SECURITIES AND EXCHANGE COMMISSION
Washington D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the quarter ended June 30, 1995 Commission file number 1-8591
FIGGIE INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
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, including area code
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 and Exchange Act of 1934 during the preceding 12
months (or 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 last practicable date.
Class Outstanding as of July 10, 1995
Class A Common Stock, par value $.10 per share 13,667,064
Class B Common Stock, par value $.10 per share 4,726,669
18,393,733
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FIGGIE INTERNATIONAL INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income for the Six Months
Ended June 30, 1995 and 1994 3
Consolidated Statements of Income for the Three Months
Ended June 30, 1995 and 1994 4
Consolidated Balance Sheets at June 30, 1995
and December 31, 1994; and Pro Forma Consolidated
Balance Sheet at June 30, 1995 5-6
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 8-14
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-21
PART II. OTHER INFORMATION 22
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(in thousands, except per share data)
(Unaudited)
1995 1994
CONTINUING OPERATIONS:
Net Sales $173,956 $153,141
Cost of Sales 129,760 117,545
Gross Profit on Sales 44,196 35,596
Operating Expenses:
Selling, General and Administrative 26,321 35,897
Research and Development 6,507 11,411
Total Operating Expenses 32,828 47,308
Operating Income (Loss) 11,368 (11,712)
Other Expense (Income):
Refinancing Costs 10,050 7,948
Interest Expense 16,629 21,070
Interest Income (1,425) (1,534)
Other, Net (18) (58)
Loss before Income Tax Benefit (13,868) (39,138)
Income Tax Benefit - 12,817
Loss from Continuing Operations (13,868) (26,321)
Loss from Discontinued Operations,
net of tax - (11,887)
Net Loss $(13,868) $(38,208)
Weighted Average Shares 18,106 17,811
Per Share Data
Loss from Continuing Operations $ (.77) $ (1.47)
Loss from Discontinued Operations - (.67)
Net Loss $ (.77) $ (2.14)
See Notes to Consolidated Financial Statements.
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(in thousands, except per share data)
(Unaudited)
1995 1994
CONTINUING OPERATIONS:
Net Sales $ 88,690 $ 80,030
Cost of Sales 66,747 61,159
Gross Profit on Sales 21,943 18,871
Operating Expenses:
Selling, General and Administrative 12,491 15,431
Research and Development 2,997 8,574
Total Operating Expenses 15,488 24,005
Operating Income (Loss) 6,455 (5,134)
Other Expense (Income):
Refinancing Costs 5,528 4,517
Interest Expense 7,555 10,300
Interest Income (581) (950)
Other, Net (217) 233
Loss before Income Tax Benefit (5,830) (19,234)
Income Tax Benefit - 6,183
Loss from Continuing Operations (5,830) (13,051)
Loss from Discontinued Operations,
net of tax - (4,820)
Net Loss $ (5,830) $(17,871)
Weighted Average Shares 18,117 17,766
Per Share Data
Loss from Continuing Operations $ (.32) $ (.73)
Loss from Discontinued Operations - (.27)
Net Loss $ (.32) $ (1.00)
See Notes to Consolidated Financial Statements.
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(in thousands)
Pro Forma
June 30, June 30, Dec. 31,
1995 1995 1994
(Unaudited)(Unaudited)
Note 2
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 9,615 $ 50,615 $ 28,611
Restricted Cash 16,599 23,599 18,716
Trade Accounts Receivable,
less Allowance for Uncollectible
Accounts of $376 in 1995
and $259 in 1994 44,450 44,450 44,994
Inventories 43,236 43,236 38,845
Prepaid Expenses 3,912 3,912 3,225
Recoverable Income Taxes - - 8,108
Net Assets Related to
Discontinued Operations 203,625 116,625 298,411
Total Current Assets 321,437 282,437 440,910
PROPERTY, PLANT AND EQUIPMENT
Land and Land Improvements 24,874 24,874 29,699
Buildings and Leasehold Improvements 44,046 44,046 46,024
Machinery and Equipment 67,042 67,042 70,587
135,962 135,962 146,310
Accumulated Depreciation (44,023) (44,023) (42,385)
91,939 91,939 103,925
Property under Capital Leases, less
Accumulated Depreciation of $4,313
in 1995 and $4,709 in 1994 1,914 1,914 2,158
Net Property, Plant and Equipment 93,853 93,853 106,083
OTHER ASSETS
Deferred Divestiture Proceeds 25,256 32,256 19,190
Prepaid Pension Costs 10,571 10,571 9,964
Prepaid Rent on Leased Equipment 17,075 17,075 17,075
Intangible Assets 19,845 19,845 20,244
Cash Surrender Value of
Insurance Policies 11,108 11,108 10,576
Non-current Receivables 5,700 5,700 5,920
Prepaid Finance Costs 4,017 4,017 8,291
Other 8,508 8,508 6,211
Total Other Assets 102,080 109,080 97,471
Total Assets $ 517,370 $ 485,370 $ 644,464
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(in thousands, except par value)
Pro Forma
June 30, June 30, Dec. 31,
1995 1995 1994
(Unaudited)(Unaudited)
Note 2
LIABILITIES
CURRENT LIABILITIES
Debt Due Within One Year $ 81,780 $ 49,780 $ 171,641
Accounts Payable 55,798 55,798 55,398
Accrued Insurance Reserves 15,007 15,007 16,889
Accrued Liabilities and Expenses 55,070 55,070 64,706
Current Maturities of Long-term Debt 5,931 5,931 7,179
Total Current Liabilities 213,586 181,586 315,813
Long-term Debt 226,147 226,147 234,491
Other Non-current Liabilities 25,738 25,738 28,938
Total Liabilities 465,471 433,471 579,242
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 Par Value;
Authorized, 3,217 Shares;
Issued and Outstanding, None - - -
Class A Common Stock, $.10 Par Value; 1,361 1,361 1,370
Authorized, 18,000 Shares;
Issued and Outstanding
1995 - 13,610; 1994 - 13,695
Class B Common Stock, $.10 Par Value; 473 473 471
Authorized, 18,000 Shares;
Issued and Outstanding
1995 - 4,726; 1994 - 4,715
Capital Surplus 108,854 108,854 110,518
Accumulated Deficit (57,066) (57,066) (43,198)
Unearned Compensation (1,916) (1,916) (3,829)
Cumulative Translation Adjustment 193 193 (110)
Total Stockholders' Equity 51,899 51,899 65,222
Total Liabilities and
Stockholders' Equity $ 517,370 $ 485,370 $ 644,464
See Notes to Consolidated Financial Statements.
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(in thousands)
(Unaudited)
1995 1994
Operating Activities:
Loss from Continuing Operations $ (13,868) $ (26,321)
Loss from Discontinued Operations - (11,887)
Adjustments to Reconcile Net Loss to Net
Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 3,412 19,328
Amortization of Unearned Compensation 416 4,101
Other, Net 480 (1,002)
Changes in Operating Assets and Liabilities:
Trade Accounts Receivable (2,242) 563
Allowance for Uncollectible Accounts 126 484
Finance Receivables 391 4,699
Inventories (4,154) (4,344)
Prepaid Items 5,214 (6,280)
Prepaid Pension Cost (647) (800)
Other Assets 5,205 16,418
Accounts Payable (2,614) (15,349)
Accrued Liabilities and Expenses (4,386) (10,156)
Accrued Income Taxes 15,269 16,331
Other Liabilities (4,234) 429
Net Cash Used by Operating Activities (1,632) (13,786)
Investing Activities:
Capital Expenditures for Continuing Operations (3,448) (7,785)
Capital Expenditures for Discontinued Operations (18,202) (9,596)
Proceeds from Sale of Property,
Plant and Equipment 10,858 4,613
Proceeds from Business Divestitures 87,441 35,651
(Purchases) Sales of Securities by
Insurance Subs. (303) (63)
Net Cash Provided by Investing Activities 76,346 22,820
Financing Activities:
Proceeds from Debt 3,874 2,722
Principal Payments on Debt (103,327) (6,666)
Borrowings Under Notes Payable, Net - 38,518
Common Stock Transactions, Net (174) (348)
Net Cash (Used) Provided by Financing Activities (99,627) 34,226
Net Increase in Cash and Cash Equivalents (24,913) 43,260
Cash and Cash Equivalents at Beginning of Year 68,300 33,816
Cash and Cash Equivalents at End of Period $ 43,387 $ 77,076
- Continuing Operations - Unrestricted $ 9,615 $ 67,764
- Continuing Operations - Restricted $ 16,599 $ 1,862
- Discontinued Operations $ 10,873 $ 10,450
- Deferred Divestiture Proceeds $ 6,300 $ -
See Notes to Consolidated Financial Statements.
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FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 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 position and results of operations for the periods
covered by this report. The results of operations for the three
months and six months ended June 30, 1995 are not necessarily
indicative of the results to be expected for the entire year.
(1) Summary of Significant Accounting Policies:
The financial statements for the three months and six months ended
June 30, 1995 have 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 1994 Form 10-K,
except that the pro forma column of the balance sheet also gives
effect to the proceeds of recent dispositions (See Note 2).
(2) Discontinued Operations:
On February 15, 1995, the Company announced that the Board of
Directors had approved a strategic business plan, effective
December 31, 1994, designed to restore the Company to
profitability. Under the plan, the Company will operate four
technology-driven manufacturing companies, aggressively cut
corporate overhead, sell its fourteen other businesses in 1995 and
use the sale proceeds to reduce debt and operating lease
obligations. The entities to be sold have been reported as
discontinued operations for the year ended December 31, 1994.
Through June 30, 1995, the Company sold through unrelated sales
transactions the following businesses: Figgie Acceptance; Figgie
Power Systems; Spaceguard Products; Figgie/Alfa Packaging Systems;
Figgie Financial Services; Medcenter Management Services; and
American LaFrance.
Proceeds and other considerations from sales transactions which
will be paid to the Company upon fulfillment of contractual
provisions, the passage of time, or the occurrence of future events
have been recorded as non-current assets. Amounts consist
principally of cash held in bank escrow accounts or held back by
purchasers to support indemnification provisions and final purchase
price determinations and cash due to the Company from future tax
benefits under tax sharing agreements with purchasers.
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(2) Discontinued Operations: - continued
On July 21, 1995, the Company completed the sale of Safway Steel
Products and Figgie Fire Protection Services in unrelated
transactions. The sales price was $126 million, net of transaction
expenses, of which $39 million was used to pay off operating
leases. Of the remaining $87 million, $7 million represents cash
deposited in escrow accounts as deferred divestiture proceeds, $41
million represents cash retained by the Company, $32 million was
applied to repay bank debt and $7 million represents cash
restricted as collateral for letters of credit. The pro forma
presentation gives effect to the July 21 transactions as if they
had occured as of June 30, 1995.
Net Assets Related to Discontinued Operations consist primarily of
accounts receivable, contracts in process, oil and gas interests,
inventory, property, plant and equipment, and significant,
specialized machinery, net of current liabilities of these
businesses. Realization of these discontinued assets is based on
management's best estimate and is subject to market conditions,
timing and negotiations.
(3) Inventories:
Inventories are summarized as follows:
(in thousands)
June 30, Dec. 31,
1995 1994
Manufacturing Inventories:
Raw materials $ 22,542 $ 21,509
Work in process 9,218 6,138
Finished goods 13,273 11,219
Inventory reserves (2,130) (1,532)
Total manufacturing inventories 42,903 37,334
Inventories applicable to
government contracts 215,411 207,632
Less: Progress payments (215,078) (206,121)
Net contracts in process 333 1,511
Total Inventories $ 43,236 $ 38,845
(4) Debt Refinancing:
On August 1, 1994, the Company executed an agreement ("Override
Agreement") with its significant unsecured institutional lenders to
refinance approximately $315 million in indebtedness, letters of
credit and related facilities ("Override Debt") of which $278
million was outstanding. At the same time, the Company refinanced
approximately $172 million in outstanding operating leases. The
Override Debt bears interest at a base rate plus 2% and a
restructuring fee of 3 1/2%. Mortgages, the 9-7/8% Senior Notes,
the 10-3/8% Subordinated Debentures and certain other debt and
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4) Debt Refinancing: continued
leases were not part of the refinanced debt. The Override
Agreement precludes the Company from paying dividends and secures
Override Debt with security interests in shares of certain
subsidiaries of the Company and substantially all of the Company's
accounts receivable, inventory, intellectual property and related
assets. In December 1994, the Override Agreement was amended to
permit the Company to obtain additional letter of credit
facilities.
On March 31, 1995, the Override Agreement was amended (the "Second
Amendment"), to extend the expiration date to January 1, 1996, set
principal amortization payments throughout 1995, reset the net
worth, cash flow and capital expenditure financial covenants with
amounts applicable to the Company's continuing operations and to
permit the Company to incur additional indebtedness as defined.
Also, effective March 31, 1995, the 2% interest payment deferral
was terminated and the amount due was paid in April. Fees due
under the original agreement and extension fees will require a
refinancing cost of approximately $11.6 million in 1995 of which
$10.1 million was expensed as of June 30, 1995.
Pursuant to the Second Amendment, the Company has agreed to repay
in 1995 a substantial portion of all of the remaining amounts
outstanding under the Override Agreement, with any remaining
amounts due January 1, 1996. The Company expects to fund these
payments through the proceeds of the divesture of those businesses
whose net assets are presented in the Company's balance sheet as
Net Assets Related to Discontinued Operations; however, all Company
sources, including cash reserves, working capital generated, and
short-term facilities can be accessed for this purpose.
At June 30, 1995, all required restrictions and financial covenants
have been satisfied.
(5) Debt Due Within One Year:
Debt due within one year is as follows:
(in thousands)
6/30/95 12/31/94
Average Average
Outstanding Rate Outstanding Rate
Override Debt $ 81,448 11.0% $167,364 10.50%
Other Debt 332 9.0% 4,277 9.85%
Total $ 81,780 $171,641
The Company has a receivable-based credit facility which permits
borrowings of up to $20.0 million based on the balances of certain
divisions' receivables. No amounts were borrowed during the six-
month period ended June 30, 1995. At June 30, 1995, $13.0 million
was available under this facility.
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(6) Long-Term Debt:
Total long-term debt at June 30, 1995 and December 31, 1994
consisted of the following:
(in thousands)
1995 1994
9.875% Senior Notes due 1999 $174,000 $174,000
10.375% Debentures due 1998 8,000 9,500
Mortgage notes 46,787 53,076
Obligations under capital leases 3,291 4,889
Other debt and notes - 205
Total 232,078 241,670
Less - current maturities (5,931) (7,179)
Long-term debt $226,147 $234,491
Mortgage notes secured by real property are due at various dates
through 2009 and bear interest at rates ranging from 7.5% to
12.25%. During the period ended June 30, 1995, $4.2 million of
mortgage notes were paid-off in connection with divested business
units.
(7) Leases:
The Company leases a substantial amount of manufacturing equipment
under operating lease arrangements. All monthly rent and other
payments due under all leases have been made, and are current
through June 30, 1995.
On August 1, 1994, and concurrently with entering into the Override
Agreement, the Company executed agreements with certain lessors to
restructure approximately $172 million of outstanding leases.
Effective March 31, 1995, the Company and those lessors amended
certain financial covenants of the leases to conform to the
financial covenants contained in the Second Amendment to the
Override Agreement, and to accelerate certain fees and to amend
other terms consistent with the Override Agreement.
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(7) Leases: - continued
The changes in rental commitments under operating leases from those
as of December 31, 1994 to those as of June 30, 1995 are as follows
(in millions):
Actual Pro Forma
(Note 2)
Rental commitments under operating leases
at December 31, 1994, including $120.6
related to discontinued operations $155.7 $155.7
Payments to lessors 18.3 18.3
Elimination of rental commitments
through sale of underlying assets
or assignment of leases to purchasers 36.6 75.6
Rental commitments under operating leases
at June 30, 1995, including $70.4 million
($31.4 million pro forma) related to
discontinued operations $100.8 $ 61.8
Funds to pay the $70.4 million ($31.4 million pro forma) of lease
obligations related to discontinued operations are expected to be
provided primarily through the divestiture proceeds of those
businesses. With respect to machinery and equipment that is not
purchased or is presently not utilized or underutilized, the
Company expects to satisfy the rental payments through its internal
funds until such equipment is sold, subleased or assigned.
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(8) Contingent Liabilities:
As previously reported, the Federal Trade Commission sought
consumer redress in connection with the sale of heat detectors
manufactured by the Company's Interstate Engineering division. The
Company paid consumer refunds totaling approximately $3.9 million
through a previously established letter of credit pursuant to a
redress program which has been substantially concluded. The
Company had established an accrual and no additional material
charges are 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 and certain former and present officers and directors
setting forth similar allegations. Both suits seek monetary
damages and costs and have been consolidated into one case.
In two separate suits reported in the Company's 1993 Form 10-K
Annual Report, three stockholders of the Company filed derivative
complaints on October 13 and December 2, 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 appealed the Court's
decision and the parties reached an agreed upon setttlement, the
principal terms of which were included in a notice mailed to the
Company's stockholders of record. The notice also provided
information for the procedure to be followed by any stockholder who
wished to object to the terms of the settlement. The approval of
the terms of the settlement is presently under consideration by the
Court.
On October 11, 1994 Deloitte & Touche LLP filed suit against the
Company in the Cuyahoga County Common Pleas Court of Ohio alleging
that the Company was in breach of contract for failure to pay for
consulting services rendered by Deloitte & Touche in the
approximate amount of $30 million plus interest. On the same date,
the Company filed in the same court its complaint against Deloitte
& Touche (and later against Deloitte & Touche LLP) alleging that in
connection with consulting services rendered to the Company,
Deloitte & Touche was liable for breach of contract, negligent
misrepresentation, breach of fiduciary duty, professional
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(8) Contingent Liabilities: - continued
negligence and fraudulent inducement. The Company seeks $250
million in compensatory damages as well as punitive damages,
declaratory relief and an accounting. The Company also filed a
counterclaim containing similar allegations, as well as claims of
breach of warranty and the unlicensed and unauthorized practice of
engineering, in response to the suit filed by Deloitte & Touche
LLP. Deloitte & Touche LLP has counterclaimed in the Company's
action and the Court has now consolidated the two cases.
On December 19, 1994 the Company, its subsidiary Figgie Properties
Inc. and the Richard E. Jacobs Group filed an action against the
City of Cleveland seeking specific performance of a 1989 Master
Development Agreement pertaining to a proposed real estate project
known as Chagrin Highlands. The Company's complaint also seeks a
declaratory judgment that the Master Development Agreement is in
full force and effect and asks for an injunction preventing the
City from interfering with the rights of the plaintiffs under that
Agreement as well as compensatory damages in the amount of $100
million. The City of Cleveland filed a motion to dismiss the
Company's complaint and on May 1, 1995, the Court denied the City's
motion to dismiss the complaint and granted its motion to dismiss
the Jacobs Group as a party plaintiff.
Additionally, the Company and its subsidiaries are defendants in
various lawsuits arising in the ordinary course of business. The
Company has provided a reserve for the estimated liability related
to all known cases. In the opinion of management, any additional
liability with respect to these matters will not have a material
adverse effect on the Company's financial statements.
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS SUMMARY
1st Qtr. 2nd Qtr. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1995 1995 1995 1994 1994
Net Sales $85,266 $88,690 $173,956 $153,141 $80,030
Cost of Sales 63,013 66,747 129,760 117,545 61,159
Gross Profit on Sales 22,253 21,943 44,196 35,596 18,871
% of Net Sales 26.1% 24.7% 25.4% 23.2% 23.6%
Operating Expenses:
Selling, General & Admin.13,830 12,491 26,321 35,897 15,431
Research and Development 3,510 2,997 6,507 11,411 8,574
Total Operating Expenses 17,340 15,488 32,828 47,308 24,005
Operating Income (Loss) $ 4,913 $ 6,455 $ 11,368 $(11,712) $(5,134)
% of Net Sales 5.8% 7.3% 6.5% (7.6%) (6.4%)
Discussion of 1995 Compared to 1994:
For the first six months of 1995, net sales increased $20.8 million
from the same period in 1994, or 14%, to $174.0 million. Sales
increases were achieved at the Snorkel and Scott/Taylor segments,
and a small decrease in sales occurred at Interstate Electronics.
The 1995 second quarter sales were $8.7 million or 11% higher when
compared to 1994 second quarter. Net Sales increased $3.4 million
or 4% to $88.7 million in the second quarter as compared to the
first quarter.
Gross Profit for the six months improved $8.6 million to $44.2
million and represented 25.4% to net sales as compared to 23.2% in
1994. All three segments achieved gross profit dollar improvement.
Selling, General and Administrative expenses improved dramatically.
As a percentage of net sales, selling, general and administrative
expenses were 15.1% in 1995, compared to 23.4% in 1994. Lower
Corporate G&A expense was responsible for substantially all of the
improvement.
Operating Income amounted to $11.4 million in 1995, as compared to
an operating loss of $11.7 million in 1994.
The loss from continuing operations and the net loss for the six
months and three months ended June 30, 1995 was $13.9 million and
$5.8 million, respectively, as compared with a loss from continuing
operations of $26.3 million and $13.1 million for comparable
periods in 1994, and a net loss of $38.2 million and $17.9 million
for the six months and three months ended June 30, 1994.
SEGMENT INFORMATION
The Company is a manufacturer of technology-driven products with
operations in three reporting segments, Interstate Electronics
Corporation, Scott/Taylor Environmental, and Snorkel. The results
of operations are most meaningful when analyzed and discussed in
this manner.
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INTERSTATE ELECTRONICS CORPORATION
Interstate Electronics develops and produces sophisticated
telemetry, instrumentation, and data recording systems and position
measuring systems, Global Positioning Systems ("GPS") for the U.S.
Navy's Polaris/Poseidon, TRIDENT, and TRIDENT II ships; precise GPS
for aircraft and turnkey test ranges; and GPS for commercial and
business aircraft navigation and landing systems. Interstate
Electronics also designs and produces plasma, liquid crystal, and
cathode-ray tube display systems for a variety of shipboard and
aircraft applications. In addition, Interstate Electronics
develops sophisticated bandwidth-on-demand satellite communication
modems and terminals for both government and commercial
applications.
The results of operations for Interstate Electronics were as
follows:
1st Qtr. 2nd Qtr. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1995 1995 1995 1994 1994
Net Sales $24,787 $26,934 $51,721 $53,301 $26,818
Cost of Sales 17,888 19,627 37,515 40,543 20,373
Gross Profit on Sales 6,899 7,307 14,206 12,758 6,445
% of Net Sales 27.8% 27.1% 27.5% 23.9% 24.0%
Operating Expenses:
Selling, General & Admin. 2,677 3,110 5,787 5,720 3,021
Research and Development 2,187 1,748 3,935 8,667 7,148
Total Operating Expenses 4,864 4,858 9,722 14,387 10,169
Operating Income (Loss) $ 2,035 $ 2,449 $ 4,484 $(1,629) $(3,724)
% of Net Sales 8.2% 9.1% 8.7% (3.1%) (13.9%)
Discussion of 1995 Compared to 1994:
Net Sales declines for the six months continues to reflect the
general slowdown in the military business. Both the Strategic
Weapons Systems ("SWS") and the Displays businesses have
experienced decreased sales in the first six months, $2.2 million
and $2.6 million, respectively. In the second quarter, however,
the GPS business achieved an increase of sales by $4.5 million due
to the Manching Range Program (for Germany) and the Low Rate
Initial Production Program (for Eglin Air Force Base). This
performance, coupled with an improved gross profit in both SWS and
Displays, accounted for the overall gross profit improvement in the
1995 amounts.
Research and Development expenses were much higher in 1994 due to
the initial product development phase of two major commercial
ventures: 1) a bandwidth-on-demand Time Divided Multiple Access
("TDMA") mesh network product from the Satellite Communication
Systems business, and 2) a Flight Management and Navigation Landing
Systems ("FMS") from the GPS business. The 1995 expenses primarily
reflect the costs necessary to finalize these products. The TDMA
is scheduled for a public demonstration in the Fall of 1995, while
the FMS is undergoing FAA certification.
<PAGE>
<PAGE> 17
SCOTT/TAYLOR ENVIRONMENTAL
Scott manufactures the Scott Air Pak and other life support
products for fire fighting and personal protection against
industrial contaminants. The air-purifying products provide
protection against environmental and safety hazards. Scott is the
largest manufacturer of protective breathing equipment, pilot and
crew oxygen masks plus emergency oxygen for passengers on
commercial, government and private aircraft. Scott is also a
leading manufacturer of instruments to detect the presence of
combustible or toxic gases and lack of oxygen.
Taylor is a manufacturer of consumer thermometers, barometers and
hygrometers. Taylor also manufactures and sells temperature and
environmental measuring and testing devices. In addition to use in
scientific laboratories, hospitals and universities, these devices
are used in heating, ventilation and air conditioning (HVAC), food
service and industrial applications.
The results of operations for Scott/Taylor Environmental were as
follows:
1st Qtr. 2nd Qtr. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1995 1995 1995 1994 1994
Net Sales $30,510 $32,056 $62,566 $57,475 $29,213
Cost of Sales 20,565 21,838 42,403 38,534 19,379
Gross Profit on Sales 9,945 10,218 20,163 18,941 9,834
% of Net Sales 32.6% 31.9% 32.2% 33.0% 33.7%
Operating Expenses:
Selling, General & Admin. 3,764 3,947 7,711 7,563 3,809
Research and Development 772 664 1,436 1,821 963
Total Operating Expenses 4,536 4,611 9,147 9,384 4,772
Operating Income $ 5,409 $ 5,607 $11,016 $ 9,557 $ 5,062
% of Net Sales 17.7% 17.5% 17.6% 16.6% 17.3%
Discussion of 1995 Compared to 1994:
Net Sales for the first six months of 1995 increased by 9% compared
to last year (10% increase for the second quarter) due to strong
orders for oxygen products from Aviation customers, as well as
orders for emergency breathing equipment from Government customers.
Gross Margin for the six months and second quarter periods is down
slightly due to the lower margin of Aviation and Government sales
compared to Health/Safety and commercial thermometer products.
Selling, General and Administrative expenses have increased
slightly.
Research and Development expenses are lower due to completion of
major new programs commencing in prior years.
<PAGE>
<PAGE> 18
SNORKEL
Snorkel manufacturers self-propelled aerial work platforms and
scissorlifts for use in construction and maintenance activities and
self-propelled telescopic and articulating booms. Snorkel also
fabricates and services booms that are mounted on fire apparatus to
deliver large quantities of water from elevated positions.
The results of operations for Snorkel were as follows:
1st Qtr. 2nd Qtr. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1995 1995 1995 1994 1994
Net Sales $29,969 $29,700 $59,669 $42,365 $23,999
Cost of Sales 24,560 25,282 49,842 34,750 19,765
Gross Profit on Sales 5,409 4,418 9,827 7,615 4,234
% of Net Sales 18.0% 14.9% 16.5% 18.0% 17.6%
Operating Expenses:
Selling, General & Admin. 1,850 1,989 3,839 3,056 1,487
Research and Development 551 585 1,136 923 463
Total Operating Expenses 2,401 2,574 4,975 3,979 1,950
Operating Income $ 3,008 $ 1,844 $ 4,852 $ 3,636 $ 2,284
% of Net Sales 10.0% 6.2% 8.1% 8.6% 9.5%
Discussion of 1995 Compared to 1994:
Net Sales increased 41% for the six months (24% for the second
quarter) compared to last year due to high domestic market demand
for aerial work platforms ("AWP"), rebounding international AWP
markets and continued improvement in plant output.
Gross Profit amounts improved as compared with 1994 periods due to
increased sales. However, as a percentage of net sales, gross
profits for both the six months and the second quarter declined due
to higher manufacturing costs. This is due to longer-than-
anticipated outsourcing of parts, manufacturing inefficiencies and
inventory costing adjustments.
Selling, General and Administrative expenses, as a percentage of
net sales, remained favorable over the same six months in 1994 with
higher sales.
Research and Development expenses increased due to new product
expenditures in both articulating booms and fire service products.
<PAGE>
<PAGE> 19
CORPORATE AND UNALLOCATED COSTS AND EXPENSES
Corporate activity and unallocated costs and expenses were as
follows:
1st Qtr. 2nd Qtr. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1995 1995 1995 1994 1994
Cost of Sales $ - $ - $ - $ 3,718 $ 1,642
Selling, General & Admin. $5,539 $3,445 $8,984 $19,558 $ 7,114
Other Expenses (Income):
Refinancing Costs 4,522 5,528 10,050 7,948 4,517
Interest Expense 9,074 7,555 16,629 21,070 10,300
Interest Income (844) (581) (1,425) (1,534) (950)
Other, Net 199 (217) (18) (58) 233
Discussion of 1995 Compared to 1994:
Cost of Sales were primarily associated with the centralized
manufacturing and technology centers ("Centers") created as part of
the factory automation program. These Centers were shut down in
1994 to reduce costs. The 1994 costs represent machinery-related
rental expenses and inventory that was written off.
Selling, General and Administrative expenses were reduced
significantly in 1995. These reductions included numerous cost-
cutting measures, principally, legal and professional fees, a 40%
reduction in corporate staff and the elimination of corporate
aircraft and, in the second quarter of 1995, the reversal of the
1994 bonus accrual ($1.4 million). In the second quarter, the
Company paid only required bonuses and did not pay discretionary
bonuses following the 1994 consolidated loss; accordingly, the
accrual was reversed.
Refinancing Costs are for professional and lender fees related to
the liquidity crisis of late 1993 and the first half of 1994 and
the resultant Override Agreement which restructured $487 million of
debt and leases on August 1, 1994. The 1995 expenses are
predominantly lender fees, while 1994 expenses were for
professional fees.
Interest Expense decreased due to lower Override debt, offset
somewhat by higher interest rates, a short-term line in 1994 that
was unused in 1995 and lower mortgage interest.
<PAGE>
<PAGE> 20
FINANCIAL POSITION AND LIQUIDITY
Accounts Receivable at June 30, 1995 are at approximately the same
level as of the end of the year. Given the increase in sales, this
demonstrates an improvement in collections, as Days Sales
Outstanding improved from 45 to 43 days.
Inventories increased by $4.4 million due to a shortage of vendor
supplied quality parts which resulted in unfinished production
remaining in inventory.
Cash from operations and working capital required $1.6 million,
consisting of a loss from operations (due to refinancing and
interest payments) mostly offset by the tax refund. The paydown of
debt required $99.5 million, which was funded by proceeds from
divestitures, miscellaneous asset sales, and the tax refund.
Expenditures for property, plant and equipment were $3.4 million
for continuing operations ($18.2 million for discontinued
operations) in 1995. Continuing operations' expenditures are
anticipated to be between $9.0 and $15.0 million for the year. The
primary focus of 1995 expenditures is for improvements in
manufacturing efficiencies and tooling related to the production of
new products. Capital for these expenditures is expected to be
provided from internally generated funds.
As discussed in Note 4 to the Consolidated Financial Statements,
the Company completed a complex debt refinancing, which was
initiated in December, 1993, completed on August 1, 1994 and
amended on December 5, 1994 and March 31, 1995. This refinancing
precludes the Company from incurring additional indebtedness and
did not provide additional financing to the Company; rather, it
specifies repayment and other terms through January 1, 1996. The
Company has been selling in 1995 those businesses whose net assets
are presented in the Company's balance sheet as Net Assets Related
to Discontinued Operations, and using a substantial portion of the
proceeds to amortize the debt throughout the remainder of 1995.
The Override agreement allows the Company to operate in a more
orderly manner in enhancing the profitability of the continuing
business segments and in divesting the discontinued businesses and
reducing corporate overhead. The Company continues to make
progress in implementing actions aimed at restoring overall
profitability.
Net Assets Related to Discontinued Operations at June 30, 1995 is
$204 million, a decrease of $94 million from $298 million at the
beginning of the year. The divestitures of seven businesses --
Figgie/Alfa Packaging Systems, Figgie Power Systems, Figgie
Acceptance, American LaFrance, Medcenter Management Services,
Spaceguard Products, and Figgie Financial Services -- account for
this decrease. The proceeds from these divestitures, a tax refund
of $15 million, offshore cash, and operating cash were used to pay
<PAGE>
<PAGE> 21
FINANCIAL POSITION AND LIQUIDITY - continued
down Override debt and mortgages by $99 million since year-end
1994. The $77 million of debt amortization in the second quarter
was made by June 30 in accordance with the Override agreement. All
financial covenants have been satisfied.
Liquidity from unrestricted cash as of June 30, 1995 was $9.6
million. Cash requirements from operations, along with the high
but diminishing costs of interest and fees to service outstanding
debt, requires the timely divestiture of the rest of the
discontinued operations. As these entities are divested, the
Company will continue to paydown its outstanding debt and benefit
from lower operating expenses. In addition to unrestricted cash,
as of June 30, 1995, the Company also had additional unused
borrowing facilities of approximately $13.0 million.
On July 21, 1995, the Company completed the sales of two material
businesses that materially improved its liquidity and reduced its
debt and lease obligation levels. As stated in Footnote 2 to the
Consolidated Financial Statements, on July 21, 1995, the Company
completed the sale of Safway Steel Products and Figgie Fire
Protection Services. The sales price was $126 million, net of
transaction expenses, of which $39 million was used to pay off
operating leases. Of the remaining $87 million, $7 million
represents cash deposited in escrow accounts as deferred
divestiture proceeds, $41 million represents cash retained by the
Company, $32 million was applied to repay bank debt, and $7 million
represents cash restricted as collateral for letters of credit.
The pro forma balance sheet presentation gives effect to the July
21 transactions as if they had occured as of June 30, 1995.
<PAGE>
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter
None.
<PAGE>
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Figgie International Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIGGIE INTERNATIONAL
By: /s/ Steven L. Siemborski
Steven L. Siemborski
Senior Vice President and
Chief Financial Officer
(Duly Authorized and
Principal Financial Officer)
Date: August 8, 1995
<TABLE> <S> <C>
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<NAME> FIGGIE INTERNATIONAL
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
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<RECEIVABLES> 44,826
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<OTHER-SE> 50,065
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<SALES> 173,956
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