1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 1-6003 FEDERAL SIGNAL CORPORATION (Exact name of Registrant as specified in its charter) Delaware 36-1063330 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1415 West 22nd Street Oak Brook, IL 60523 (Address of principal executive offices) (Zip code) (630) 954-2000 (Registrant's telephone number including area code) Not applicable (Former name, former address, and former fiscal year, if changed since last report) 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 Exchange Act of 1934 during the preceding 12 months (or for 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 Registrant's classes of common stock, as of the latest practicable date. Title Common Stock, $1.00 par value 45,510,000 shares outstanding at April 30, 2001
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTRODUCTION The consolidated condensed financial statements of Federal Signal Corporation and subsidiaries included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 2
3 FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------- 2001 2000 ------------- ------------- <S> <C> <C> Net sales $ 258,007,000 $ 260,181,000 Costs and expenses: Cost of sales 178,067,000 177,374,000 Selling, general and administrative 56,084,000 54,155,000 Other (income) and expenses: Interest expense 7,810,000 6,970,000 Other (income) and expense, net (96,000) 1,242,000 ------------- ------------- 241,865,000 239,741,000 Income before income taxes 16,142,000 20,440,000 Income taxes 4,516,000 6,677,000 ------------- ------------- Income from continuing operations $ 11,626,000 13,763,000 Income from discontinued operations, net of taxes 939,000 Cumulative effect of change in accounting (844,000) ------------- ------------- Net income $ 11,626,000 13,858,000 ============= ============= COMMON STOCK DATA: Basic and diluted net income per share Income from continuing operations $ .26 $ .30 Income from discontinued operations, net of taxes .02 Cumulative effect of change in accounting (.02) ------------- ------------- Net income $ .26 $ .30 ============= ============= Weighted average common shares outstanding Basic 45,412,000 45,613,000 Diluted 45,573,000 45,674,000 Cash dividends per share of common stock $ .195 $ .190 </TABLE> See notes to condensed consolidated financial statements. 3
4 FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31, ------------------------------ 2001 2000 ------------ ------------ Net income $ 11,626,000 $ 13,858,000 Other comprehensive loss, net of tax - Foreign currency translation adjustments (4,172,000) (2,295,000) ------------ ------------ Comprehensive income $ 7,454,000 $ 11,563,000 ============ ============ See notes to condensed consolidated financial statements. 4
5 FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March 31, December 31, 2001 2000 (a) --------------- --------------- (Unaudited) <S> <C> <C> ASSETS Manufacturing activities - Current assets: Cash and cash equivalents $ 15,336,000 $ 13,556,000 Trade accounts receivable, net of allowances for doubtful accounts 162,878,000 167,964,000 Inventories: Raw materials 70,596,000 66,856,000 Work in process 51,060,000 45,127,000 Finished goods 55,236,000 45,636,000 Prepaid expenses 10,745,000 9,797,000 --------------- --------------- Total current assets 365,851,000 348,936,000 Properties and equipment: Land 5,334,000 5,291,000 Buildings and improvements 56,369,000 51,755,000 Machinery and equipment 191,557,000 184,990,000 Accumulated depreciation (132,492,000) (129,440,000) --------------- --------------- Net properties and equipment 120,768,000 112,596,000 Intangible assets, net of accumulated amortization 279,886,000 274,925,000 Other deferred charges and assets 27,190,000 25,873,000 --------------- --------------- Total manufacturing assets 793,695,000 762,330,000 --------------- --------------- Net assets of discontinued operations, including financial assets 16,755,000 14,558,000 Financial services activities - Lease financing receivables, net of allowances for doubtful accounts 220,100,000 214,230,000 --------------- --------------- Total assets $ 1,030,550,000 $ 991,118,000 =============== =============== </TABLE> See notes to condensed consolidated financial statements. (a) The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. 5
6 FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued March 31, December 31, 2001 2000 (a) --------------- --------------- (Unaudited) LIABILITIES Manufacturing activities - Current liabilities: Short-term borrowings $ 162,440,000 $ 145,813,000 Trade accounts payable 70,985,000 60,878,000 Accrued liabilities and income taxes 93,032,000 82,229,000 --------------- --------------- Total current liabilities 326,457,000 288,920,000 Long-term borrowings 125,148,000 125,449,000 Deferred income taxes 25,385,000 27,835,000 --------------- --------------- Total manufacturing liabilities 476,990,000 442,204,000 Financial services activities - Borrowings 196,434,000 191,483,000 --------------- --------------- Total liabilities 673,424,000 633,687,000 SHAREHOLDERS' EQUITY Common stock - par value 47,133,000 47,067,000 Capital in excess of par value 69,559,000 68,693,000 Retained earnings 302,750,000 299,985,000 Treasury stock (34,230,000) (34,302,000) Deferred stock awards (1,749,000) (1,847,000) Accumulated other comprehensive income (26,337,000) (22,165,000) --------------- --------------- Total shareholders' equity 357,126,000 357,431,000 --------------- --------------- Total liabilities and shareholders' equity $ 1,030,550,000 $ 991,118,000 =============== =============== See notes to condensed consolidated financial statements. (a) The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. 6
7 FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------ 2001 2000 ------------ ------------ <S> <C> <C> Operating activities: Net income $ 11,626,000 $ 13,858,000 Cumulative effect of change in accounting 844,000 Depreciation 5,067,000 4,750,000 Amortization 2,666,000 2,406,000 Working capital changes and other 2,554,000 (5,025,000) ------------ ------------ Net cash provided by operating activities 21,913,000 16,833,000 Investing activities: Purchases of properties and equipment (7,020,000) (5,399,000) Principal extensions under lease financing agreements (40,679,000) (34,869,000) Principal collections under lease financing agreements 35,041,000 30,713,000 Payments for purchases of companies, net of cash acquired (18,457,000) (24,401,000) Other, net (1,204,000) (1,229,000) ------------ ------------ Net cash used for investing activities (32,319,000) (35,185,000) Financing activities: Additional short-term borrowings, net 21,578,000 61,313,000 Reduction of long-term borrowings (1,230,000) (1,758,000) Purchases of treasury stock (17,284,000) Cash dividends paid to shareholders (8,619,000) (17,243,000) Other, net 457,000 142,000 ------------ ------------ Net cash provided by financing activities 12,186,000 25,170,000 ------------ ------------ Increase in cash and cash equivalents 1,780,000 6,818,000 Cash and cash equivalents at beginning of period 13,556,000 8,764,000 ------------ ------------ Cash and cash equivalents at end of period $ 15,336,000 $ 15,582,000 ============ ============ </TABLE> See notes to condensed consolidated financial statements. 7
8 FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - --------------------------------------------------------------------- 1. It is suggested that the condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 2. In the opinion of the Registrant, the information contained herein reflects all adjustments necessary to present fairly the Registrant's financial position, results of operations and cash flows for the interim periods. Such adjustments are of a normal recurring nature. The operating results for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year of 2001. 3. Interest paid for the three-month periods ended March 31, 2001 and 2000 was $6,877,000 and $6,358,000, respectively. Income taxes paid for these same periods were $685,000 and $830,000, respectively. 4. The following table summarizes the information used in computing basic and diluted income per share: Three Months Ended March 31, ---------------------------- 2001 2000 ----------- ----------- Numerator for both basic and diluted income per share computations - net income $11,626,000 $13,858,000 =========== =========== Denominator for basic income per share - weighted average shares outstanding 45,412,000 45,613,000 Effect of employee stock options (dilutive potential common shares) 161,000 61,000 ----------- ----------- Denominator for diluted income per share - adjusted shares 45,573,000 45,674,000 =========== =========== 8
9 5. The following table summarizes the Registrant's operations by segment for the three-month periods ended March 31, 2001 and 2000. Three months ended March 31, -------------------------------- 2001 2000 ------------- ------------- Net sales Environmental Products $ 64,842,000 $ 62,521,000 Fire Rescue 83,839,000 79,282,000 Safety Products 64,380,000 69,990,000 Tool 44,946,000 48,388,000 ------------- ------------- Total net sales $ 258,007,000 $ 260,181,000 ============= ============= Operating income Environmental Products $ 4,523,000 $ 6,017,000 Fire Rescue 5,387,000 4,012,000 Safety Products 9,710,000 11,229,000 Tool 7,317,000 10,152,000 Corporate expense (3,081,000) (2,758,000) ------------- ------------- Total operating income 23,856,000 28,652,000 Interest expense (7,810,000) (6,970,000) Other income 96,000 (1,242,000) ------------- ------------- Income before income taxes $ 16,142,000 $ 20,440,000 ============= ============= The basis of segmentation and the basis of measurement of segment profit or loss are consistent with those used in the Registrant's last annual report. There have been no material changes in total assets from the amount disclosed in the Registrant's last annual report except the Environmental Products Group assets increased from $218,677,000 at December 31, 2000 to $238,200,000 at March 31, 2001 principally as a result of the acquisition of the operating assets of Athey Products Corporation, a manufacturer of sweeping products mostly for sale in North America. 9
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS FIRST QUARTER 2001 - -------------------------------------------------------------- Comparison with First Quarter 2000 Federal Signal Corporation reported diluted earnings per share from continuing operations of $.26 for the first quarter, compared to $.30 last year. First quarter net sales were $258 million compared to $260 million in 2000. Diluted net income per share was also $.26 compared to $.30 last year. Backlog increased 3% from year-end 2000 to a record $373 million. Operations First quarter Environmental Products Group new orders were up 8%. Sales increased 4%, while earnings declined 25%. The U.S. municipal marketplace for street sweepers and sewer cleaning vehicles remained strong. U.S. demand for the group's industrial product offering was moderate. Non-U.S. demand for the group's sweeping products was mixed, with Europe remaining strong and the Middle East and Far East remaining weak. The group's income decreased from the prior year's first quarter as a result of higher expenses for new sweeping and vacuum truck products to be introduced this year and two shorter-term influences: productivity loss from training the many new employees hired in the second half of 2000 as a result of the vacuum truck manufacturing plant consolidation, and a lower margin product mix during the quarter. While the first quarter operating margin was 7%, the group anticipates good improvement beginning in the second quarter. The group strengthened its presence in the U.S. sweeping market with the acquisition of the operating assets of Athey Products Corporation, a manufacturer of sweeping products for sale mainly in the North American marketplace. Fire Rescue Group earnings rose sharply, up 34% on a 6% sales increase. Operating margin rose to 6.4% from 5.1% last year. U.S. municipal market demand remained strong while demand was also good outside the U.S. for the group's aerial product line manufactured in Finland. Overall, new orders were 5% below an unusually strong first quarter of 2000; the decline is not representative of market strength since 2000's first quarter was bolstered by orders deferred from the fourth quarter of 1999. Operating margin rose significantly over last year's first quarter as North American operations continued to see significant improvement. First quarter Safety Products Group sales fell 8% and earnings declined 14%. The Safety Products Group's global warning and signaling markets remained healthy; however, new orders and sales were lower when compared to last year's unusually strong first quarter. U.S. industrial markets were considerably weaker than last year. Parking systems sales were lower as very strong new orders called for delivery starting in the second quarter. Overall, the group's new orders were down 3%. Tool Group earnings were down 28% on a 7% sales decline. New orders declined 14%. Excluding the effect of acquisitions, total new orders for the group were down 24% and sales were down 16%. Tool Group sales were broadly weak in the U.S. Non-U.S. sales were also lower as a significant decline in Japan offset the combined growth of other non-U.S. markets. Cost of sales as a percent of net sales increased from 68.2% in the first quarter of 2000 to 69.0% in the first quarter of 2001. The percentage increase was largely attributable to increased sales in the Fire Rescue Group coupled with lower sales in the Tool and Safety Products groups, lower margin product mix and productivity losses associated with the vacuum truck manufacturing plant consolidation. Selling, general and administrative expenses as a percent of net sales increased to 21.7% from 20.8% reflecting a slight decrease in sales volume coupled with increased product introduction expenses and plant consolidation expenses in the Environmental Products Group. Interest expense increased to $7.8 million from $7.0 million largely as a result of increased financial services assets. The effective tax rate for the first quarter of 2001 decreased to 28.0% from 32.7% in 2000 largely as a result of favorable benefits from research and development credits. 10
11 Cash Flow Net cash provided by operations for the first quarter was $21.9 million, up 30% from $16.8 million last year. The company generated EBITDA of $31.7 million in the quarter compared to $34.6 million in 2000. Seasonality of Registrant's Business Certain of the Registrant's businesses are susceptible to the influences of seasonal buying or delivery patterns. The Registrant's businesses which tend to have lower sales in the first calendar quarter compared to other quarters as a result of these influences are street sweeping, outdoor warning, municipal emergency signal products, parking systems, fire rescue products and signage. Financial Position and Liquidity at March 31, 2001 The current ratio applicable to manufacturing activities was 1.1 at March 31, 2001 compared to 1.2 at December 31, 2000. Working capital (manufacturing operations) at March 31, 2001 was $39.4 million compared to $60.0 million at the most recent year-end. The debt-to-capitalization ratio applicable to manufacturing activities was 47% at March 31, 2001 compared to 45% at December 31, 2000. The increased debt-to-capitalization ratio and decline in working capital since December 31, 2000 is primarily attributable to an increase in short-term debt incurred to fund acquisitions of a small tool company and the operating assets of Athey Products Corporation, a manufacturer of sweeping products in the North American marketplace. The debt-to-capitalization ratio applicable to financial services activities was 87% at March 31, 2001 and December 31, 2000. Current financial resources and anticipated funds from the Registrant's operations are expected to be adequate to meet future cash requirements including capital expenditures and modest amounts of additional stock repurchases. PART II. OTHER INFORMATION Responses to items one, two, three and five are omitted since these items are either inapplicable or the response thereto would be negative. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At its Annual Meeting of Stockholders on April 19, 2001, the stockholders of the Registrant voted to elect one director. Out of the 45,420,730 shares entitled to vote, holders of 40,075,645 shares voted. Shareholders elected Richard R. Thomas a director for a three-year term. Holders of 38,275,229 shares voted for his election, while holders of 1,800,416 shares withheld votes. ITEM 6. REPORTS ON FORM 8-K A current report on Form 8-K dated January 16, 2001 pursuant to Item 9 - "Regulation FD" confirmed previous guidance on fourth quarter 2000 and years ending 2000 and 2001 earnings per share. A current report on Form 8-K dated February 20, 2001 pursuant to Item 9 - "Regulation FD" reiterated previous guidance on first quarter 2001 market conditions. A current report on Form 8-K dated March 9, 2001 pursuant to Item 9 - "Regulation FD" disclosed the Registrant's annual report for informational purposes only. 11
12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Federal Signal Corporation 05/15/01 By: /s/ Henry L. Dykema - -------- ----------------------------------- Date Henry L. Dykema, Vice President and Chief Financial Officer 12