looking statements are based on the company's current expectations,
which are subject to a number of risks and uncertainties that could
materially affect or reduce such operations and earnings. In addition to the
general factors identified in "Other Matters" above, the primary factors that
could specifically affect the company's expectations include the failure
of: (1) a continuation of the increased order rate experienced in the first
quarter, (2) productivity improvements meeting or exceeding budget, and
(3) new products under development being produced and accepted as
anticipated.
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Registrant (the "Meeting")
was held on April 18, 1996.
(b) The Registrant solicited proxies for the Meeting pursuant to
Regulation 14; there was no solicitation in opposition to management's
nominees for directors as listed in the Proxy Statement, and all such
nominees were elected.
(c) In addition to the election of directors, the shareholders
ratified the appointment of auditors, and approved the General Signal
Corporation 1996 Stock Incentive Plan.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
12.0 Calculation of Ratios of Earnings to Fixed Charges.
27 Financial Data Schedule - March 1996 (EDGAR filing only)
27 Financial Data Schedule - March 1995 (EDGAR filing only)
(b) No reports were filed on Form 8-K.
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.
GENERAL SIGNAL CORPORATION
/s/ Terry J. Mortimer
---------------------
Terry J. Mortimer
Vice President and Controller
Chief Accounting Officer
DATE: April 19, 1996
Calculation of Ratios of Earnings to Fixed Charges
General Signal Corporation
(Dollars in millions)
Exhibit (12.0)
Quarter
Ended
March 31, Year Ended December 31,
1996 1995 1994 1993 1992 1991
Earnings:
Earnings from
continuing
operations before income
taxes and extraordinary
items $42.3 $156.4 $160.3 $139.1 $ 9.5 $97.4
Add: Fixed charges 9.1 34.7 20.2 22.6 35.3 39.3
----- ------ ----- ------ ------ -----
$51.4 $191.1 $180.5 $161.7 $44.8 $136.7
Fixed charges:
Interest Expense
(Gross) $7.4 $27.7 $14.4 $18.0 $28.6 $31.8
One-third of rent
expense 1.7 7.0 5.8 4.6 6.7 7.5
----- ----- ----- ----- ----- -----
$9.1 $34.7 $20.2 $22.6 $35.3 $39.3
----- ----- ----- ----- ----- -----
Ratio 5.65 5.51 8.94 7.15 1.27 3.48
==== ===== ===== ===== ===== ====
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