-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, M6PoGrlFC7MdXTfqnpRSg5Ozrl0DxSpOs1itrtsgDTRzALcr9hE17S4ZB0bV9nr2 QFCE+0ApGKazpmS07f8q6w== 0000277509-95-000002.txt : 19950615 0000277509-95-000002.hdr.sgml : 19950615 ACCESSION NUMBER: 0000277509-95-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950320 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERAL SIGNAL CORP /DE/ CENTRAL INDEX KEY: 0000277509 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 361063330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06003 FILM NUMBER: 95521926 BUSINESS ADDRESS: STREET 1: 1415 W 22ND ST-STE 1100 CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7089542000 FORMER COMPANY: FORMER CONFORMED NAME: FEDERAL SIGN & SIGNAL CORP /DE/ DATE OF NAME CHANGE: 19600201 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 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, ILLINOIS 60521 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (708) 954-2000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered COMMON STOCK, PAR VALUE $1.00 PER SHARE, WITH PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: None (Title of class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of voting stock held by nonaffiliates of the Registrant as of March 1, 1995. Common stock, $1.00 par value -- $817,151,270 Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of March 1, 1995. Common stock, $1.00 par value -- 45,291,023 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual report to shareholders for the year ended December 31, 1994, are incorporated by reference into Parts I and II. Portions of the proxy statement for the Annual Meeting of Shareholders to be held on April 19, 1995, are incorporated by reference into Part III. PART I Item 1. Business. Federal Signal Corporation, founded in 1901, was reincorporated as a Delaware Corporation in 1969. The company is a manufacturer and worldwide supplier of safety, signaling and communications equipment, fire trucks and emergency vehicles, street sweeping, vacuum loader and catch basin cleaning vehicles, parking control equipment, custom on-premise signage, cutting tools, precision punches and related die components. Products produced and services rendered by Registrant and its subsidiaries (referred to collectively as "Registrant" herein, unless context otherwise indicates) are divided into groups (business segments) as follows: Safety Products (previously known as Signal), Sign, Tool and Vehicle. This classification of products and services is based upon Registrant's historical divisional structure established by management for the purposes of internal control, marketing and accounting. Developments, including acquisitions of businesses, considered significant to the company or individual segments are described under the following discussions of the applicable groups. The Financial Review sections, "Consolidated Results of Operations," "Group Operations" and "Financial Position and Cash Flow," and Note N - Segment Information contained in the annual report to shareholders for the year ended December 31, 1994 are incorporated herein by reference. Safety Products Group Safety Products Group (previously known as the Signal Group) products manufactured by Registrant consist of: (1) a variety of visual and audible warning and signaling devices used by private industry, federal, state and local governments, building contractors, police, fire and medical fleets, utilities and civil defense; (2) safety containment products for handling and storing hazardous materials used by a wide variety of industrial and laboratory customers as well as military agencies and municipal, state and federal governments; and (3) parking, revenue control, and access control equipment and systems for parking facilities, commercial businesses, bridge and pier installation and residential developments. The visual and audible warning and signaling devices include emergency vehicle warning lights, electromechanical and electronic vehicle sirens and industrial signal lights, sirens, horns, bells and solid state audible signals, audio/visual emergency warning and evacuation systems, including weather and nuclear power plant warning notification systems and fire alarm system panels and devices. In May 1994, the Registrant acquired the principal operating assets and assumed the principal operating liabilities of Justrite Manufacturing Company for cash. Justrite is an Illinois-based manufacturer of safety equipment for the storage, transfer, use and disposal of flammable and hazardous materials. The safety containment products offered by Justrite include safety cabinets for flammables and corrosives; safety and dispenser cans; waste receptacles and disposal cans; spill control pallets and overpacks; and hazardous material storage buildings, lockers, pallets and platforms. These products are designed in accordance with various regulatory codes and standards, and meet agency approvals such as FM and UL. Parking, revenue control, and access control equipment and systems include parking and security gates, card access readers, ticket issuing devices, coin and token units, fee computers, various forms of electronic control units and personal computer-based revenue and access control systems. Warning and signaling products, which account for the principal portion of the group's business, are marketed to both industrial and governmental users. Products are sold to industrial customers through manufacturers' representatives who sell to approximately 1,400 wholesalers. Products are also sold to governmental customers through more than 900 active independent distributors as well as through original equipment manufacturers and direct sales. International sales are made through the Registrant's independent foreign distributors or on a direct basis. Because of the large number of Registrant's products, Registrant competes with a variety of manufacturers and suppliers and encounters varying competitive conditions among its different products and encounters different classes of customers. Because of the variety of such products and customers, no meaningful estimate of either the total number of competitors or Registrant's overall competitive position can be made. Generally, competition is intense as to all of Registrant's products and, as to most such products, is based on price, including competitive bidding, on product reputation and performance, and on product servicing. Although some competitors in certain product lines are larger than Registrant, the Registrant believes it is the leading supplier of particular products. In May 1992, the Registrant acquired all of the outstanding shares of Aplicaciones Tecnologicas VAMA S.L. for cash and an earnout to be based upon future profitability of the company for a five-year period. VAMA is a leading European manufacturer of emergency vehicular signaling products located in Barcelona, Spain. The acquisition accelerates the Safety Products Group's strategic objective of increasing international market penetration, particularly in Europe. The backlogs of orders of Safety Products Group products believed to be firm at December 31, 1994 and 1993 were $14.0 million and $9.7 million, respectively. The backlogs at December 31, 1994 included approximately $2.4 million of backlog attributable to Justrite, which was acquired in May 1994. Almost all of the backlogs of orders at December 31, 1994 are reasonably expected to be filled within the current fiscal year. Sign Group The Sign Group, operating principally under the name "Federal Sign" designs, engineers, manufactures, installs and maintains illuminated and non-illuminated sign displays, for both sale and lease. Registrant additionally provides sign repair services and also enters into maintenance service contracts, usually over three to five-year periods, for signs it manufactures as well as for signs produced by other manufacturers. Its operations are oriented to custom designing and engineering of commercial and industrial signs or groups of signs for its customers. The sale and lease of signs and the sale of maintenance contracts are conducted primarily through Registrant's direct sale organization which operates from its twenty-three principal sales and manufacturing facilities located strategically throughout the continental U.S. Customers for sign products and services consist of local commercial businesses, as well as major national and multi-national companies. The Sign Group's markets improved during 1994 with growth coming from many of its national and multi-national customers, as well as growth in the casino gaming industry. This growth, combined with the results of the aggressive restructuring programs implemented over the last few years, resulted in more than tripling profits in 1994 versus 1993. A large number of Registrant's displays are leased to customers for terms of typically three to five years with both the lease and the maintenance portions of many such contracts then renewed for successive periods. Registrant is nationally a principal producer of custom-designed signs, but has numerous competitors (estimated at about 3,500 in total), most of whom are localized in their operations. Competition for sign products and services is intense and competitive factors consist largely of prices, terms, aesthetic and design considerations, and maintenance services. In some instances, smaller and more localized operations may enjoy some cost advantages which may permit lower pricing for particular displays. However, Registrant's reputation for creative design, quality manufacture and complete nationwide service together with its financial ability to maintain customer leasing programs and to undertake large project commitments in many cases offset competitors' price advantages. Total backlog at December 31, 1994, applicable to sign products and services was approximately $57.0 million compared to approximately $54.2 million at December 31, 1993. A significant part of Registrant's sign products and services backlog relates to sign maintenance contracts since such contracts are usually performed over long periods of time. At December 31, 1994, the Sign Group had a backlog of approximately $39.8 million compared to approximately $41.5 million at December 31, 1993, represented by in-service sign maintenance contracts. With the exception of the sign maintenance contracts, most of the backlog orders at December 31, 1994 are reasonably expected to be filled within the current fiscal year. Tool Group Tool Group products are produced by the Registrant's wholly-owned subsidiaries including: Dayton Progress Corporation, Schneider Stanznormalien GmbH, acquired in 1992, Manchester Tool Company, Dico Corporation, acquired in 1992, Bassett Rotary Tool Company and Jamestown Punch and Tooling, Inc. Dayton Progress Corporation manufactures and purchases for resale an extensive variety of consumable die components for the metal stamping industry. These components consist of piercing punches, matched die matrixes, punch holders or retainers and many other products related to a metal stamper's needs. Registrant also produces a large variety of consumable precision metal products for customers' nonstamping needs, including special heat exchanger tools, beverage container tools, powder compacting units and molding components. In March 1992, Dayton Progress Corporation acquired for cash the assets of Schneider Stanznormalien GmbH, a German manufacturer of precision punch and die components. This acquisition gives Dayton Progress manufacturing capabilities on the European continent and provides greater access to European markets. In October 1991, Dayton Progress Corporation acquired for cash and stock all of the outstanding shares of Container Tooling Corporation. Container Tool manufactures and distributes body punch tooling used in the production of aluminum and steel beverage cans. The product complements Dayton Progress' tab-top tooling product line. In October 1994 the Container Tool operations were relocated to Dayton Progress' facilities in Dayton, Ohio. Manchester Tool Company manufactures consumable carbide insert tooling for cutoff and deep grooving metal cutting applications. In November 1992, Manchester Tool Company acquired for cash all of the outstanding shares of Dico Corporation, a manufacturer of polycrystalline diamond and cubic boron nitride cutting tools. This product line complements Manchester Tool's carbide insert products and allows for entry into new market niches within general business areas already served. Bassett Rotary Tool Company is a manufacturer of consumable carbide cutting tools. Its products are medium to high precision in their manufacture and at times are quite complex in their configuration. The products represent a narrow band of the much broader cutting tool industry and require a high level of manufacturing skill. Jamestown Punch and Tooling, Inc. manufactures an extensive line of consumable special die components for the metal stamping and plastic molding industries in addition to a variety of precision ground high alloy parts. Sales are made on both a direct basis and through a limited distributor organization. Because of the nature of and market for the Registrant's products, competition is great at both domestic and international levels. Many customers have some ability to produce the product themselves, but at a cost disadvantage. Major market emphasis is placed on quality of product and level of service. Tool Group products are labor intensive with the only significant outside cost being the purchase of the tool steel, carbide and diamond raw material, as well as items necessary for manufacturing. Inventories are maintained to assure prompt service to the customer with the average order for standard tools filled in less than one week for domestic shipments and within two weeks for international shipments. Tool Group customers include metal and plastic fabricators and tool and die shops throughout the world. Because of the nature of the products, volume depends mainly on repeat orders from customers numbering in the thousands. These products are used in the manufacturing process of a broad range of items such as automobiles, appliances, construction products, electrical motors, switches and components and a wide variety of other household and industrial goods. Almost all business is done with private industry. Registrant's products are marketed in the United States, Japan and Europe principally through industrial distributors. Foreign manufacturing facilities, as well as sales and distribution offices, are located in Weston, Ontario; Sagamihara, Japan; Kenilworth, England; and Oberursel, Germany. Sales to nondomestic customers are made through five wholly-owned subsidiaries: Dayton Progress Canada, Ltd., Dayton Progress International Corporation, Dayton Progress (UK) Ltd., Nippon Dayton Progress K.K. and Schneider Stanznormalien GmbH. Order backlogs of the Tool Group as of December 31, 1994 and December 31, 1993 were $9.5 million and $7.5 million, respectively. Almost all of the backlogs of orders at December 31, 1994 are expected to be filled within the current fiscal year. Vehicle Group The Vehicle Group is composed of Emergency One, Inc., Superior Emergency Vehicles, Ltd., acquired in 1991, Elgin Sweeper Company, Vactor Manufacturing, Inc., acquired in 1994, Guzzler Manufacturing, Inc., acquired in 1993, and Ravo International, acquired in 1990. Emergency One, Inc. is a leading manufacturer of custom-designed ambulances, fire trucks and rescue vehicles including four and six-wheel drive rescue trucks, tankers, pumpers, aerial ladder trucks, and airport rescue and fire fighting vehicles (each of aluminum construction for rust-free operation and energy efficiency). In December 1991, Emergency One acquired for cash all of the outstanding shares of Frontline Corporation, a manufacturer and distributor of ambulances, rescue trucks and mobile communication vehicles. The acquisition of Frontline Corporation complemented Emergency One's product line and enabled Emergency One to provide a complete product line of fire trucks, fire apparatus, emergency support and ambulance vehicles for distribution through Emergency One's domestic and international dealer network. During 1993, the company's ambulance operations were relocated to Emergency One's facilities in Ocala, Florida and the mobile communications vehicles product line was sold. The company was merged into Emergency One in January 1994. In December 1991, Emergency One acquired for cash, Superior Emergency Vehicles, Ltd., a manufacturer and distributor of a full range of fire truck bodies primarily for the Canadian market. In addition to increased manufacturing capacity, the acquisition of Superior Emergency Vehicles, Ltd. provides greater access to the Canadian market. Elgin Sweeper Company is the leading manufacturer in the United States of self-propelled street cleaning vehicles. Utilizing three basic cleaning methods (mechanical sweeping, vacuuming and recirculating air), Elgin's products are primarily designed for large-scale cleaning of curbed streets and other paved surfaces. In June 1994, the Registrant acquired the principal operating assets and assumed the principal operating liabilities of Peabody Myers Corporation ("Vactor") for cash. Vactor Manufacturing, Inc. is an Illinois-based manufacturer of municipal combination catch basin/sewer cleaning vacuum trucks. This acquisition provides a significant expansion of the Registrant's offering of municipal equipment and enhances the domestic and international dealer networks of both Elgin Sweeper and Vactor. In March 1993, Elgin Sweeper Company acquired, principally for cash, all of the outstanding shares of Guzzler Manufacturing, Inc. Guzzler is an Alabama-based manufacturer and marketer of waste removal vehicles, using vacuum technology, for worldwide industrial and environmental markets. The acquisition of Guzzler Manufacturing, Inc. complements Elgin Sweeper Company's product distribution and provides for increased exposure to the industrial marketplace for both Elgin and Guzzler. In December 1990, the Registrant, through Federal Signal Europe BV, acquired all of the outstanding shares of Van Raaij Holdings BV (which, along with its subsidiaries, is referred to herein as Ravo International), a Netherlands-based street sweeper manufacturer, for cash and an earnout to be based upon future profitability of the company for a five-year period. Ravo International is a leading European manufacturer and marketer of self-propelled street and sewer cleaning vehicles. Utilizing the vacuuming cleaning method, Ravo's products are primarily designed for cleaning of curbed streets and other paved surfaces. Both Ravo International and Elgin Sweeper Company also sell accessories and replacement parts for their sweepers. Ravo International also provides after- market service and support for its products in the Netherlands. Some products and components thereof are not manufactured by Registrant but are purchased for incorporation with products of Registrant's manufacture. A majority of Vehicle Group sales are made to domestic and overseas municipalities and other governmental units. Industrial vacuum loader vehicles produced by Guzzler are principally sold to commercial and industrial customers. Worldwide sales are principally conducted by domestic and international dealers, in most areas, with some sales being made on a direct-to-user basis. Registrant competes with several domestic and foreign manufacturers and due to the diversity of products offered, no meaningful estimate of either the number of competitors or Registrant's relative position within the market can be made, although Registrant does believe it is a major supplier within these product lines. Registrant competes with numerous foreign manufacturers principally in international markets. At December 31, 1994, the Vehicle Group backlogs were $180.5 million compared to $150.3 million at December 31, 1993. The backlogs at December 31, 1994, included approximately $10.2 million of backlog attributable to Vactor Manufacturing, Inc., which was acquired in June 1994. A substantial majority of the orders in the backlogs at December 31, 1994 are reasonably expected to be filled within the current fiscal year. Approximately $24.0 million of the backlogs at December 31, 1994 and $34.3 million of the backlogs at December 31, 1993 represent the funded portion of a subcontract to build P-23 airport rescue and fire fighting vehicles for the U.S. Air Force. The majority of the $24.0 million backlog at December 31, 1994 is expected to be produced and shipped during 1995. Additional Information Registrant's sources and availability of materials and components are not materially dependent upon either a single vendor or very few vendors. Registrant owns a number of patents and possesses rights under others to which it attaches importance, but does not believe that its business as a whole is materially dependent upon any such patents or rights. Registrant also owns a number of trademarks which it believes are important in connection with the identification of its products and associated goodwill with customers, but no material part of Registrant's business is dependent on such trademarks. Registrant's business is not materially dependent upon research activities relating to the development of new products or services or the improvement of existing products and services, but such activities are of importance as to some of Registrant's products. Expenditures for research and development by the Registrant were approximately $7.0 million in 1994, $5.6 million in 1993 and $5.2 million in 1992. Note N - Segment Information, presented in the annual report to shareholders for the year ended December 31, 1994, contains information concerning the Registrant's foreign sales, export sales and operations by geographic area, and is incorporated herein by reference. 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, other municipal emergency signal products and parking systems manufacturing operations. No material part of the business of Registrant is dependent either upon a single customer or very few customers. The Registrant is in substantial compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. These provisions have had no material adverse impact upon capital expenditures, earnings or competitive position of the Registrant and its subsidiaries. The Registrant employed 5,243 people in ongoing businesses at the close of 1994. The Registrant believes relations with its employees have been satisfactory. Item 2. Properties. As of March 1, 1995, the Registrant utilized twenty-seven principal manufacturing plants located primarily throughout North America, as well as seven in Europe and one in the Far East. In addition, there were thirty-six sales and service/warehouse sites, with thirty-three being domestically based and three located overseas. The majority of the manufacturing plants are owned, whereas all the sales and service/warehouse sites are leased. In total, the Registrant devoted approximately 1,464,000 square feet to manufacturing and 890,000 square feet to service, warehousing and office space, as of March 1, 1995. Of the total square footage, approximately 31% is devoted to the Safety Products Group, 14% to the Sign Group, 11% to the Tool Group and 44% to the Vehicle Group. Not included in the manufacturing square footage is approximately 21,000 square feet of unutilized manufacturing space that resulted from the rearrangement of the Registrant's manufacturing operations in the Sign and Tool groups. The majority of this space is presently being marketed for lease to nonaffiliates. Approximately 66% of the total square footage is owned by the Registrant, with the remaining 34% being leased. All of the Registrant's properties, as well as the related machinery and equipment, are considered to be well-maintained, suitable and adequate for their intended purposes. In the aggregate, these facilities are of sufficient capacity for the Registrant's current business needs. Capital expenditures for the years ended December 31, 1994, 1993, and 1992 were $11.1 million, $10.1 million, and $8.8 million, respectively. Registrant anticipates total capital expenditures in 1995 will be approximately 30% to 50% greater than 1994 amounts. Item 3. Legal Proceedings. The Registrant is subject to various claims, other pending and possible legal actions for product liability and other damages and other matters arising out of the conduct of the Registrant's business. With the exception of the matter discussed below, the Registrant believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not have a material adverse effect on the Registrant's consolidated financial position or the results of operations. On May 3, 1993, a Texas federal court jury rendered a verdict of $17,745,000 against Federal Sign, a division of the Registrant, for alleged violation of the Texas Deceptive Trade Practices Act and misrepresentations to Duravision, Inc. and Manufacturers Product Research Group of North America, Inc. in connection with a 1988 research and development project for indoor advertising signs. The Registrant believes the court erroneously excluded important evidence and that the verdict was against the weight of the evidence. Both inside and outside counsel that initially handled the case opined at the time of the verdict that the likelihood of a substantially unfavorable result to the Registrant on appeal was remote. Trial counsel has turned the case over to new appellate counsel and has stated they cannot currently give an opinion on the appeal because they are no longer handling the case. Appellate counsel now handling the appeal of the case has not issued an opinion on its outcome. However, if the Registrant loses its appeal of this case, there would be a charge to earnings for this $17,745,000 verdict, plus interest and attorney fees of up to $11,000,000. On the other hand, there would be no such charges to earnings for a decision reversing the original verdict or the appellate court could issue a decision somewhere in between. Depending on the outcome of this matter, an adverse decision may have a material effect on results of operations and cash flows in the periods that the appellate court decision is made and required payments are made. The Registrant believes that the ultimate resolution of this contingency, however, will not have a material effect on its financial condition nor its results of operations or cash flows for periods subsequent to the appellate court decision and payments required as a result of such decision. The Registrant cannot reasonably estimate the ultimate amount of a judgment, if any, or interest and attorney fees, if any, which may result from an adverse appellate court decision. Accordingly, the Registrant has not recorded any accruals for potential losses which may result from an adverse judgment. In the event of an adverse decision, the Registrant intends to aggressively pursue a substantial recovery from its original trial counsel in this matter. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders through the solicitation of proxies or otherwise during the three months ended December 31, 1994. PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters. Federal Signal Corporation's Common Stock is listed and traded on the New York Stock Exchange under the symbol FSS. Per share data listed in Note O -Selected Quarterly Data (Unaudited) contained in the 1994 annual report to shareholders is incorporated herein by reference. As of March 1, 1995, there were 5,403 holders of record of the Registrant's common stock. Certain long-term debt agreements impose restrictions on Registrant's ability to pay cash dividends on its common stock. All of the retained earnings at December 31, 1994, were free of any restrictions. Item 6. Selected Financial Data. Selected Financial Data contained in the 1994 annual report to shareholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Financial Review sections "Consolidated Results of Operations," "Group Operations" and "Financial Position and Cash Flow" contained in the 1994 annual report to shareholders are incorporated herein by reference. Note M - Contingency, contained in the annual report to shareholders for the year ended December 31, 1994, is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The consolidated financial statements and accompanying footnotes of the Registrant and the report of the independent auditors set forth in the Registrant's 1994 annual report to shareholders are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information under the caption "Election of Directors" contained in the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on April 19, 1995 is incorporated herein by reference. The following is a list of the Registrant's executive officers, their ages, their business experience and their positions and offices as of March 1, 1995: Joseph J. Ross, age 49, was elected Chairman, President and Chief Executive Officer in February, 1990. Previously he served as President and Chief Executive Officer since December 1987 and as Chief Operating Officer since July 1986. John A. DeLeonardis, age 47, was elected Vice President-Taxes in January 1992. He first joined the company as Director of Tax in November 1986. Henry L. Dykema, age 55, joined the Registrant as Vice President and Chief Financial Officer in January 1995. He replaced Charles R. Campbell, Chief Financial Officer since 1985, who retired at the end of 1994. Mr. Dykema was self-employed from September 1993 to December 1994 and served as Vice President-Finance and Chief Financial Officer of Kennametal, Inc. from October 1989 to August 1993. Robert W. Racic, age 46, was elected Vice President and Treasurer in April 1984. Richard L. Ritz, age 41, was elected Vice President and Controller in January 1991. He was appointed Controller effective November 1985. Kim A. Wehrenberg, age 43, was elected Vice President, General Counsel and Secretary effective October 1986. These officers hold office until the next annual meeting of the Board of Directors following their election and until their successors shall have been elected and qualified. There are no family relationships among any of the foregoing executive officers. Item 11. Executive Compensation. The information contained under the caption "Executive Compensation" of Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held April 19, 1995 is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information contained under the caption "Security Ownership of Certain Beneficial Owners" of Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held April 19, 1995 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information contained under the caption "Executive Compensation" of Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held April 19, 1995 is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)1. Financial Statements The following consolidated financial statements of Federal Signal Corporation and Subsidiaries included in the 1994 annual report of the Registrant to its shareholders are filed as a part of this report and are incorporated by reference in Item 8: Consolidated Balance Sheets -- December 31, 1994 and 1993 Consolidated Statements of Income -- Years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows -- Years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements 2. Financial Statement Schedules The following consolidated financial statement schedule of Federal Signal Corporation and Subsidiaries, for the three years ended December 31, 1994, is filed as a part of this report in response to Item 14(d): Schedule II -- Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted. 3. Exhibits 3. a. Restated Certificate of Incorporation of Registrant and Certificate of Amendment, filed as Exhibit (3)(a) to Registrant's Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. b. By-laws of Registrant, filed as Exhibit (3)(b) to Registrant's Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 4. a. Rights Agreement, filed as Exhibit (4)(a) to Registrant's Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. b. The Registrant has no long-term debt agreements for which the related outstanding debt exceeds 10% of consolidated total assets as of December 31, 1994. Copies of debt instruments for which the related debt is less than 10% of consolidated total assets will be furnished to the Commission upon request. 10. a. 1988 Stock Benefit Plan, filed as Exhibit (10)(a) to Registrant's Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. b. Corporate Management Incentive Bonus Plan. c. Subsidiaries, Division and Other Designated Profit Centers Management Incentive Bonus Plan. d. Supplemental Pension Plan, filed as Exhibit (10)(d) to Registrant's Form 10-K for the year ended December 31, 1990, is incorporated herein by reference. e. Executive Disability, Survivor and Retirement Plan, filed as Exhibit (10)(e) to Registrant's Form 10-K for theyear ended December 31, 1990, is incorporated herein by reference. f. Supplemental Savings and Investment Plan, filed as Exhibit (10)(f) to Registrant's Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. g. Employment Agreement with Joseph J. Ross. h. Change of Control Agreement with Kim A. Wehrenberg. i. Director Deferred Compensation Plan, filed as Exhibit (10)(j) to Registrant's Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. j. Director Retirement Plan, filed as Exhibit (10)(k) to Registrant's Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 11. Computation of net income per common share 13. 1994 Annual Report to Shareholders of Federal Signal Corporation. Such report, except for those portions thereof which are expressly incorporated by reference in this Form 10-K, is furnished for the information of the Commission only and is not to be deemed "filed" as part of this filing. 21. Subsidiaries of the Registrant 23. Consent of Independent Auditors 27. Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed for the three months ended December 31, 1994. (c) and (d) The response to this portion of Item 14 is being submitted as a separate section of this report. Other Matters For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's Registration Statements on Form S-8 Nos. 33-12876, 33- 22311, 33-38494, 33-41721 and 33-49476, dated April 14, 1987, June 26, 1988, December 28, 1990, July 15, 1991 and June 9, 1992, respectively: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Signatures Pursuant to the requirements of Section 13 or 15 (d) 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 By: Joseph J. Ross March 20, 1995 Chairman, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below, on March 20, 1995, by the following persons on behalf of the Registrant and in the capacities indicated. Henry L. Dykema Walter R. Peirson Vice President and Chief Director Financial Officer Richard L. Ritz J. Patrick Lannan, Jr. Vice President and Controller Director James A. Lovell, Jr. Director Thomas N. McGowen, Jr. Director Richard R. Thomas Director SCHEDULE II FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts For the Years Ended December 31, 1994, 1993 and 1992
Deductions Additions Accounts Balance at Charged to written off Balance beginning costs and net of at end Description of year expenses recoveries of year Year ended December 31, 1994: Deducted from asset accounts: Allowance for doubtful accounts Manufacturing activities $2,215,000 $2,848,000 Financial service activities 976,000 1,174,000 Total $3,191,000 $1,809,000 $ 978,000 $4,022,000 Year ended December 31, 1993: Deducted from asset accounts: Allowance for doubtful accounts Manufacturing activities $1,688,000 $2,215,000 Financial service activities 1,138,000 976,000 Total $2,826,000 $2,710,000 $2,345,000 $3,191,000 Year ended December 31, 1992: Deducted from asset accounts: Allowance for doubtful accounts Manufacturing activities $1,392,000 $1,688,000 Financial service activities 857,000 1,138,000 Total $2,249,000 $2,521,000 $1,944,000 $2,826,000
EX-10.B 2 FEDERAL SIGNAL CORPORATION Corporate Management Incentive Bonus Plan The incentive bonus plan has been established to provide an incentive to key corporate officers and management employees of Federal Signal Corporation to attain the highest performance possible in each year. The plan provides key executives with an opportunity to add to their total annual compensation, if the corporation attains prescribed levels of return on capital. The details of the plan follow. I. Incentive bonus calculations A) Target bonus A target bonus amount will be established for each plan participant in the plan. This target bonus amount will be based upon a specified percentage of the participant's salary. B) Bonus goals 1) Seventy-five percent (75%) of the bonus amount will be based on corporate return on capital, (ROC). For this purpose, ROC is defined as the percent of pre-tax, pre-bonus income excluding extraordinary items (see Section IID5) plus interest on long-term debt divided by the year's monthly average of the sum of stockholders equity plus long-term debt. 2) Twenty-five percent (25%) of the bonus amount is discretionary based on an evaluation of the participants performance. (See Section IIC) This part of your bonus also constitutes payment for any unused vacation and by accepting the bonus payment you waive any claims for payment for unused vacation. C) Performance goals Each participant's bonus will be subject to calculation in accordance with the scale on Attachment A as appropriate, for total corporate performance. The actual bonus available for the discretionary award may be at least 25% of the target bonus, even if the actual performance portion may be below the minimum target bonus. If the actual performance portion is higher than target, the discretionary bonus will be calculated using the same bonus rate. II. Administration A) Selection of participants and bonus level Selection of corporate participants and bonus levels will be made by the President of the corporation. The Compensation/Stock Option Committee of the Board of Directors will review and give approval for recommended material changes to the plan as submitted. B) Determination of bonus award Following the completion of the year-end audit, the actual bonus for each participant will be calculated as follows: 1) Calculate the return on capital (ROC) percentage according to Section IB. 2) Using Attachment A, find appropriate bonus ratio based on the ROC. 3) Multiply the target bonus by the bonus ratio as determined in Section IIB2. 4) If the bonus ratio is less than 1.0, the discretionary portion (25%) may still be paid at the amount of the target bonus for the discretionary portion (see Section IC). C) Determination of discretionary award Each participant will be evaluated against the following criteria: 1) General performance of the participant's responsibilities. 2) Meeting the participant's objectives and/or priorities. 3) Evaluation of initiative, attitude, and dedication to the company. 4) Management development of self and subordinates. 5) Professional and personal conduct. The President, in his sole discretion, will determine the amount, if any, of this portion of the participant's bonus payment. D) Other considerations 1) Bonus awards will be paid only to participants who are actively employed as of the bonus payment date. 2) In the event of the retirement of a participant during the management incentive bonus plan year, the amount of bonus award will be based on the full year results with credit for the number of completed months worked as a percent of the full plan year. 3) The addition of new participants, including new employees to the plan during the year, and the bonus levels for those individuals, must be approved, in writing, by the President. Any changes for participants regardless of the reason, (promotion, change of responsibility, upgrading of salary in the same position) must also be approved by the President. Approval, in writing, in any case must be obtained prior to communication to the individual concerned. 4) Unless otherwise approved by the President, in writing, this incentive bonus plan will be the sole incentive plan under which participants included in this plan may participate. 5) Income will be inclusive of any changes in reserves, but will exclude any capital gains or losses and other unusual gains or losses such as proceeds of fire or casualty insurance or changes in accounting practices. In cases of uncertainty, the decision of the President will be final. EX-10.C 3 FEDERAL SIGNAL CORPORATION Subsidiaries, Division and Other Designated Profit Centers Management Incentive Bonus Plan The incentive bonus plan has been established to provide an incentive to key management employees of Federal Signal Corporation and subsidiaries to attain the highest performance possible in each year. The plan provides key executives with an opportunity to add to their total annual compensation, if prescribed return levels, sales growth or other important discretionary goals are attained. The details of the plan follow. I. Incentive bonus calculations A) Target bonus A target bonus amount will be established for each plan participant in the plan. This target bonus amount will be based upon a specified percentage of the participant's salary. B) Bonus goals The bonus goals will consist of the following: ROI, operating margin/sales growth portion 1) A specified percentage of the participant's bonus amount will be based on the participant's subsidiary, division or profit center return on investment (ROI) or operating margin/sales growth targets or a combination thereof. For this purpose, ROI is defined as the percent of pre-tax, pre-bonus income excluding extraordinary items (see Section IID5) divided by the year's monthly average of the division investment base. The investment base is defined as the division's total assets (excluding lease financing assets that are managed by corporate and including goodwill) less total liabilities excluding income tax reserves, long-term debt and capitalized leases. Operating margins are defined as pre-tax, pre-bonus income excluding interest on lease financing assets (if managed by corporate), non-operating income or expense and extraordinary items divided by the sales of the division. Sales growth is defined as the percent increase in sales to outside customers over the prior year. Discretionary portion 2) A specified percentage of the participant's bonus amount is discretionary based on an evaluation of the participant's performance (see IIC) including the achievement of certain goals related to cash flow management, sales and/or other criteria. This part of your bonus also constitutes payment for any unused vacation and by accepting the bonus payment you waive any claims for payment for unused vacation. Corporate portion 3) A specified percentage of the participant's bonus amount will be based on corporate return on capital (ROC). The specified percentage for each of the bonus goals will be established each year by the President of the corporation and communicated to the participant in writing. C) Performance goals The ROI or operating margin/sales growth portion of each participant's bonus will be subject to calculation in accordance with the scale provided in the "Bonus Award Schedule". The discretionary portion of the participant's bonus will be subject to calculation based upon the multiple (or "factor") achieved from the discretionary performance award schedules (for example, cash flow targets, sales targets, etc.). II. Administration A) Selection of participants and bonus levels Selection of participants and bonus levels for presidents of subsidiaries, divisions and other profit centers will be set by the President of the corporation. Participants and bonuses for individuals below the president level will be set by the President in conjunction with the appropriate subsidiary or division president. The Compensation/Stock Option Committee of the Board of Directors will review and give approval for recommended material changes to the plan as submitted. B) Determination of bonus award Following the completion of the year-end audit, the actual bonus for each participant will be calculated as follows: ROI or operating income/sales growth portion 1) Calculate the ROI or operating margin/sales growth portion according to Section IB. 2) Using the "Bonus Award Schedule" provided by the President, find the appropriate bonus ratio (or "factor") based on the ROI or operating margin/sales growth. 3) Multiply the specified percentage (as communicated by the President) of the target bonus by the bonus ratio as determined in Section IIB2. Discretionary portion 1) Based upon the participant's performance, the specified percentage of the target bonus will be multiplied by the applicable factor resulting from the participant's achievement against discretionary bonus goals for cash flow, sales and/or other factors. 2) Depending upon the participant's discretionary goals and if the bonus ratio is less than 1.0, a portion of the discretionary portion may still be paid at the amount of the target bonus for the discretionary portion (see Section IC). Corporate portion 1) For those participants which have a portion of their bonuses based upon the consolidated performance of the company, multiply the specified percentage of the target bonus by the bonus ratio as determined by the corporate return on capital. The total of the ROI or operating margin/sales growth portion, discretionary portion and corporate portion, if any, will be the bonus award. C) Determination of discretionary award Each participant will be evaluated against the following criteria: 1) General performance of the participant's responsibilities. 2) Meeting the participant's objectives and/or priorities. 3) Evaluation of initiative, attitude, and dedication to the company. 4) Management development of self and subordinates. 5) Professional and personal conduct. The President, in his sole discretion, will determine the amount, if any, of this portion of the participant's bonus payment. D) Other considerations 1) Bonus awards will be paid only to participants who are actively employed as of the bonus payment date. 2) In the event of the retirement of a participant during the management incentive bonus plan year, the amount of bonus award will be based on the full year results with credit for the number of completed months worked as a percent of the full plan year. 3) The addition of new participants, including new employees to the plan during the year, and the bonus levels for those individuals, must be approved, in writing, by the President. Any changes for participants regardless of the reason, (promotion, change of responsibility, upgrading of salary in the same position) must also be approved by the President. Approval in writing in any case must be obtained prior to communication to the individual concerned. 4) Unless otherwise approved by the President, in writing, this incentive bonus plan will be the sole incentive plan under which participants included in this plan may participate. 5) Income will be inclusive of any changes in reserves, but will exclude any capital gains or losses and other unusual gains or losses such as proceeds of fire or casualty insurance or changes in accounting practices. In cases of uncertainty, the decision of the President will be final. EX-10.G 4 June 23, 1989 Mr. Joseph J. Ross 1195 LeProvence Naperville, IL 60540 Dear Mr. Ross: Pursuant to authorization of its Board of Directors (the "Board"), this letter will set forth certain of the terms and conditions of your continuing employment by Federal Signal Corporation ("Federal") as an executive officer of Federal. By your acceptance hereof you agree that your employment shall continue upon the terms and conditions hereinafter set forth. 1. Term, Compensation and Services 1.1 The term of your employment pursuant to this agreement shall continue from the date hereof until the December 31 following your 65th birthday, subject to earlier termination of employment by Federal or you as hereinafter provided. 1.2 During the term of your employment, you will be compensated at the annual rate as may from time to time be fixed by resolution of the Board, provided, however, that your annual rate of compensation shall in no event be less than $225,000 and provided further that such minimum annual rate may be increased by resolution of the Board which resolution shall be binding on Federal for the remaining term of this agreement. Your annual compensation shall be payable monthly and you shall be reimbursed for business, travel and entertainment expenses in accordance with Federal's prevailing policies. In its discretion, the Board may pay you additional salary or bonuses. 1.3 You agree to devote your full business time and efforts to the rendition of such services to Federal as may be designated by the chief executive officer or the Board, subject, however, to customary vacations and provided that you shall be excused from performing services during any period of absence or inability relating to illness or physical or mental disability. You will at all times be subject to the direction and supervision of the chief executive officer and the Board. You may devote a reasonable amount of time to civic and community affairs but shall not perform services during the term of your employment for any other business organization in any capacity without the prior consent of the Board. 2. Termination 2.1 Your employment shall be subject to termination by Federal at any time for cause if you shall fail in any material respect to perform your duties hereunder (other than by reason of illness or physical or mental disability), shall breach any provision hereof in any material respect, or shall engage in any dishonest or fraudulent acts or conduct in the performance of your duties to Federal. Termination by Federal pursuant to the preceding sentence shall require that you receive thirty days prior written notice of the basis for termination and that you fail to cure or correct the basis for the termination during such thirty day period. In addition, you may, at your option, voluntarily terminate your employment hereunder by giving Federal at least 90 days prior written notice thereof. Upon any termination under this paragraph 2.1, all obligations of Federal hereunder shall immediately terminate and, without limiting the foregoing, Federal shall have no obligation under this agreement to make payments to you in respect of any period subsequent to such termination. However termination under this paragraph shall not affect Federal's obligations, if any, to make payments as required by other compensation or employee benefit plans maintained by Federal. 2.2 Your employment shall be subject to termination by Federal at any time without cause by notifying you in writing of such termination not less than ten days prior to the effective date thereof. Upon any termination of employment pursuant to this paragraph 2.2, Federal shall be obligated to pay to you, or to your designated beneficiary if you shall not be living, an amount equal to one year's salary at the minimum annual rate then in effect, or, if less, an amount equal to the amount of salary at such minimum annual rate payable during the period from termination until the December 31 following your 65th birthday. The total amount owing to you or your designated beneficiary under this paragraph 2.2 shall be paid in twelve equal monthly installments. Installment payments shall commence as soon as practicable following the effective date of termination and shall not bear interest. For purposes of this paragraph 2.2 any material breach by Federal of its obligations hereunder which are not cured after thirty days written notice given to Federal by you, may, at your option, be treated by you as a termination of your employment without cause. Amounts payable to you under this paragraph 2.2 shall be in addition to other payments, if any, required by other compensation or employee benefit plans maintained by Federal. 2.3 (a) In the event that a "change of control" (as hereinafter defined) of Federal occurs during the term of this agreement, you may at your option terminate this agreement at any time during the one year following such change of control by giving thirty days prior written notice of termination to Federal. Upon such termination, Federal shall be obligated to pay to you or your designated beneficiary (if you are deceased), immediately in one lump sum an amount equal to your average annualized W-2 compensation for the five most recent taxable years ending before the date on which the change of control occurs, multiplied by three and then reduced by $1.00. In the event of termination by you under this paragraph 2.3, you shall also be entitled to receive all payments and compensation under any other compensation or employee benefit plans of Federal. Furthermore, to the extent you are not fully vested under any such plan, amounts payable under any such other plan shall be supplemented by Federal to the extent necessary so that the amounts payable under such plan are at least equal to the amount you would have received had you remained employed by Federal at the minimum salary then in effect until your 65th birthday. (b) A "change of control" shall mean (i) the filing with the Securities and Exchange Commission by any person or "group" of a report disclosing beneficial ownership by such person or group of shares of stock entitled to cast more than 40% of the votes in the election of directors, or (ii) the election of any person or persons as a director or directors at a meeting of Federal's stockholders at which proxies solicited on behalf of Federal's Board or management were not voted in favor of the election of such person or persons, or (iii) the occurrence of any other event which would require an affirmative response to Item 6(e) of Schedule 14A (the Proxy Statement Disclosure Rules) as now in effect, regarding a change of control. The date of a change of control specified in clause (iii) shall be the date Federal is first advised by its counsel or counsel specified in the next sentence that an event of the type specified in clause (iii) has occurred. Any dispute as to whether an event specified in clause (iii) of the preceding sentence has occurred shall be conclusively resolved by an opinion of independent counsel selected by the Chairman of the Securities Law Committee of the Chicago Bar Association, which may be requested by you or Federal at any time. 2.4 In the event of your death prior to the effective date of any termination of your employment pursuant to paragraph 2.1, 2.2 or 2.3 hereof, Federal shall be obligated to pay to your designated beneficiary, in not more than eighteen equal monthly installments, an amount equal to one year's compensation at the minimum annual rate in effect hereunder at the date of death. Installment payments shall commence as soon as practicable following the date of death and shall not bear interest. 2.5 In no event shall any termination of your employ- ment under any provision of this agreement relieve you from complying fully with your agreements set forth in paragraph 3.1 and 3.2 hereof. 3. Non-competition and Trade Secrets Agreements 3.1 During the term of your employment and for a period of thirty-six months following termination of employment for any reason, or following expiration of the term hereof, you agree that you will not directly or indirectly act as an officer, director, consultant, employee or principal for any entity which is competitive with Federal. An entity is deemed competitive with Federal if it is engaged in a line of business in which Federal has derived at least 10% of its revenues during the two years prior to termination of employment in the same geographic area in which Federal conducts such business. 3.2 You further covenant that at no time following such termination of employment will you, without prior written consent of Federal, divulge to anyone any trade secret or confidential corporate information concerning Federal or otherwise use any such information to the detriment of Federal. 3.3 Paragraph 3.1 shall not prohibit you from investing in any securities of any corporation which is competitive with Federal whose securities, or any of them, are listed on a national securities exchange or traded in the over-the-counter market if you shall own less than 3% of the outstanding voting stock of such corporation. 4. General Provisions 4.1 In the event you shall inquire, by writing notice to Federal, whether any proposed action on your part would be considered by Federal to be prohibited by or in breach of the terms hereof, Federal shall have forty-five days after the giving of such notice, to express in writing to you its position with respect thereto, and in the event such writing shall not be given to you, such proposed action (as set forth in your notice to Federal) shall not be a violation of or in breach of the terms hereof. 4.2. The term "designated beneficiary" as used in this agreement shall mean such person or persons as you designate to receive payments hereunder in the latest written notice received by the Company from you which specifies a person or persons as a designated beneficiary hereunder and in the absence of such written notice shall mean your estate. Federal may conclusively rely on any written notice specifying or changing a designated beneficiary which it believes to be authentic. 4.3. Except as context otherwise requires, reference herein to Federal shall include its subsidiaries and references to the Board shall include committees thereof to the extent that any applicable powers of the Board are or shall be delegated to any such committees. 4.4 The terms and conditions hereof shall constitute the entire agreement between the parties and shall supersede all prior written or oral understandings between you and Federal concerning the subject matter hereof. The agreement may not be amended or altered except in writing signed by the parties and approved by a resolution of the Board. Neither party may assign its rights hereunder without the written consent of the other. 4.5 All notices required or permitted to be given pursuant to this agreement shall be given in writing, if to you, then at the address set forth at the beginning hereof or at such other address as you may specify in writing to Federal; and, if to Federal, then to the Secretary of Federal at Federal's corporate office. All notices shall be deemed to have been given when delivered in person or, if mailed, 48 hours after depositing same in the United States mail, properly addressed, and postage prepaid. 4.6 In the event that you or your designated beneficiary shall be required to commence litigation to enforce your rights under this agreement or otherwise your rights under this agreement shall ever be involved in any litigation, the Company shall indemnify you or your designated beneficiary against all costs and expenses (including attorneys fees) reasonably incurred by you in connection with such litigation except to the extent that it is determined by the court in such litigation that you are not entitled to such indemnification because you breached your obligations hereunder. The Company shall, prior to the outcome or settlement of such litigation, advance funds to you or your designated beneficiary as you or your designated beneficiary request for the purpose of paying your reasonable legal fees and expenses pending the outcome or settlement of such litigation provided that, as a condition of such advances, you or your designated beneficiary execute a written undertaking agreeing to return to the Company all amounts so advanced together with 12% per annum interest thereon if it is determined by the court that you are not entitled to indemnification under this paragraph 4.6. 4.7 This agreement replaces the employment agreement between you and Federal dated June 5, 1984. Very truly yours, FEDERAL SIGNAL CORPORATION By Thomas N. McGowen, Jr. Chairman of the Executive Committee Acceptance: The foregoing terms and conditions are accepted and agreed to effective this 26th day of June, 1989 Joseph J. Ross EX-10.H 5 June 23, 1989 Mr. Kim A. Wehrenberg 538 Braemar Ave. Naperville, IL 60540 Dear Mr. Wehrenberg: Pursuant to authorization of its Board of Directors (the "Board"), this letter will set forth certain of the terms and conditions of termination of your employment with Federal after a "change of control," as defined below. 1. Change of Control and Termination 1.1 (a) In the event that a "change of control" (as hereinafter defined) of Federal occurs while you are employed by Federal, you may at your option terminate this agreement at any time during the one year following such change of control by giving thirty days prior written notice of termination to Federal. Upon such termination, Federal shall be obligated to pay to you or your designated beneficiary (if you are deceased), immediately in one lump sum an amount equal to your average annualized W-2 compensation for the five most recent taxable years ending before the date on which the change of control occurs (or such portion of such period which you worked for Federal), multiplied by three and then reduced by $1.00. In the event of termination by you under this paragraph 1.1, you shall also be entitled to receive all payments and compensation under any other compensation or employee benefit plans of Federal. (b) A "change of control" shall mean (i) the filing with the Securities and Exchange Commission by any person or "group" of a report disclosing beneficial ownership by such person or group of shares of stock entitled to cast more than 40% of the votes in the election of directors, or (ii) the election of any person or persons as a director or directors at a meeting of Federal's stockholders at which proxies solicited on behalf of Federal's Board or management were not voted in favor of the election of such person or persons, or (iii) the occurrence of any other event which would require an affirmative response to Item 6(e) of Schedule 14A (the Proxy Statement Disclosure Rules) as now in effect, regarding a change of control. The date of a change of control specified in clause (iii) shall be the date Federal is first advised by its counsel or counsel specified in the next sentence that an event of the type specified in clause (iii) has occurred. Any dispute as to whether an event specified in clause (iii) of the preceding sentence has occurred shall be conclusively resolved by an opinion of independent counsel selected by the Chairman of the Securities Law Committee of the Chicago Bar Association, which may be requested by you or Federal at any time. 1.2 In no event shall any termination of your employ- ment under any provision of this agreement relieve you from complying fully with your agreements set forth in paragraph 2.1 and 2.2 hereof. 2. Non-competition and Trade Secrets Agreements 2.1 During the term of your employment and for a period of thirty-six months following termination of employment for any reason, or following expiration of the term hereof, you agree that you will not directly or indirectly act as an officer, director, consultant, employee or principal for any entity which is competitive with Federal. An entity is deemed competitive with Federal if it is engaged in a line of business in which Federal has derived at least 10% of its revenues during the two years prior to termination of employment in the same geographic area in which Federal conducts such business. 2.2 You further covenant that at no time following such termination of employment will you, without prior written consent of Federal, divulge to anyone any trade secret or confidential corporate information concerning Federal or otherwise use any such information to the detriment of Federal. 2.3 Paragraph 2.1 shall not prohibit you from invest- ing in any securities of any corporation which is competitive with Federal whose securities, or any of them, are listed on a national securities exchange or traded in the over-the-counter market if you shall own less than 3% of the outstanding voting stock of such corporation. 3. General Provisions 3.1 In the event you shall inquire, by writing notice to Federal, whether any proposed action on your part would be considered by Federal to be prohibited by or in breach of the terms hereof, Federal shall have forty-five days after the giving of such notice, to express in writing to you its position with respect thereto, and in the event such writing shall not be given to you, such proposed action (as set forth in your notice to Federal) shall not be a violation of or in breach of the terms hereof. 3.2. The term "designated beneficiary" as used in this agreement shall mean such person or persons as you designate to receive payments hereunder in the latest written notice received by the Company from you which specifies a person or persons as a designated beneficiary hereunder and in the absence of such written notice shall mean your estate. Federal may conclusively rely on any written notice specifying or changing a designated beneficiary which it believes to be authentic. 3.3. Except as context otherwise requires, reference herein to Federal shall include its subsidiaries and references to the Board shall include committees thereof to the extent that any applicable powers of the Board are or shall be delegated to any such committees. 3.4 The terms and conditions hereof shall constitute the entire agreement between the parties and shall supersede all prior written or oral understandings between you and Federal concerning the subject matter hereof. The agreement may not be amended or altered except in writing signed by the parties and approved by a resolution of the Board. Neither party may assign its rights hereunder without the written consent of the other. 3.5 All notices required or permitted to be given pursuant to this agreement shall be given in writing, if to you, then at the address set forth at the beginning hereof or at such other address as you may specify in writing to Federal; and, if to Federal, then to the President of Federal at Federal's corporate office. All notices shall be deemed to have been given when delivered in person or, if mailed, 48 hours after depositing same in the United States mail, properly addressed, and postage prepaid. 3.6 In the event that you or your designated benefi- ciary shall be required to commence litigation to enforce your rights under this agreement or otherwise your rights under this agreement shall ever be involved in any litigation, the Company shall indemnify you or your designated beneficiary against all costs and expenses (including attorneys fees) reasonably incurred by you in connection with such litigation except to the extent that it is determined by the court in such litigation that you are not entitled to such indemnification because you breached your obligations hereunder. The Company shall, prior to the outcome or settlement of such litigation, advance funds to you or your designated beneficiary as you or your designated beneficiary request for the purpose of paying your reasonable legal fees and expenses pending the outcome or settlement of such litigation provided that, as a condition of such advances, you or your designated beneficiary execute a written undertaking agreeing to return to the Company all amounts so advanced together with 12% per annum interest thereon if it is determined by the court that you are not entitled to indemnification under this paragraph 3.6. Very truly yours, FEDERAL SIGNAL CORPORATION By Thomas N. McGowen, Jr. Chairman of the Executive Committee Acceptance: The foregoing terms and conditions are accepted and agreed to effective this 26th day of June, 1989 Kim A. Wehrenberg EX-11 6 EXHIBIT 11 FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES Computation of Income Per Common Share Income per common share was computed by dividing income by the weighted average number of common and common equivalent shares outstanding during each year. The treasury stock method was applied to those stock options that would have a dilutive effect on income per share. The average market price of the Registrant's stock was used in determining income per common share, while the year-end market price (if greater than the average market price) was used in determining income per common share - assuming full dilution. The weighted average number of common and common equivalent shares used in these computations were:
Income Per Common Share 1994 1993 1992 (in thousands except per share data) Weighted average shares outstanding 45,458 45,738 45,544 Effect of dilutive options 499 555 584 Total 45,957 46,293 46,128 Income: Income before cumulative effects of accounting changes $46,770 $39,780 $34,430 Cumulative effects of accounting changes 30 Net income $46,770 $39,780 $34,460 Net income per share $ 1.02 $ .86 $ .75 Assuming Full Dilution (in thousands except per share data) Weighted average shares outstanding 45,458 45,738 45,544 Effect of dilutive options 515 555 584 Total 45,973 46,293 46,128 Income: Income before cumulative effects of accounting changes $46,770 $39,780 $34,430 Cumulative effects of accounting changes 30 Net income $46,770 $39,780 $34,460 Net income per share $ 1.02 $ .86 $ .75
EX-13 7 EXHIBIT 13 - ---------- 1994 ANNUAL REPORT TO SHAREHOLDERS OF FEDERAL SIGNAL CORPORATION - ----------------------------------------------------------------- FEDERAL SIGNAL CORPORATION Selected Financial Data
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 Operating Results (dollars in millions): Net sales $ 677.2 $ 565.2 $ 518.2 $ 466.9 $ 439.4 $ 398.4 $ 361.4 $ 305.8 $ 273.3 $ 264.5 $ 241.3 Income before income taxes (a) $ 70.2 $ 58.8 $ 49.9 $ 45.6 $ 42.5 $ 34.6 $ 28.4 $ 23.8 $ 20.9 $ 16.3 $ 14.9 Income from continuing operations (b) $ 46.8 $ 39.8 $ 34.5 $ 31.0 $ 28.1 $ 22.1 $ 18.2 $ 14.5 $ 12.3 $ 11.9 $ 9.2 Operating margin 11.6% 11.3% 10.6% 10.8% 10.8% 10.6% 9.6% 8.6% 8.5% 7.2% 7.3% Return on average common shareholders' equity 22.3% 21.0% 20.0% 20.0% 20.4% 18.7% 17.0% 14.5% 12.2% 13.3% 11.0% Common Stock Data (per share) (c): Income from continuing operations $ 1.02 $ 0.86 $ 0.75 $ 0.67 $ 0.61 $ 0.48 $ 0.40 $ 0.31 $ 0.26 $ 0.26 $ 0.20 Cash dividends $ 0.42 $ 0.36 $ 0.31 $ 0.27 $ 0.22 $ 0.19 $ 0.16 $ 0.15 $ 0.15 $ 0.15 $ 0.15 Market price range: High $21-3/8 $21 $17-5/8 $15-1/4 $10-3/4 $7-1/8 $4-7/8 $4-7/8 $4-1/2 $3-3/4 $3-5/8 Low $16-7/8 $15-3/4 $12-3/8 $9-1/4 $6-1/4 $4-1/4 $3-1/2 $2-7/8 $3-1/8 $2-5/8 $2-1/2 Average common shares outstanding (in thousands) 45,957 46,293 46,128 46,126 46,038 46,103 45,639 47,137 46,767 45,335 45,357 Financial Position at Year-End (dollars in millions): Working capital (d) $ 53.9 $ 52.8 $ 49.5 $ 44.9 $ 42.7 $ 63.8 $ 59.5 $ 53.9 $ 52.8 $ 58.2 $ 60.6 Current ratio (d) 1.4 1.5 1.6 1.5 1.5 2.1 2.0 1.9 2.2 2.3 2.5 Total assets $ 521.6 $ 405.7 $ 363.7 $ 341.2 $ 295.8 $ 271.3 $ 251.1 $ 233.3 $ 191.4 $ 187.4 $ 178.7 Shareholders' equity $ 220.3 $ 199.2 $ 179.0 $ 164.8 $ 146.4 $ 130.4 $ 115.5 $ 103.2 $ 102.4 $ 91.1 $ 85.3 Debt to capitalization ratio (d) 22% 1% 2% 1% 2% 10% 18% 22% 4% 15% 18% Other (dollars in millions) (e): New business $ 700.3 $ 584.2 $ 510.3 $ 462.7 $ 467.6 $ 429.9 $ 382.4 $ 328.3 $ 276.4 $ 274.6 $ 246.5 Backlog $ 261.0 $ 221.8 $ 198.0 $ 203.2 $ 199.9 $ 171.7 $ 140.2 $ 119.2 $ 96.7 $ 93.6 $ 83.5 Net cash provided by operating activities $ 53.8 $ 48.8 $ 40.2 $ 43.9 $ 48.3 $ 34.6 $ 22.5 $ 20.1 $ 22.7 $ 16.5 $ 13.6 Net cash (used for) investing activities $ (96.9) $ (38.1) $ (26.9) $ (47.8) $ (14.7) $ (24.1) $ (20.8) $ (37.7) $ (12.8) $ (6.9) $ (9.0) Net cash provided by (used for) financing activities $ 45.1 $ (10.3) $ (11.2) $ 2.5 $ (34.6) $ (8.9) $ (3.3) $ 17.8 $ (9.9) $ (9.4) $ (5.1) Capital expenditures $ 11.1 $ 10.1 $ 8.8 $ 12.0 $ 8.3 $ 9.2 $ 7.3 $ 6.9 $ 6.3 $ 6.9 $ 4.5 Depreciation $ 10.3 $ 9.2 $ 8.7 $ 8.2 $ 7.8 $ 7.9 $ 7.1 $ 5.5 $ 5.2 $ 5.3 $ 4.8 Employees 5,243 4,426 4,268 4,212 4,158 4,142 3,880 3,653 3,183 3,190 2,962 (a) in 1985, reflects pre-tax provisions to expense for non-recurring charges of $4.6 million (b) in 1992, reflects net cumulative effects of accounting changes for postretirement benefits and income taxes of $30,000; in 1985, reflects cumulative effect of accounting change for investment tax credits of $2.2 million and after-tax provisions to expense for non-recurring charges of $2.3 million (c) reflects 10% stock dividends each paid in 1988 and 1989, 3-for-2 stock splits in 1990, 1991 and 1992, and a 4-for-3 stock split distributed March 1, 1994 (d) manufacturing operations only (e) continuing operations only
FINANCIAL REVIEW Consolidated Results of Operations Federal Signal Corporation again achieved record levels of net sales and net income in 1994. Net sales increased to $677.2 million, 20% higher than 1993's $565.2 million. Net income increased 18% to $46.8 million in 1994 from $39.8 million in 1993. These increases follow 1993's increases of 9% in sales and 15% in net income. Net income per share for 1994 increased 19% to $1.02 per share compared to $.86 in 1993 and $.75 per share in 1992. The 1994 sales increase of 20% resulted from volume increases of 19% (including 8% resulting from the acquisitions of Justrite Manufacturing in May and Vactor Manufacturing at the end of June) and price increases of 1%. Domestic sales increased 21% in 1994 while foreign sales increased 15%. Excluding the sales of Justrite and Vactor, domestic sales were 12% higher in 1994 while foreign sales increased 8%. Foreign sales accounted for 19% of the company's total sales in 1994 compared to 20% of total sales in 1993. The 1994 sales increases follow a 9% increase in sales in 1993. The increase in sales in 1993 resulted from volume increases of 8% (including 4% from the acquisition of Guzzler Manufacturing in March 1993) and price increases of 1%. Excluding the sales of Guzzler in 1993, domestic sales were 10% above 1992. Foreign sales declined 7% in 1993 largely due to the recessionary European economic environment then present. Operating margins have increased from 10.8% in 1990 to 11.6% in 1994, despite generally declining gross profit margins as the following table shows: (percent of sales) 1994 1993 1992 1991 1990 Net sales 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales 69.0 67.8 68.2 67.9 66.8 Gross profit margin 31.0 32.2 31.8 32.1 33.2 Selling, general and administrative expenses 19.4 20.9 21.2 21.3 22.4 Operating margin 11.6% 11.3% 10.6% 10.8% 10.8% Gross profit margins have generally declined principally due to sales of the Vehicle Group increasing greater than sales of the other groups. The Vehicle Group normally experiences higher cost of sales percentages but lower operating expense percentages than the other groups. This was exacerbated in 1992 due to the late 1991 acquisitions of Superior Emergency Vehicles and Frontline Emergency Vehicles. This trend reversed in 1993 due to improving gross margins of three of the company's four groups, most notably Safety Products and Sign. Due to the reorganization costs incurred in 1992 for newly acquired businesses and certain costs incurred at Ravo for development and other operational changes, the percentage of selling, general and administrative expenses did not decline in 1992 as rapidly as normally would be expected. In 1993 and 1994, however, reductions in the percentage of selling, general and administrative costs did occur. The reductions in 1993 and 1994 are a result of: 1) higher sales, and the resultant impact of fixed costs being spread over those higher sales, and 2) operational improvements made, particularly in the Sign Group. All of the company's groups continue to work toward reducing their costs. Because of the varied nature of its operations, the company recognizes that changes in operating income as a percentage of net sales on a consolidated basis may sometimes distort its real operating performance. In order to monitor the operating performance of its operations, the company utilizes various methods, one of which is a return on assets approach. Return on assets is defined as operating income divided by the identifiable assets of its businesses. In recent years, the company's operations have achieved strong returns as summarized in the chart below. The company has improved its return on assets of its existing businesses over the years by increasing operating margins and asset turnover. Return for the total company remained even with last year's level. Return on assets for the Sign and Vehicle groups increased above 1993 while the return for the Safety Products and Tool groups declined. Excluding the effects of the acquisition of Justrite made in 1994, return on manufacturing assets for the Safety Products Group improved. The company acquires businesses which meet the company's growth and other strategic objectives. In large part as a result of intangibles arising from our acquisitions, it is anticipated that businesses acquired will not generate the same levels of returns as the company's other businesses for some time following their respective acquisition. However, the company's strategies include making constant improvements in all of its businesses. The results of these efforts are evidenced by the improving returns on manufacturing assets of businesses operated for two years or more. Excluding the effects of the companies acquired in 1994, the company's return on manufacturing assets increased to 24% in 1994 from 22% in 1993. The declines in 1991 and 1992 and the even results in 1993 and 1994 were due solely to the acquisitions made during those respective years or late in previous years. Excluding the effects of companies acquired, returns on assets were as follows: 26% in 1991 and 1992, and 24% in 1993. In addition to continuing programs undertaken to reduce manufacturing and operating costs and improve productivity, the company also has continuing programs to improve asset turnover. Improving inventory turnover and accelerating the collection of accounts receivable have also had a significant positive impact on return on assets. Interest expense increased $2.4 million in 1994 following a decline of $.3 million in 1993. The increase in 1994 was the result of substantially increased borrowings caused largely by two factors: 1) $69.6 million relating to the acquisitions for cash of Justrite and Vactor, and 2) a $16.8 million increase in financial services assets which occurred during the year. In addition, weighted average interest rates on short-term borrowings experienced in 1994 were 4.5% compared to 3.5% in 1993. Interest expense declined $.3 million in 1993 principally as a result of lower interest rates partially offset by increased average borrowings required to fund the purchase of Guzzler Manufacturing in March 1993, increases in financial services assets and repurchases of the company's stock at the end of 1992. The company's effective tax rate of 33.4% in 1994 increased from rates of 32.3% and 31.0% in 1993 and 1992, respectively. The increase in 1994 results from: 1) the fact that the 1993 rate included the impact of favorable tax return audit results, and 2) tax-exempt interest income has become a lower percentage of the company's total income. The increase in 1993 was largely due to the enacted change in the statutory federal income tax rate partially offset by the favorable audit results impact. In November 1992, the Financial Accounting Standards Board issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This statement is required to be adopted no later than for the year ended 1994. The company's adoption of this statement in 1994 had an insignificant impact on results of operations for the year. At the end of 1994, the company changed its assumptions for discount rates used in determining the actuarial present values of accumulated and projected benefit obligations for its postretirement plans from 7.6% to 8.9%. This increase resulted from the higher interest rate environment being experienced at the end of 1994. The company also increased its estimate for projected rates of increase in compensation levels from 4% to 5% for future years despite relatively low levels of inflation. The expectation that somewhat increasing levels of inflation will continue for the foreseeable future is based upon recent increases in interest rates which are reflective of a potentially higher inflationary trend. The company expects that the changes in assumptions will have an insignificant impact on 1995 results of operations. Certain of the company's businesses are susceptible to the influences of seasonal buying or delivery patterns. The company'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, other municipal emergency signal products and parking systems manufacturing operations. Group Operations Domestic markets were generally stronger in 1994 for all four of the company's groups. As mentioned previously, foreign sales increased 8% (excluding acquisitions) in 1994. The Safety Products, Vehicle and Tool groups achieved much higher foreign sales in 1994. For the second year in a row, all four groups achieved increases in both sales and earnings. Safety Products Safety Products Group sales increased 29% in 1994 resulting from increased sales at Signal Products and Federal APD and the acquisition of Justrite. Justrite, acquired in May 1994, accounted for about three-fourths of the increase. Domestic sales were up 35% (8% excluding Justrite) while foreign sales increased 11% (6% excluding Justrite). Earnings increased 44% in 1994; a little over two-thirds of the increase was attributable to Justrite. For the eighth consecutive year, the Safety Products Group's operating margin increased. Cost reductions, the impact of recent new product sales, and increased penetration of foreign markets contributed to the improved results including an increase in the group's return on manufacturing assets (excluding the dilutive effect of the newly acquired Justrite). The Safety Products Group further improved its manufacturing throughput and reduced manufacturing costs and operating expenses. For the seventh year in a row, Signal Products made improvements in its inventory turnover. Reductions in inventories resulted in LIFO credits of $.3 million in 1993 and $.5 million in 1992. The acquisition of Justrite in May 1994 and the acquisition of VAMA in 1992 resulted in a dilutive effect on the group's return on manufacturing assets. The group's return on manufacturing assets in 1992 increased to 38% (excluding VAMA) and in 1994 increased to 36% (excluding Justrite, including VAMA). Sign After posting losses in 1991 and 1992, the Sign Group made substantial internal improvements and returned to profitability in 1993. Additional further improvements resulted in lower expenses and improved operating margins culminating in a profit of $4.0 million in 1994. Commercial and industrial construction activity appears to have stabilized and after a two-year period of declining sales Sign achieved sales increases in 1993 (4%) and 1994 (13%). While increased sales levels contributed to the group's improved profitability in 1993 and 1994, steps taken to consolidate its manufacturing resources, increased training, and a focus on higher margin sales were the essential reasons for its improved profitability. The group's break- even point has been substantially reduced over the past three years and has had a positive impact on its cost competitiveness. The Sign Group anticipates that its markets in 1995 will be somewhat similar to those experienced in 1994. The steps taken by the group and the continued stable market conditions expected for 1995 should result in improved operating results next year. Tool In 1994, the Tool Group achieved a 9% increase in sales and a 1% increase in income. Excluding the impacts of certain charges that are not expected to recur, earnings increased in 1994 at nearly the same rate as sales. Domestic sales increased 8% in 1994 while foreign sales increased 13%. Dayton Progress again increased its domestic market share and experienced the favorable impacts of improved economies in its key foreign markets. The 1994 foreign sales gains follow a 7% decline in 1993 which was principally caused by the weak economies in Europe and Japan. The declines in the returns on manufacturing assets have resulted from the following principal factors: 1) the impact of the nonrecurring charges (excluding these charges, the return would have been 37% in 1994), 2) the impact of the acquisitions of Dico, Schneider Stanznormalien and Container Tool (excluding this effect, the return would have been 42% in 1993 and 48% in 1992), and 3) competitive price pressure which negatively affected margins in 1991. Returns on manufacturing assets available through investments in newly acquired companies have been lower than historical returns produced by existing operations. As mentioned earlier, this is anticipated in the company's acquisition objectives. The company anticipates improving returns on assets in 1995 for the group's operations excluding the impacts of future acquisitions, if any, that may be made. Vehicle Earnings for the Vehicle Group increased 11% in 1994 on a sales increase of 22%. Excluding the effects of Vactor Manufacturing which was acquired in mid-1994, sales would have increased approximately 14% while earnings would have increased about 8%. Domestic sales increased 24% in 1994 (16% excluding Vactor). Foreign sales increased 17% in 1994 (9% excluding Vactor). Strong domestic sales were achieved by Emergency One, Elgin and Guzzler. While foreign sales were lower at Elgin, all of the group's other units experienced strong increases. The group's sweeper and industrial vacuum businesses both achieved strong sales and earnings increases in 1994. While further improvement is expected in 1995, the rate of improvement will likely be somewhat less than in 1994. Fire apparatus earnings were down somewhat in 1994 principally resulting from a temporary shift into lower margin products. A substantial improvement in operating results is expected in the fire apparatus business in 1995. Return on manufacturing assets for the group improved in 1994 reversing the decline since 1991. The previous declines were the result of the dilutive impact of acquisitions in each of the years ended December 31, 1992 and 1993. Returns on manufacturing assets for this period excluding acquisitions were as follows: 21% in 1992 (excluding Superior and Frontline), 17% in 1993 (excluding Guzzler) and 17% in 1994 (excluding Vactor). Financial Services Activities The company maintains a large investment ($128.4 million at December 31, 1994) in lease financing and other receivables which are generated principally by its vehicle operations with the balance generated by its sign operations. These assets continued to be conservatively leveraged in accordance with the company's stated financial objectives for these assets for the five-year period ending December 31, 1994 (see further discussion in Financial Position and Cash Flow). Financial services assets have repayment terms generally ranging from two to eight years. The increases in these assets resulted from increasing sales of the Vehicle Group as well as continuing greater acceptance by customers of the benefits of using the company as their source of financing vehicle purchases. In accordance with the company's change in strategy regarding financing risk tolerance and profitability with respect to its Sign operations, financing assets for the Sign Group have declined in recent years. Financial Position and Cash Flow The company emphasizes generating strong cash flows from operations. During 1994, cash flow from operations increased to a level of $53.8 million compared to $48.8 million in 1993 and $40.2 million in 1992. These results are directly reflective of: 1) efforts to lower costs, and 2) the amount of improvement (reduction) in the relative amounts of working capital required to support the company's increased sales volumes. The company has reduced its average working capital to sales ratio (8% during 1994) by nearly half since 1987 principally by improving its days-sales-outstanding and inventory turnover ratios. As a result of the reductions achieved so far, the company anticipates that significant further reduction in the working capital to sales ratio is unlikely to be achieved going forward. Nevertheless, the company expects continued improvement in its operating cash flow as it focuses aggressively on its efficiencies and costs as well as its working capital management. During the 1990-1994 period, the company has utilized its strong cash flows from operations to: 1) fund in whole or in part strategic acquisitions of companies operating in markets related to those already served by the company; 2) purchase increasing amounts of equipment principally to provide for further cost reductions and increased productive capacity for the future as well as tooling for new products; 3) increase its investment in financial services activities; 4) pay increasing amounts in cash dividends to shareholders; and 5) repurchase up to 1-2% of its outstanding common stock each year. Cash flows for the five-year period ending December 31, 1994 are summarized as follows: (in millions) 1994 1993 1992 1991 1990 Cash provided by (used for): Operating activities $ 53.8 $ 48.8 $ 40.2 $ 43.9 $ 48.3 Investing activities (96.9) (38.1) (26.9) (47.8) (14.7) Financing activities 45.1 (10.3) (11.2) 2.5 (34.6) Increase (decrease) in cash and cash equivalents $ 2.0 $ .4 $ 2.1 $ (1.4) $ (1.0) In order to show the distinct characteristics of the company's investment in its manufacturing activities and its investment in its financial services activities, the company has presented separately these investments and their related liabilities. Each of these two types of activities are supported by different percentages of debt and equity. One of the company's financial objectives is to maintain a strong financial position. The company defines its goal as normally having a debt to capitalization ratio of 30% or less for its manufacturing operations. At December 31, 1994 and 1993, the company's debt to capitalization ratios of its manufacturing operations were 22% and 1%, respectively. The increase in this ratio occurred largely due to the 1994 acquisitions of Justrite and Vactor for cash. The strong operating cash flows enabled a decline in this ratio during the second half of 1994 from the 28% level at June 30 (immediately after the company's acquisition of Vactor). Also, at December 31, 1994 and 1993, the company's debt to capitalization ratios for its financial services activities were 87% and 86%, respectively. The company believes that its financial assets, due to their overall quality, are capable of sustaining a leverage ratio in the range of 85% to 87% on average. The company intends to maintain this range of leverage for its financial activities in the future and at the same time fulfill its financial objective with respect to its manufacturing debt to capitalization ratio. These intentions are consistent with its investment grade credit rating obtained in connection with its commercial paper program. As indicated earlier, substantial effort is focused on improving the utilization of the company's working capital. The company's current ratio for its manufacturing operations was 1.4 at December 31, 1994 and 1.5 at December 31, 1993. These ratios are slightly lower than those in prior years as a result of reduced working capital needs for receivables and inventories and improved management of cash disbursements as well as increased short-term debt. The company anticipates that its financial resources and major sources of liquidity, including cash flow from operations, will continue to be adequate to meet its operating and capital needs in addition to its financial commitments. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 1994 1993 Assets Manufacturing activities: Current assets Cash and cash equivalents $ 4,605,000 $ 2,576,000 Accounts receivable, net of allowances for doubtful accounts of $2,848,000 and $2,215,000, respectively 107,985,000 81,593,000 Inventories - Note C 78,899,000 63,022,000 Prepaid expenses 4,807,000 4,627,000 Total current assets 196,296,000 151,818,000 Properties and equipment - Note D 72,838,000 62,204,000 Other assets Intangible assets, net of accumulated amortization 115,306,000 65,436,000 Other deferred charges and assets 9,972,000 15,666,000 Total manufacturing assets 394,412,000 295,124,000 Financial services activities Lease financing and other receivables, net of allowances for doubtful accounts of $1,174,000 and $976,000, respectively, and net of unearned finance revenue - Note E 127,188,000 110,580,000 Total assets $ 521,600,000 $ 405,704,000 Liabilities and Shareholders' Equity Manufacturing activities: Current liabilities Short-term borrowings - Note F $ 25,222,000 $ 282,000 Accounts payable 44,918,000 33,363,000 Accrued liabilities Compensation and withholding taxes 19,032,000 16,601,000 Other - Note B 45,943,000 44,541,000 Income taxes - Notes B and G 7,263,000 4,269,000 Total current liabilities 142,378,000 99,056,000 Other liabilities Long-term borrowings - Note F 34,878,000 1,344,000 Deferred income taxes - Notes B and G 13,778,000 10,929,000 Total manufacturing liabilities 191,034,000 111,329,000 Financial services activities - Note F Short-term borrowings 110,252,000 75,433,000 Long-term borrowings 19,734,000 Total financial services liabilities 110,252,000 95,167,000 Total liabilities 301,286,000 206,496,000 Contingency - Note M Shareholders' equity - Notes J and K Common stock, $1 par value, 90,000,000 shares authorized, 45,767,000 and 45,738,000 shares issued, respectively 45,767,000 45,738,000 Capital in excess of par value 53,756,000 54,045,000 Retained earnings - Note F 133,138,000 105,471,000 Treasury stock, 395,000 shares, at cost (7,880,000) Deferred stock awards (1,688,000) (1,715,000) Foreign currency translation adjustment (2,779,000) (4,331,000) Total shareholders' equity 220,314,000 199,208,000 Total liabilities and shareholders' equity $ 521,600,000 $ 405,704,000 See notes to consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1994 1993 1992 Net sales $ 677,228,000 $ 565,163,000 $ 518,223,000 Other income, net 412,000 1,048,000 1,214,000 Costs and expenses Cost of sales 467,494,000 383,087,000 353,231,000 Selling, general and administrative 131,466,000 118,192,000 109,834,000 Interest expense 8,499,000 6,136,000 6,471,000 Total costs and expenses 607,459,000 507,415,000 469,536,000 Income before income taxes 70,181,000 58,796,000 49,901,000 Income taxes - Note G 23,411,000 19,016,000 15,471,000 Income before cumulative effects of changes in accounting methods 46,770,000 39,780,000 34,430,000 Cumulative effects of changes in accounting methods - Note B 30,000 Net income $ 46,770,000 $ 39,780,000 $ 34,460,000 Net income per share $ 1.02 $ 0.86 $ 0.75 Average common shares outstanding 45,957,000 46,293,000 46,128,000 See notes to consolidated financial statements.
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994 1993 1992 Operating activities Net income $ 46,770,000 $ 39,780,000 $ 34,460,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 10,302,000 9,215,000 8,732,000 Cumulative effects of changes in accounting methods (30,000) Provision for doubtful accounts 1,809,000 2,710,000 2,521,000 Deferred income taxes 3,544,000 (350,000) 2,213,000 Other, net 5,518,000 (1,844,000) (764,000) Changes in operating assets and liabilities net of effects from acquisitions and divestitures of companies Accounts receivable (20,050,000) (10,742,000) 1,165,000 Inventories (4,458,000) (400,000) 1,054,000 Prepaid expenses (108,000) (935,000) 1,126,000 Accounts payable 5,217,000 5,193,000 (4,170,000) Accrued liabilities 2,713,000 3,378,000 (4,474,000) Income taxes 2,505,000 2,746,000 (1,594,000) Net cash provided by operating activities 53,762,000 48,751,000 40,239,000 Investing activities Purchases of properties and equipment (11,108,000) (10,139,000) (8,835,000) Principal extensions under lease financing agreements (97,988,000) (70,470,000) (66,400,000) Principal collections under lease financing agreements 81,182,000 64,041,000 63,063,000 Payments for purchases of companies, net of cash acquired (69,563,000) (22,869,000) (14,825,000) Other, net 613,000 1,378,000 79,000 Net cash used for investing activities (96,864,000) (38,059,000) (26,918,000) Financing activities Addition to short-term borrowings 59,699,000 2,542,000 8,160,000 Principal payments on long-term borrowings (1,811,000) (1,002,000) (1,215,000) Principal extensions under long-term borrowings 15,000,000 5,080,000 Purchases of treasury stock (9,736,000) (1,778,000) (4,679,000) Cash dividends paid to shareholders (18,462,000) (15,938,000) (13,848,000) Other, net 441,000 757,000 391,000 Net cash provided by (used for) financing activities 45,131,000 (10,339,000) (11,191,000) Increase in cash and cash equivalents 2,029,000 353,000 2,130,000 Cash and cash equivalents at beginning of year 2,576,000 2,223,000 93,000 Cash and cash equivalents at end of year $ 4,605,000 $ 2,576,000 $ 2,223,000 See notes to consolidated financial statements.
Federal Signal Corporation and Subsidiaries Notes to Consolidated Financial Statements Note A - Significant Accounting Policies Principles of consolidation: The consolidated financial statements include the accounts of Federal Signal Corporation and all of its subsidiaries. Cash equivalents: The company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. Inventories: Inventories are stated at the lower of cost or market. At December 31, 1994 and 1993, approximately 60% and 67%, respectively, of the company's inventories are costed using the LIFO (last-in, first-out) method. The remaining portion of the company's inventories are costed using the FIFO (first-in, first-out) method. Properties and depreciation: Properties and equipment are stated at cost. Depreciation, for financial reporting purposes, is computed principally on the straight-line method over the estimated useful lives of the assets. Intangible assets: Intangible assets principally consist of costs in excess of fair values of net assets acquired in purchase transactions and are generally being amortized over forty years. Accumulated amortization aggregated $9,469,000 and $6,737,000 at December 31, 1994 and 1993, respectively. The company makes regular periodic assessments to determine if factors are present which indicate that an impairment of intangibles may exist. If factors indicate that an impairment may exist, the company makes an estimate of the related future cash flows. The undiscounted cash flows, excluding interest, are compared to the related book value including the intangibles. If such cash flows are less than the book value, the company makes an estimate of the fair value of the related business to determine the amount of impairment loss, if any, to be recorded as a reduction of the recorded intangibles. Revenue recognition: Substantially all of the company's sales are recorded as products are shipped or services are rendered. The percentage-of-completion method of accounting is used in certain instances for custom-manufactured products where, due to the nature of specific orders, production and delivery schedules exceed normal schedules. Income per share: Income per share was computed on the basis of the weighted average number of common and common equivalent shares (dilutive stock options) outstanding during the year. Note B - Changes in Accounting for Postretirement Benefits and Income Taxes Effective January 1, 1992, the company adopted the provisions of Statements of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and No. 109, "Accounting for Income Taxes." The provisions of SFAS No. 106 require that expenses associated with certain postretirement benefits be recognized during the eligible service lives of the respective employees. Prior to adoption of SFAS No. 106, the company recorded the expenses for such benefits when the claims were incurred. The company elected to recognize the transition obligation of $1,931,000 ($1,231,000 net of the related income tax benefits) immediately in net income in 1992, the year of adoption. The provisions of SFAS No. 109 require that income tax liabilities and assets are to be determined based upon tax rates and legislation enacted as of the respective balance sheet date. Prior to the company's adoption of SFAS No. 109, the company's income tax liabilities and assets were determined using historical tax rates. The company elected to record the cumulative adjustment of $1,261,000 in net income in 1992, the year of adoption. Note C - Inventories Inventories at December 31 are summarized as follows: 1994 1993 Finished goods $20,054,000 $15,860,000 Work in process 22,355,000 18,567,000 Raw materials 36,490,000 28,595,000 Total inventories $78,899,000 $63,022,000 If the first-in, first-out cost method, which approximates replacement cost, had been used by the company, inventories would have aggregated $88,093,000 and $71,541,000 at December 31, 1994 and 1993, respectively. Note D - Properties and Equipment A comparative summary of properties and equipment at December 31 is as follows: 1994 1993 Land $ 5,740,000 $ 5,502,000 Buildings and improvements 38,045,000 36,014,000 Machinery and equipment 109,841,000 93,481,000 Accumulated depreciation (80,788,000) (72,793,000) Total properties and equipment $72,838,000 $62,204,000 Note E - Lease Financing and Other Receivables As an added service to its customers, the company is engaged in financial services activities. These activities primarily consist of providing long-term financing for certain customers of the company's sign and vehicle operations. A substantial portion of the lease financing receivables of the Vehicle Group are due from municipalities. Financing is provided through sales-type lease contracts with terms which range typically as follows: Sign-related leases 3 - 5 years Vehicle-related leases 2 - 8 years At the inception of the lease, the company records the product sales price and related costs and expenses of the sale. Financing revenues are included in income over the life of the lease. The amounts recorded as lease financing receivables represent amounts equivalent to normal selling prices less subsequent customer payments. Lease financing and other receivables will become due as follows: $44,917,000 in 1995, $23,620,000 in 1996, $19,328,000 in 1997, $13,820,000 in 1998, $9,432,000 in 1999 and $17,245,000 thereafter. At December 31, 1994 and 1993, unearned finance revenue on these leases aggregated $21,347,000 and $18,924,000, respectively. Note F - Debt Short-term borrowings at December 31 consisted of the following: 1994 1993 Commercial paper $ $21,422,000 Notes payable 134,289,000 53,021,000 Current maturities of long-term debt 1,185,000 1,272,000 Total short-term borrowings $135,474,000 $75,715,000 Long-term borrowings at December 31 consisted of the following: 1994 1993 7.59% unsecured note payable in 2001 ($4,000,000) and 2002 ($8,000,000) $12,000,000 $12,000,000 7.99% unsecured note payable in 2004 15,000,000 6.58% unsecured discounted notes payable in annual installments of $1,000,000 ending in 2001 5,769,000 6,403,000 Other 3,294,000 3,947,000 Subtotal 36,063,000 22,350,000 Less current maturities 1,185,000 1,272,000 Total long-term borrowings $34,878,000 $21,078,000 Aggregate maturities of long-term debt amount to approximately $1,185,000 in 1995, $1,073,000 in 1996, $3,655,000 in 1997, $987,000 in 1998 and $767,000 in 1999. The company believes that the fair values of borrowings are not substantially different from recorded amounts. The 7.59% and 7.99% notes contain various restrictions relating to maintenance of minimum working capital, payments of cash dividends, purchases of the company's stock, and principal and interest of any subordinated debt. All of the company's retained earnings at December 31, 1994 were free of any restrictions. The company paid interest of $6,943,000 in 1994, $5,437,000 in 1993 and $5,871,000 in 1992. Weighted average interest rates on short-term borrowings were 5.8% and 3.6% at December 31, 1994 and 1993, respectively. At December 31, 1994, the company had unused credit lines of $60,000,000, which expire on June 20, 1998. Commitment fees, paid in lieu of compensating balances, were insignificant. Note G - Income Taxes The provisions for income taxes consisted of the following: 1994 1993 1992 Current: Federal and foreign $17,775,000 $17,200,000 $11,817,000 State and local 2,092,000 1,946,000 1,441,000 Total 19,867,000 19,146,000 13,258,000 Deferred (credit): Federal and foreign 3,333,000 (226,000) 2,117,000 State and local 211,000 (124,000) 96,000 Total 3,544,000 (350,000) 2,213,000 Enacted rate change effect on deferred liabilities 220,000 Total income taxes $23,411,000 $19,016,000 $15,471,000 Differences between the statutory federal income tax rate and the effective income tax rate are summarized below: 1994 1993 1992 Statutory federal income tax rate 35.0% 35.0% 34.0% State income taxes, net of federal tax benefit 2.1 2.0 2.0 Tax-exempt interest (2.6) (3.0) (3.4) Enacted rate change effect on deferred liabilities .4 Other, net (1.1) (2.1) (1.6) Effective income tax rate 33.4% 32.3% 31.0% The company had net current deferred income tax benefits of $1,362,000 and $2,057,000 recorded in the balance sheet at December 31, 1994 and 1993, respectively. The company paid income taxes of $17,735,000 in 1994, $16,938,000 in 1993 and $13,503,000 in 1992. Deferred tax liabilities (assets) comprised the following at December 31, 1994: Depreciation and amortization - $14,296,000; revenue recognized on lease financing receivables and custom manufacturing contracts - $8,143,000; accrued expenses deductible in future periods - $(9,283,000); and other $(740,000). Deferred tax liabilities (assets) comprised the following at December 31, 1993: Depreciation and amortization - $10,708,000; revenue recognized on lease financing receivables and custom manufacturing contracts - $8,393,000; accrued expenses deductible in future periods - $(7,593,000); and other $(2,636,000). Note H - Postretirement Benefits The company and its subsidiaries sponsor a number of defined benefit retirement plans covering certain of its salaried employees and hourly employees not covered by plans under collective bargaining agreements. Benefits under these plans are primarily based on final average compensation as defined within the provisions of the individual plans. The company's policy is to contribute amounts sufficient to meet the minimum funding requirements of applicable laws and regulations. Plan assets consist principally of a broadly diversified portfolio of equity securities, corporate and U.S. Government obligations and guaranteed-return insurance contracts. The company also participates in several multiemployer retirement plans which provide benefits to employees under certain collective bargaining agreements. Pension expense is summarized as follows: 1994 1993 1992 Company-sponsored plans Service cost $1,687,000 $1,511,000 $1,415,000 Interest cost 2,437,000 2,290,000 2,053,000 Return on plan assets 581,000 (6,428,000) (3,827,000) Other amortization and deferral (5,521,000) 1,943,000 (219,000) Total (816,000) (684,000) (578,000) Multiemployer plans 337,000 561,000 530,000 Total pension expense (credit) $ (479,000) $ (123,000) $ (48,000) The following summarizes the funded status of the company-sponsored plans at December 31, 1994 and 1993 and the major assumptions used to determine these amounts. At December 31, 1994 and 1993, all of the company's plans had assets which exceeded accumulated benefits. 1994 1993 Actuarial present value of: Vested benefit obligation $21,904,000 $24,193,000 Nonvested benefits 1,746,000 1,874,000 Accumulated benefit obligation $23,650,000 $26,067,000 Actuarial present value of projected benefit obligation $31,072,000 $32,457,000 Plan assets at market value 43,318,000 45,058,000 Plan assets in excess of projected benefit obligation 12,246,000 12,601,000 Unrecognized net obligation at January 1, 1994 and 1993, respectively (2,270,000) (2,455,000) Unrecognized net experience (gain) (9,660,000) (10,646,000) Net pension asset (liability) $ 316,000 $ (500,000) The following significant assumptions were used in determining pension costs for the years ended December 31, 1994, 1993 and 1992: 1994 1993 1992 Discount rate 7.6% 8.5% 8.5% Rate of increase in compensation levels 4% 5% 5% Expected long-term rate of return on plan assets 11% 11% 11% The weighted average discount rates used in determining the actuarial present value of all pension obligations at December 31, 1994 and 1993 were 8.9% and 7.6%, respectively. The company also sponsors a number of defined contribution pension plans covering a majority of its employees. Participation in the plans is at each employee's election. Company contributions to these plans are based on a percentage of employee contributions. The cost of these plans was $2,900,000 in 1994 (including newly acquired companies), $2,160,000 in 1993 and $2,130,000 in 1992. The company also provides certain medical, dental and life benefits to certain eligible retired employees. These benefits are funded when the claims are incurred. Participants generally become eligible for these benefits at age 60 after completing at least fifteen years of service. The plan provides for the payment of specified percentages of medical and dental expenses reduced by any deductible and payments made by other primary group coverage and government programs. The corporation will continue to reduce the percentage of the cost of benefits that it will pay since the company's future costs are limited to 150% of the 1992 cost. The following table sets forth the status of the retiree health care benefits at December 31, 1994 and 1993, respectively: 1994 1993 Accumulated postretirement benefit obligation: Retirees $ 638,000 $ 696,000 Fully eligible active plan participants 30,000 22,000 Other active plan participants 1,510,000 1,465,000 Unrecognized net experience gain 163,000 Accrued postretirement benefit liability $2,341,000 $2,183,000 The net periodic postretirement benefit cost for 1994, 1993 and 1992 consisted of the following: 1994 1993 1992 Service cost of benefits earned $112,000 $ 89,000 $ 94,000 Interest cost on accumulated postretirement benefit obligation 179,000 163,000 167,000 Net periodic postretirement benefit cost $291,000 $252,000 $261,000 The expected postretirement benefit obligation was measured using an assumed 12% increase in the per capita claims medical costs and a 10% increase in the per capita dental claims costs for 1993. These increases are reduced by .65% and .55%, respectively, after 1993 through 2003 and remain at 5.5% and 4.5%, respectively, thereafter. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.9% at December 31, 1994 and 7.6% at December 31, 1993. If the health care cost trend rates were increased 1%, the accumulated postretirement benefit obligation as of December 31, 1994 would have increased by 1%. The effect of this change on the aggregate of service and interest cost for 1994 would be an increase of 2%. Note I - Derivative Financial Instruments The company enters into agreements (derivative financial instruments) to manage the risks associated with certain aspects of its business. The company does not actively trade such instruments nor enter into such agreements for speculative purposes. The company principally utilizes two types of derivative financial instruments: 1) interest rate swaps to manage its interest rate risk, and 2) foreign currency forward exchange contracts to manage risks associated with sales and purchase commitments denominated in foreign currencies. At December 31, 1994, the company had agreements with financial institutions to swap interest rates on notional amounts totaling $15 million. One of the agreements expires in 1995 and provides that the company will pay interest at an average fixed annual rate of 7.12% on a notional amount of $5 million and will receive interest based upon the London Interbank Offered Rate (LIBOR). The other agreement expires in 1997 and provides that the company will receive a fixed annual rate of 5.08% and will pay interest at the LIBOR with a maximum floating rate of 7.50% for the last twelve months of the agreement. The differential between the amount received and the amount paid is accrued as interest rates change and recognized as an adjustment to interest expense; the related amount payable to or receivable from the counterparties is included in accrued liabilities or other assets. The estimated cost to terminate these agreements was $500,000 at December 31, 1994. At December 31, 1994, the company had foreign currency forward exchange contracts designated and effective as hedges which become due in various amounts and at various dates through February 1997 totalling $3,000,000. All such contracts at December 31, 1994 were for the purpose of hedging purchase commitments. Unrealized gains and losses on the forward exchange contracts are deferred and will be recognized in income in the same period as the hedged transaction. The difference between the contract value and the fair value was insignificant at December 31, 1994. Note J - Stock Options and Awards The company's stock benefit plan, approved by the company's shareholders, authorizes the grant of up to 2,737,500 (as adjusted for subsequent stock splits and dividends) benefit shares or units to key employees and directors until May 1998. This excludes shares which were issued under predecessor plans. Benefit shares or units include stock options, both incentive and non-incentive, stock awards and other stock units. Stock options are primarily granted at the fair market value of the shares on the date of grant and become exercisable one year after grant at a rate of one-half annually and are exercisable in full on the second anniversary date. All options and rights must be exercised within ten years from date of grant. At the company's discretion, vested stock option holders are permitted to elect an alternative settlement method in lieu of purchasing common stock at the option price. The alternative settlement method permits the employee to receive, without payment to the company, cash, shares of common stock or a combination thereof equal to the excess of market value of common stock over the option purchase price. Changes in outstanding shares under option during 1994 were as follows: Option Option shares price range Outstanding at December 31, 1993 1,694,334 $ 2.80-$20.63 Granted 211,438 $17.50-$20.63 Canceled or expired (17,329) $11.17-$20.16 Exercised (73,311) $ 2.80-$15.47 Outstanding at December 31, 1994 1,815,132 $ 3.21-$20.63 Exercisable at December 31, 1994 1,302,771 $ 3.21-$20.63 Stock award shares are granted to employees at no cost. Awards primarily vest at the rate of 25% annually commencing one year from the date of award, provided the recipient is still employed by the company on the vesting date. The cost of stock awards, based on the fair market value at the date of grant, is being charged to expense over the four-year vesting period. Available for future grant were 425,950 and 658,707 benefit shares or units at December 31, 1994 and 1993, respectively. Note K - Shareholders' Equity The company has 90,000,000 authorized shares of common stock, $1 par value and 800,000 authorized and unissued shares of preference stock, $1 par value. The changes in shareholders' equity for each of the three years in the period ended December 31, 1994 were as follows:
Foreign Common Capital in Deferred currency stock excess of Retained Treasury stock translation par value par value earnings stock awards adjustment Balance at December 31, 1991 - 23,541,000 shares issued $23,541,000 $93,156,000 $62,063,000 $(12,871,000) $(2,118,000) $1,003,000 Net income 34,460,000 Cash dividends declared (14,363,000) Conversion of debentures 133,000 798,000 Exercise of stock options: Cash proceeds 56,000 337,000 Exchange of shares 69,000 300,000 (369,000) Stock awards granted 26,000 508,000 (534,000) Tax benefits related to stock compensation plans 656,000 Retirement of treasury stock (44,000) (812,000) 856,000 Purchases of 264,000 shares of treasury stock (5,249,000) 3-for-2 stock split, 10,697,000 shares issued 10,697,000 (23,590,000) 12,893,000 Amortization of deferred stock awards 711,000 Foreign currency translation adjustment (2,915,000) Other 69,000 (487,000) Balance at December 31, 1992 - 34,478,000 shares issued 34,478,000 71,422,000 82,160,000 (5,227,000) (1,941,000) (1,912,000) Net income 39,780,000 Cash dividends declared (16,469,000) Exercise of stock options: Cash proceeds 86,000 438,000 Exchange of shares 155,000 938,000 (1,093,000) Stock awards granted 30,000 659,000 (689,000) Stock awards canceled (2,000) (57,000) 59,000 Tax benefits related to stock compensation plans 1,562,000 Retirement of treasury stock (81,000) (1,929,000) 2,010,000 Purchases of 99,000 shares of treasury stock (2,689,000) 4-for-3 stock split, 11,072,000 shares issued 11,072,000 (18,988,000) 7,916,000 Amortization of deferred stock awards 856,000 Foreign currency translation adjustment (2,419,000) Other (917,000) Balance at December 31, 1993 - 45,738,000 shares issued 45,738,000 54,045,000 105,471,000 - (1,715,000) (4,331,000) Net income 46,770,000 Cash dividends declared (19,103,000) Exercise of stock options: Cash proceeds 67,000 393,000 Exchange of shares 6,000 21,000 (27,000) Stock awards granted 43,000 770,000 (813,000) Stock awards canceled (4,000) (59,000) 63,000 Tax benefits related to stock compensation plans 206,000 Retirement of treasury stock (12,000) (213,000) 225,000 Purchases of 466,000 shares of treasury stock (9,339,000) Shares purchased subsequent to December 31, 1993 used to effect 4-for-3 stock split (71,000) (1,387,000) 1,458,000 Amortization of deferred stock awards 777,000 Foreign currency translation adjustment 1,552,000 Other (20,000) (197,000) Balance at December 31, 1994 - 45,767,000 shares issued $45,767,000 $53,756,000 $133,138,000 $(7,880,000) $(1,688,000) $(2,779,000)
In June 1988, the company declared a dividend distribution of one preferred share purchase right on each share of common stock outstanding on and after July 5, 1988. The rights are not exercisable until the rights distribution date, defined as the earlier of: 1) the tenth day following a public announcement that a person or group of affiliated or associated persons acquired or obtained the right to acquire beneficial ownership of 20% or more of the outstanding common stock or 2) the tenth day following the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 30% or more of such outstanding common shares. Each right, when exercisable, entitles the holder to purchase from the company one one-hundredth of a share of Series A Preferred stock of the company at a price of $90 per one one-hundredth of a preferred share, subject to adjustment. The company is entitled to redeem the rights at $.10 per right, payable in cash or common shares, at any time prior to the expiration of twenty days following the public announcement that a 20% position has been acquired. In the event that the company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power is sold, proper provision will be made so that each holder of a right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of a right, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the exercise price of the right. The rights expire on July 5, 1998 unless earlier redeemed by the company. Until exercised, the holder of a right, as such, will have no rights as a shareholder, including, without limitation, the right to vote or to receive dividends. Note L - Acquisitions During the three-year period ended December 31, 1994, the company made the following acquisitions, all principally for cash and, in certain instances, earnouts to be based upon the future profitability of the respective business. Generally, earnouts are payable at the end of a five-year period, a portion of which are sometimes guaranteed. In June 1994, the company acquired the principal operating assets and assumed the principal operating liabilities of Peabody Myers Corporation ("Vactor"). Vactor is an Illinois-based manufacturer of municipal combination catch basin/sewer cleaning vacuum trucks. In May 1994, the company acquired the principal operating assets and assumed the principal operating liabilities of Justrite Manufacturing Company, an Illinois-based manufacturer of safety equipment for the storage, transfer, use and disposal of flammable and hazardous materials. As a result of the 1994 acquisitions, the company recorded approximately $9.9 million of working capital, $10.3 million of fixed and other assets and $49.6 million of costs in excess of fair values. In March 1993, the company acquired the outstanding shares of Guzzler Manufacturing, Inc., an Alabama-based manufacturer of vacuum loader vehicles. As a result of this acquisition, the company recorded approximately $6.0 million of working capital, $6.1 million of fixed and other assets, $.8 million of debt assumed and $12.7 million of costs in excess of fair values. In November 1992, the company acquired the outstanding shares of Dico Corporation, a Michigan-based manufacturer of polycrystalline diamond and cubic boron nitride cutting tools. In May 1992, the company acquired the outstanding shares of Aplicaciones Tecnologicas Vama S.L., a leading European manufacturer of emergency vehicular signaling products located in Barcelona, Spain. In March 1992, the company acquired the assets of Schneider Stanznormalien GmbH, a German manufacturer of precision punch and die components, for cash. As a result of the 1992 acquisitions, the company recorded approximately $7.2 million of working capital, $2.8 million of fixed and other assets, $.5 million of debt assumed and $12.0 million of costs in excess of fair values. All of the acquisitions in the three-year period ended December 31, 1994 have been accounted for as purchases. Accordingly, the results of operations of the acquired companies have been included in the consolidated statements of income from the effective dates of the acquisitions. Assuming the 1994 and 1993 acquisitions occurred on January 1, 1993, the company estimates that consolidated net sales would have been increased 6% and 15% in 1994 and 1993, respectively, while net income would have increased 2% and 9%, respectively. Note M - Contingency On May 3, 1993, a Texas federal court jury rendered a verdict of $17,745,000 against Federal Sign, a division of the company, for alleged violation of the Texas Deceptive Trade Practices Act and misrepresentations to Duravision, Inc. and Manufacturers Product Research Group of North America, Inc. in connection with a 1988 research and development project for indoor advertising signs. The company believes the court erroneously excluded important evidence and that the verdict was against the weight of the evidence. Both inside and outside counsel that initially handled the case opined at the time of the verdict that the likelihood of a substantially unfavorable result to the company on appeal was remote. Trial counsel has turned the case over to new appellate counsel and has stated they cannot currently give an opinion on the appeal because they are no longer handling the case. Appellate counsel now handling the appeal of the case has not issued an opinion on its outcome. However, if the company loses its appeal of this case, there would be a charge to earnings for this $17,745,000 verdict, plus interest and attorney fees of up to $11,000,000. On the other hand, there would be no such charges to earnings for a decision reversing the original verdict or the appellate court could issue a decision somewhere in between. Depending on the outcome of this matter, an adverse decision may have a material effect on results of operations and cash flows in the periods that the appellate court decision is made and required payments are made. The company believes that the ultimate resolution of this contingency, however, will not have a material effect on its financial condition nor its results of operations or cash flows for periods subsequent to the appellate court decision and payments required as a result of such decision. The company cannot reasonably estimate the ultimate amount of a judgment, if any, or interest and attorney fees, if any, which may result from an adverse appellate court decision. Accordingly, the company has not recorded any accruals for potential losses which may result from an adverse judgment. In the event of an adverse decision, the company intends to aggressively pursue a substantial recovery from its original trial counsel in this matter. Note N - Segment Information The principal activities of the company's primary industry segments are as follows: Safety Products Group: The Safety Products Group produces: a variety of visual and audible warning and signal devices used by private industry and various governmental agencies; paging, local signaling, and building security, parking and access control systems; and equipment for storage, transfer, use and disposal of flammable and hazardous materials. Sign Group: The Sign Group manufactures for sale or lease illuminated, non-illuminated and electronic advertising sign displays. It also enters into contracts to provide maintenance service for the signs it manufactures as well as for signs manufactured by others. Tool Group: The Tool Group manufactures a variety of perishable tools which include die components for the metal stamping industry, a large selection of precision metal products for non-stamping needs and a line of precision cutting and deep grooving tools. Vehicle Group: The Vehicle Group manufactures: chassis; fire trucks including Class A pumpers, mini-pumpers and tankers; airport and other rescue vehicles, ambulances and aerial ladder trucks; a variety of self-propelled street cleaning vehicles; vacuum loader vehicles and municipal catch basin/sewer cleaning vacuum trucks. Total revenue by business segment reflects sales to unaffiliated customers, as reported in the company's consolidated statements of income. Operating profit includes all costs and expenses directly related to the segment involved. In determining operating profit, neither corporate nor interest expenses were included. Business segment depreciation expense, identifiable assets and capital expenditures relate to those assets that are utilized by the respective business segment. Corporate assets consist principally of cash and cash equivalents, notes and other receivables and fixed assets. Foreign sales, including export and foreign operations, aggregated $129,896,000 in 1994, $113,210,000 in 1993 and $121,332,000 in 1992. Export sales aggregated $67,341,000 in 1994, $59,324,000 in 1993 and $61,355,000 in 1992. A summary of the company's operations by geographic area for the three- year period ended December 31, 1994 is as follows (in thousands): 1994 1993 1992 United States Net sales $614,673 $511,277 $458,246 Operating income 76,190 62,977 53,863 Identifiable assets 463,621 353,172 307,088 All foreign (principally Europe, Canada and Japan) Net sales $ 62,555 $ 53,886 $ 59,977 Operating income 2,078 907 1,295 Identifiable assets 57,979 52,532 56,571 For the years ended December 31, (in thousands) 1994 1993 1992 Net sales Safety Products $135,424 $104,927 $ 95,946 Sign 66,090 58,550 56,074 Tool 121,657 111,879 99,619 Vehicle 354,057 289,807 266,584 Total net sales $677,228 $565,163 $518,223 Operating income Safety Products $ 23,313 $ 16,159 $ 13,518 Sign 3,988 1,169 (1,815) Tool 23,475 23,273 21,715 Vehicle 33,531 30,289 28,267 Corporate expense (6,039) (7,006) (6,527) Total operating income 78,268 63,884 55,158 Interest expense (8,499) (6,136) (6,471) Other income 412 1,048 1,214 Income before income taxes $ 70,181 $ 58,796 $ 49,901 Depreciation Safety Products $ 2,693 $ 1,757 $ 1,792 Sign 1,400 1,684 1,856 Tool 2,386 2,313 1,957 Vehicle 3,772 3,412 3,082 Corporate 51 49 45 Total depreciation $ 10,302 $ 9,215 $ 8,732 Identifiable assets Manufacturing activities Safety Products $ 98,438 $ 51,092 $ 47,043 Sign 26,771 24,480 23,237 Tool 66,729 62,035 61,803 Vehicle 192,436 142,158 120,507 Corporate 10,038 15,359 7,080 Total manufacturing activities 394,412 295,124 259,670 Financial services activities Sign 13,836 17,282 19,958 Vehicle 113,352 93,298 84,031 Total financial services activities 127,188 110,580 103,989 Total identifiable assets $521,600 $405,704 $363,659 Capital expenditures Safety Products $ 2,409 $ 2,675 $ 1,366 Sign 1,218 988 1,227 Tool 4,200 2,614 2,710 Vehicle 3,245 3,848 3,513 Corporate 36 14 19 Total capital expenditures $ 11,108 $ 10,139 $ 8,835 Note O - Selected Quarterly Data (Unaudited) (in thousands of dollars except per share amounts)
For the three months ended 1 9 9 4 1 9 9 3 March June September December March June September December 31 30 30 31 31 30 30 31 Net sales $138,106 $164,001 $181,283 $193,838 $127,447 $146,463 $142,740 $148,513 Gross margin $ 42,891 $ 51,751 $ 55,415 $ 59,677 $ 40,472 $ 46,244 $ 46,365 $ 48,995 Net income $ 8,156 $ 12,396 $ 12,436 $ 13,782 $ 7,151 $ 10,602 $ 10,661 $ 11,366 Per share data: Net income $ .18 $ .27 $ .27 $ .30 $ .15 $ .23 $ .23 $ .25 Dividends paid $ .11 $ .11 $ .11 $ .11 $ .09 $ .09 $ .09 $ .09 Market price range High $ 21 3/8 $ 20 3/8 $ 20 5/8 $ 21 $ 18 1/4 $ 19 $ 21 $ 21 Low $ 19 1/4 $ 16 7/8 $ 17 $ 17 3/4 $ 15 3/4 $ 16 1/2 $ 17 7/8 $ 19 1/2
Report of Ernst & Young LLP, Independent Auditors To the Shareholders and Board of Directors of Federal Signal Corporation We have audited the accompanying consolidated balance sheets of Federal Signal Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federal Signal Corporation and subsidiaries as of December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note M to the financial statements, during 1993 a Texas federal court jury rendered a verdict of $17,745,000, plus interest and attorney fees, against Federal Sign, a division of the company, for alleged violation of the Texas Deceptive Trade Practices Act and misrepresentation related to a research and development project. The company has appealed the verdict. The company cannot reasonably estimate the ultimate outcome of the litigation. Accordingly, no provision for any liability that may result has been made in the financial statements. Ernst & Young LLP Chicago, Illinois January 23, 1995 APPENDIX A - ---------- FEDERAL SIGNAL CORPORATION 1994 Annual Report Graphic Material The following table sets forth bar graph information contained in the Financial Review section of the 1994 Annual Report paper format. It is presented here in tabular format in order to conform with electronic filing requirements. (IN PERCENT) 1990 1991 1992 1993 1994 RETURN ON MANUFACTURING ASSETS: Total Company (1) 25% 24% 22% 22% 22% Safety Products (2) 24% 30% 31% 34% 29% Sign 10% -10% -12% 1% 12% Tool 46% 44% 41% 37% 35% Vehicle (3) 21% 22% 17% 15% 16% (1) excluding acquisitions, return was 24% in 1994 (2) excluding acquisitions, return was 36% in 1994 (3) excluding acquisitions, return was 17% in 1994 EX-21 8 EXHIBIT 21 FEDERAL SIGNAL CORPORATION Subsidiaries of the Registrant The following table sets forth information concerning significant subsidiaries of the Registrant. Jurisdiction in which Name Organized ---------------------------------------- ------------ Aplicaciones Tecnologicas VAMA S.L. Spain Bassett Rotary Tool Company Indiana Dayton Progress Canada, Ltd. Ontario, Canada Dayton Progress Corporation Ohio Dayton Progress International Corporation Ohio Dayton Progress (U.K.), Ltd. United Kingdom Dico Corporation Michigan Elgin Sweeper Company Delaware Emergency One, Inc. Delaware Federal APD, Inc. Michigan Federal Signal Credit Corporation Delaware Federal Signal International (FSC), Ltd. Jamaica, W.I. Guzzler Manufacturing, Inc. Alabama Jamestown Punch and Tooling, Inc. New York Justrite Manufacturing Company, L.L.C. Delaware Manchester Tool Company Delaware Nippon Dayton Progress K.K. Japan Ravo International (Van Raaij Holdings BV and its subsidiaries) Netherlands Schneider Stanznormalien GmbH Germany Superior Emergency Vehicles, Ltd. Alberta, Canada Vactor Manufacturing, Inc. Illinois EX-23 9 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Federal Signal Corporation of our report dated January 23, 1995, included in the 1994 Annual Report to Shareholders of Federal Signal Corporation. Our audits also included the financial statement schedule of Federal Signal Corporation listed in item 14(a)2. This schedule is the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-12876, 33-22311, 33-38494, 33-41721 and 33-49476) pertaining to the Stock Option Plan and Employee Savings and Investment Plans of our report dated January 23, 1995, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Federal Signal Corporation. Ernst & Young LLP Chicago, Illinois March 20, 1995 EX-27 10
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1994 AND CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1994 DEC-31-1994 4,605 0 110,833 2,848 78,899 196,296 153,626 80,788 521,600 142,378 34,878 45,767 0 0 174,547 521,600 677,228 677,228 467,494 467,494 0 0 8,499 70,181 23,411 46,770 0 0 0 46,770 1.02 1.02 MANUFACTURING OPERATIONS ONLY
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