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, 1998 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 45,707,840 shares outstanding at April 30, 1998
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 Proxy Statement for the Annual Meeting of Shareholders held on April 15, 1998.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31 1998 1997 ---------- ---------- Net sales $231,230,000 $224,485,000 Costs and expenses: Cost of sales 160,180,000 154,061,000 Selling, general and administrative 50,783,000 46,624,000 Other (income) and expenses: Interest expense 4,467,000 3,937,000 Other (income), net (161,000) (526,000) ----------- ----------- 215,269,000 204,096,000 Income before income taxes 15,961,000 20,389,000 Income taxes 5,115,000 6,773,000 ----------- ----------- Net income $ 10,846,000 $ 13,616,000 =========== =========== COMMON STOCK DATA: Basic and diluted net income per share $ .24 $ .30 ========= ========== Weighted average common shares outstanding Basic 45,674,000 45,256,000 Diluted 45,959,000 45,827,000 Cash dividends per share of common stock $ .1775 $ .1675 See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31 1998 1997 ----------- ----------- Net income $10,846,000 $13,616,000 Other comprehensive loss, net of tax - Foreign currency translation adjustments (1,842,000) (4,082,000) Comprehensive income $9,004,000 $9,534,000 ========== ========== See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31 December 31 1998 1997 (a) (Unaudited) ASSETS Manufacturing activities - Current assets: Cash and cash equivalents $16,995,000 $10,686,000 Trade accounts receivable, net of allowances for doubtful accounts 140,021,000 142,973,000 Inventories: Raw materials 62,888,000 55,524,000 Work in process 27,048,000 25,043,000 Finished goods 33,932,000 28,816,000 Prepaid expenses 4,986,000 5,580,000 ----------- ----------- Total current assets 285,870,000 268,622,000 Properties and equipment: Land 5,820,000 5,134,000 Buildings and improvements 44,586,000 40,190,000 Machinery and equipment 147,588,000 142,043,000 Accumulated depreciation (106,372,000) (102,658,000) ----------- ------------ Net properties and equipment 91,622,000 84,709,000 Intangible assets, net of accumulated amortization 197,428,000 188,002,000 Other deferred charges and assets 20,339,000 19,482,000 ----------- ----------- Total manufacturing assets 595,259,000 560,815,000 Financial services activities - Lease financing receivables, net of allowances for doubtful accounts 167,265,000 167,090,000 ----------- ----------- Total assets $762,524,000 $727,905,000 =========== =========== See notes to condensed consolidated financial statements. (a) The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued March 31 December 31 1998 1997 (a) (Unaudited) LIABILITIES Manufacturing activities - Current liabilities: Short-term borrowings $115,888,000 $86,158,000 Trade accounts payable 52,590,000 50,385,000 Accrued liabilities and income taxes 92,428,000 90,486,000 ----------- ----------- Total current liabilities 260,906,000 227,029,000 Long-term borrowings 31,061,000 32,110,000 Deferred income taxes 23,581,000 23,581,000 ----------- ----------- Total manufacturing liabilities 315,548,000 282,720,000 Financial services activities - Borrowings 145,605,000 145,413,000 Total liabilities 461,153,000 428,133,000 SHAREHOLDERS' EQUITY Common stock - par value 46,590,000 46,501,000 Capital in excess of par value 62,619,000 61,029,000 Retained earnings 229,101,000 226,432,000 Treasury stock (19,639,000) (19,695,000) Deferred stock awards (2,681,000) (1,718,000) Accumulated other comprehensive income (14,619,000) (12,777,000) ----------- ----------- Total shareholders' equity 301,371,000 299,772,000 ----------- ----------- Total liabilities and shareholders' equity $762,524,000 $727,905,000 =========== =========== See notes to condensed consolidated financial statements. (a) The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 1998 1997 ---------- ------- Operating activities: Net income $10,846,000 $13,616,000 Depreciation 4,039,000 3,629,000 Amortization 1,684,000 1,376,000 Working capital changes and other 3,157,000 (11,080,000) ----------- ----------- Net cash provided by operating activities 19,726,000 7,541,000 Investing activities: Purchases of properties and equipment (5,484,000) (5,240,000) Principal extensions under lease financing agreements (21,446,000) (31,770,000) Principal collections under lease financing agreements 21,271,000 27,524,000 Payments for purchases of companies, net of cash acquired (23,433,000) Other, net 1,545,000 1,652,000 ----------- ----------- Net cash used for investing activities (27,547,000) (7,834,000) Financing activities: Additional short-term borrowings, net 29,933,000 13,899,000 Reduction of long-term borrowings (192,000) (1,206,000) Purchases of treasury stock (157,000) (5,252,000) Cash dividends paid to shareholders (15,856,000) (14,131,000) Other, net 402,000 99,000 ----------- ----------- Net cash provided by (used for) financing activities 14,130,000 (6,591,000) ----------- ----------- Increase (decrease) in cash and cash equivalents 6,309,000 (6,884,000) Cash and cash equivalents at beginning of period 10,686,000 12,431,000 ----------- ----------- Cash and cash equivalents at end of period $ 16,995,000 $ 5,547,000 =========== =========== 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 Proxy Statement for the Annual Meeting of Shareholders held on April 15, 1998. 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, 1998, are not necessarily indicative of the results to be expected for the full year of 1998. 3. Interest paid for the three-month periods ended March 31, 1998 and 1997 was $4,679,000 and $4,020,000, respectively. Income taxes paid for these same periods were $1,085,000 and $4,914,000, respectively. 4. The following table summarizes the information used in computing basic and diluted income per share: Three Months Ended March 31 1998 1997 Numerator for both basic and diluted income per share computations - net income $10,846,000 $13,616,000 ========== ========== Denominator for basic income per share - weighted average shares outstanding 45,674,000 45,256,000 Effect of employee stock options (dilutive potential common shares) 285,000 571,000 Denominator for diluted income per share - adjusted shares 45,959,000 45,827,000 5. In 1998, the company adopted Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income", which requires companies to report all changes in equity during a period, except those resulting from investments by owners and distributions to owners, in a financial statement for the period in which they are recognized. The prior year has been restated to conform to the requirements of SFAS No. 130.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS FIRST QUARTER 1998 Comparison with First Quarter 1997 First quarter net income of $10.8 million declined from the $13.6 million reported in the first quarter of 1997 largely as a result of truck-chassis supply constraints in the Vehicle Group and lower Sign sales. Diluted earnings per share of $.24 also declined from last year's $.30. Sales increased to $231.2 million from last year's first quarter of $224.5 million. Backlog increased 33% to $336.1 million, up from $253.5 million a year ago and up 9% from December 31, 1997, with most of the increase in the Vehicle Group. All four groups enjoyed increases in new orders over last year's first quarter. The Safety Products and Tool groups reported increased sales and earnings over last year's first quarter while the Vehicle and Sign groups' sales and earnings were lower. Safety Products Group orders increased 29%, led by a sharp increase in non-U.S. orders, as all operating units had good markets and achieved increases over the prior year. Sales increased 22% and operating income increased 56%. The strong sales growth was the principal reason for the group's significantly improved operating margin. Improved product mix in the group's signaling businesses and excellent results achieved by the group's recently acquired U.S.-based hazardous area lighting unit also contributed significantly to the group's sales and earnings growth, as well as to margin expansion. Vehicle Group orders increased 24% mainly as a result of strength in the fire rescue business in the U.S., the acquisition of Saulsbury Fire early in the quarter and good order growth in all environmental product lines except European sweepers. Vehicle Group sales declined 4% primarily because truck-chassis supply shortages continued to constrain deliveries, particularly in U.S. fire rescue products and municipal sewer cleaners. Operating income declined 42% for the Vehicle Group as the continuing inability of our suppliers to provide us with sufficient truck-chassis caused production inefficiencies in addition to the lower sales volume. A temporary unfavorable sales mix also reduced margins in the fire rescue business. The truck-chassis shortage is an industry-wide situation; the current industry outlook, based on input from our suppliers, is that the supply shortage will alleviate somewhat in the second half of 1998. Tool Group orders rose 7% and sales increased 6% over the prior year. New marketing and sales initiatives helped drive particularly strong orders in the Tool Group's cutting tool segment. Operating income increased 1% as planned first quarter marketplace spending in the cutting tool segment, as well as a short-term mix change in the precision punch segment, temporarily reduced margins. The Sign Group's new orders were up 7% in the first quarter. Sales were down 11% on weak orders and backlog from last year's fourth quarter. The group reported an operating loss of $.8 million compared to a profit of $.5 million in last year's first quarter. About one-third of the first quarter loss was caused by one-time costs related to closing the group's Las Vegas manufacturing plant. The plant closing will lower future manufacturing costs since improved throughput at Sign's other plants will allow those plants to handle the volume formerly manufactured in Las Vegas. Cost of sales as a percent of net sales increased from 68.6% in the first quarter of 1997 to 69.3% in the first quarter of 1997. The percentage increase was largely attributable to the production inefficiencies experienced in the Vehicle Group. Selling, general and administrative expenses as a percent of net sales increased to 22.0% from 20.8% in the first quarter of 1997 reflecting a higher percentage of sales in the Safety Products Group. The Safety Products Group's selling, general and administrative expenses tend to be higher as a percentage of sales than the company's other groups. Interest expense increased from $3.9 million to $4.5 million largely as a result of increased borrowings to finance recent business acquisitions. The effective tax rate for the first quarter of 1998 was 32.0% compared to the first quarter 1997 rate of 33.2%. The decrease mainly resulted from higher percentages of tax-exempt interest income and foreign income taxed at lower rates.
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 March 31, 1998 The current ratio applicable to manufacturing activities was 1.1 at March 31, 1998 and 1.2 at December 31, 1997. Working capital (manufacturing operations) at March 31, 1998 was $25.0 million compared to $41.6 million at the most recent year end. The decrease in working capital principally resulted from the company's use of short-term debt to fund two acquisitions in January 1998. The debt to capitalization ratio applicable to manufacturing activities was 33% at March 31, 1998 compared to 28% at December 31, 1997. The debt to capitalization ratio applicable to financial services activities was 87% at March 31, 1998 and December 31, 1997. 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 purchases. Part II. Other Information Responses to items one, two, three, five and six 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 15, 1998, the stockholders of the Registrant voted to elect two directors and to amend the Federal Signal Corporation Stock Benefit Plan. Thomas N. McGowen, Jr. was re-elected a director for a three-year term. Holders of 37,870,000 shares voted for the re-election, 589,118 shares withheld votes, 7,529,369 shares did not vote and there were no broker nonvotes. Richard R. Thomas was re-elected a director for a three-year term. Holders of 37,920,246 shares voted for the re-election, 538,942 shares withheld votes, 7,529,369 shares did not vote and there were no broker nonvotes. Holders of 36,800,366 shares voted for the FSC Stock Benefit Plan amendment, 1,249,519 shares voted against, 409,301 shares withheld votes, 7,529,369 shares did not vote and there were two broker nonvotes. 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. 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 05/14/98 By: /s/ Henry L. Dykema Date Henry L. Dykema, Vice President and Chief Financial Officer