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 June 30, 2000 OR o 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 45,299,664 shares outstanding at July 31, 2000
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, 1999.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months ended June 30, Six months ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $278,217,000 $242,991,000 $549,887,000 $478,652,000 Costs and expenses: Cost of sales (190,972,000) (169,409,000) (377,319,000) (333,012,000) Selling, general and administrative (55,514,000) (49,593,000) (111,324,000) (98,859,000) ----------- ----------- ----------- ----------- Operating income 31,731,000 23,989,000 61,244,000 46,781,000 Interest expense (7,992,000) (5,363,000) (14,962,000) (10,550,000) Other income (expense), net 176,000 21,000 (1,066,000) 467,000 ---------- ----------- ----------- ----------- Income from continuing operations before income taxes 23,915,000 18,647,000 45,216,000 36,698,000 Income taxes (7,903,000) (5,970,000) (14,907,000) (11,782,000) ----------- ----------- ----------- ----------- Income from continuing operations 16,012,000 12,677,000 30,309,000 24,916,000 Income from discontinued operations, net of tax 172,000 1,015,000 1,111,000 1,823,000 ----------- ----------- ----------- ----------- Net income $ 16,184,000 $ 13,692,000 $ 31,420,000 $ 26,739,000 =========== =========== =========== =========== COMMON STOCK DATA: Basic and diluted net income per share: Income from continuing operations $.35 $.28 $.67 $.55 Income from discontinued operations .00* .02 .02 .04 --- --- --- --- Net income $.36 $.30 $.69 $.59 === === === === * fractional amount Weighted average common shares outstanding Basic 45,307,000 45,464,000 45,460,000 45,450,000 Diluted 45,436,000 45,699,000 45,555,000 45,699,000 Cash dividends per share of common stock $.1900 $.1850 $.3800 $.3700 See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three months ended June 30, Six months ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net income $16,184,000 $13,692,000 $31,420,000 $26,739,000 Other comprehensive loss, net of tax - Foreign currency translation adjustments (1,537,000) (1,152,000) (3,832,000) (3,914,000) ---------- ---------- ---------- ---------- Comprehensive income $14,647,000 $12,540,000 $27,588,000 $22,825,000 ========== ========== ========== ========== See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2000 1999 (a) --------- ---------- (Unaudited) ASSETS Manufacturing activities Current assets: Cash and cash equivalents $ 13,243,000 $ 8,764,000 Trade accounts receivable, net of allowances for doubtful accounts 150,350,000 152,956,000 Inventories: Raw materials 70,279,000 58,487,000 Work in process 53,470,000 60,894,000 Finished goods 48,264,000 40,589,000 Prepaid expenses 12,455,000 8,895,000 ----------- ----------- Total current assets 348,061,000 330,585,000 Properties and equipment: Land 5,731,000 5,717,000 Buildings and improvements 50,580,000 50,365,000 Machinery and equipment 180,407,000 169,110,000 Accumulated depreciation (122,793,000) (113,980,000) ----------- ----------- Net properties and equipment 113,925,000 111,212,000 Intangible assets, net of accumulated amortization 279,286,000 273,844,000 Other deferred charges and assets 25,903,000 23,592,000 ----------- ----------- Total manufacturing assets 767,175,000 739,233,000 Net assets of discontinued operations, including financial assets 21,121,000 20,767,000 Financial services activities - Lease financing receivables, net of allowances for doubtful accounts 207,544,000 191,261,000 ----------- ----------- Total assets $ 995,840,000 $ 951,261,000 =========== =========== See notes to condensed consolidated financial statements. (a) The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued June 30, December 31, 2000 1999 (a) --------- ---------- (Unaudited) LIABILITIES Manufacturing activities Current liabilities: Short-term borrowings $ 148,837,000 $ 99,204,000 Trade accounts payable 65,424,000 68,533,000 Accrued liabilities and income taxes 89,780,000 92,026,000 ----------- ----------- Total current liabilities 304,041,000 259,763,000 Long-term borrowings 132,058,000 134,410,000 Deferred income taxes 25,533,000 30,445,000 ----------- ----------- Total manufacturing liabilities 461,632,000 424,618,000 Financial services activities - Borrowings 186,220,000 172,610,000 SHAREHOLDERS' EQUITY Common stock - par value 47,002,000 46,889,000 Capital in excess of par value 67,989,000 66,762,000 Retained earnings 291,067,000 276,951,000 Treasury stock (34,307,000) (17,023,000) Deferred stock awards (2,623,000) (2,238,000) Accumulated other comprehensive income (21,140,000) (17,308,000) ----------- ----------- Total shareholders' equity 347,988,000 354,033,000 ----------- ----------- Total liabilities and shareholders' $ 995,840,000 $ 951,261,000 =========== =========== equity See notes to condensed consolidated financial statements. (a) The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2000 1999 ---- ---- Operating activities: Net income $ 31,420,000 $ 26,739,000 Depreciation 9,730,000 8,234,000 Amortization 4,866,000 3,899,000 Working capital changes and other (8,064,000) (13,357,000) ---------- ---------- Net cash provided by operating activities 37,952,000 25,515,000 Investing activities: Purchases of properties and equipment (11,079,000) (13,474,000) Principal extensions under lease financing agreements (73,558,000) (58,026,000) Principal collections under lease financing agreements 57,275,000 49,209,000 Payments for purchases of companies, net of cash acquired (24,401,000) (2,655,000) Other, net 700,000 2,372,000 ---------- ---------- Net cash used for investing activities (51,063,000) (22,574,000) Financing activities: Additional short-term borrowings, net 63,243,000 27,821,000 Reduction of long-term borrowings (2,352,000) (1,874,000) Purchases of treasury stock (17,284,000) (285,000) Cash dividends paid to shareholders (25,925,000) (25,039,000) Other, net (92,000) 1,497,000 ---------- ---------- Net cash provided by financing activities 17,590,000 2,120,000 ---------- ---------- Increase in cash and cash equivalents 4,479,000 5,061,000 Cash and cash equivalents at beginning of period 8,764,000 15,316,000 ---------- ---------- Cash and cash equivalents at end of period $ 13,243,000 $ 20,377,000 ========== ========== See notes to condensed consolidated financial statements.
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, 1999. 2. Management of the Registrant has announced its intent to divest the operations of the Sign Group. The condensed consolidated financial statements have been prepared on a basis that reflects the operations of the Sign Group as discontinued operations; accordingly the 1999 condensed consolidated financial statements have been restated. The net book value of the Sign Group's assets aggregated $21,121,000 at June 30, 2000; management believes that the value ultimately to be received for these assets will exceed the recorded net book value. 3. 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 and six months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year of 2000. 4. Interest paid for the six-month periods ended June 30, 2000 and 1999 was $15,525,000 and $12,067,000, respectively. Income taxes paid for these same periods were $11,415,000 and $9,720,000, respectively. 5. The following table summarizes the information used in computing basic and diluted income per share: Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Numerators for both basic and diluted income per share computations: Income from continuing operations $16,012,000 $12,677,000 $30,309,000 $24,916,000 Income from dicontinued operations 172,000 1,015,000 1,111,000 1,823,000 ---------- ---------- ---------- ---------- Net income $16,184,000 $13,692,000 $31,420,000 $26,739,000 ========== ========== ========== ========== Denominator for basic income per share - weighted average shares outstanding 45,307,000 45,464,000 45,460,000 45,450,000 Effect of employee stock options (dilutive potential common shares) 129,000 235,000 95,000 249,000 ---------- ---------- ---------- ---------- Denominator for diluted income per share - adjusted shares 45,436,000 45,699,000 45,555,000 45,699,000 ========== ========== ========== ==========
6. The following table summarizes the Registrant's continuing operations by segment for the three months and six months ended June 30, 2000 and 1999. Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales Environmental Products $67,741,000 $64,936,000 $130,262,000 $126,057,000 Fire Rescue 90,252,000 75,616,000 181,023,000 148,723,000 Safety Products 69,294,000 66,305,000 139,284,000 130,502,000 Tool 50,930,000 36,134,000 99,318,000 73,370,000 ----------- ----------- ----------- ----------- Total net sales $278,217,000 $242,991,000 $549,887,000 $478,652,000 =========== =========== =========== =========== Operating income Environmental Products $ 7,967,000 $ 7,199,000 $13,984,000 $13,629,000 Fire Rescue 5,245,000 2,514,000 10,118,000 3,918,000 Safety Products 11,281,000 9,456,000 22,510,000 18,577,000 Tool 10,002,000 7,160,000 20,154,000 15,082,000 Corporate expense (2,764,000) (2,340,000) (5,522,000) (4,425,000) ---------- ---------- ---------- ---------- Total operating income 31,731,000 23,989,000 61,244,000 46,781,000 Interest expense (7,992,000) (5,363,000) (14,962,000) (10,550,000) Other income (expense) 176,000 21,000 (1,066,000) 467,000 ---------- ---------- ---------- ---------- Income from continuing operations before income taxes $23,915,000 $18,647,000 $45,216,000 $36,698,000 ========== ========== ========== ========== Except as discussed in Note 2 above, 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.
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 SECOND QUARTER 2000 Comparison with Second Quarter 1999 Federal Signal Corporation reported a 20% increase in diluted net income per share to $.36 for the second quarter, from $.30 per share last year. Net income rose to $16.2 million from $13.7 million in 1999. New orders, sales and net income were at record levels for the second quarter. In anticipation of the sale of the Sign Group, the Registrant is now reporting results for that group on a discontinued operations basis. Continuing operations consist of the Safety Products, Tool, Environmental Products and Fire Rescue groups. Continuing operations results for the second quarter compared to last year's second quarter were: - 26% increase in after-tax income to $16.0 million from $12.7 million - 32% increase in operating income - 25% increase in diluted earnings per share to $.35 from $.28 per share - 14% increase in sales to $278 million from $243 million - 11% increase in quarter-end backlog to $346 million from $311 million New orders related to continuing operations were up 8% to $273 million in the second quarter. In the second quarter, sales growth was led by the Fire Rescue and Tool groups and income growth was led by the Fire Rescue Group with all four groups reporting significant growth in operating income. Fire Rescue Group income more than doubled on a 19% sales increase. North American operations income rose significantly over last year's quarter on the strength of improvements in Florida-based manufacturing. Fire Rescue Group new orders declined 10% as a number of orders were deferred into the third quarter. The municipal marketplace remains strong and the 10% order decline is solely a matter of timing - the group expects the third quarter order rate to be up sharply. Tool Group income increased 40% on a 41% increase in sales. Group performance without recent acquisitions showed good growth over the prior year; the two acquisitions completed after the second quarter of 1999 contributed substantially to the quarter's results and are continuing to perform well. New orders also rose 42%. Most of the group's major markets are maintaining solid momentum, but growth over the prior year is moderating somewhat in the punch and die component segment. Safety Products Group income was up 19% on a 5% sales increase. The strong performance was led by the municipal signaling and warning products operations which grew rapidly in both U.S. and international markets, expanding margins substantially over last year. Overall, new orders were essentially flat as some weakness in industrial orders combined with still weak oilfield-related orders to offset strong municipal signaling/warning order growth. Environmental Products Group income was up 11% as sales increased 4%. Orders were up 28% on strong municipal markets in both North America and Europe. Industrial orders were also strong. Low industrial backlog at the beginning of the quarter caused sales and earnings declines in these operations during the second quarter, offsetting strong sales and margin expansion performance in the large municipal sweeper and sewer-cleaning vehicle operations. Cost of sales as a percent of net sales decreased from 69.7% in the second quarter of 1999 to 68.6% in the second quarter of 2000. The percentage decrease was largely attributable to increased productivity and significant sales growth in the Registrant's Fire Rescue Group and improved mix and significant sales growth in the Safety Products Group. Selling, general and administrative expenses as a percent of net sales decreased to 20.0% from 20.4% reflecting the significant increase in sales volume. Interest expense increased to $8.0 million from $5.4 million largely as a result of: 1) increased borrowings to finance recent business acquisitions, increased financial services assets and additional purchases of treasury shares and 2) higher interest rates. The effective tax rate for the second quarter of 2000 increased to 33.0% from 32.0% in 1999 largely as a result of taxable earnings increasing faster than tax-exempt earnings.
Comparison of First Six Months 2000 to Same Period 1999 Orders for the first six months of 2000 increased 12% over the same period a year ago. For the first six months of 2000, sales of $549.9 million increased 15% over the $478.7 million last year. Income from continuing operations of $30.3 million increased 22% above last year's $24.9 million. Net income of $31.4 million for the first six months of 2000 increased from last year's $26.7 million. Diluted net income per share increased to $.69 in 2000 from $.59 in 1999. The increase in earnings for the first six months occurred as a result of sales growth led by the Fire Rescue and Tool groups with all four groups reporting significant growth in operating income. Gross profit as a percent of net sales increased to 31.4% in the first six months of 2000 from 30.4% in the first six months of 1999. Selling, general and administrative expenses decreased to 20.2% of net sales in the first six months of 2000 from 20.7% in the same period a year ago. The percentage changes were primarily due to the reasons cited above for the second quarter. Interest expense increased from $10.6 million to $15.0 million largely as a result of the same reasons cited above for the second quarter. The effective tax rate of 33.0% for the first half of 2000 increased from the 32.1% for the first half of 1999 due to the reasons cited above for the second quarter. 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 signage, street sweeping, outdoor warning, municipal emergency signal products, parking systems and fire rescue products. Financial Position and Liquidity at June 30, 2000 The current ratio applicable to manufacturing activities was 1.1 at June 30, 2000 compared to 1.3 at December 31, 1999. Working capital (manufacturing operations) at June 30, 2000 was $44.0 million compared to $70.8 million at the most recent year-end. The debt-to-capitalization ratio applicable to manufacturing activities was 47% at June 30, 2000 compared to 42% at December 31, 1999. The decline in the current ratio and working capital since December 31, 1999 is attributable to an increase in short-term debt incurred to fund an acquisition of a small tool company, payments of dividends to common shareholders and purchases of additional treasury shares. The debt-to-capitalization ratio applicable to financial services activities was 87% at June 30, 2000 and December 31, 1999. 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. Other The Securities and Exchange Commission (SEC) has issued Staff Accounting Bulletins #101, #101A and #101B that provide rules governing revenue recognition for exchange-listed companies. The Registrant's policy for the principal portion of its revenues is to recognize revenue in its financial statements when goods are shipped (see footnote A to the Registrant's 1999 consolidated financial statements). The SEC's bulletins are expected to be supplemented with additional guidance from the SEC. Accordingly, without this additional guidance, the Registrant is not yet able to determine the effect of the SEC's Staff Accounting Bulletins on its financial statements. At this time, the Registrant expects the SEC's guidance will be necessary to implement the rule, probably in the fourth quarter of 2000.
Part II. Other Information Responses to items one through six are omitted since these items are either inapplicable or the response thereto would be negative. 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 05/14/00 By: /s/ Henry L. Dykema Date Henry L. Dykema, Vice President and Chief Financial Officer