<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1994
Commission file number 1-8591
FIGGIE INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 52-1297376
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4420 Sherwin Road, Willoughby, Ohio 44094
(Address of principal executive offices) (Zip Code)
(216) 953-2700
(Registrant's telephone number)
</TABLE>
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 issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at August 5, 1994
<S> <C>
Class A Common Stock, par value $.10 per share 13,758,691
Class B Common Stock, par value $.10 per share 4,941,902
</TABLE>
Total number of pages contained in this report 19 .
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<TABLE>
<CAPTION>
FIGGIE INTERNATIONAL INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
<S> <C>
Consolidated Statements of Income for the
Six Months Ended June 30, 1994 and 1993 3
Consolidated Statements of Income for the
Three Months Ended June 30, 1994 and 1993 4
Consolidated Balance Sheets as of June 30, 1994
and December 31, 1993 5 - 6
Consolidated Statements of Cash Flow
for the Six Months Ended June 30, 1994 and 1993 7
Notes to Consolidated Financial Statements 8 - 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 18
PART II. OTHER INFORMATION 19
/TABLE
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<PAGE> 3
<TABLE>
<CAPTION>
FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(in thousands, except for per share data)
(U N A U D I T E D)
1994 1993
<S> <C> <C>
CONTINUING OPERATIONS:
SALES AND OTHER INCOME
Net Sales $ 361,439 $ 364,867
Other income/(expense) (6,944) 1,764
Total sales and other income 354,495 366,631
COSTS AND EXPENSES
Cost of sales 307,824 273,103
Selling, general and administrative expenses 79,220 65,883
Bad debt expense 1,219 811
Interest expense, net 20,903 16,796
Restructuring charges 921 8,727
Total costs and expenses 410,087 365,320
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (BENEFIT) (55,592) 1,311
INCOME TAXES/(BENEFIT) (18,482) 480
(LOSS) INCOME BEFORE DISCONTINUED
OPERATIONS AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING (37,110) 831
(LOSS) INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAX (1,098) 3,488
(LOSS) INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING FOR INCOME TAXES (38,208) 4,319
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES 0 5,839
NET (LOSS) INCOME $ (38,208) $ 10,158
WEIGHTED AVERAGE SHARES 17,811 17,566
(LOSS) EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS $ (2.08) $ .05
DISCONTINUED OPERATIONS (.06) .20
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING - .33
NET INCOME $ (2.14) $ .58
COMMON DIVIDENDS DECLARED
CLASS A $ - $ .25
CLASS B $ - $ .25
The accompanying Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
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<TABLE>
<CAPTION>
FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1994 AND 1993
(in thousands, except for per share data)
(U N A U D I T E D)
1994 1993
<S> <C> <C>
CONTINUING OPERATIONS:
SALES AND OTHER INCOME
Net Sales $ 190,347 $ 194,953
Other income/(expense) (3,725) (848)
Total sales and other income 186,622 194,105
COSTS AND EXPENSES
Cost of sales 163,128 145,781
Selling, general and administrative expenses 36,925 34,508
Bad debt expense 659 257
Interest expense, net 10,195 8,328
Restructuring charges 374 4,428
Total costs and expenses 211,281 193,302
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (BENEFIT) (24,659) 803
INCOME TAXES/(BENEFIT) (7,725) 338
(LOSS) INCOME BEFORE DISCONTINUED
OPERATIONS AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING (16,934) 465
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, (937) 40
NET OF TAX
(LOSS) INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING FOR INCOME TAXES (17,871) 505
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES 0 0
NET (LOSS) INCOME $ (17,871) $ 505
WEIGHTED AVERAGE SHARES 17,766 17,534
(LOSS) EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS $ (.95) $ .03
DISCONTINUED OPERATIONS (.05) -
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING - -
NET INCOME $ (1.00) $ .03
COMMON DIVIDENDS DECLARED
CLASS A $ - $ .125
CLASS B $ - $ .125
The accompanying Notes to Consolidated Financial Statements are an integral part of these
statements.
/TABLE
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<PAGE> 5
<TABLE>
<CAPTION>
FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
(in thousands)
(U N A U D I T E D)
June 30, 1994 Dec 31, 1993
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,044 $ 5,240
Marketable securities 62,463 27,314
Trade accounts receivable, less allowance for
uncollectible accounts of $820 at June 30, 1994
and $397 at December 31, 1993 138,386 135,246
Finance receivables 3,878 5,715
Inventories 114,293 119,608
Prepaid expenses 22,691 15,796
Recoverable income taxes 18,771 36,283
Net assets related to discontinued operations 186,955 212,678
Total current assets 559,481 557,880
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 50,016 50,786
Buildings and leasehold improvements 85,611 88,034
Machinery and equipment 159,504 148,278
Rental equipment 36,975 39,800
Oil and gas properties 48,778 47,901
380,884 374,799
Accumulated depreciation and amortization (131,783) (126,183)
249,101 248,616
Property under capital leases, less accumulated
amortization of $12,473 at June 30, 1994 and
$14,430 at December 31, 1993 9,387 12,540
Net property, plant and equipment 258,488 261,156
OTHER ASSETS:
Investments in affiliates 10,348 10,324
Patents 1,164 1,218
Goodwill 38,364 39,178
Prepaid pension costs 11,619 10,591
Other 81,302 95,147
Long-term finance receivables 16,989 19,942
Total Other Assets 159,786 176,400
Total Assets $ 977,755 $ 995,436
The accompanying Notes to Consolidated Financial Statements are an integral part of these
balance sheets.
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
(in thousands)
(U N A U D I T E D)
June 30, 1994 Dec 31, 1993
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES:
Notes payable $ 129,809 $ 90,891
Current maturities of long-term debt 109,007 109,633
Accounts payable 99,264 110,126
Accrued salaries and wages 17,471 15,023
Other accrued expenses 58,551 66,908
Insurance loss reserves 6,874 6,752
Total current liabilities 420,976 399,333
LONG-TERM DEBT 331,480 334,843
DEFERRED FEDERAL INCOME TAXES 19,879 20,110
OTHER LONG-TERM LIABILITIES 32,402 33,691
Total Liabilities 804,737 787,977
STOCKHOLDERS' EQUITY
Preferred Stock - $1.00 par value $ - $ -
Common Stock A - $0.10 par value 1,375 1,375
Common Stock B - $0.10 par value 493 499
Capital surplus 125,960 127,488
Retained earnings 86,052 124,020
Unearned compensation (25,956) (31,003)
Cumulative translation adjustment (14,821) (14,920)
Unrealized loss on investments (85) -
Total stockholders' equity 173,018 207,459
Total liabilities and stockholders' equity $ 977,755 $ 995,436
SUPPLEMENTAL STOCK INFORMATION
Shares Outstanding at
June 30, 1994 Dec 31, 1993
Preferred Stock - Authorized Shares 3,217,495 - -
Common Stock A - Authorized Shares 18,000,000 13,750,058 13,750,863
Common Stock B - Authorized Shares 18,000,000 4,931,751 4,988,507
The accompanying Notes to Consolidated Financial Statements are an integral part of these
balance sheets.
/TABLE
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<PAGE> 7
<TABLE>
<CAPTION>
FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(in thousands)
(U N A U D I T E D)
1994 1993
<S> <C> <C>
Operating Activities:
(Loss) Income from continuing operations $ (37,110) $ 831
(Loss) Income from discontinued operations (1,098) 3,488
Cumulative effect of accounting change - 5,839
Adjustments to reconcile net (loss) income to
net cash provided (used) by operating activities-
Depreciation and amortization 20,495 18,523
Amortization of ESOP unearned compensation 3,240 246
Other, net (1,002) (8,277)
Changes in operating assets and liabilities
Trade accounts receivables 563 13,674
Allowance for doubtful accounts 484 365
Finance receivables 4,699 1,267
Inventories (4,344) (23,903)
Prepaid expenses (6,376) (7,816)
Prepaid pension cost (800) (751)
Other assets 16,208 (19,841)
Accounts payable (15,349) 14,215
Accrued expenses (10,156) 3,596
Deferred and accrued taxes 16,331 9,715
Insurance loss reserves 1,832 (2,114)
Other long-term liabilities (1,289) (3,237)
Unearned premiums (114) 2,675
Net cash provided (used) by operating activities (13,786) 8,495
Investing Activities:
Capital expenditures (17,381) (31,417)
Payment for purchases of businesses and
investments, net of cash acquired (144) (6,110)
Proceeds from sale of property, plant, and equipment 4,757 51,776
Proceeds from sale of discontinued operations 35,651 -
(Purchases) sales of marketable securities, net (35,490) 3,203
Net cash provided (used) in investing activities (12,607) 17,452
Financing Activities:
Proceeds from long-term debt 2,722 3,444
Principal payments on long-term debt (6,666) (30,405)
Net borrowing under notes payable, net
of effects from purchases of businesses 38,518 945
Dividends paid - (4,587)
Common stock transactions, net (348) (4,567)
Net cash provided by (used by) financing activities 34,226 (35,170)
Net (decrease) in cash and equivalents 7,833 (9,223)
Cash and equivalents at beginning of year 10,131 14,613
Cash and equivalents at JUNE 30 $ 17,964 $ 5,390
- Continuing operations $ 12,044 $ 2,700
- Discontinued operations $ 5,920 $ 2,690
The accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
/TABLE
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<PAGE> 8
FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994 and 1993
The summarized financial information included herein has been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission and properly reflects all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management,
necessary to present a fair statement of the financial results for the
periods covered by this report. The results of operations for the six
months ended June 30, 1994 are not necessarily indicative of the results to
be expected for the entire year.
(1) Significant Accounting and Reporting Policies:
The Company's financial information for the six months ended June 30,
1994 and 1993 has been prepared in accordance with the accounting
policies described in Note 1 of the Notes to Consolidated Financial
Statements appearing in Figgie International Inc.'s Form 10-K for the
year ended December 31, 1993.
(2) Inventories:
Inventories are stated at the lower of cost or market and include cost
of material, labor and overhead. The first-in, first-out method of
inventory accounting is used in the determination of cost of sales.
The Company conducts physical inventories of its raw materials, work in
process and finished goods between September 30 and December 31. The
amounts shown for inventories at June 30, 1994 have been determined
under the Company's regular accounting system.
It is impractical to segregate inventories into major classes due to
the nature of the items and the businesses carried on by the Company.
(3) Federal Income Taxes:
The Company provides for Federal income taxes for interim reporting
purposes using applicable statutory tax rates and considering available
tax credits. Effective January 1, 1993, the Company adopted SFAS No.
109, Accounting for Income Taxes, the effect of which was to increase
first quarter 1993 net income by $5.8 million.
(4) Commitments and Contingent Liabilities:
As reported under Item 3 "Legal Proceedings" in the Company's 1993 Form
10-K Annual Report, the Company appealed to the United States Court of
Appeals for the Ninth Circuit a Federal District Court's summary
judgment against the Company in a suit brought by the Federal Trade
Commission seeking consumer redress in connection with the sale of heat
detectors manufactured by the Company's Interstate Engineering
division. The Court of Appeals held that the District Court had
committed error in ordering the Company to pay a minimum amount of
approximately $7,600,000 but held that the Company could be required to
<PAGE>
<PAGE> 9
pay refunds to those buyers who, after notification, can make a valid
claim for redress. The Company is working with the Federal Trade
Commission toward the completion of a redress program. The Company had
established an accrual and no additional material charge to earnings is
anticipated.
In a class action suit filed on April 18, 1994 in the U.S. District
Court for the Northern District of Ohio against the Company and two
former officers and directors, the plaintiff stockholder alleged that
the defendants disseminated false and misleading information to the
investing public concerning the Company's business, management,
financial condition, and future prospects in violation of Section
10(b) and 20(a) of the Securities Exchange Act of 1934. A separate
class action suit was filed by another stockholder on May 11, 1994, in
the same court against the Company, certain former and present
officers and directors, and the Company's auditing firm, setting forth
similar allegations. Both suits seek monetary damages and costs.
The Company and certain of its subsidiaries are defendants in various
other lawsuits arising in the ordinary course of business. In the
opinion of Company management, the outcome of the litigation will not
have a material adverse effect on the operations or financial position
of the Company. Costs incurred by the Company in the performance of
U.S. Government contracts are subject to audit. In the opinion of
management, the final settlement of these costs will not result in
significant adjustments to recorded amounts.
(5) Reclassification of Amounts:
Certain amounts for 1993 have been reclassified to reflect
comparability with account classifications for 1994.
(6) Discontinued Operations:
In December of 1993, the Company instituted a divestiture program of
certain businesses as part of its debt restructuring efforts. These
entities represent separate major lines of business, classes of
customers, or non-reportable business segments and, accordingly, have
been treated as discontinued operations as required by generally
accepted accounting principles. In June 1994, this program was amended
to include the Fred Perry and Casi-Rusco businesses. The accompanying
consolidated financial statements have been reclassified to report as
discontinued operations the net assets and operating results of the
following operations: Rawlings Sporting Goods, Sherwood-Drolet Corp.
Ltd., Advance Security, American Lafrance, Safety Supply America,
Medical Devices, Huber/Essick/Mayco Pump, Cardinal Casualty Co., Colony
Insurance Co., Hamilton Insurance Co., Waite Hill Services, Fred Perry,
and Casi-Rusco.
Net assets of the discontinued operations at June 30, 1994 and
December 31, 1993 consisted primarily of accounts receivable, inventory
and machinery and equipment, offset by payables, accruals and insurance
loss reserves.
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<PAGE> 10
Discontinued operations represented sales volumes of $176.7 million for
the first six months of 1994 compared to $209.3 million for the same
period in 1993, and are excluded from the reported sales amounts.
Income from discontinued operations includes provisions for federal and
state taxes at the statutory rates for the applicable period.
No provision for loss on disposal of discontinued operations has been
provided as the Company does not expect its divestiture plan to result
in a net loss. During the first six months of 1994, the Company
completed the sale of Advance Security and Casi-Rusco. In July 1994,
the Company completed the sale of Rawlings Sporting Goods and Safety
Supply America.
(7) Debt Restructuring and Divestitures:
Subsequent to June 30, 1994, the Company executed agreements with its
lenders to restructure approximately $315 million in debt and
commitments, of which $277 million was outstanding, and $172 million in
leases. The restructuring resulted in the repayment of $97 million in
debt and leases on August 1, 1994. The Company had disposed of certain
businesses under a divestiture program and used sale proceeds to pay
down debt. The agreements require, in addition to the normally
scheduled debt payments, a further reduction of approximately $115
million in debt and lease obligations based upon debt amortization
payments to be made through June 30, 1995. The agreement, which
matures on June 30, 1995, consolidated 26 previous credit facilities
into one and restructured a series of lease agreements. The agreement
bears interest at base rate plus 2%. This agreement also contains
restrictions and financial covenants on capital expenditures, cash flow
and consolidated tangible net worth.
As a result of this refinancing, the debt has been classified as long-
term debt on the balance sheet as of June 30, 1994 and December 31,
1993 based on revised maturity schedules.
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<TABLE>
<CAPTION>
Notes payable and long-term debt at June 30, 1994 and December 31, 1993
are as follows:
(in thousands of dollars)
June 30, 1994 Dec 31, 1993
<S> <C> <C>
Notes Payable $ 129,809 $ 90,891
Long-Term Debt
Revolving Credit Agreement 150,000 150,000
9-7/8% Notes due 1999 174,000 174,000
ESOP Note due 1996 10,000 10,000
Long-Term Notes due 1994 10,000 10,000
Long-Term Notes due 1995 15,000 15,000
Mortgage Notes Payable 63,295 63,850
Other debt 475 614
Total Notes & Mortgages 422,770 423,464
Capital Leases 8,217 10,012
Subordinated Debt 9,500 11,000
Total Long-Term Debt 440,487 444,476
Less- Current Maturities 109,007 109,633
Long-Term Debt $ 331,480 $ 334,843
</TABLE>
<TABLE>
<CAPTION>
The following table shows the pro forma effect of the receipt of the
proceeds from the divestitures that were completed in July, 1994 and
the application of proceeds to pay leases, debt and expenses and to
establish escrow accounts in July and August of 1994.
As Recorded Receipt of Pro forma
at Divestiture Pay down as of
June 30, 1994 Proceeds Debt June 30, 1994
<S> <C> <C> <C> <C>
Marketable Securities $ 62,463 $ 130,080 $(144,734) $ 47,729
Net Assets Related to
Discontinued Businesses 186,955 (130,080) 56,875
Notes Payable 129,809 38,144 91,665
Long-Term Debt 440,487 43,666 396,821
Pay down Operating Leases 36,448
Bank Expenses, Interest
and Fees 7,043
Establish Escrow Accounts
for Taxes & Expenses 19,433
</TABLE>
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<PAGE> 12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Six Months Ended June 30, 1994
CONTINUING OPERATIONS:
Consolidated net sales in the first six months of 1994 were $361.4 million,
which is $3.5 million (1%) below the net sales of $364.9 million reported
in the first six months of 1993.
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<CAPTION>
Sales by segment for the first six months of 1994 and 1993 are stated below:
Sales to Unaffiliated Customers
(in thousands)
1994 Over
Business Segment: 1994 1993 (Under)1993
<S> <C> <C> <C>
Consumer Products $ 22,180 $ 20,573 $ 1,607
Fire Protection and Safety Products 99,514 105,163 (5,649)
Machinery and Allied Products 144,492 143,282 1,210
Technical Products 80,513 84,617 (4,104)
Services 14,740 11,232 3,508
Total Sales $ 361,439 $ 364,867 $ (3,428)
</TABLE>
The Consumer Products segment's increase of $1.6 million is due to a volume
increase at Interstate Engineering in the United States, attributable to
improved distribution programs and expansion in Japan, and new product
introduction at Interstate Engineering and Taylor.
Fire Protection and Safety segment's sales declined $5.6 million or 5.4%.
The decline was primarily attributed to Automatic Sprinkler's lower non-
residential construction contracts, offset somewhat by service and
inspection sale increases.
The Machinery and Allied Products segment's sales increased by $1.2 million.
Snorkel's sales increased significantly due to improved market conditions
for elevating work platforms. Scaffolding product increases were due to
several large distributor orders, earthquake-related work in Los Angeles,
and several industrial maintenance contracts. Offsetting most of this
favorable performance were reduced shipments of packaging machinery.
The Technical Products segment's sales decreased $4.1 million due to a
reduction in airline orders and a decline in government spending.
The Service segment's sales increased by $3.5 million due primarily to
increased volume in the vehicle fleet as well as equipment financing at
Financial Services.
Other Expense for the first six months of 1994 was $6.9 million compared to
Other Income of $1.8 million for the same period last year. 1993 includes
a $2.6 million recovery of a canceled mask contract with the U.S.
government. 1994 includes a loss on sale of assets of $3.9 million and
royalty and contract payments of $.9 million as the primary components.
Costs of sales were $307.8 million (85.2% of sales) in the first six months
of 1994, an increase of $34.7 million from $273.1 million (74.9% of sales)
during the same period in 1993. The major reasons for these variances to
prior year are: (1) competition between contractors and a revision of cost
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<PAGE> 13
estimates of approximately $12.2 million at Automatic Sprinkler; (2) higher
production costs at Packaging Systems and Hartman ($5.6 million, the
majority of which occurred in the first three months); and (3) increased R&D
expenses of approximately $7.9 million for new product development.
Selling, General and Administrative expenses were $79.2 million (21.9% of
sales) for the first six months of 1994, an increase of $13.3 million from
$65.9 million (18.1% of sales) in 1993. Selling expenses were lower by $1.2
million as compared to 1993. General and Administrative expenses increased
by $14.5 million, of which $10.9 million is due to legal and professional
fees as a direct result of debt restructuring and the defense of lawsuits.
Interest expense during the first six months of 1994 was $20.9 million as
compared to $16.8 million for the same period in 1993. The increase in debt
and a rise in variable interest rates caused the increase.
The Company reported restructuring costs associated with the consolidation
and modernization of production facilities, equipment, and support systems
of $51.0 million, $8.8 million, and $5.9 million for the years 1993, 1992,
and 1991, respectively. The Company completed the major portions of this
program in prior years; however, some work is still continuing. Charges
reflected in the first six months of 1994 are $921 thousand compared to $8.7
million for the same period last year.
<TABLE>
<CAPTION>
The Company's segment pre-tax income(loss) for the first six months of 1994
and 1993 are stated below:
Pre-tax Income (Loss)
(in thousands)
1994 Over
Business Segment: 1994 1993 (Under)1993
<S> <C> <C> <C>
Consumer Products $ 3,756 $ 4,122 $ (366)
Fire Protection and Safety Products (3,059) 9,242 (12,301)
Machinery and Allied Products 36 3,774 (3,738)
Technical Products (5,368) 12,840 (18,208)
Services 984 3,591 (2,607)
Total Segments (3,651) 33,569 (37,220)
General Corporate Expenses (31,038) (15,462) (15,576)
Operating (Loss) Profit (34,689) 18,107 (52,796)
Interest Expense, Net (20,903) (16,796) (4,107)
Pretax (Loss) Income $ (55,592) $ 1,311 $ (56,903)
</TABLE>
The Consumer Products segment's operating profits for the first six months
of 1994 were $3.8 million compared to profits of $4.1 million for the same
period in 1993. The profit from increased sales was mitigated by the cost
to establish and introduce new product lines. Also, at Taylor, the 1994
effect of expensing world class conversion costs as incurred lowered
profits.
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<PAGE> 14
Fire and Safety Products segment operating losses were $3.1 million for the
first six months of 1994 as compared to operating profits of $9.2 million
during the same period in 1993. The substantial decline in profits is
primarily at Automatic Sprinkler and is due to lower volume, competition
between contractors for fewer jobs, and revised estimates of contract
completion costs.
The Machinery and Allied Products segment had a slight operating profit for
the first six months of 1994 compared to operating income of $3.8 million
for the same period in 1993. At Packaging Systems sales volume reductions
and machinery cost increases caused the profit decline.
The Technical Products segment operating loss was $5.4 million for the first
six months of 1994 as compared to an operating income of $12.8 million for
the same period in 1993. A volume reduction at Scott Aviation and the mask
contract recovery proceeds in 1993 contributed to the profit decline.
Interstate Electronics profits declined due to substantial product R&D costs
related to the Global Positioning System. Hartman has begun to stabilize
and is showing improved performance.
The Services segment operating profits were $1.0 million for the first six
months of 1994 compared to $3.6 million for the same period in 1993. The
decline in profits is due to higher financing costs at Financial Services.
General corporate expenses during the first six months of 1994 were $31.0
million which is $15.6 million higher than the same period last year. The
increase is primarily due to a $10.9 million increase in legal and
professional fees as a direct result of debt restructuring and defense of
lawsuits.
The loss from continuing operations before provisions for taxes amounted to
$55.6 million in the first six months of 1994 compared to income of $1.3
million for the same period in 1993.
The income tax benefit is 31.3% compared to a 42.1% tax rate during the same
period last year.
Income from discontinued operations for the first six months of 1994 is
being deferred on the balance sheet in accordance with generally accepted
accounting principles. The Company does not expect a loss on the disposal
of the discontinued operations and, therefore, no provisions for losses are
required.
As of June 30, two additional divisions, Casi-Rusco and Fred Perry, have
been reclassified from Continuing Operations to Discontinued Operations.
The net loss of $1.1 million from discontinued operations is comprised of
the six month results for Casi-Rusco and Fred Perry prior to being
discontinued.
<PAGE>
<PAGE> 15
Results of Operations - Second Quarter 1994
CONTINUING OPERATIONS:
Consolidated net sales for the second quarter of 1994 were $190.3 million,
which is $4.6 million (2%) below the net sales of $194.9 million reported
in the second quarter of 1993.
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Sales by segment for the second quarter of 1994 and 1993 are stated below:
Sales to Unaffiliated Customers
(in thousands)
1994 Over
Business Segments: 1994 1993 (Under)1993
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Consumer Products $ 11,491 $ 11,021 $ 470
Fire Protection and Safety Products 52,937 55,558 (2,621)
Machinery and Allied Products 77,454 77,368 86
Technical Products 40,845 45,160 (4,315)
Services 7,620 5,846 1,774
Total Sales $ 190,347 $ 194,953 $ (4,606)
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The Consumer Products segment's sales increased slightly. Interstate
Engineering domestic sales and the introduction of new products are the
primary reasons consumer sales increased.
Fire Protection and Safety Product segment's sales declined $2.6 million or
4.7% during the second quarter of 1994. The decline was primarily
attributed to Automatic Sprinkler's lower non-residential construction
contracts, offset somewhat by service and inspection sale increases.
The Machinery and Allied Products segment's sales increased slightly.
Snorkel's sales increased significantly due to improved market conditions
for elevated work platforms. Scaffolding product increases were due to
several large distributor orders, earthquake-related work in Los Angeles,
and several industrial maintenance contracts. Offsetting this favorable
performance were reduced shipments of packaging machinery.
The Technical Products segment's sales decreased by $4.3 million due to a
reduction in airline orders and a decline in government spending.
The Service segment's sales for the second quarter of 1994 were $7.6 million
compared to sales of $5.8 million for the same period in 1993, due to
increased volume in the vehicle fleet as well as equipment financing at
Financial Services.
Other Expense for the second quarter of 1994 was $3.7 million compared to
Other Income of $848 thousand for the same period last year. 1994 includes
a loss on the sale of assets of $1.6 million and royalty and contract
payments of $.3 million as the primary components.
Costs of sales were $163.1 million (85.7% of sales) in the second quarter
of 1994, an increase of $17.3 million from $145.8 million (74.8% of sales)
during the same period in 1993. The major reasons for these variances to
prior year are: (1) increased R&D expenses of approximately $6.9 million
for new product development and (2) competition between contractors and a
revision of cost estimates of approximately $4.7 million at Automatic
Sprinkler.
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Selling, General and Administrative expenses were $36.9 million (19.4% of
sales) for the second quarter of 1994, an increase of $2.4 million from
$34.5 million (17.7% of sales) in 1993. Selling expenses were lower by $.8
million as compared with 1993. General and Administrative expenses
increased by $3.2 million of which $3.7 million is due to legal and
professional fees as a direct result of debt restructuring and the defense
of lawsuits.
Interest expense during the second quarter of 1994 was $10.2 million as
compared to $8.3 million for the same period in 1993. The increase in debt
and a rise in variable interest rates caused the increase.
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The Company's segment pre-tax income(loss) for the second quarter of 1994
and 1993 are stated below:
Pre-tax Income (Loss)
(in thousands)
1994 Over
Business Segment: 1994 1993 (Under)1993
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Consumer Products $ 1,803 $ 2,289 $ (486)
Fire Protection and Safety Products (139) 6,361 (6,500)
Machinery and Allied Products 674 (591) 1,265
Technical Products (4,339) 6,645 (10,984)
Services 520 2,419 (1,899)
Total Segments (1,481) 17,123 (18,604)
General Corporate Expenses (12,983) (7,992) (4,991)
Operating (Loss) Profit (14,464) 9,131 (23,595)
Interest Expense, Net (10,195) (8,328) (1,867)
Pre-tax (Loss) Income $ (24,659) $ 803 $ (25,462)
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The Consumer Products segment's operating profits for the second quarter of
1994 were $1.8 million compared to profits of $2.3 million for the same
period in 1993. The profit from increased sales was mitigated by the cost
to establish and introduce new product lines. Also, at Taylor, the 1994
effect of expensing world class conversion costs as incurred lowered
profits.
Fire and Safety Products segment's operating losses were $139 thousand for
the second quarter of 1994 as compared to operating profits of $6.4 million
during the same period in 1993. The substantial decline in profits is
primarily at Automatic Sprinkler and is due to lower volume, increased
competition between contractors for fewer jobs, and revised estimates of
contract completion costs. Fire Protection also adjusted a freight accrual
that reduced income.
The Machinery and Allied Products segment's operating profit for the second
quarter of 1994 was $674 thousand compared to an operating loss of $591
thousand for the same period in 1993. Higher conversion costs at Packaging
Systems in 1993 caused the profit increases.
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The Technical Products segment operating loss was $4.3 million for the
second quarter of 1994 as compared to an operating income of $6.6 million
for the same period in 1993. Interstate Electronics profits declined due
to substantial product R&D costs related to the Global Positioning System.
Hartman has begun to stabilize and is showing improved performance; but it
remains unfavorable as compared to last year.
The Services segment operating profits were $520 thousand for the second
quarter of 1994 compared to $2.4 million for the same period in 1993. The
decline in profits is due to higher financing costs at Financial Services.
General corporate expenses during the second quarter of 1994 were $13.0
million which is $5.0 million higher than the same period last year. The
increase is primarily due to a $3.7 million increase in legal and
professional fees as a direct result of debt restructuring and defense of
lawsuits.
The Company reported restructuring costs associated with the consolidation
and modernization of production facilities, equipment, and support systems.
The Company completed the major portion of this program in prior years; but
some work is still continuing. Charges reflected in the second quarter of
1994 are $374 thousand when compared to $4.4 million for the same period
last year.
The loss from continuing operations before provisions for taxes amounted to
$24.7 million in the second quarter of 1994 compared to income of $803
thousand for the same period in 1993.
The net loss of $937 thousand from discontinued operations is comprised of
the second quarter 1994 results for Casi-Rusco and Fred Perry prior to being
discontinued.
The income tax benefit is 31.3% compared to a 42.1% tax rate during the same
period last year.
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Financial Position and Liquidity
Receivables increased $3.1 million to $138.4 million and reflect a
combination of more aggressive collection efforts by the Company offset by
customers' holdbacks on contract retentions until completion and acceptance
of long-term projects. Inventories decreased by $5.3 million, reflecting
the Company's concerted efforts to reduce inventory and concentrate on
purchasing only essential products during the period before the
restructuring.
As to cash flow, operations and working capital required $15.2 million and
capital expenditures, net of disposals, required $11.2 million which were
funded by short-term borrowings.
Liquidity is provided by the Company's cash and marketable securities,
ongoing operations, a $20 million facility secured by certain receivables
and a portion of divestiture proceeds. As discussed in the Notes to the
Consolidated Financial Statements, the Company completed a complex debt
restructuring, which was initiated in December, 1993 and completed July 29,
1994. This new refinancing does not provide additional financing to the
Company; rather, it specifies repayment and other terms. This refinancing
will allow the Company to develop a long-term capital structure reflective
of the restructured Company's longer-term financing requirements.
This debt restructuring principally consists of an override agreement with
its previously unsecured domestic and foreign lenders, incorporating 26
previous credit facilities into one, and a series of amended lease
agreements. The agreement does not affect all of the Company's mortgage,
lease and credit arrangements, which the Company continues to service in
accordance with their respective terms.
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PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
In two separate suits reported in the Company's 1993 Form 10-K Annual
Report, three stockholders of the Company filed derivative complaints
during 1993 in the Common Pleas Court of Lake County, Ohio seeking
recovery on behalf of the Company for alleged self-dealing, waste of
corporate assets, financial statement over-statements, gross
mismanagement and participation or acquiescence in such practices by
Directors of the Company, all of whom were named as defendants. The
Court consolidated the two suits and subsequently dismissed them with
respect to all defendants. The plaintiffs have appealed the Court's
decision. See also Footnote (4) of Notes to Consolidated Financial
Statements.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
See Note (7) Liquidity and Restructuring Plans of Notes to Consolidated
Financial Statements.
ITEM 6(b) REPORTS ON FORM 8-K
8-K filed July 25, 1994.
Item 2.
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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 hereunto duly authorized.
FIGGIE INTERNATIONAL INC.
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Date: August 15, 1994 /s/
Steven L. Siemborski
Chief Financial Officer
(Principal financial and accounting officer
for purposes of this report)
Date: August 15, 1994 /s/
L. A. Harthun
Senior Vice President-International,
General Counsel and Secretary
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