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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, 1997 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 April 9, 1997
Class A Common Stock, par value $.10 per share 13,684,941
Class B Common Stock, par value $.10 per share 4,712,747
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FIGGIE INTERNATIONAL INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . .3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 . . . . . .3
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996 . . . . . . . . . . . . .4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 . . . . . .6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . .7
Summary of Significant Accounting Policies . . . . . . . . .7
Receivables. . . . . . . . . . . . . . . . . . . . . . . . .7
Inventories. . . . . . . . . . . . . . . . . . . . . . . . .8
Discontinued Operations. . . . . . . . . . . . . . . . . . .8
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . .9
Credit Facility. . . . . . . . . . . . . . . . . . . . . . .9
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . 10
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . 10
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Contingent Liabilities . . . . . . . . . . . . . . . . . . 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . .12
Results of Operations Summary. . . . . . . . . . . . . . . 12
Interstate Electronics Corporation . . . . . . . . . . . . 14
Scott. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Snorkel. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Corporate and Unallocated Costs and Expenses . . . . . . . 17
Financial Position and Liquidity . . . . . . . . . . . . . 17
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 19
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . 20
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PART I. FINANCIAL INFORMATION
FIGGIE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(in thousands, except per share data)
(Unaudited)
1997 1996
Net Sales $ 107,665 $ 96,701
Cost of Sales 79,441 71,240
Gross Profit on Sales 28,224 25,461
Operating Expenses:
Selling, General and Administrative 12,412 12,980
Research and Development 3,556 3,133
Total Operating Expenses 15,968 16,113
Operating Income 12,256 9,348
Other Expense (Income):
Refinancing Costs 131 218
Interest Expense 5,454 5,119
Interest Income (1,124) (211)
Other, Net 475 381
Income from Continuing Operations
before Income Tax 7,320 3,841
Income Tax 2,803 -
Income from Continuing Operations 4,517 3,841
Discontinued Operations:
Income from Operations - 365
Net Income $ 4,517 $ 4,206
Weighted Average Shares 18,589 18,791
Per Share Data
Income from Continuing Operations $ 0.24 $ 0.20
Income from Discontinued Operations 0.00 0.02
Net Income $ 0.24 $ 0.22
See Notes to Consolidated Financial Statements.
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(in thousands)
March 31, Dec. 31,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 44,605 $ 44,447
Trade Accounts Receivable, less Allowance
for Uncollectible Accounts of $354 in 1997
and $311 in 1996 61,120 55,434
Inventories 59,481 59,365
Prepaid Expenses 2,776 1,703
Recoverable Income Taxes 7,663 7,689
Current Deferred Tax Asset 12,600 12,600
Net Assets Related to Discontinued Operations 10,145 7,446
Total Current Assets 198,390 188,684
PROPERTY, PLANT AND EQUIPMENT
Land and Land Improvements 43,850 43,352
Buildings and Leasehold Improvements 35,712 35,526
Machinery and Equipment 53,659 52,553
133,221 131,431
Accumulated Depreciation (52,135) (50,200)
81,086 81,231
Equipment under Capital Leases 268 282
Net Property, Plant and Equipment 81,354 81,513
OTHER ASSETS
Deferred Divestiture Proceeds, Net 19,591 20,073
Prepaid Pension Costs 10,811 10,811
Prepaid Rent on Leased Equipment 2,644 2,644
Intangible Assets 15,993 16,133
Investments 10,904 10,764
Cash Surrender Value of Insurance Policies 5,151 6,629
Prepaid Finance Costs 1,775 1,954
Deferred Tax Asset 27,899 30,595
Other 1,297 2,985
Total Other Assets 96,065 102,588
Total Assets $ 375,809 $ 372,785
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FIGGIE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(in thousands, except par value)
March 31, Dec. 31,
1997 1996
(Unaudited)
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 25,913 $ 27,305
Accrued Insurance Reserves 12,609 12,174
Accrued Compensation 8,758 9,045
Accrued Interest 8,617 4,395
Accrued Environmental Reserves 2,904 3,348
Accrued Liabilities and Expenses 5,776 9,520
Current Maturities of Long-Term Debt 2,029 2,100
Total Current Liabilities 66,606 67,887
Long-Term Debt 183,905 184,156
Non-Current Insurance Reserves 27,345 27,345
Other Non-Current Liabilities 19,465 18,888
Total Liabilities 297,321 298,276
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 Par Value;
Authorized, 3,217 Shares;
Issued and Outstanding, None - -
Class A Common Stock, $.10 Par Value; 1,367 1,370
Authorized, 18,000 Shares;
Issued and Outstanding
1997 - 13,667; 1996 - 13,695
Class B Common Stock, $.10 Par Value; 471 471
Authorized, 18,000 Shares;
Issued and Outstanding
1997 - 4,707; 1996 - 4,708
Capital Surplus 109,193 109,538
Accumulated Deficit (33,200) (37,717)
Unearned Compensation (62) (74)
Cumulative Translation Adjustment 719 921
Total Stockholders' Equity 78,488 74,509
Total Liabilities and Stockholders' Equity $ 375,809 $ 372,785
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, 1997 AND 1996
(in thousands)
(Unaudited)
1997 1996
Operating Activities:
Net Income $ 4,517 $ 4,206
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation and Amortization 1,978 1,739
Amortization of Unearned Compensation 12 140
Other, Net 20 585
Changes in Operating Assets and Liabilities
Accounts Receivable (5,686) (7,899)
Inventories (116) (3,417)
Prepaid Items (1,073) (1,074)
Other Assets 3,687 586
Accounts Payable (1,392) (2,050)
Accrued Liabilities and Expenses 1,160 4,600
Accrued Income Taxes 2,322 -
Other Liabilities (1) (2,731)
Net Cash (Used) Provided by Operating Activities 5,428 (5,315)
Investing Activities:
Capital Expenditures for Continuing Operations (1,983) (1,560)
Proceeds from Sale of Property, Plant and Equipment 82 727
Proceeds from Business Divestitures (2,699) 19,883
Net Cash (Used) Provided by Investing Activities (4,600) 19,050
Financing Activities:
Principal Payments on Debt (322) (16,243)
Common Stock Transactions, Net (348) 30
Net Cash (Used) by Financing Activities (670) (16,213)
Net (Decrease) Increase in Cash and Cash Equivalents 158 (2,478)
Cash and Cash Equivalents at Beginning of Year 44,447 25,856
Cash and Cash Equivalents at End of Period $ 44,605 $ 23,378
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, 1997 are not
necessarily indicative of the results to be expected for the entire year.
(1) Summary of Significant Accounting Policies:
The financial statements 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 1996 Form 10-K405.
(2) Receivables:
Receivables consist of the following components (in thousands):
3/31/97 12/31/96
U.S. Government
Billed $10,488 $12,688
Unbilled 14,983 14,919
25,471 27,607
Commercial
Billed 36,003 28,138
Allowance for Uncollectible Accounts (354) (311)
$61,120 $55,434
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.
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(3) Inventories:
Inventories consist of the following components (in thousands):
3/31/97 12/31/96
Raw Materials $22,832 $21,332
Work in Process 18,292 18,953
Finished Goods 20,751 20,907
Inventory Reserves (2,394) (1,827)
$59,481 $59,365
(4) Discontinued Operations:
In October, 1996, the Board of Directors decided to sell the Taylor
Environmental Instruments business. 1996 financial statements have been
restated and are summarized as follow (in thousands):
As previously
1st Quarter 1996: Reported Taylor As Restated
Net Sales $ 101,177 $ (4,476) $ 96,701
Income from Continuing Operations 4,206 (365) 3,841
Income from Discontinued Operations - 365 365
Net Income $ 4,206 $ - $ 4,206
The contract terms under which 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 ranges 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.
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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.
Net assets related to discontinued operations as of March 31, 1997 in the amount
of $10.1 million represent the net assets of Willoughby Assurance, Ltd., a
dormant reinsurance subsidiary of the Company, installation contracts in process
of completion from the "Automatic" Sprinkler business and former facilities of
discontinued business units.
Deferred divestiture proceeds and net assets related to discontinued operations
include management's best estimates of the amounts expected to be realized on
the collection and sale of discontinued operations. The amounts the Company
will ultimately realize could differ materially from the amounts recorded. The
Company has a reserve of $21.2 million at March 31, 1997 against these assets,
which is presented as a deduction from deferred divestiture proceeds.
(5) Income Taxes:
For the three-month period ended March 31, 1997, federal income taxes of
approximately $2.7 million at the statutory rate of 35 percent have been
provided and have reduced the deferred tax asset. Actual income taxes that will
be paid are expected to be substantially less than the statutory rate due to
loss carryforwards.
(6) Credit Facility:
The Company has a $75 million, 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 equipment, less 50% of outstanding letters of credit.
At the Company's option, borrowings bear interest at alternate rates based on
(1) the higher of the U.S. prime rate for 90 day commercial paper or the Federal
Funds rate plus 50 basis points or (2) LIBOR plus 200 to 250 basis points. 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. The financial covenants include limitations on capital expenditures
and requirements as to minimum tangible net worth, minimum earnings before
interest, taxes,
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depreciation and amortization, the current ratio and the fixed charge coverage
ratio. The facility expires on January 1, 1999.
As of March 31, 1997, $15.9 million of letters of credit were outstanding under
the facility, there were no borrowings outstanding ($37.3 million was available)
and all financial covenants have been satisfied.
(7) Long-Term Debt:
Total debt consists of the following components (in thousands):
3/31/97 12/31/96
Long-Term Debt:
9.875% Senior Notes due October 1, 1999 $174,000 $174,000
Mortgage Notes 10,877 11,076
Obligations under Capital Lease 1,057 1,180
Total 185,934 186,256
Less - Current Maturities (2,029) (2,100)
Long-Term Debt $183,905 $184,156
The 9.875% Senior Notes are due October 1, 1999. Interest is payable semi-
annually on April 1 and October 1.
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%.
(8) Capital Stock:
Each share of Class A Common Stock is entitled to one-twentieth of one vote per
share, while each share of 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 quarters ended March 31, 1997 and 1996 were
calculated using the following share data.
(in thousands)
1997 1996
Primary Weighted-Average Number of Shares:
Allocated Shares 18,385 18,389
Common Stock Equivalents of Stock Options 204 324
Primary Weighted-Average 18,589 18,713
Fully Diluted Weighted-Average Number of Shares:
Unallocated ESOP shares - 78
Fully Diluted Weighted-Average 18,589 18,791
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(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, 1996 $ 4.5 $ 18.9 $ 23.4
Rental payments to lessors (0.4) (1.9) (2.3)
Buy out of equipment at
lease-stipulated values (2.8) - (2.8)
Rental commitments at
March 31, 1997 $ 1.3 $ 17.0 $ 18.3
At the termination of the equipment leases, which is principally over the period
December 1998 through June 1999, the Company is effectively required to purchase
the equipment for a fixed price of approximately one-third the original lease
value. As a result of these provisions and the anticipated need for continued
use of the equipment in the Company's operations, the Company currently expects
to purchase this equipment. The purchase price would be $9.0 million, less
prepaid rent of $2.6 million.
As to leased machinery and equipment that was not sold with divested business
units, the Company is satisfying the rental payments through its internal funds
until such equipment is sold or subleased.
(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.
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 criminal
investigations, one involving possible improprieties at a facility where a
division of the Company was a supplier, and the second 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations Summary
1st Qtr 1st Qtr
(in thousands) 1997 1996 97 vs 96
Net Sales $ 107,665 $ 96,701 $ 10,964
Cost of Sales 79,441 71,240 8,201
Gross Profit on Sales 28,224 25,461 2,763
% of Net Sales 26.2% 26.3%
Operating Expenses:
Selling, General & Admin. 12,412 12,980 (568)
Research and Development 3,556 3,133 423
Total Operating Expenses 15,968 16,113 (145)
Operating Income $ 12,256 $ 9,348 $ 2,908
% of Net Sales 11.4% 9.7%
Other Expense (Income):
Refinancing Costs 131 218 (87)
Interest Expense 5,454 5,119 335
Interest Income (1,124) (211) (913)
Other, Net 475 381 94
Income from Continuing
Operations before Income Tax 7,320 3,841 3,479
Income Tax 2,803 - 2,803
Income from Continuing
Operations 4,517 3,841 676
Discontinued Operations,
net of tax - 365 (365)
Net Income $ 4,517 $ 4,206 $ 311
For the first quarter of 1997, Net Sales increased $11.0 million, or 11.3%, to
$107.7 million from Net Sales of $96.7 million for the same period in 1996.
Net Sales increased 9.0% at Snorkel and 21.3% at Scott. Of the $11.0 million
increase, $6.0 million was due to shipments in 1997 of product that could not
be shipped in late 1996 due to supplier component delays.
Gross Profit for the quarter ended March 31 improved $2.8 million to $28.2
million and represented 26.2% of Net Sales as compared to 26.3% in 1996.
Lower margins at Snorkel were offset by higher margins at Scott and Interstate
Electronics.
Selling, General and Administrative expenses decreased. As a percent of sales,
Selling, General and Administrative expenses were 11.5% in 1997, compared to
13.4% in 1996.
Operating Income amounted to $12.3 million in 1997, as compared to Operating
Income of $9.3 million in 1996.
Income taxes for 1997 were $2.8 million; an income tax provision was not
recorded for 1996 due to operating loss carryforwards.
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Net Income for the first quarter of 1997 increased $0.3 million, or 7.1%, to
$4.5 million from $4.2 million for the same period in 1996.
Segment Information
The Company is a manufacturer of technology-driven products with operations in
three reporting segments, Interstate Electronics Corporation, Scott and Snorkel.
The results of operations are most meaningful when analyzed and discussed in
this manner.
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Interstate Electronics Corporation
Interstate Electronics develops and produces sophisticated telemetry,
instrumentation, and data recording systems and position measuring systems,
Global Positioning Systems ("GPS"), for the U.S. Navy's Polaris/Poseidon,
TRIDENT, and TRIDENT II ships; precise GPS for aircraft and turnkey test ranges;
and GPS for commercial and business aircraft navigation and landing systems.
Interstate Electronics also designs and produces plasma, liquid crystal and
cathode-ray tube display systems for a variety of shipboard and aircraft
applications. In addition, Interstate Electronics develops sophisticated
bandwidth-on-demand satellite communication modems and terminals for both
government and commercial applications.
The results of operations for Interstate Electronics were as follows
(in thousands):
1st Qtr 1st Qtr
1997 1996 97 vs 96
Net Sales $ 22,693 $ 22,447 $ 246
Cost of Sales 16,014 15,983 31
Gross Profit on Sales 6,679 6,464 215
% of Net Sales 29.4% 28.8%
Operating Expenses:
Selling, General & Admin. 3,303 3,083 220
Research and Development 1,647 1,796 (149)
Total Operating Expenses 4,950 4,879 71
Operating Income $ 1,729 $ 1,585 $ 144
% of Net Sales 7.6% 7.1%
Discussion of 1997 Compared to 1996:
Net Sales increased slightly, 1.1%, as lower strategic weapons systems and
display sales were offset by increased satellite communications and military GPS
revenues.
Gross margin improved from 28.8% to 29.4% due to the performance of the
satellite communications area.
Selling, General and Administrative expenses increased from $3.1 million in 1996
to $3.3 million in 1997, an increase from 13.7% to 14.6% as a percentage of Net
Sales. This increase is a result of having added experienced commercial managers
since the end of the first quarter of 1996.
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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 (in thousands):
1st Qtr 1st Qtr
1997 1996 97 vs 96
Net Sales $ 39,958 $ 32,941 $ 7,017
Cost of Sales 27,173 22,618 4,555
Gross Profit on Sales 12,785 10,323 2,462
% of Net Sales 32.0% 31.3%
Operating Expenses:
Selling, General & Admin. 3,644 3,147 497
Research and Development 1,178 625 553
Total Operating Expenses 4,822 3,772 1,050
Operating Income $ 7,963 $ 6,551 $ 1,412
% of Net Sales 19.9% 19.9%
Discussion of 1997 Compared to 1996:
Net Sales increased $7.0 million, or 21.3%. Of the increase, approximately $2.5
million was due to an unusually high level of sales of product that could not be
shipped in 1996 due to supplier component delays. The balance of the increase
is due to increased demand for the oxygen products by aviation customers and
increased demand for Air-Paks by health and safety customers.
Gross margin improved slightly as a result of the shift in product mix.
Selling, General and Administrative expenses have increased slightly, but are
consistent as a percentage of Net Sales when compared to the same period last
year.
Research and Development expenses have increased due to new product development
expenses for the health and safety line of products.
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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 division also includes the operations of the Company's
subsidiary which manufactures trailer mounted booms in New Zealand and
distributes Snorkel products in Australia, New Zealand and Southeast Asia.
The results of operations for Snorkel were as follows (in thousands):
1st Qtr 1st Qtr
1997 1996 97 vs 96
Net Sales $ 45,014 $ 41,313 $ 3,701
Cost of Sales 36,254 32,639 3,615
Gross Profit on Sales 8,760 8,674 86
% of Net Sales 19.5% 21.0%
Operating Expenses:
Selling, General & Admin. 2,670 2,679 (9)
Research and Development 731 712 19
Total Operating Expenses 3,401 3,391 10
Operating Income $ 5,359 $ 5,283 $ 76
% of Net Sales 11.9% 12.8%
Discussion of 1997 Compared to 1996:
Net Sales increased 9.0% compared to 1996 as the result of $3.5 million of
product, principally booms, delivered in the first quarter of 1997 that was
not able to be shipped in 1996 due to supplier component delays.
Gross margin decreased from 21.0% to 19.5% primarily due to volume and product
mix differences between the two quarters as more small size, lower margin booms
and fewer large size, higher margin scissorlifts were sold in 1997 compared to
1996.
Selling, General and Administrative expenses remained constant and decreased as
a percentage of Net Sales, from 6.5% in 1996 to 5.9% in 1997.
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Corporate and Unallocated Costs and Expenses
Corporate activity and unallocated costs and expenses were as follows (in
thousands):
1st Qtr 1st Qtr
1997 1996 97 vs 96
Selling, General & Admin. $ 2,795 $ 4,071 $(1,276)
Other Expenses (Income):
Refinancing Costs 131 218 (87)
Interest Expense 5,454 5,119 335
Interest Income (1,124) (211) (913)
Other, Net 475 381 94
Discussion of 1997 Compared to 1996:
Selling, General and Administrative expenses decreased 31.3% as a result of the
1997 benefit from prior year corporate cost savings initiatives.
Interest Expense increased due to interest expense on the discounted present
value of insurance reserves.
Interest Income increased due to the improvement in the Company's net cash
position and favorable rates.
Financial Position and Liquidity
Accounts Receivable at March 31, 1997 are $ 61.1 million, compared to $55.4
million as of the end of 1996. The increase is primarily due to increased sales
at Scott and Snorkel.
Inventories remained constant at $59.5 million. A small decrease in work-in-
process production and finished goods levels reflect unfilled year-end orders
for Scott and Snorkel customers was offset by an increase in raw materials
necessary to meet production for rising backlogs.
Expenditures for property, plant and equipment were $2.0 million in the first
quarter of 1997 for production machinery, equipment and tooling. Capital
expenditures in 1997 are expected to be approximately $7.5 million and funded
from internally generated funds or leases.
Liquidity is provided by the Company's cash and cash equivalents and the credit
facility ($37.3 million was available at March 31, 1997).
The Company expects to continue to focus on internal growth at all three of the
segments; investigate acquisitions for Scott; and consider alternative
strategies that may further enhance shareholder value.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter
NONE
<PAGE>
<PAGE>19
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 INC.
By: ________/s/____________
Steven L. Siemborski
Senior Vice President and
Chief Financial Officer
(Duly Authorized and
Principal Financial Officer)
Date: May 2, 1997
<PAGE>
<PAGE>20
EXHIBIT INDEX
27.0 Financial Data Schedule
