<PAGE>1
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 September 30, 1996 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)
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 October 24, 1996
Class A Common Stock, par value $.10 per share 13,641,613
Class B Common Stock, par value $.10 per share 4,715,807
18,357,420
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FIGGIE INTERNATIONAL INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . .3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 4
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . .8
Summary of Significant Accounting Policies . . . . . . . . .8
Receivables. . . . . . . . . . . . . . . . . . . . . . . . .9
Inventories. . . . . . . . . . . . . . . . . . . . . . . . .9
Divestitures and Net Assets Related to Discontinued
Operations 10
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 11
Credit Facility. . . . . . . . . . . . . . . . . . . . . . 12
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . 12
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . 13
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Contingent Liabilities . . . . . . . . . . . . . . . . . . 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
Results of Operations Summary. . . . . . . . . . . . . . . 15
Segment Information. . . . . . . . . . . . . . . . . . . . 15
Interstate Electronics Corporation . . . . . . . . . . . . 16
Scott. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Snorkel. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Corporate and Unallocated Costs and Expenses . . . . . . . 19
Financial Position and Liquidity . . . . . . . . . . . . . 20
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . 21
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . 23
<PAGE>
<PAGE>3
PART I. FINANCIAL INFORMATION
FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(in thousands, except per share data)
(Unaudited)
1996 1995
Net Sales $293,523 $253,124
Cost of Sales 214,778 189,333
Gross Profit on Sales 78,745 63,791
Operating Expenses:
Selling, General and Administrative 37,586 37,267
Research and Development 10,492 10,039
Total Operating Expenses 48,078 47,306
Operating Income 30,667 16,485
Other Expense (Income):
Refinancing Costs 740 10,806
Interest Expense 14,913 22,984
Interest Income (1,134) (1,731)
Other, Net 286 (1,575)
Income (Loss) before Income Taxes 15,862 (13,999)
Income Taxes - -
Income (Loss) from Continuing Operations 15,862 (13,999)
Income from Discontinued Operations 1,391 1,105
Net Income (Loss) $ 17,253 $(12,894)
Weighted Average Shares 18,757 18,175
Per Share Data
Income (Loss) from Continuing Operations 0.85 (0.77)
Income from Discontinued Operations 0.07 0.06
Net Income (Loss) $ 0.92 $ (0.71)
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>4
FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(in thousands, except per share data)
(Unaudited)
1996 1995
Net Sales $ 95,407 $ 87,286
Cost of Sales 69,856 65,194
Gross Profit on Sales 25,551 22,092
Operating Expenses:
Selling, General and Administrative 11,643 12,890
Research and Development 3,904 3,667
Total Operating Expenses 15,547 16,557
Operating Income 10,004 5,535
Other Expense (Income):
Refinancing Costs 254 756
Interest Expense 4,867 6,416
Interest Income (551) (306)
Other, Net (277) (1,629)
Income before Income Taxes 5,711 298
Income Taxes - -
Income from Continuing Operations 5,711 298
Income from Discontinued Operations 917 676
Net Income (Loss) $ 6,628 $ 974
Weighted Average Shares 18,728 18,270
Per Share Data
Income from Continuing Operations 0.31 0.02
Income from Discontinued Operations 0.05 0.04
Net Income $ 0.36 $ 0.06
See Notes to Consolidated Financial Statements.
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<PAGE>5
FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(in thousands)
Sept. 30, Dec. 31,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 26,702 $ 25,583
Restricted Cash - 273
Trade Accounts Receivable, less Allowance
for Uncollectible Accounts of $378 in 1996
and $303 in 1995 61,332 53,462
Inventories 51,360 43,841
Prepaid Expenses 2,289 1,518
Recoverable Income Taxes 12,522 12,495
Net Assets Related to Discontinued Operations 21,529 45,488
Total Current Assets 175,734 182,660
PROPERTY, PLANT AND EQUIPMENT
Land and Land Improvements 50,800 52,393
Buildings and Leasehold Improvements 35,251 37,333
Machinery and Equipment 51,038 45,151
137,089 134,877
Accumulated Depreciation (49,357) (47,699)
87,732 87,178
Property under Capital Leases, less
Accumulated Depreciation of $359
in 1996 and $377 in 1995 261 342
Net Property, Plant and Equipment 87,993 87,520
OTHER ASSETS
Deferred Divestiture Proceeds, Net 28,897 33,935
Prepaid Pension Costs 9,892 9,892
Prepaid Rent on Leased Equipment 5,644 17,075
Intangible Assets 16,365 16,694
Cash Surrender Value of Insurance Policies 6,815 8,748
Investments 8,121 1,029
Prepaid Finance Costs 3,557 3,818
Other 3,028 3,485
Total Other Assets 82,319 94,676
Total Assets $ 346,046 $ 364,856
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<PAGE>6
FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(in thousands, except par value)
Sept. 30, Dec. 31,
1996 1995
(Unaudited)
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 27,265 $ 29,142
Accrued Insurance Reserves 9,051 11,113
Accrued Compensation 8,751 8,129
Accrued Interest 8,615 5,097
Accrued Environmental Reserves 3,654 4,754
Accrued Liabilities and Expenses 6,692 8,022
Current Maturities of Long-Term Debt 1,956 19,373
Total Current Liabilities 65,984 85,630
Long-Term Debt 184,551 194,955
Other Non-Current Liabilities 27,249 34,517
Total Liabilities 277,784 315,102
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 Par Value;
Authorized, 3,217 Shares;
Issued and Outstanding, None - -
Class A Common Stock, $.10 Par Value; 1,363 1,365
Authorized, 18,000 Shares;
Issued and Outstanding
1996 - 13,629; 1995 - 13,651
Class B Common Stock, $.10 Par Value; 471 472
Authorized, 18,000 Shares;
Issued and Outstanding
1996 - 4,710; 1995 - 4,719
Capital Surplus 108,649 109,046
Accumulated Deficit (42,758) (60,008)
Unearned Compensation (461) (1,340)
Cumulative Translation Adjustment 998 219
Total Stockholders' Equity 68,262 49,754
Total Liabilities and Stockholders' Equity $ 346,046 $ 364,856
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>7
FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(in thousands)
(Unaudited)
1996 1995
Operating Activities:
Income (Loss) from Continuing Operations $ 15,862 $ (13,999)
Income from Discontinued Operations 1,391 1,105
Adjustments to Reconcile Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 5,500 4,966
Amortization of Unearned Compensation 314 1,068
Other, Net (300) (428)
Changes in Operating Assets and Liabilities:
Accounts Receivable (8,040) (8,289)
Inventories (7,443) (9,298)
Prepaid Items (840) 5,451
Other Assets 1,819 8,183
Accounts Payable (1,830) (20,244)
Accrued Liabilities and Expenses (1,337) 10,645
Accrued Income Taxes - 14,410
Other Liabilities (6,570) (4,318)
Net Cash (Used) by Operating Activities (1,474) (10,748)
Investing Activities:
Capital Expenditures for Continuing Operations (5,140) (4,419)
Capital Expenditures for Discontinued Operations (1,746) (18,483)
Proceeds from Sale of Property, Plant and Equipment 4,420 10,858
Proceeds from Business Divestitures 32,442 186,156
Purchases of Securities by Insurance Subs. - (159)
Net Cash Provided by Investing Activities 29,976 173,953
Financing Activities:
Proceeds from Debt - 3,963
Principal Payments on Debt (27,821)(157,809)
Common Stock Transactions, Net 165 (189)
Net Cash (Used) by Financing Activities (27,656)(154,035)
Net (Decrease) in Cash and Cash Equivalents 846 9,170
Cash and Cash Equivalents at Beginning of Year 25,856 68,300
Cash and Cash Equivalents at End of Period $ 26,702 $ 77,470
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>8
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 nine months ended September 30, 1996 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 nine months ended September 30, 1996 and
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 1995 Form 10-K.
RECENT ACCOUNTING PRONOUNCEMENTS. In 1995, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards
("SFAS") numbers 121 and 123. SFAS 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and
for long-lived assets and certain identifiable intangible assets to be
disposed of. The Company's adoption of SFAS 121, effective January 1,
1996, had no effect on the results of operations, financial position or
cash flow. SFAS 123 establishes a fair value method for accounting for
stock-based employee compensation plans either through recognition or
disclosure. The Company will adopt the disclosure requirement of SFAS
123 in the 1996 annual financial statements. This adoption will not
impact the Company's results of operations, financial position or cash
flow.
<PAGE>
<PAGE>9
(2) Receivables:
Receivables consist of the following components (in thousands):
9/30/96 12/31/95
U.S. Government
Billed $11,860 $11,604
Unbilled 17,847 16,713
29,707 28,317
Commercial
Billed 32,003 25,448
Allowance for Uncollectible Accounts (378) (303)
$61,332 $53,462
U.S. Government receivables include amounts derived from contracts on
which the Company performs on a prime contractor or subcontractor basis.
Unbilled receivables represent the difference between revenue recognized
on a percentage of completion basis for financial accounting and
reporting purposes and amounts permitted to be billed to customers under
contract terms. These amounts will be billed in subsequent periods based
on provisions of the agreements.
(3) Inventories:
Inventories are summarized as follows (in thousands):
9/30/96 12/31/95
Raw Materials $22,074 $20,519
Work in Process 13,621 12,732
Finished Goods 18,661 11,966
Inventory Reserves (2,996) (1,376)
Total $51,360 $43,841
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<PAGE>10
(4) Divestitures and Net Assets Related to Discontinued Operations:
In October, 1996, the Company authorized the sale of its Taylor
Environmental Instruments business ("Taylor"). Accordingly, Taylor has
been accounted for as a discontinued operation as of September 30, 1996,
and previously reported data has been restated. Income from Discontinued
Operations reflects Taylor's operating income; no gain or loss from
disposal has been recorded as the Company expects to generate a gain
which will be accounted for upon consummation of the sale.
During the first nine months of 1996, the Company completed the sales of
previously discontinued businesses. The Company sold Interstate
Engineering, Hartman Electrical, the balance of Natural Resources and
certain idle equipment and former facilities. As part of the
consideration for Interstate Engineering, the Company received a $6.0
million partnership interest in the purchaser. The partnership interest
is presented within the caption "Investments". The terms of the
partnership agreement require a repayment of the $6.0 million investment
and 9% annual interest on or before February 28, 2006.
Since the beginning of 1994, the Company has sold a number of businesses.
The contracts under which the businesses were divested included
representations and warranties, covenants and indemnification provisions
made (a) by the Company to purchasers of the businesses and (b) by
purchasers of businesses to the Company. Each transaction has contract
terms specific to that transaction. The extent of representations and
warranties made ranged from those qualified by time, knowledge, and
dollar materiality to those representations and warranties which are
unqualified. Covenants require the Company to act, or prevent the
Company from acting, in a variety of ways, such as not competing with the
purchasers of a business. Covenants also require the purchasers to act,
or prevent them from acting, in a variety of ways. The duration of
covenants range from those effective for a specified period of time to
those which are indefinite.
Remedies available for breaches of representations and warranties and
covenants range from monetary relief in specific amounts for specific
breaches or violations to unlimited amounts.
Under the contracts, the Company has generally retained liability for
events that occurred prior to sale. The Company believes that it has
established appropriate accruals for losses that may arise, such as
workers' compensation, product liability, general liability,
environmental risks and federal and state tax matters.
<PAGE>
<PAGE>11
The Company has indemnified purchasers and has received indemnifications
from purchasers for a variety of items. In some transactions, a portion
of the purchase price was held back or escrowed at banks to support
indemnification provisions. Such amounts are reflected within the assets
of the Company as deferred divestiture proceeds.
Proceeds and other consideration from divestitures 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. Deferred divestiture proceeds consist of cash held in
bank escrow accounts, cash held back by purchasers, receivables expected
from purchasers arising from final calculations of the purchase price and
cash due to the Company from future tax benefits under a tax sharing
agreement with an unaffiliated public company, Rawlings Sporting Goods,
Inc.
As of September 30, 1996, net assets related to discontinued operations
of $21.5 million represents the net assets of Taylor Environmental
Instruments, a division of the Company, approximately 100 installation
contracts in process of completion from the "Automatic" Sprinkler
business, former facilities and specialized machinery and equipment of
discontinued business units.
The amounts recorded as deferred divestiture proceeds and net assets
related to discontinued operations are managements' best estimates of the
amounts expected to be realized. The amounts the Company will ultimately
realize could differ materially from the amounts recorded. The Company
has a reserve of $19.8 million against these assets.
(5) Income Taxes:
As of December 31, 1995, the Company had $49.2 million of tax
carryforward attributes in excess of current and net deferred tax
liabilities. These excess attributes were not recognized in the
financial statements as of December 31, 1995. For the nine month and
three month periods ended September 30, 1996, income taxes of
approximately $6.6 and $2.5 million, respectively, at the statutory rates
would have been provided; however, no income tax provision was recorded
for continuing or discontinued operations as the Company recognized a
portion of the excess tax attributes to offset them. The Company does
not anticipate that a tax provision will be required for the entire year
of 1996.
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<PAGE>12
(6) Credit Facility:
The Company has a $75 million revolving credit loan and letter of credit
facility ("Credit Agreement") which expires on January 1, 1999. Within
the Credit Agreement, the Company can issue up to $60 million in letters
of credit. Borrowings are available up to the lesser of $75 million or
a borrowing base which is tied to eligible receivables, inventory and
machinery and equipment, less outstanding letters of credit.
As of September 30, 1996, $21.1 million of letters of credit were
outstanding under the facility and no borrowings were outstanding ($30.1
million was available).
The facility is secured by certain accounts receivable, inventory,
machinery and equipment and intangibles. The facility contains various
affirmative and negative covenants, including restrictions on the payment
of dividends and certain financial covenants, all of which have been met.
(7) Long-Term Debt:
Total debt consists of the following (in thousands):
9/30/96 12/31/95
Long-Term Debt:
9.875% Senior Notes due October 1, 1999 $174,000 $174,000
Mortgage Notes 11,089 30,301
10.375% Debentures - 8,000
Obligations under Capital Lease 1,418 2,027
Total 186,507 214,328
Less - Current Maturities (1,956) (19,373)
Long-Term Debt $184,551 $194,955
Mortgage notes are secured by real property, are due at various dates
through 2009 and bear interest at rates ranging from 7.5% to 10.52%. The
debentures were prepaid on August 30, 1996.
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(8) Capital Stock:
Each share of Class A Common Stock is entitled to one-twentieth of one
vote per share, while each share of the Class B Common Stock is entitled
to one vote per share, except, in each case, with respect to shares
beneficially owned by a Substantial Stockholder (as defined in the
Company's Restated Certificate of Incorporation, as amended), in which
case the voting rights of such stock will be governed by the appropriate
provisions of the Company's Restated Certificate of Incorporation.
Earnings per share for the nine months and third quarter periods ended
September 30, 1996 and 1995 were calculated using the following share
data. Primary weighted-average shares were used in 1995 as fully diluted
shares would have been anti-dilutive to the reported net loss.
<TABLE>
<CAPTION>
(in thousands)
1996 1996 1995 1995
3rd Qtr Nine Mos 3rd Qtr Nine Mos
<S> <C> <C> <C> <C>
Primary Weighted-Average Number of Shares:
Allocated Shares 18,341 18,370 17,987 17,989
Common Stock Equivalents of Stock Options 387 375 283 186
Primary Weighted-Average 18,728 18,745 18,270 18,175
Fully Diluted Weighted-Average Number of Shares:
Unallocated ESOP shares
1995
1996
Common Stock Equivalents - 12 58 154
Fully Diluted Weighted-Average 18,728 18,757 18,328 18,329
</TABLE>
(9) Leases:
The Company leases manufacturing equipment under operating leases. The
changes in rental commitments under operating leases during the quarter
are as follows (in millions):
Discontinued Continuing
Operations Operations Total
Rental commitments at
December 31, 1995 $ 18.6 $ 24.9 $ 43.5
Rental payments to lessors (3.0) (5.6) (8.6)
Use of prepaid rent asset to
buy out equipment at
lease-stipulated values (9.3) (2.3) (11.6)
Rental commitments at
September 30, 1996 $ 6.3 $ 17.0 $ 23.3
Leased machinery and equipment that was not sold with divested business
units was auctioned on January 23, 1996. A substantial portion of the
Company's buy out of the lease was funded by application of the prepaid
rent asset. For equipment not sold at the auction, the Company will
satisfy the rental payments through its internal funds until such
equipment is sold, subleased or assigned.
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<PAGE>14
(10) Contingent Liabilities:
The Company and its subsidiaries are defendants in various lawsuits
arising in the ordinary course of business. In the opinion of
management, any liability with respect to these matters will not have a
material adverse effect on the Company's financial statements.
On December 19, 1994 the Company, its subsidiary Figgie Properties Inc.
and the Richard E. Jacobs Group filed an action in the Common Pleas Court
of Cuyahoga County, Ohio 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. 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. On January 24, 1996, the Court denied the
City's motion for summary judgment and granted the Company's motion for
summary judgment with respect to several counts of a counterclaim filed
by the City. On May 1, 1996, the parties reached agreement on the
general terms of a settlement and the litigation was dismissed without
prejudice. The settlement is subject to final approval by Council for
the City of Cleveland.
Costs charged by the Company to the U.S. Government in the performance of
U.S. Government contracts are subject to inquiry and audit. Several
years are open. The Company has provided a reasonable reserve for
possible disallowed costs. The Company has been cooperating with the
U.S. Government in two investigations, one involving possible
improprieties at a facility where a division of the Company was a
supplier, and the second, a criminal investigation involving the amount
of corporate charges allocated to certain of the Company's operating
units. The Company has furnished documents and other information and
denies any wrongdoing in both investigations. Nevertheless, the ultimate
resolution of these matters could result in sanctions and damages sought
by the government, and affect the Company's ability to obtain future
government contracts.
<PAGE>
<PAGE>15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations Summary *
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr.Nine Mos. Nine Mos. 3rd Qtr.
(in thousands) 1996 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 96,701 $101,415 $ 95,407 $293,523 $253,124 $ 87,286
Cost of Sales 71,240 73,682 69,856 214,778 189,333 65,194
Gross Profit on Sales 25,461 27,733 25,551 78,745 63,791 22,092
% of Net Sales 26.3% 27.3% 26.8% 26.8% 25.2% 25.3%
Operating Expenses:
Selling, General & Admin. 12,980 12,963 11,643 37,586 37,267 12,890
Research and Development 3,133 3,455 3,904 10,492 10,039 3,667
Total Operating Expenses 16,113 16,418 15,547 48,078 47,306 16,557
Operating Income (Loss) $ 9,348 $ 11,315 $ 10,004 $ 30,667 $ 16,485 $ 5,535
% of Net Sales 9.7% 11.2% 10.5% 10.4% 6.5% 6.3%
</TABLE>
For the first nine months of 1996, Net Sales increased $40.4 million from
the same period in 1995, or 16%, to $293.5 million. The 1996 third
quarter sales were $8.1 million, or 9%, higher when compared to the 1995
third quarter. Sales increases were achieved at the Snorkel and Scott
segments, and decreases in sales occurred at Interstate Electronics. Net
Sales decreased $6 million or 6% to $95.4 million in the third quarter as
compared to the second quarter of 1996.
Gross Profit for the nine months improved $15.0 million ($3.5 million for
the third quarter). The gross margin improved to 26.8% of net sales as
compared to 25.2% in 1995 for the nine months. The gross margin for the
third quarter of 1996 was 26.8%, compared to 25.3% in 1995. Snorkel
contributed significantly to the margin improvements.
Selling, General and Administrative expenses for the nine months improved
as a percentage of net sales to 12.8% in 1996, compared to 14.7% in 1995.
The third quarter similarly improved. Lower Corporate G&A expense was
responsible for the majority of the improvement.
Operating Income for the nine months amounted to $30.7 million in 1996,
as compared to $16.5 million in 1995.
Segment Information
The Company is a manufacturer of technology-driven products with
operations in three segments, Interstate Electronics Corporation, Scott,
and Snorkel. The results of operations are most meaningful when analyzed
and discussed in this manner.
* In anticipation of its sale, Taylor Environmental Instruments has
been classified as discontinued and, accordingly, the financial
statements have been reclassified.
<PAGE>
<PAGE>16
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:
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. Nine Mos. Nine Mos. 3rd Qtr.
(in thousands) 1996 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 22,447 $ 23,087 $ 23,244 $ 68,778 $ 75,692 $ 23,971
Cost of Sales 15,983 16,526 16,089 48,598 55,364 17,849
Gross Profit on Sales 6,464 6,561 7,155 20,180 20,328 6,122
% of Net Sales 28.8% 28.4% 30.8% 29.3% 26.9% 25.5%
Operating Expenses:
Selling, General & Admin. 3,083 2,896 2,713 8,692 8,777 2,989
Research and Development 1,796 2,198 2,410 6,404 6,265 2,330
Total Operating Expenses 4,879 5,094 5,123 15,096 15,042 5,319
Operating Income (Loss) $ 1,585 $ 1,467 $ 2,032 $ 5,084 $ 5,286 $ 803
% of Net Sales 7.1% 6.4% 8.7% 7.4% 7.0% 3.3%
</TABLE>
Discussion of 1996 Compared to 1995:
Net Sales declined for the nine months due to lower revenue from military
GPS systems and for the third quarter due to lower revenue from strategic
weapon systems. There was a minimal amount of commercial sales during
the nine months and third quarter.
Gross Margin increased for the nine months and third quarter due to
favorable overhead rates based on year-to-date spending.
Selling, General and Administrative expenses are lower for the nine
months and third quarter due to cost reduction activity.
Research and Development is higher for the nine months and third quarter
due to expenditures associated with the certification process for the
flight management system.
<PAGE>
<PAGE>17
Scott
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 manufactures protective breathing equipment, pilot
and crew oxygen masks plus emergency oxygen for passengers on commercial,
government and private aircraft. Scott also manufactures instruments to
detect the presence of combustible or toxic gases and the lack of oxygen.
The results of operations for Scott were as follows:
<TABLE>
1st Qtr. 2nd Qtr. 3rd Qtr. Nine Mos. Nine Mos. 3rd Qtr.
(in thousands) 1996 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 32,941 $ 33,342 $ 34,367 $100,650 $ 83,172 $ 28,724
Cost of Sales 22,618 22,948 24,126 69,692 56,166 19,384
Gross Profit on Sales 10,323 10,394 10,241 30,958 27,006 9,340
% of Net Sales 31.3% 31.2% 29.8% 30.8% 32.5% 32.5%
Operating Expenses:
Selling, General & Admin. 3,147 3,099 3,071 9,317 8,457 2,690
Research and Development 625 616 838 2,079 1,972 671
Total Operating Expenses 3,772 3,715 3,909 11,396 10,429 3,361
Operating Income (Loss) $ 6,551 $ 6,679 $ 6,332 $ 19,562 $ 16,577 $ 5,979
% of Net Sales 19.9% 20.0% 18.4% 19.4% 19.9% 20.8%
</TABLE>
Discussion of 1996 Compared to 1995:
Net Sales increased 21% for the nine months (20% for the third quarter)
due to the impact of emergency escape breathing equipment sales to the
government, increased oxygen product sales to aviation customers and
increased breathing apparatus sales to safety customers.
Gross Margin is lower for the nine months due to a shift in product mix
reflected by increased sales to government and aviation customers and for
the third quarter of 1996 as well due to the shipment of a large, lower
margin order to a new customer.
Selling, General and Administrative expenses have increased for the nine
months and third quarter in support of increased sales, but are lower as
a percent of sales when compared to the same periods last year.
<PAGE>
<PAGE>18
Snorkel
The Snorkel division manufacturers self-propelled aerial work platforms
such as telescopic and articulating booms and scissorlifts for use in
construction and maintenance activities. 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:
<TABLE>
1st Qtr. 2nd Qtr. 3rd Qtr. Nine Mos. Nine Mos. 3rd Qtr.
(in thousands) 1996 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 41,313 $ 44,986 $ 37,796 $124,095 $ 94,260 $ 34,591
Cost of Sales 32,639 34,208 29,641 96,488 77,803 27,961
Gross Profit on Sales 8,674 10,778 8,155 27,607 16,457 6,630
% of Net Sales 21.0% 24.0% 21.6% 22.2% 17.5% 19.2%
Operating Expenses:
Selling, General & Admin. 2,679 2,815 2,054 7,548 5,909 2,071
Research and Development 712 641 656 2,009 1,802 666
Total Operating Expenses 3,391 3,456 2,710 9,557 7,711 2,737
Operating Income (Loss) $ 5,283 $ 7,322 $ 5,445 $ 18,050 $ 8,746 $ 3,893
% of Net Sales 12.8% 16.3% 14.4% 14.5% 9.3% 11.3%
</TABLE>
Discussion of 1996 Compared to 1995:
Net Sales increased 32% compared to last year for the nine months (9% for
the third quarter) due to high market demand for aerial work platforms.
Domestic sales increased 26% for the nine months (2% for the third
quarter). International sales increased 69% for the nine months (63% for
the third quarter). Sales for the third quarter were down compared with
the second quarter of 1996. This was due to several factors, including
uneven demand industrywide for aerial work platforms, some supplier
component delays, and hesitancy among Snorkel dealers to order products
amid rumors the division was for sale.
Gross Profit amounts and gross margin percentages improved substantially
for the nine months and the third quarter due to increased plant
throughput, improved purchasing costs and manufacturing efficiencies in
the scissorlift line.
Selling, General and Administrative expenses for the nine months
increased due to additional selling costs related to the increased sales
volume.
<PAGE>
<PAGE>19
Corporate and Unallocated Costs and Expenses
Corporate activity and unallocated costs and expenses were as follows:
1st Qtr. 2nd Qtr. 3rd Qtr. Nine Mos. Nine Mos.3rd Qtr.
(in thousands) 1996 1996 1996 1996 1995 1995
Selling, General & Admin. $ 4,071 $ 4,153 $ 3,805 $12,029 $14,124 $ 5,140
Other Expenses (Income):
Refinancing Costs 218 268 254 740 10,806 756
Interest Expense 5,119 4,927 4,867 14,913 22,984 6,416
Interest Income (211) (372) (551) (1,134) (1,731) (306)
Other, Net 381 182 (277) 286 (1,575) (1,629)
Discussion of 1996 Compared to 1995:
Selling, General and Administrative expenses are down significantly in
1996 due to the recurring impact of the 1995 cutback of corporate staff,
a decrease in travel and other expenses associated with divestitures and
numerous other cost-cutting measures. The nine months of 1996 includes
a $1.2 million provision for estimated professional costs of the
strategic alternatives review.
Refinancing Costs are down significantly because the 1995 expenses were
for lender fees related to the Override Agreement which was paid-off at
the end of 1995.
Interest Expense is down significantly due to significantly lower levels
of bank and mortgage debts outstanding.
The Company has sufficient loss carryforwards and credits to offset all
of its U.S. regular and alternative minimum taxes otherwise payable and,
accordingly, has recorded no income tax provision.
<PAGE>
<PAGE>20
Financial Position and Liquidity
Accounts Receivable at September 30, 1996 are $61.3 million, compared to
$53.5 million as of the end of 1995. Increased sales at Snorkel and
Scott account for the increase.
Inventories increased by $7.5 million due to finished goods levels at
Snorkel.
Operations required $1.5 million, principally for working capital.
Through September 30, 1996, the Company continued to sell the net assets
presented in the Company's balance sheet as Net Assets Related to
Discontinued Operations and to apply the proceeds to reduce debt. The
proceeds from divestitures and asset sales generated $36.9 million which
was used to pay down $27.8 million of debt since year-end 1995. On
August 30, 1996, the Company prepaid the $6.5 million debentures
outstanding at that date.
Expenditures for property, plant and equipment were $5.1 million (for
continuing operations) for the nine months. 1996 expenditures were
principally for machinery and equipment. Capital expenditures in 1996
are expected to be approximately $8 million and are expected to be funded
from internally generated funds.
Liquidity is provided by the Company's cash and cash equivalents,
divestiture proceeds and the $75 million credit facility. $30.1 million
was available for borrowing at September 30, 1996 under the facility and
no borrowings were outstanding.
The Company's adoption on January 1, 1996 of the new accounting standard
for the impairment of long-lived assets had no effect on the results of
operations, financial position or cash flow. The Company will adopt the
disclosure requirement of the new accounting principle for stock-based
employee compensation plans in its 1996 annual financial statements.
On February 21, 1996, the Board of Directors determined to explore
strategic alternatives to enhance shareholder value, including the
possible sale of all or a portion of the Company. On October 16, 1996,
the Board of Directors concluded the study and determined that the most
appropriate strategy was to operate and grow the Scott, Snorkel and
Interstate Electronics businesses and to divest the $18 million-revenue
Taylor business.
<PAGE>
<PAGE>21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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>22
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
Senior Vice President and
Chief Financial Officer
(Duly Authorized and
Principal Financial Officer)
Date: October 25, 1996
<PAGE>
<PAGE>23
EXHIBIT INDEX
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000720032
<NAME> FIGGIE INTERNATIONAL
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 26,702
<SECURITIES> 0
<RECEIVABLES> 61,710
<ALLOWANCES> 378
<INVENTORY> 51,360
<CURRENT-ASSETS> 175,734
<PP&E> 137,709
<DEPRECIATION> 49,716
<TOTAL-ASSETS> 346,046
<CURRENT-LIABILITIES> 65,984
<BONDS> 184,551
<COMMON> 1,834
0
0
<OTHER-SE> 66,428
<TOTAL-LIABILITY-AND-EQUITY> 346,046
<SALES> 293,523
<TOTAL-REVENUES> 293,523
<CGS> 214,778
<TOTAL-COSTS> 262,856
<OTHER-EXPENSES> 1,026
<LOSS-PROVISION> 173
<INTEREST-EXPENSE> 13,779
<INCOME-PRETAX> 15,862
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,751
<DISCONTINUED> 1,391
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,253
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
</TABLE>
