<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 June 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 July 11, 1996
Class A Common Stock, par value $.10 per share 13,789,948
Class B Common Stock, par value $.10 per share 4,770,903
18,560,851
<PAGE>
<PAGE>2
FIGGIE INTERNATIONAL INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION. . . . . . . . . . . . . . . .3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995 4
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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
Subsequent Event. . . . . . . . . . . . . . . . . . . . 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
Results of Operations Summary . . . . . . . . . . . . . 16
Segment Information . . . . . . . . . . . . . . . . . . 16
Interstate Electronics Corporation. . . . . . . . . . . 17
Scott/Taylor Environmental. . . . . . . . . . . . . . . 18
Snorkel . . . . . . . . . . . . . . . . . . . . . . . . 19
Corporate and Unallocated Costs and Expenses. . . . . . 20
Financial Position and Liquidity. . . . . . . . . . . . 21
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . 22
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . 23
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>
<PAGE>3
PART I. FINANCIAL INFORMATION
FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(in thousands, except per share data)
(Unaudited)
1996 1995
Net Sales $206,426 $173,956
Cost of Sales 150,410 129,760
Gross Profit on Sales 56,016 44,196
Operating Expenses:
Selling, General and Administrative 28,003 26,321
Research and Development 6,727 6,507
Total Operating Expenses 34,730 32,828
Operating Income 21,286 11,368
Other Expense (Income):
Refinancing Costs 486 10,050
Interest Expense 10,103 16,629
Interest Income (583) (1,425)
Other, Net 655 (18)
Income (Loss) before Income Taxes 10,625 (13,868)
Income Taxes - -
Net Income (Loss) $ 10,625 $(13,868)
Weighted Average Shares 18,843 18,106
Per Share Data
Net Income (Loss) $ 0.56 $ (0.77)
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>4
FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(in thousands, except per share data)
(Unaudited)
1996 1995
Net Sales $105,249 $ 88,690
Cost of Sales 76,248 66,747
Gross Profit on Sales 29,001 21,943
Operating Expenses:
Selling, General and Administrative 13,990 12,491
Research and Development 3,517 2,997
Total Operating Expenses 17,507 15,488
Operating Income 11,494 6,455
Other Expense (Income):
Refinancing Costs 268 5,528
Interest Expense 4,954 7,555
Interest Income (372) (581)
Other, Net 225 (217)
Income (Loss) before Income Taxes 6,419 (5,830)
Income Taxes - -
Net Income (Loss) $ 6,419 $ (5,830)
Weighted Average Shares 18,838 18,117
Per Share Data
Net Income (Loss) $ 0.34 $ (0.32)
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>5
FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(in thousands)
June 30, Dec. 31,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 22,721 $ 25,583
Restricted Cash - 273
Trade Accounts Receivable, less Allowance
for Uncollectible Accounts of $375 in 1996
and $373 in 1995 66,752 56,668
Inventories 48,725 46,458
Prepaid Expenses 2,855 1,537
Recoverable Income Taxes 12,495 12,495
Net Assets Related to Discontinued Operations 19,402 35,864
Total Current Assets 172,950 178,878
PROPERTY, PLANT AND EQUIPMENT
Land and Land Improvements 50,448 52,633
Buildings and Leasehold Improvements 36,135 39,822
Machinery and Equipment 56,918 51,205
143,501 143,660
Accumulated Depreciation (52,654) (52,935)
90,847 90,725
Property under Capital Leases, less
Accumulated Depreciation of $412
in 1996 and $377 in 1995 307 342
Net Property, Plant and Equipment 91,154 91,067
OTHER ASSETS
Deferred Divestiture Proceeds, Net 30,543 33,935
Prepaid Pension Costs 9,892 9,892
Prepaid Rent on Leased Equipment 5,644 17,075
Intangible Assets 19,052 19,447
Investments 7,978 1,029
Cash Surrender Value of Insurance Policies 6,816 8,748
Prepaid Finance Costs 4,006 4,436
Other 3,297 2,972
Total Other Assets 87,228 97,534
Total Assets $ 351,332 $ 367,479
<PAGE>
<PAGE>6
FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(in thousands, except par value)
June 30, Dec. 31,
1996 1995
(Unaudited)
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 28,333 $ 30,512
Accrued Insurance Reserves 10,025 11,113
Accrued Compensation 8,621 8,322
Accrued Interest 4,617 5,097
Accrued Environmental Reserves 3,862 4,754
Accrued Liabilities and Expenses 10,431 9,243
Current Maturities of Long-Term Debt 9,843 19,373
Total Current Liabilities 75,732 88,414
Long-Term Debt 186,263 194,955
Other Non-Current Liabilities 28,298 34,517
Total Liabilities 290,293 317,886
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 - 13,630; 1995 - 13,651
Class B Common Stock, $.10 Par Value; 471 472
Authorized, 18,000 Shares;
Issued and Outstanding
1996 - 4,710; 1995 - 4,718
Capital Surplus 108,726 109,046
Accumulated Deficit (49,383) (60,008)
Unearned Compensation (675) (1,340)
Cumulative Translation Adjustment 537 58
Total Stockholders' Equity 61,039 49,593
Total Liabilities and Stockholders' Equity $ 351,332 $ 367,479
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>7
<TABLE>
FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(in thousands)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Operating Activities:
Net Income (Loss) $ 10,625 $ (13,868)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities
Depreciation and Amortization 3,586 3,412
Amortization of Unearned Compensation 247 416
Other, Net (2) 480
Changes in Operating Assets and Liabilities
Accounts Receivable (10,084) (1,725)
Inventories (2,267) (4,154)
Prepaid Items (1,318) 4,567
Other Assets (1,688) 5,205
Accounts Payable (2,179) (2,614)
Accrued Liabilities and Expenses (1,082) (4,386)
Accrued Income Taxes - 15,269
Other Liabilities (6,110) (4,234)
Net Cash (Used) by Operating Activities (10,272) (1,632)
Investing Activities:
Capital Expenditures for Continuing Operations (4,048) (3,448)
Capital Expenditures for Discontinued Operations - (18,202)
Proceeds from Sale of Property, Plant and Equipment 4,367 10,858
Proceeds from Business Divestitures 24,945 87,441
Purchases of Securities by Insurance Subs. - (303)
Net Cash Provided by Investing Activities 25,264 76,346
Financing Activities:
Proceeds from Debt - 3,874
Principal Payments on Debt (18,222) (103,327)
Common Stock Transactions, Net 95 (174)
Net Cash (Used) by Financing Activities (18,127) (99,627)
Net (Decrease) in Cash and Cash Equivalents (3,135) (24,913)
Cash and Cash Equivalents at Beginning of Year 25,856 68,300
Cash and Cash Equivalents at End of Period $ 22,721 $ 43,387
- - Continuing Operations - Unrestricted $ 22,721 $ 9,615
- - Continuing Operations - Restricted $ 16,599
- - Discontinued Operations $ 10,873
- - Deferred Divestiture Proceeds $ 6,300
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<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 six months ended June
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 six months ended June 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):
6/30/96 12/31/95
U.S. Government
Billed $11,929 $11,604
Unbilled 21,459 16,713
33,388 28,317
Commercial
Billed 33,739 28,724
Allowance for Uncollectible Accounts (375) (373)
$66,752 $56,668
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):
6/30/96 12/31/95
Raw Materials $19,883 $21,425
Work in Process 13,992 13,433
Finished Goods 17,795 13,195
Inventory Reserves (2,945) (1,595)
Total $48,725 $46,458
<PAGE>
<PAGE>10
(4) Divestitures and Net Assets Related to Discontinued
Operations:
During the first six months of 1996, the Company sold Interstate
Engineering 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 interest on or before February 28, 2006 and 9% annual
interest.
Since the beginning of 1994, the Company has sold twenty-three of
the twenty-four businesses held for sale. 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.
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.
<PAGE>
<PAGE>11
As of June 30, 1996, net assets related to discontinued operations
of $19.4 million represents the net assets of Hartman Electrical,
a division of the Company, approximately 140 installation contracts
in process of completion from the "Automatic" Sprinkler business,
oil and gas interests in Illinois, and former facilities and
specialized machinery and equipment of discontinued business units.
On July 2, 1996, the Company completed the divestitures of Hartman
Electrical and the oil and gas interests in Illinois for
approximately $13 million in cash.
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 $16.1 million
against these assets, which is presented as a deduction from
deferred divestiture proceeds.
(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 six month
and three month periods ended June 30, 1996, income taxes of
approximately $4.0 and $2.4 million, respectively, at the statutory
rates would have been provided; however, no income tax provision
was recorded 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.
<PAGE>
<PAGE>12
(6) Credit Facility:
The Company has a $75 million, three-year revolving credit loan and
letter of credit facility ("Credit Agreement"). 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 June 30, 1996, $28.8 million of letters of credit were
outstanding under the facility and no borrowings were outstanding
($25.9 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 dividends and certain financial covenants, all of which have
been met. The facility expires on January 1, 1999.
(7) Long-Term Debt:
Total debt consists of the following (in thousands):
6/30/96 12/31/95
Long-Term Debt:
9.875% Senior Notes due October 1, 1999 $174,000 $174,000
10.375% Subordinated Debentures
due April 1, 1998 6,500 8,000
Mortgage Notes 14,079 30,301
Obligations under Capital Lease 1,527 2,027
Total 196,106 214,328
Less - Current Maturities (9,843) (19,373)
Long-Term Debt $186,263 $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%.
Current maturities as of June 30, 1996 includes $6.5 million of
subordinated debentures and $1.2 million of mortgage notes, which
the Company intends to prepay in August, 1996.
<PAGE>
<PAGE>13
(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 six months and second quarter periods
ended June 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
2nd Qtr Six Mos 2nd Qtr Six Mos
<S> <C> <C> <C> <C>
Weighted-Average Number of Shares:
Allocated Shares 18,379 18,385 17,976 17,990
Common Stock Equivalents of Stock Options 421 374 141 116
Primary Weighted-Average 18,800 18,759 18,117 18,106
Fully Diluted Weighted-Average Number of Shares:
Unallocated ESOP shares
1995 196 196
1996 196 196
Common Stock Equivalents 38 84 5 31
Fully Diluted Weighted-Average 18,838 18,843 18,514 18,529
</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 $ 16.1 $ 27.4 $ 43.5
Rental payments to lessors (2.4) (3.6) (6.0)
Use of prepaid rent asset to
buy out equipment at
lease-stipulated values (6.8) (4.6) (11.4)
Rental commitments at
June 30, 1996 $ 6.9 $ 15.7 $ 26.1
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.
<PAGE>
<PAGE>14
(10) Contingent Liabilities:
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 Sections 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 sought monetary damages and costs and were
consolidated into one case. The parties subsequently entered into
a formal settlement agreement providing for a payment to the
plaintiff class of approximately $3.0 million, which is described
in a notice dated April 22, 1996 sent to the members of the
affected stockholder class. Such stockholders were afforded an
opportunity to object to the settlement and no objections were
filed by the members of the class. The Court entered an Order and
Final Judgment on June 12, 1996. Pursuant to the Order, the
settlement became effective on July 17, 1996. The Company has
established an appropriate accrual for this matter.
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 of the City of Cleveland.
Additionally, 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.
<PAGE>
<PAGE>15
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.
(11) Subsequent Event:
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 July 17,
1996, the Board of Directors determined that the sale of the entire
Company was not an acceptable strategic alternative. The Board
also decided to explore the sale of a portion of the business and
apply the proceeds to improve the balance sheet and provide
additional capital and flexibility to grow the retained businesses.
Any unit sold would likely generate a gain. No assurances can be
given that a transaction will be consummated.
<PAGE>
<PAGE>16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
Results of Operations Summary
<CAPTION>
1st Qtr. 2nd Qtr. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C>
Net Sales $101,177 $105,249 $206,426 $173,956 $ 88,690
Cost of Sales 74,162 76,248 150,410 129,760 66,747
Gross Profit on Sales 27,015 29,001 56,016 44,196 21,943
% of Net Sales 26.7% 27.6% 27.1% 25.4% 24.7%
Operating Expenses:
Selling, General & Admin. 14,013 13,990 28,003 26,321 12,491
Research and Development 3,210 3,517 6,727 6,507 2,997
Total Operating Expenses 17,223 17,507 34,730 32,828 15,488
Operating Income (Loss) $ 9,792 $ 11,494 $ 21,286 $ 11,368 $ 6,455
% of Net Sales 9.7% 10.9% 10.3% 6.5% 7.3%
</TABLE>
For the first six months of 1996, Net Sales increased $32.5 million
from the same period in 1995, or 19%, to $206.4 million. The 1996
second quarter sales were $16.6 million, or 19%, higher when
compared to the 1995 second quarter. Sales increases were achieved
at the Snorkel and Scott/Taylor segments, and decreases in sales
occurred at Interstate Electronics. Net Sales increased $4.1
million or 4% to $105.2 million in the second quarter as compared
to the first quarter of 1996.
Gross Profit for the six months improved $11.8 million ($7.1
million for the second quarter). The gross margin improved to
27.1% of net sales as compared to 25.4% in 1995 for the six months.
The gross margin for the second quarter of 1996 was 27.6%, compared
to 24.7% in 1995. Snorkel contributed significantly to the margin
improvements.
Selling, General and Administrative expenses for the six months
improved as a percentage of net sales to 13.6% in 1996, compared to
15.1% in 1995. The second quarter similarly improved. Lower
Corporate G&A expense was responsible for the majority of the
improvement.
Operating Income for the six months amounted to $21.3 million in
1996, as compared to $11.4 million in 1995.
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.
<PAGE>
<PAGE>17
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. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C>
Net Sales $ 22,447 $ 23,087 $ 45,534 $ 51,721 $ 26,934
Cost of Sales 15,983 16,526 32,509 37,515 19,627
Gross Profit on Sales 6,464 6,561 13,025 14,206 7,307
% of Net Sales 28.8% 28.4% 28.6% 27.5% 27.1%
Operating Expenses:
Selling, General & Admin. 3,083 2,896 5,979 5,787 3,110
Research and Development 1,796 2,198 3,994 3,935 1,748
Total Operating Expenses 4,879 5,094 9,973 9,722 4,858
Operating Income (Loss) $ 1,585 $ 1,467 $ 3,052 $ 4,484 $ 2,449
% of Net Sales 7.1% 6.4% 6.7% 8.7% 9.1%
</TABLE>
Discussion of 1996 Compared to 1995:
Net Sales declined for the six months and second quarter due to
lower revenues from military GPS systems. There was a minimal
amount of commercial sales during the second quarter.
Gross Margin increased for the six months and second quarter due to
productivity improvements in the displays product line.
Selling, General and Administrative expenses are higher for the six
months and second quarter due to increased selling and marketing
activity for new commercial products, including salaries,
advertising, trade shows and travel.
Research and Development is higher for the six months and second
quarter due to expenditures associated with the certification
process for the flight management system.
<PAGE>
<PAGE>18
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
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.
Taylor manufactures and sells temperature and environmental
measuring and testing devices, such as consumer thermometers,
barometers and hygrometers. 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:
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C>
Net Sales $ 37,417 $ 37,176 $ 74,593 $ 62,566 $ 32,056
Cost of Sales 25,540 25,514 51,054 42,403 21,838
Gross Profit on Sales 11,877 11,662 23,539 20,163 10,218
% of Net Sales 31.7% 31.4% 31.6% 32.2% 31.9%
Operating Expenses:
Selling, General & Admin. 4,180 4,126 8,306 7,711 3,947
Research and Development 702 678 1,380 1,436 664
Total Operating Expenses 4,882 4,804 9,686 9,147 4,611
Operating Income (Loss) $ 6,995 $ 6,858 $ 13,853 $ 11,016 $ 5,607
% of Net Sales 18.7% 18.4% 18.6% 17.6% 17.5%
</TABLE>
Discussion of 1996 Compared to 1995:
Net Sales increased 19% for the six months (16% for the second
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 down slightly for the six months and second quarter
due to a shift in product mix reflected by increased sales to
government and aviation customers.
Selling, General and Administrative expenses have increased
slightly for the six months and second quarter, but are lower as a
percent of sales when compared to the same periods last year.
<PAGE>
<PAGE>19
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>
<CAPTION>
1st Qtr. 2nd Qtr. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C>
Net Sales $ 41,313 $ 44,986 $ 86,299 $ 59,669 $ 29,700
Cost of Sales 32,639 34,208 66,847 49,842 25,282
Gross Profit on Sales 8,674 10,778 19,452 9,827 4,418
% of Net Sales 21.0% 24.0% 22.5% 16.5% 14.9%
Operating Expenses:
Selling, General & Admin. 2,679 2,815 5,494 3,839 1,989
Research and Development 712 641 1,353 1,136 585
Total Operating Expenses 3,391 3,456 6,847 4,975 2,574
Operating Income (Loss) $ 5,283 $ 7,322 $ 12,605 $ 4,852 $ 1,844
% of Net Sales 12.8% 16.3% 14.6% 8.1% 6.2%
</TABLE>
Discussion of 1996 Compared to 1995:
Net Sales increased 45% compared to last year for the six months
(51% for the second quarter) due to continued high market demand
for aerial work platforms. Domestic sales increased 41% for the
six months (55% for the second quarter). International sales
increased 71% for the six months (30% for the second quarter).
Gross Profit amounts and gross margin percentages improved
substantially for the six months and the second quarter due to
increased plant throughput, improved purchasing and manufacturing
efficiencies in the scissorlift line.
Selling, General and Administrative expenses for the six months and
the second quarter increased due to additional selling costs
related to the increased sales volume.
<PAGE>
<PAGE>20
Corporate and Unallocated Costs and Expenses
Corporate activity and unallocated costs and expenses were as
follows:
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. Six Mos. Six Mos. 2nd Qtr.
(in thousands) 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C>
Selling, General & Admin. $ 4,071 $ 4,153 $ 8,224 $ 8,984 $ 3,445
Other Expenses (Income):
Refinancing Costs 218 268 486 10,050 5,528
Interest Expense 5,149 4,954 10,103 16,629 7,555
Interest Income (211) (372) (583) (1,425) (581)
Other, Net 430 225 655 (18) (217)
</TABLE>
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
second quarter of 1996 includes a $750,000 provision for estimated
professional costs of the strategic alternatives review. The
second quarter of 1995 reflects the reversal of the 1994 bonus
accrual of $1.4 million. In the second quarter of 1995, 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 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>21
Financial Position and Liquidity
Accounts Receivable at June 30, 1996 are $66.8 million, compared to
$56.7 million as of the end of 1995. Increased sales at Snorkel
and Scott account for $7.6 million of the increase; the remainder
of the increase is due to the timing of billings and collections at
Interstate Electronics.
Inventories increased by $2.3 million due to work-in-process
production and finished goods levels to fill the order backlog for
Scott and Snorkel customers.
Operations required $10.3 million, principally for working capital
requirements. The proceeds from divestitures and asset sales
generated $29.3 million which was used to pay down $18.2 million of
debt since year-end 1995.
Expenditures for property, plant and equipment were $4.0 million
for the six 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 and the $75 million credit facility.
Liquidity is provided by the Company's cash and cash equivalents,
divestiture proceeds and the $75 million credit facility. $25.9
million was available for borrowing at June 30, 1996 under the
facility.
Through June 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.
On July 2, 1996, the Company completed the sales of two small
businesses for approximately $13 million in cash. On July 17,
1996, the Company decided to prepay the $6.5 million debentures.
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 July 17,
1996, the Board of Directors determined that the sale of the entire
Company was not an acceptable strategic alternative. The Board
also decided to explore the sale of a portion of the business and
apply the proceeds to improve the balance sheet and provide
additional capital and flexibility to grow the retained businesses.
Any unit sold would likely generate a gain. No assurances can be
given that a transaction will be consummated.
<PAGE>
<PAGE>22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 Sections 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 sought monetary damages and costs and were
consolidated into one case. The parties subsequently entered into
a formal settlement agreement providing for a payment to the
plaintiff class of approximately $3.0 million, which is described
in a notice dated April 22, 1996 sent to the members of the
affected stockholder class. Such stockholders were afforded an
opportunity to object to the settlement and no objections were
filed by the members of the class. The Court entered an Order and
Final Judgment on June 12, 1996. Pursuant to the Order, the
settlement became effective on July 17, 1996. The Company has
established an appropriate accrual for this matter.
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 of the City of Cleveland.
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: July 22, 1996
<PAGE>
<PAGE>24
EXHIBIT INDEX
27.0 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000720032
<NAME> FIGGIE INTERNATIONAL
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 22,721
<SECURITIES> 0
<RECEIVABLES> 67,127
<ALLOWANCES> 375
<INVENTORY> 48,725
<CURRENT-ASSETS> 172,950
<PP&E> 144,220
<DEPRECIATION> 53,066
<TOTAL-ASSETS> 351,332
<CURRENT-LIABILITIES> 75,732
<BONDS> 186,263
<COMMON> 1,834
0
0
<OTHER-SE> 59,205
<TOTAL-LIABILITY-AND-EQUITY> 351,332
<SALES> 105,249
<TOTAL-REVENUES> 105,249
<CGS> 76,248
<TOTAL-COSTS> 93,755
<OTHER-EXPENSES> 493
<LOSS-PROVISION> 112
<INTEREST-EXPENSE> 4,582
<INCOME-PRETAX> 6,419
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,419
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
