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, 1997 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 60521 (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 Outstanding Common Stock, $1.00 par value 45,249,226
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 16, 1997.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31 1997 1996 ------------ ------------ Net sales $224,485,000 $210,793,000 Costs and expenses: Cost of sales 154,061,000 147,663,000 Selling, general and administrative 46,624,000 41,918,000 Other (income) and expenses: Interest expense 3,937,000 3,630,000 Other (income) expense, net (526,000) (282,000) ----------- ----------- 204,096,000 192,929,000 Income before income taxes 20,389,000 17,864,000 Income taxes 6,773,000 6,013,000 ----------- ----------- Net income $ 13,616,000 $ 11,851,000 =========== =========== COMMON STOCK DATA: Net income per share $ .30 $ .26 =========== =========== Average common shares outstanding 45,841,000 45,963,000 Cash dividends per share of common stock $ .1675 $ .145 See notes to condensed consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31 December 31 1997 1996(a) (Unaudited) ASSETS Manufacturing activities - Current assets: Cash and cash equivalents $ 5,547,000 $12,431,000 Trade accounts receivable, net of allowances for doubtful accounts 139,119,000 141,203,000 Inventories: Raw materials 64,103,000 56,051,000 Work in process 29,129,000 29,088,000 Finished goods 27,125,000 23,154,000 Prepaid expenses 5,142,000 5,079,000 ----------- ----------- Total current assets 270,165,000 267,006,000 Properties and equipment: Land 5,190,000 5,250,000 Buildings and improvements 42,101,000 40,044,000 Machinery and equipment 133,520,000 132,099,000 Accumulated depreciation (97,015,000) (94,568,000) ----------- ----------- Net properties and equipment 83,796,000 82,825,000 Intangible assets, net of accumulated amortization 162,710,000 165,854,000 Other deferred charges and assets 16,296,000 17,228,000 ----------- ----------- Total manufacturing assets 532,967,000 532,913,000 Financial services activities - Lease financing receivables, net of allowances for doubtful accounts 175,234,000 170,988,000 ----------- ----------- Total assets $708,201,000 $703,901,000 =========== =========== See notes to condensed consolidated financial statements. (a) The balance sheet at December 31, 1996 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 1997 1996(a) (Unaudited) LIABILITIES Manufacturing activities - Current liabilities: Short-term borrowings $79,819,000 $69,987,000 Trade accounts payable 62,745,000 64,088,000 Accrued liabilities and income taxes 79,242,000 92,338,000 ----------- ----------- Total current liabilities 221,806,000 226,413,000 Long-term borrowings 33,113,000 34,311,000 Deferred income taxes 22,183,000 22,183,000 ----------- ----------- Total manufacturing liabilities 277,102,000 282,907,000 Financial services activities - Short-term borrowings 152,033,000 148,205,000 ----------- ----------- Total liabilities 429,135,000 431,112,000 SHAREHOLDERS' EQUITY Common stock - par value 46,073,000 45,986,000 Capital in excess of par value 58,573,000 57,138,000 Retained earnings 203,845,000 190,181,000 Treasury stock (18,121,000) (14,404,000) Deferred stock awards (2,618,000) (1,508,000) Foreign currency translation (8,686,000) (4,604,000) ----------- ----------- Total shareholders' equity 279,066,000 272,789,000 ----------- ----------- Total liabilities and shareholders' equity $708,201,000 $703,901,000 =========== =========== See notes to condensed consolidated financial statements. (a) The balance sheet at December 31, 1996 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 1997 1996 ----------- ----------- Operating activities: Net income $13,616,000 $11,851,000 Depreciation 3,629,000 3,277,000 Amortization 1,376,000 1,095,000 Working capital changes and other (11,080,000) (12,078,000) ----------- ----------- Net cash provided by operating activities 7,541,000 4,145,000 Investing activities: Purchases of properties and equipment (5,240,000) (4,028,000) Principal extensions under lease financing agreements (31,770,000) (23,726,000) Principal collections under lease financing agreements 27,524,000 20,152,000 Payments for purchases of companies, net of cash acquired (685,000) Other, net 1,652,000 276,000 ----------- ----------- Net cash used for investing activities (7,834,000) (8,011,000) Financing activities: Additional short-term borrowings, net 13,899,000 7,439,000 Reduction of long-term borrowings (1,206,000) (987,000) Purchases of treasury stock (5,252,000) Cash dividends paid to shareholders (14,131,000) (12,240,000) Other, net 99,000 304,000 ----------- ----------- Net cash used for financing activities (6,591,000) (5,484,000) ----------- ----------- Decrease in cash and cash equivalents (6,884,000) (9,350,000) Cash and cash equivalents at beginning of period 12,431,000 9,350,000 ----------- ----------- Cash and cash equivalents at end of period $ 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 16, 1997. 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, 1997, are not necessarily indicative of the results to be expected for the full year of 1997. 3. Interest paid for the three-month periods ended March 31, 1997 and 1996 was $4,020,000 and $3,535,000, respectively. Income taxes paid for these same periods were $4,914,000 and $604,000, respectively. 4. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Registrant will be required to change the method currently used to compute earnings per share. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement 128 on the calculation of primary and fully diluted earnings per share for these quarters is expected to be insignificant.
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 1997 Comparison with First Quarter 1996 First quarter net income of $13.6 million, or $.30 per share, increased 15% over the $11.9 million, or $.26 per share, achieved in the first quarter of 1996. First quarter sales of $224.5 million increased 6% over last year's $210.8 million. New business of $201.4 million decreased 9% from the $222.0 million booked in last year's first quarter. Excluding the impact of the acquisition of Victor which occurred in mid-1996, sales increased 3% and new business decreased 12% from last year. Backlogs stood at $253.5 million compared with $263.4 million a year ago. The Safety, Vehicle and Tool groups reported increases in sales over last year's first quarter while Sign's sales were lower. The Vehicle Group's earnings increased significantly in the first quarter of 1997, while earnings in the company's other groups declined. New business declined 9% which reflected some deferred ordering in 1997's first quarter in the Sign and Vehicle groups as well as unusually strong orders for those same groups in last year's first quarter. The Safety Products Group achieved an 8% increase in sales while earnings fell 19%. These percentage changes reflect the first time inclusion of the mid-1996 acquisition, Victor Products. Excluding the impact of Victor, the group's sales and earnings were down by 7% and 23%, respectively. Sales of emergency vehicle lighting and outdoor warning products declined from the unusually high levels achieved in last year's first quarter when the group's sales increased 21% over the prior year. These lower sales are also the result of lower orders from the Far East and delayed orders in Europe. For the quarter, margins were adversely affected by a short-term shift to lower-margin products. The Vehicle Group's earnings increased 73% and sales increased 13%. High beginning backlogs in the domestic and foreign units generated significantly increased fire rescue sales in the quarter. Both fire rescue and environmental products achieved significant earnings gains over the prior year, reflecting several positive operational factors. Increased sales, improvements in productivity, improved product mix and the results of last year's successful reorganization of the group's Finnish operations doubled fire rescue earnings in the first quarter over the prior year. Environmental products' earnings were also sharply higher on increased sales volume, various operational benefits and improved sales mix in municipal sweepers. Tool Group sales increased 1% while earnings declined 2%. Both domestic and foreign sales increased in the die components and cutting tools businesses; weakness in the can tooling business somewhat offset those increases. The Sign Group's sales and earnings continued weak through the first quarter. Sales declined 25% and earnings declined 69%. While the group has improved its order-to-manufacturing processes to substantially reduce last year's costly overruns, it continues to weather a longer than expected lag in the placement of customer orders. Registrant expects the second quarter to show increases over last year's sales and earnings in all groups except Sign. Quoting activity has been strong and improving for the Sign Group and Registrant believes that second quarter will improve over the first quarter but not exceed last year's second quarter earrings performance. Last year's organizational improvements in the foreign vehicles businesses are expected to continue to benefit Registrant's results for both the short and long term. Cost of sales as a percent of net sales decreased from 70.1% in the first quarter of 1996 to 68.6% in the first quarter of 1997. The percentage decrease was attributed to the Vehicle Group, which experienced significantly improved gross margins due to the reorganization of the Finnish operations and productivity improvements in the sweeper business. Selling, general and administrative expenses as a percent of net sales increased slightly to 20.8% from 19.9% in the first quarter of 1996. The effective tax rate for the first quarter of 1997 was 33.2% compared to the first quarter 1996 rate of 33.7%. The decrease mainly resulted from favorable foreign effects. 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 aerial access platform operations. Financial Position and Liquidity at March 31, 1997 The current ratio applicable to manufacturing activities was 1.2 at March 31, 1997 and December 31, 1996. Working capital (manufacturing operations) at March 31, 1997 was $48.4 million compared to $40.6 million at the most recent year end. The increase in working capital resulted from inventory purchases made largely in anticipation of orders that are expected to ship in the second quarter of 1997, particularly in the Vehicle Group. The debt to capitalization ratio applicable to manufacturing activities was 29% at March 31, 1997 compared to 28% at December 31, 1996. The debt to capitalization ratio applicable to financial services activities was 87% at March 31, 1997 and December 31, 1996. 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 16, 1997, the stockholders of the Registrant voted to elect two directors. Walter R. Peirson. was re-elected a director for a three-year term. Holders of 36,230,597 shares voted for the re-election, 517,589 shares withheld votes, 8,609,214 shares did not vote and there were no broker nonvotes. Joseph J. Ross was re-elected a director for a three-year term. Holders of 36,250,815 shares voted for the re-election, 497,371 shares withheld votes, 8,609,214 shares did not vote and there were no broker nonvotes. 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 05/09/97 By:___________________________________________ Date Henry L. Dykema, Vice President and Chief Financial Officer