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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 March 31, 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)
Registrant's telephone number, including area code (216) 953-2700
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 April 30, 1995
Class A Common Stock, par value $.10 per share 13,674,580
Class B Common Stock, par value $.10 per share 4,724,869
18,399,449
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FIGGIE INTERNATIONAL INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income for the Three Months
Ended March 31, 1995 and 1994 3
Consolidated Balance Sheets at March 31, 1995
and December 31, 1994 4 - 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1995 and 1994 6
Notes to Consolidated Financial Statements 7 - 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 18
PART II. OTHER INFORMATION 19
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(in thousands, except per share data)
(Unaudited)
1995 1994
CONTINUING OPERATIONS:
Net Sales $ 85,266 $ 73,111
Cost of Sales 63,013 56,386
Gross Profit on Sales 22,253 16,725
Operating Expenses:
Selling, General and Administrative 13,830 20,466
Research and Development 3,510 2,837
Total Operating Expenses 17,340 23,303
Operating Income (Loss) 4,913 (6,578)
Other Expense (Income):
Refinancing Costs 4,522 3,431
Interest Expense 9,074 10,770
Interest Income (844) (584)
Other, Net 199 (291)
Loss before Income Tax Benefit (8,038) (19,904)
Income Tax Benefit - 6,634
Loss from Continuing Operations (8,038) (13,270)
Loss from Discontinued Operations,
net of tax - (7,067)
Net Loss $ (8,038) $(20,337)
Weighted Average Shares 18,092 17,856
Per Share Data
Loss from Continuing Operations $ (0.44) $ (0.74)
Loss from Discontinued Operations - (0.40)
Net Loss $ (0.44) $ (1.14)
See Notes to Consolidated Financial Statements.
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
(in thousands)
March 31, Dec. 31,
1995 1994
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 30,154 $ 28,611
Restricted cash 25,302 18,716
Trade accounts receivable, less allowance
for uncollectible accounts of $326 in 1995
and $259 in 1994 42,793 44,994
Inventories 43,038 38,845
Prepaid expenses 3,285 3,225
Recoverable income taxes - 8,108
Net assets related to
discontinued operations 279,570 317,601
Total Current Assets 424,142 460,100
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 29,522 29,699
Buildings and leasehold improvements 46,135 46,024
Machinery and equipment 71,982 70,587
147,639 146,310
Accumulated depreciation (43,940) (42,385)
103,699 103,925
Property under capital leases, less
accumulated depreciation of $4,263
in 1995 and $4,709 in 1994 2,055 2,158
Net Property, Plant and Equipment 105,754 106,083
OTHER ASSETS
Prepaid pension costs 10,196 9,964
Prepaid rent on leased equipment 17,075 17,075
Intangible assets 20,044 20,244
Cash surrender value of insurance policies 10,898 10,576
Non-current receivables 5,775 5,920
Prepaid finance costs 5,402 8,291
Other 4,676 6,211
Total Other Assets 74,066 78,281
Total Assets $ 603,962 $ 644,464
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
(in thousands, except par value)
March 31, Dec. 31,
1995 1994
(Unaudited)
LIABILITIES
CURRENT LIABILITIES
Debt due within one year $ 136,501 $ 171,641
Accounts payable 55,433 55,398
Accrued insurance reserves 16,680 16,889
Accrued liabilities and expenses 73,912 64,706
Current maturities of long-term debt 6,044 7,179
Total Current Liabilities 288,570 315,813
Long-term debt 229,583 234,491
Other non-current liabilities 28,376 28,938
Total Liabilities 546,529 579,242
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 par value;
Authorized, 3,217 shares;
Issued and Outstanding, none - -
Class A common stock, $.10 par value; 1,366 1,370
Authorized, 18,000 shares;
Issued and Outstanding
1995 - 13,658; 1994 - 13,695
Class B common stock, $.10 par value; 471 471
Authorized, 18,000 shares;
Issued and Outstanding
1995 - 4,715; 1994 - 4,715
Capital surplus 109,521 110,518
Accumulated deficit (51,239) (43,198)
Unearned compensation (2,683) (3,829)
Cumulative translation adjustment (3) (110)
Total Stockholders' Equity 57,433 65,222
Total Liabilities and
Stockholders' Equity $ 603,962 $ 644,464
See Notes to Consolidated Financial Statements.
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(in thousands)
(Unaudited)
1995 1994
Operating Activities:
Loss from Continuing Operations $ (8,038) $(13,270)
Loss from Discontinued Operations - (7,067)
Adjustments to Reconcile Net Loss to Net
Cash Provided (Used) by Operating Activities
Depreciation and Amortization 1,778 7,929
Amortization of Unearned Compensation 231 2,086
Other, Net 634 (2,184)
Changes in Operating Assets and Liabilities
Trade Accounts Receivable 1,548 (9,165)
Allowance for Uncollectible Accounts (1,355) 146
Finance Receivables 724 6,673
Inventories (3,830) (7,717)
Prepaid Items 3,821 (2,789)
Prepaid Pension Cost (272) (398)
Other Assets 3,314 (273)
Accounts Payable (3,571) (20,474)
Accrued Liabilities and Expenses 9,784 8,305
Accrued Income Taxes 13,354 29,170
Other Liabilities (1,956) 2,813
Net Cash Provided (Used)
by Operating Activities 16,166 (6,215)
Investing Activities:
Capital Expenditures for Continuing Operations (2,346) (3,507)
Capital Expenditures for
Discontinued Operations (11,084) (8,823)
Proceeds from Sale of Property,
Plant and Equipment 2,546 2,655
Proceeds from Business Divestitures 46,916 25,624
(Purchases) Sales of Securities
by Insurance Subs. (293) (1,399)
Net Cash Provided by Investing Activities 35,739 14,550
Financing Activities:
Proceeds from Debt - 671
Principal Payments on Debt (41,183) (2,101)
Borrowings Under Notes Payable, Net - 27,121
Common Stock Transactions, Net (86) (142)
Net Cash (Used) Provided by Financing Activities (41,269) 25,549
Net Increase in Cash and Cash Equivalents 10,636 33,884
Cash and Cash Equivalents at Beginning of Year 68,300 33,816
Cash and Cash Equivalents at End of Period $ 78,936 $ 67,700
- - Continuing Operations - Unrestricted $ 30,154 $ 63,474
- - Continuing Operations - Restricted $ 25,302 $ 1,800
- - Discontinued Operations $ 23,480 $ 2,426
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 results of operations for the
periods covered by this report. The results of operations for the three
months ended March 31, 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 ended March 31, 1995 and 1994
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 1994 Form 10-K.
(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.
Net Assets Related to Discontinued Operations at March 31, 1995 consist
primarily of accounts receivable, finance receivables, 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.
During the first quarter of 1995, the Company sold through unrelated sales
transactions the following businesses: Figgie Acceptance; Figgie Power
Systems; SpaceGuard Products; and Figgie Packaging/Alfa Packaging Systems.
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(3) Inventories:
Inventories are summarized as follows:
(in thousands)
March 31, Dec. 31,
1995 1994
Manufacturing Inventories:
Raw materials $ 24,030 $ 21,509
Work in process 6,865 6,138
Finished goods 12,558 11,219
Inventory reserves (2,031) (1,532)
Total manufacturing inventories 41,422 37,334
Inventories applicable to
government contracts 214,586 207,632
Less: Progress payments (212,970) (206,121)
Net contracts in process 1,616 1,511
Total Inventories $ 43,038 $ 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 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, debt outstanding under the Override Agreement amounted
to $135.8 million. 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 $10.0 million in 1995 of
which $4.5 million was expensed in the first quarter.
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(4) Debt Refinancing: continued
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 March 31, 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)
3/31/95 12/31/94
Average Average
Outstanding Rate Outstanding Rate
Override Debt $135,794 11.00% $167,364 10.50%
Other Debt 707 8.64% 4,277 9.85%
Total $136,501 $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. At March 31, 1995, $13.6 million was available under this
facility. No amounts were borrowed as of March 31, 1995.
(6) Long-Term Debt:
Total long-term debt at March 31, 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 9,500 9,500
Mortgage notes 48,220 53,076
Obligations under capital leases 3,774 4,889
Other debt and notes 133 205
Total 235,627 241,670
Less - current maturities (6,044) (7,179)
Long-term debt $229,583 $234,491
Mortgage notes secured by real property are due at various dates through
2009 and bear interest at rates ranging from 7.0% to 12.25%. During the
quarter ended March 31, 1995, $4.2 million of mortgage notes were paid-off
in connection with divested business units.
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(7) Leases:
The Company leases a substantial amount of manufacturing equipment under
operating lease arrangements. The Company (through its now discontinued
leasing and scaffolding subsidiaries) also leases the vehicle fleet and
scaffolding equipment held for lease or rental. All monthly rent and other
payments due under all leases have been made, and are current through March
31, 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.
The changes in rental commitments under operating leases from those as of
December 31, 1994 to those as of March 31, 1995 is as follows (in millions):
Rental commitments under operating leases at
December 31, 1994 including $120.6 related to
discontinued operations $155.7
Payments to lessors 10.0
Elimination of rental commitments through sale
of underlying assets or assignment of
leases to purchasers 20.8
Rental commitments under operating leases at
March 31, 1995, including $92.2 million
related to discontinued operations $124.9
Funds to pay the $92.2 million 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:
The Company has been working with the Federal Trade Commission toward the
completion of a redress program. The Commission sought consumer redress in
connection with the sale of heat detectors manufactured by the Company's
Interstate Engineering division. The Court held that the Company could be
required to pay refunds to those buyers who, after notification, can make
a valid claim for redress. The Court required the Company to provide a bank
letter of credit initially in the amount of $7.6 million and reduced
currently to $4.0 million. The Company had established an accrual and,
based on the current amount of claims received by the Redress Administrator,
no additional material charge to earnings is anticipated. The Company
expects to conclude this matter in the next several months.
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 have appealed the Court's decision.
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 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.
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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 had filed a motion to dismiss the Company's
complaint. On May 1, 1995, the Court denied the City's motion to dismiss
the complaint and granted the City's motion to dismiss the Jacobs Group as
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.
(9) Revised Quarterly Financial Data
The unaudited, quarterly data included in the Company's 1994 Form 10-K,
which had been restated to reflect the classification of certain businesses
as discontinued operations, has been revised to adjust the classification
of net loss between net loss from continuing operations and net loss from
discontinued operations for the first and second quarters of 1994. The
revised data is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
(in thousands except for per share data)
1994 Restated:
Net sales $ 73,111 $ 80,030 $ 79,792 $ 86,487
Gross profit 16,725 18,871 18,324 18,246
Net loss:
Continuing Operations (13,270) (13,051) (10,848) (48,078)
Discontinued operations (7,067) (4,820) (4,995) (64,601)
Net loss $(20,337) $(17,871) $(15,843) $(112,679)
Loss per share:
Continuing operations $ (0.74) $ (0.73) $ (0.61) $ (2.74)
Discontinued operations (0.40) (0.27) (0.28) (3.68)
Net loss $ (1.14) $ (1.00) $ (0.89) $ (6.42)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
Net Sales increased $12.2 million or 17% to $85.3 million. Sales increases
were achieved at the Snorkel and Scott and Taylor segments, and a small
decrease in sales occurred at Interstate Electronics.
Gross Profit improved $5.5 million to $22.3 million and represented 26.1%
to net sales as compared to 22.9% 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
16.2% for the first quarter of 1995, compared to 28.0% in 1994. Lower
Corporate G&A expense was responsible for substantially all of the
improvement.
Operating income amounted to $4.9 million in 1995, as compared to an
operating loss of $6.6 million in 1994.
The loss from continuing operations for the first three months of 1995 was
$8.0 million, or $0.44 per share, as compared with a loss of $13.3 million,
or $0.74 per share in 1994. The net loss for the first three months of 1995
was $8.0 million, or $0.44 per share, as compared with a loss of $20.3
million, or $1.14 per share in 1994, which included a $7.0 million loss
($.40 per share) from discontinued operations.
SEGMENT INFORMATION
The Company is a manufacturer of technology-driven products with operations
in three reporting segments, Interstate Electronics Corporation, Scott and
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.
First quarter results of operations for Interstate Electronics were as
follows:
(in thousands)
'95 vs. '94
1995 1994 Change
Net Sales $24,787 $26,483 $(1,696)
Cost of Sales 17,888 20,170 (2,282)
Gross Profit on Sales 6,899 6,313 586
% of Net Sales 27.8% 23.8%
Operating Expenses:
Selling, General and Admin. 2,677 2,699 (22)
Research and Development 2,187 1,519 668
Total Operating Expenses 4,864 4,218 646
Operating Profit $ 2,035 $ 2,095 $ (60)
% of Net Sales 8.2% 7.9%
Discussion of 1995 Compared to 1994
Net Sales decline reflects the continual drop in federal defense
expenditures. The GPS business unit experienced a drop of $1.6 million in
sales; however, the profitability for this unit increased due to two major
programs: The Manching Range Program for Germany and the Low Rate Initial
Production Program for Elgin Air Force Base.
Selling expenses are higher due to increased activity in bid and proposal
effort, and the pursuit of commercial business for bandwidth-on-demand and
global positioning systems. General and administrative cost reductions more
than offset the selling increases.
Interstate Electronics' research and development effort is being shifted
toward expenses relating to the introduction of two major commercial
ventures:
1) A bandwidth-on-demand Time Divided Multiple Access ("TDMA") mesh network
product from the Satellite Communication Systems product line, and
2) A Flight Management and Navigation Landing System ("FMS") from the
Global Positioning Systems product line.
The expenses in 1994 occurred during the initial product development phase
of both products, while 1995 expenses primarily reflect the costs necessary
to finalize the products.
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SCOTT AND 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.
First quarter results of operations for Scott and Taylor Environmental were
as follows:
(in thousands)
'95 vs. '94
1995 1994 Change
Net Sales $30,510 $28,262 $ 2,248
Cost of Sales 20,565 19,155 1,410
Gross Profit on Sales 9,945 9,107 838
% of Net Sales 32.6% 32.2%
Operating Expenses:
Selling, General and Admin. 3,764 3,754 10
Research and Development 772 858 (86)
Total Operating Expenses 4,536 4,612 (76)
Operating Profit $ 5,409 $ 4,495 $ 914
% of Net Sales 17.7% 15.9%
Discussion of 1995 Compared to 1994
Net sales increased by 8% due to strong orders for Aviation/Government
breathing and oxygen related products. These increased sales were somewhat
offset by lower sales of consumer thermometers.
Cost of sales in 1995 relative to 1994 is slightly favorable due to cost
reduction activities and the volume affect of increased sales over fixed
costs.
Selling, General and Administrative expenses have increased slightly as cost
reductions mostly offset inflation.
Research and development expenses are lower due to completion of major new
programs commencing in prior years.
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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.
First quarter results of operations for Snorkel were as follows:
(in thousands)
'95 vs. '94
1995 1994 Change
Net Sales $29,969 $18,366 $11,603
Cost of Sales 24,560 14,985 9,575
Gross Profit on Sales 5,409 3,381 2,028
% of Net Sales 18.0% 18.4%
Operating Expenses:
Selling, General and Admin. 1,850 1,569 281
Research and Development 551 460 91
Total Operating Expenses 2,401 2,029 372
Operating Profit $ 3,008 $ 1,352 $ 1,656
% of Net Sales 10.0% 7.4%
Discussion of 1995 Compared to 1994
Net sales increased 63% due to high domestic market demand for aerial work
platforms ("AWP"), rebounding municipal fire service markets, international
AWP expansion and continued improvement in output of the production
facilities.
Gross profit amounts improved significantly as compared with 1994 due to the
increase in net sales. However, as a percentage of net sales, gross profit
declined due to the costs incurred with outsourcing of component parts and
the final quarter of operations at the Wathena, Kansas facility. In an
effort to curb these additional costs, substantial efforts are underway to
insource component products and the relocation of the Wathena, Kansas
fabrication plant was completed this quarter.
Selling, General and Administrative expenses as a percentage of net sales
improved over 2 percentage points to approximately 6% despite a 63% increase
in net sales.
Research and development expenses increased due to new product expenditures
in both articulating booms and fire service products.
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CORPORATE AND UNALLOCATED COSTS AND EXPENSES
First quarter Corporate activity and unallocated costs and expenses were as
follows:
(in thousands)
'95 vs. '94
1995 1994 Change
Cost of Sales $ - $ 2,076 $(2,076)
Selling, General and Admin. $ 5,539 $12,444 $(6,905)
Other Expenses (Income):
Refinancing Costs 4,522 3,431 1,091
Interest Expense 9,074 10,770 (1,696)
Interest Income (844) (584) (260)
Other, Net 199 (291) 490
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 costs
represent machinery-related rental expenses and, in 1994, inventory was
written off.
Selling, General and Administrative expenses were reduced significantly in
1995. These reductions included legal and professional fees, a 40%
reduction in corporate staff, the elimination of two corporate aircraft, and
numerous other cost-cutting measures.
The 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 that was mostly offset
by higher interest rates, a short-term factoring line in 1994 that is unused
in 1995 and lower mortgage interest.
<PAGE>
<PAGE> 18
Financial Position and Liquidity
Receivables decreased $2.2 million to $42.8 million, reflecting collections
of the sales from the months of November and December in 1994.
Inventories increased by $4.2 million due to a shortage of vendor supplied
quality parts which resulted in unfinished production remaining in inventory
over month end.
Cash flow from operations and working capital were $16.2 million, which was
principally the tax refund. The paydown of debt required $41.2 million,
which was funded by proceeds from divestitures and the tax refund.
Expenditures for property, plant and equipment were $2.3 million for
continuing operations ($13.4 million for all 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 the Notes to the consolidated financial statements, the
Company completed a complex debt refinancing, which was initiated in
December, 1993 and completed on August 1, 1994. This refinancing precludes
the Company from incurring additional indebtedness and did not provide
additional financing to the Company; rather, it specified repayment and
other terms through June 30, 1995.
The Company has completed negotiations with lenders that are party to its
override credit facility (see footnote 4 of Notes to the Financial
Statements) to extend the Override Agreement from June 30, 1995 to January
1, 1996. The Company intends to sell in 1995 those businesses whose net
assets are presented in the Company's balance sheet as Net Assets Related
to Discontinued Operations, and will use a substantial portion of the
proceeds to amortize the debt throughout the remainder of 1995. The
aforementioned extension will allow 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.
Through May 15, 1995, the Company has sold five businesses, Figgie Power
Systems, Figgie Acceptance, Spaceguard Products, Figgie/Alfa Packaging
Systems, and Medical Centers, and used the proceeds to reduce debt. The
Company has signed letters of intent for the sale of two other businesses,
executed a definitive agreement for one business and has distributed
offering memorandums for the remaining businesses.
Liquidity from unrestricted cash as of March 31, 1995 was $30.2 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 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 the unrestricted cash, the Company
also has additional unused borrowing facilities of approximately $13.6
million.
<PAGE>
<PAGE> 19
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
- Form 8-K dated February 7, 1995, filed February 22, 1995 under Item
2 and setting forth pro forma financial information under Item 7.
- Form 8-K dated February 15, 1995, filed March 31, 1995, setting
forth a press release exhibit.
<PAGE>
<PAGE> 20
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: May 15, 1995
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