-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SvbjphRiAY/X7eehzwZNodN2EXXIMNBNdimjwLN7ZCKNFGc95wMPK/CHngbmdNW7 ET6twBT4yLbnbHuHx8fUoA== 0000040834-96-000014.txt : 19961028 0000040834-96-000014.hdr.sgml : 19961028 ACCESSION NUMBER: 0000040834-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961025 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL SIGNAL CORP CENTRAL INDEX KEY: 0000040834 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 160445660 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00996 FILM NUMBER: 96647591 BUSINESS ADDRESS: STREET 1: ONE HIGH RIDGE PARK CITY: STAMFORD STATE: CT ZIP: 06904 BUSINESS PHONE: 2033578800 MAIL ADDRESS: STREET 1: P O BOX 10010 CITY: STAMFORD STATE: CT ZIP: 06904 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL RAILWAY SIGNAL CO DATE OF NAME CHANGE: 19710926 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1996 Commission file number 1-996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 GENERAL SIGNAL CORPORATION (Exact name of registrant as specified in its charter) New York 16-0445660 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) High Ridge Park, Box 10010, Stamford, Connecticut 06904 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (203) 329-4100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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. X (Yes) (No) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, par value $1.00 49,866,923 (Class) (Outstanding at October 18, 1996) PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES Statement of Earnings (In millions, except per share data) (Unaudited) Three Months Ended September 30, 1996 1995 Net Sales $521.6 $481.1 -------- -------- Cost of Sales 356.2 336.4 Selling, general and administrative expenses 97.5 93.1 ------- ------- 453.7 429.5 -------- -------- Operating earnings 67.9 51.6 Interest expense net 5.5 7.9 -------- ---------- Earnings from continuing operations before income taxes 62.4 43.7 Income taxes 25.0 16.5 ------- --------- Earnings from continuing operations 37.4 27.2 Discontinued operations - (14.4) ------- ---------- Net earnings $37.4 $12.8 ========= ========== Earnings (loss) per share: Continuing operations $0.75 $0.55 Discontinued operations - (0.29) --------- ----------- Net earnings $0.75 0.26 ========= =========== Dividends declared per share $0.24 $0.24 ======== =========== Average shares outstanding 49.8 49.3 ====== ========== See accompanying notes to financial statements GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES Statement of Earnings (In millions, except per share data) (Unaudited) Nine Months Ended September 30, 1996 1995 Net Sales $1,518.3 $1,361.6 --------- ----------- Cost of Sales 1,064.9 959.1 Selling, general and administrative expenses 298.9 253.0 Gain on disposition (20.8) -- Transaction and consolidation charges -- 7.4 -------- ---------- $1,343.0 $1,219.5 --------- ---------- Operating earnings 175.3 142.1 Interest expense, net 17.9 17.5 --------- ----------- Earnings from continuing operations before income taxes 157.4 124.6 Income taxes 63.0 44.8 -------- ------------ Earnings from continuing operations 94.4 79.8 Discontinued operations -- (64.0) -------- ----------- Net earnings $94.4 $15.8 ======= =========== Earnings (loss) per share: Continuing operations $ 1.90 $1.62 Discontinued operations -- (1.30) ------- ------- Net earnings $ 1.90 $0.32 ======= ======= Dividends declared per share $0.72 $0.72 ======= ======== Average shares outstanding 49.6 49.1 ======= ======== See accompanying notes to financial statements. GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES Balance Sheet (In millions) (Unaudited) September 30, December 31, 1996 1995 Assets Current assets Cash and cash equivalents $ 24.4 $ 1.0 Accounts receivable 348.7 323.6 Inventories 237.9 234.7 Prepaid expenses and other current assets 21.3 30.1 Assets held for sale at estimated realizable value 9.7 60.4 Deferred income taxes 65.6 71.6 ------- -------- Total current assets 707.6 721.4 Property, plant and equipment 308.3 312.7 Intangibles 393.9 406.0 Other assets 163.0 161.6 Deferred income taxes -- 11.5 --------- ---------- $1,572.8 $1,613.2 --------- ----------- GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES Balance Sheet - Continued (In millions) (Unaudited) Liabilities and Shareholders' Equity September 30, December 31, 1996 1995 Current liabilities: Short-term borrowings and current maturities of long-term debt $5.3 $9.0 Accounts payable 173.2 158.1 Accrued expenses 216.9 233.8 Income taxes 39.4 31.2 ------- ------- Total current liabilities 434.8 432.1 ------- -------- Long-term debt, less current maturities 306.2 428.6 Accrued postretirement and postemployment obligations 139.5 146.9 Deferred income taxes 11.2 -- Other liabilities 25.9 27.5 ------- -------- Total long term liabilities 482.8 603.0 ------- -------- Shareholders' equity: Common stock: authorized 150.0 shares; issued 64.4 shares at September 30, 1996 and 64.3 shares at December 31, 1995 78.1 77.9 Additional paid-in-capital 313.2 304.2 Retained earnings 641.5 582.9 Cumulative translation adjustments (2.8) (3.9) Common stock in treasury, at cost: 14.6 shares at September 30, 1996 and 15.0 shares at December 31, 1995 (374.8) (383.0) ---------- --------- Total shareholders' equity 655.2 578.1 ------------- ---------- $1,572.8 $1,613.2 ========== =========== See accompanying notes to financial statements. GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Statement of Cash flow (In Millions) (Unaudited) Nine Months Ended September 30, 1996 1995 CASH FLOW FROM OPERATING ACTIVITIES: Earnings from continuing operations $94.4 $79.8 Adjustments to reconcile earnings to net cash from operating activities: Gain on disposition (20.8) - Asset write down and other charges 19.7 - Transaction and consolidation charges - 7.4 Deferred taxes 28.3 33.1 Depreciation and amortization 51.8 46.0 Pension credits (6.8) (7.1) Other, net 6.7 5.6 Changes in working capital (36.7) (71.5) -------- ---------- Net cash from operating activities 136.6 93.3 CASH FLOW FROM INVESTING ACTIVITIES: Divestitures 79.2 33.7 Acquisitions, net of cash acquired - (262.5) Capital expenditures (43.6) (35.9) Other, net 2.8 7.4 --------- --------- Net cash from investing activities 38.4 (257.3) --------- --------- CASH FROM FINANCIANG ACTIVITIES: Net change in short and long-term borrowings (126.1) 218.1 Dividends paid (35.6) (34.0) Proceeds from shares sold to employees 11.3 13.0 Shares repurchased (1.2) (17.0) -------- --------- Net cash from financing activities (151.6) 180.1 --------- ---------- Net change in cash and cash equivalents 23.4 16.1 --------- ----------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1.0 0.3 -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $24.4 $16.4 ======== =========== See accompanying notes to financial statements. GENERAL SIGNAL CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Financial Statements (Unaudited) 1. The accompanying unaudited financial statements reflect all adjustments (consisting of normal, recurring items) necessary for the fair presentation of results for these interim periods. These results are based upon generally accepted accounting principles consistently applied with those used in the preparation of the company's 1995 Annual Report on Form 10-K. 2. Inventories September 30, December 31, 1996 1995 (in millions) Finished goods $81.7 $73.9 Work in progress 66.5 66.5 Raw material and purchased parts 111.9 117.6 ------- --------- Total FIFO cost 260.1 258.0 Excess of FIFO cost over LIFO inventory value (22.2) (23.3) -------- --------- Net carrying value $237.9 $234.7 ========== ========== 3. Business Segment Information Three Months Ended September 30, 1996 1995 Net sales: (in millions) Process Controls $192.1 $176.7 Electrical Controls 239.3 217.4 Industrial Technology 90.2 a 87.0 ------ ------- $521.6 $481.1 ======== ========= Operating earnings: Process Controls $31.0 b $22.6 Electrical Controls 26.7 19.9 Industrial Technology 18.9 a 14.9 ------ ------ Total operating earnings before unallocated expenses and interest 76.6 57.4 Net interest expense (5.5) (7.9) Unallocated expenses (8.7) (5.8) -------- ------- Earnings before income taxes $62.4 $43.7 ====== ======= (a) Includes $4.2 of royalty income. (b) Includes a $1.8 insurance gain on the recovery of destroyed assets. 3. Business Segment Information Nine Months Ended September 30, (continued) 1996 1995 (in millions) Net sales: Process Controls $554.0 538.6 Electrical Controls 696.6 547.4 Industrial Technology 267.7 a 275.6 -------- ------- $1,518.3 $1,361.6 Operating earnings: Process Controls $97.1 b $70.7 Electrical Controls 61.1 c 40.0 e Industrial Technology 41.8 d 46.0 ------ ------ Total operating earnings before unallocated expenses and interest 200.0 156.7 Net interest expense (17.9) (17.5) Unallocated expenses (24.7) (14.6) --------- -------- Earnings before income taxes $157.4 $124.6 ========= ======== a Includes $4.2 of royalty income. b Includes a $20.8 gain on disposition of Kinney Vacuum, a charge of $4.0 for product warranty costs and a $1.8 insurance gain on the recovery of destroyed assets. c Includes an $11.1 charge related to plant closure costs, asset valuations and environmental costs. d Includes a $4.6 charge for asset valuations and $4.2 of royalty income. e Includes a $7.4 charge primarily for severance and other consolidation costs related to the combination of General Signal and Best Power. 4. Property, Plant and Equipment September 30, December 31, 1996 1995 (in millions) Property, plant and equipment, at cost $737.1 $717.8 Accumulated depreciation and amortization (428.8) (405.1) ------- --------- Property, plant and equipment, net $308.3 $312.7 ======= ========= 5. Supplemental Information-Statement of Cash Flow Nine Months Ended September 30, 1996 1995 Cash paid for: (in millions) Interest $19.0 $17.7 ====== ====== Income taxes $25.3 $6.6 ====== ====== Liabilities assumed in conjunction with acquisitions: Fair value of assets acquired $ - $327.1 Cash paid - (270.3) ----- ------- $ - $56.8 ====== ========= ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions, except per share data) Results of Operations - Third Quarter 1996 Compared With Third Quarter 1995 The amounts in the table below were derived from the Consolidated Financial Statements. 1996 1995 Reported Reported Change Net sales $521.6 $481.1 8.4% Gross profit 165.4 144.7 14.3% Selling, general and administrative 97.5 93.1 4.7% expenses Operating earnings 67.9 51.6 31.2% Interest expense, net 5.5 7.9 (30.4%) Earnings from continuing operations 37.4 27.2 37.5% Earnings per share from continuing operations $0.75 $0.55 36.4% Earnings per share from discontinued - (0.29) operations Net earnings per share $0.75 $0.26 100%+ During the third quarters of 1996 and 1995, the company included the following items in reported net earnings. To facilitate a more meaningful discussion of results of operations, these items are excluded from the discussion of comparative results of operations in the table below. Royalty income: In July 1996, the company negotiated a royalty payment related to one of its previously divested semiconductor businesses. The company received $4.2 in connection with this agreement and has recognized this amount in Industrial Technology net sales. Insurance settlement on destroyed assets: In May 1996, a fire at a supplier facility destroyed assets of a business in the Process Controls sector. In September 1996, the company received $1.8 in insurance proceeds, net of related expenses, and recognized a gain on the involuntary conversion of these assets. This amount is included as an offset to selling, general and administrative expenses. Discontinued operations: The company adopted a plan to sell Leeds and Northrup Company and Dynapower/Stratopower in November 1994. During the third quarter of 1995, the company recorded net losses of $14.4 in connection with the divestiture of these businesses. The following table summarizes the results of operations for the third quarter of 1996 and 1995 excluding the items discussed above. 1996 1995 Adjusted Reported Change Net sales $517.4 $481.1 7.5% Gross profit 161.1 144.7 11.3% Margin 31.1% 30.1% Selling, general and administrative 99.3 93.1 6.7% expenses Percent of sales 19.2% 19.4% Operating earnings 61.8 51.6 19.8% Interest expense, net 5.5 7.9 (30.4%) Earnings from continuing operations 33.8 27.2 24.3% Earnings per share from continuing operations $0.68 $0.55 23.6% Net sales: Sales improved 7.5 percent over 1995 levels due to strong order activity at several units. Twelve of the fifteen operating units reported sales improvements over the third quarter of 1995. International sales in 1996 represented approximately 21 percent of total net sales. Export sales increased approximately 5 percent. Foreign sales increased approximately 21 percent, primarily reflecting the improvement in international mixer sales. Process Control sector sales increased 8.7 percent to $192.1 due to strong unit volume of pumps, mixers and crystal growing furnaces. The improvements for pumps and crystal growing furnaces reflected improvements in their respective domestic markets. The mixer improvement resulted from higher international market share. These increases were partially offset by the disposition of Kinney Vacuum Company which generated revenues of $6.1 in the third quarter of 1995. Sales in the Electrical Controls sector increased 10.1 percent to $239.3 from an improvement in the UPS market and North American market share gains in electrical fittings. The transformer business, MagneTek Electric Inc. ("Waukesha Electric"), acquired in late July of 1995, contributed $6.8 in 1996 due to an additional month's sales as well as improved price realization. Industrial Technology sector sales decreased 1.1 percent to $86.0. An increase in automotive OEM sales was offset by lower volume from the completion of several large farebox contracts and automotive recall programs in 1995. Gross profit: Gross profit as a percentage of sales increased from 30.1 percent to 31.1 percent. The increase was due to productivity improvements at several units and shifts in product mix to more favorable margin products. Margin improvements were strongest for mixer, broadcast antenna, electrical motor, conduit fitting and automotive products. Gross profits in 1995 included $0.9 of LIFO reserve liquidations. Selling, general and administrative expenses: Selling, general and administrative expenses as a percentage of sales were relatively flat. Included in selling, general and administrative expenses were pension credits of $2.0 in 1996 and $2.4 in 1995. Operating earnings: Operating earnings for the Process Controls sector increased 29.2 percent to $29.2 reflecting higher volume and productivity improvements. These improvements were slightly offset by lower earnings due to the sale of Kinney Vacuum. Electrical Controls sector operating earnings increased 34.2 percent to $26.7 as a result of volume and productivity improvements and improved price realization in the transformer business. Industrial Technology sector operating earnings decreased 1.3 percent to $14.7. Higher earnings on increased volume of automotive OEM products were offset by lower earnings due to the completion of several large farebox contracts and automotive recall programs in 1995. Unallocated expenses increased from $5.8 in the third quarter of 1995 to $8.7 in the same period in 1996. This increase is primarily due to the inclusion of $2.5 of gains recorded on the sale of assets in 1995. 1996 is also higher due to an increase in retiree medical expenses. Interest expense: Net interest expense decreased 30.4 percent to $5.5 due to lower average debt levels and lower average interest rates. The lower debt levels reflect the use of proceeds from operations and divestitures to pay down debt. Earnings from continuing operations were $33.8 or $0.68 per share in 1996 compared to $27.2 or $0.55 per share in 1995. The company's effective tax rate is 40.0 percent in 1996 compared to 37.7 percent in the third quarter of 1995. The increased rate is due to an increase in non-deductible goodwill and reductions in the deferred tax valuation allowance recorded in the prior year. In the third quarter of 1995, an adjustment of $1.2 was recorded to increase the 1995 full year rate from 35 percent to 36 percent. Results of Operations - First Nine Months 1996 Compared With First Nine Months 1995 The amounts in the table below were derived from the Consolidated Financial Statements. 1996 1995 Reported Reported Change Net sales $1,518.3 $1,361.6 11.5% Gross profit 453.4 402.5 12.6% Selling, general and administrative expenses 298.9 253.0 18.1% Operating earnings 175.3 142.1 23.4% Interest expense, net 17.9 17.5 2.3% Earnings from continuing operations 94.4 79.8 18.3% Earnings per share from continuing operations $1.90 $1.62 16.6% Earnings per share from discontinued operations - - (1.30) Net earnings per share $1.90 $0.32 100%+ During the first nine months of 1996 and 1995, the company included the following items in reported net earnings. To facilitate a more meaningful discussion of results of operations, these items are excluded from the discussion of comparative results of operations in the following table. Royalty income: In July 1996, the company negotiated a royalty payment related to one of its previously divested semiconductor businesses. The company received $4.2 in connection with this agreement and has recognized this amount in Industrial Technology net sales. Insurance settlement on destroyed assets: In May 1996, a fire at a supplier facility destroyed assets of a business in the Process Controls sector. In September 1996, the company received $1.8 in insurance proceeds, net of related expenses, and recognized a gain on the involuntary conversion of these assets. This amount is included as an offset to selling, general and administrative expenses. Gain on disposition: In January 1996, the company sold Kinney Vacuum Company, a unit of the Process Controls sector, for approximately $29.0 and recognized a pre-tax gain of $20.8. Included in the gain were a LIFO liquidation of approximately $1.1 and transaction costs of approximately $0.5. Product warranty: In March 1996, the company decided to correct defects in certain Process Controls' products that were sold in prior years and have warranty periods that have expired. The company provided $4.0 to cover the cost of needed repairs. Management believes that this plan will help the company meet the expectations of its customers. It is anticipated that the amount accrued will be expended in 1996 and 1997. Capitalized software: Based on an assessment made during the first quarter of 1996 of future market potential, the company wrote off $4.6 of capitalized software for a product in the Industrial Technology sector. Factory closure and other: As part of the company's ongoing review of facilities, product lines and operations, the company decided, in March 1996, to close a factory in the Electrical Controls sector and provided $4.7 primarily for lease termination costs, asset write-downs and severance costs. Management anticipates that the closure of this factory will result in lower costs in the future from improved productivity. Also in connection with this review, the company identified property, plant and equipment that will not be utilized in future operations and, therefore, recorded a $4.4 charge to write the assets off. Environmental: During the first quarter of 1996, the company changed its estimate of costs to be incurred related to environmental matters at one of its Electrical Controls sector facilities. The additional accrual of $2.0 was based on additional information received about the method and extent of remediation required. Transaction and consolidation charge: On June 14, 1995, the company completed a cash tender offer for Best Power. In connection therewith, the company recorded a $7.4 charge primarily for severance and other consolidation costs relating to the combination of General Signal and Best Power locations. Discontinued operations: The company adopted a plan to sell Leeds & Northrup Company and Dynapower/Stratopower in November 1994. During the second and third quarters of 1995, the company recorded net losses of $49.6 million and $14.4 in connection with the divestiture of these businesses. The following table summarizes results of operations of the first nine months of 1996 and 1995 excluding the items discussed above. 1996 1995 Adjusted Adjusted Change Net sales $1,514.1 $1,361.6 11.2% Gross profit 462.1 402.5 14.8% Margin 30.5% 29.6% Selling, general and administrative expenses 294.0 253.0 16.2% Percent of sales 19.4% 18.6% Operating earnings 168.1 149.5 12.4% Interest expense, net 17.9 17.5 2.3% Earnings from continuing operations 90.2 84.5 6.7% Earnings per share from continuing operations $1.82 $1.72 5.8% Net sales: Sales improved 11.2 percent over 1995 levels due primarily to the acquisitions of Best Power and Waukesha Electric in June and July of 1995, respectively. Adjusted for acquisitions and dispositions, sales improved approximately 4 percent. International sales in 1996 totaled approximately 22 percent of the company's net sales. Export sales increased approximately 8 percent and foreign sales increased approximately 25 percent, primarily reflecting the European sales of Best Power as well as the improvement in international mixer sales. Process Controls' sector sales improved 2.9 percent to $554.0 on strong third quarter volume activity in pumps, mixers and crystal growing furnaces. These increases were partially offset by the disposition of Kinney Vacuum which generated revenues of $19.0 in the nine month period ended September 1995. Sales in the Electrical Controls sector increased 27.3 percent to $696.6, due primarily to the addition of Best Power and Waukesha Electric. A strong UPS market and North American market share gains in electrical fittings also contributed to the improvement. Industrial Technology sector sales decreased 4.4 percent to $263.5. Higher product sales to the telecommunication and datacommunication industries were offset by the completion of several large farebox contracts and automotive recall programs in 1995. Gross profit: Gross profit as a percentage of sales increased from 29.6 percent to 30.5 percent. Higher margins at Best Power as well as improved cost structures at several operating units were the primary reasons for the improvement. Margin improvements were strongest for mixer, coal feeder, broadcast antenna, conduit fitting and automotive products. Gross profit in 1995 included $0.9 of LIFO reserve liquidations. Selling, general and administrative expenses: Selling, general and administrative expenses as a percentage of sales increased from 18.6 percent to 19.4 percent. The acquisition of Best Power, which has a higher rate of operating expenses than the rest of the company, as well as lower credits in connection with the settlement of insured matters, were the primary reasons for the increase. Included in selling, general and administrative expenses were pension credits of $6.8 in 1996 and $7.1 in 1995. Operating earnings: Operating earnings for the Process Controls sector increased 11 percent to $78.5. Strong third quarter volume and productivity improvements in the pump, mixer and crystal growing furnace businesses were the primary reasons for the improvement. These improvements were slightly offset by lower earnings due to the sale of Kinney Vacuum. Electrical Controls sector operating earnings increased 52.3 percent to $72.2. The additions of Best Power and Waukesha Electric as well as significant productivity improvements on conduit fittings were the primary reasons for the increase. Industrial Technology sector operating earnings decreased 8.3 percent to $42.2. The positive impact of productivity improvements in the automotive industry was offset by lower volume due to the completion of several large farebox contracts and automotive recall programs in 1995. During 1996, the settlement of insured matters increased the earnings of Process Controls and Electrical Controls by $0.7 and $1.3, respectively. 1996 unallocated expenses were positively impacted by the collection of a $1.3 previously written off receivable. During 1995, cash settlements (primarily for royalty and insured matters) increased the earnings of Electrical Controls by $1.8 and Industrial Technology by $2.0, and reduced unallocated expenses by $1.9. 1995 unallocated expenses were also positively impacted by $2.5 gains recorded on the sale of assets as well as $2.9 of accrual adjustments related to the semiconductor equipment operations, environmental reserves and other accruals. Unallocated expenses increased from $15.2 in the first nine months of 1995 to $24.7 for the same period in 1996. The increase is due to the items disclosed in the preceding paragraph, higher retiree medical costs, increases in compensation expense and other corporate activities. Interest expense: Net interest expense is relatively flat for the nine month period. Cash generated from operations and divestitures was used to pay down the debt incurred in connection with 1995 acquisitions. Earnings from continuing operations were $90.2 or $1.82 per share in 1996 compared to $84.5 or $1.72 per share in 1995. The company's effective tax rate is 40.0 percent in 1996 compared to 36.0 percent in the first nine months of 1995. The increased tax rate is due to an increase in non-deductible goodwill and reductions in the deferred tax valuation allowance recorded in the prior year. Financial Condition - September 30, 1996 Compared to December 31, 1995 The following information was derived from the condensed statement of cash flow. It summarizes the cash flow activity for the first nine months of 1996 compared to the first nine months of 1995. 1996 1995 Cash flow from ongoing operations $160.2 146.7 Expenditures for previously divested operations (23.6) (53.4) Cash flow from operating activities 136.6 93.3 Acquisitions, primarily Best Power and Waukesha Electric - - (262.5) Disposition of discontinued operations and Kinney Vacuum 79.2 33.7 Capital expenditures (43.6) (35.9) Other investing activities 2.8 7.4 Cash flow from investing activities 38.4 (257.3) Debt repayments, net of borrowings (126.1) 218.1 Dividends (35.6) (34.0) Other financing activities 10.1 (4.0) Cash flow from financing activities (151.6) 180.1 Cash flow from continuing operations improved primarily from higher earnings, after adjustment for non-cash items, and improved working capital management. Long-term debt-to-total capitalization was 31.8 percent at September 30, 1996, down from 42.6 percent at year-end, due to the use of proceeds generated from dispositions and higher cash from operations to pay down debt. The company is well positioned to finance future working capital requirements and capital expenditures through current earnings and available credit facilities. At September 30, 1996, the company had deferred tax assets of $195.3 that were reduced by deferred tax liabilities of $107.3 and a valuation allowance of $33.6. The valuation allowance is based on management's assessment that it is more likely than not that the net deferred tax assets will be realized through future taxable earnings or alternative tax strategies. Other Matters Since the company is a producer of capital goods and equipment, its results can vary with the relative strength of the economy. Demand for products in the Process Controls sector follows the demand for capital goods orders. The Electrical Controls sector depends upon several markets, principally the nonresidential construction and computer equipment industries. The Industrial Technology sector depends on several markets, primarily automotive, mass transportation, and telecommunications equipment. Mass transportation depends upon continued federal and local government spending, and telecommunications is dependent upon continued research and development and the continued success of new products. While no one marketplace or industry has a major impact on the company's operations or results, the inherent pace of technological changes presents certain risks that the company monitors carefully. Success within all of the company's businesses is dependent upon the timely introduction and acceptance of new products. Forward-looking Statements: The company may from time to time make projections concerning future operations and earnings. The company's forward-looking statements are based on the company's current expectations, which are subject to a number of risks and uncertainties that could materially affect or reduce such operations and earnings. In addition to the general factors identified in "Other Matters" above, the primary factors that could specifically affect the company's expectations include the failure of: (1) a continuation of the increased order rate experienced in the first nine months, (2) productivity improvements meeting or exceeding budget, and (3) new products under development being produced and accepted as anticipated. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 12.0 Calculation of Ratios of Earnings to Fixed Charges. (b) No reports were filed on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENERAL SIGNAL CORPORATION /s/ Terry J. Mortimer Terry J. Mortimer Vice President and Controller Chief Accounting Officer DATE: October 22, 1996 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENERAL SIGNAL CORPORATION Terry J. Mortimer Vice President and Controller Chief Accounting Officer DATE: October 22, 1996 EX-12 2 Calculation of Ratios of Earnings to Fixed Charges General Signal Corporation (Dollars in millions) Exhibit(12.0) Nine Months Ended September 30, Year Ended December 31, 1996 1995 1994 1993 1992 1991 Earnings: Earnings from continuing operations before income taxes and $157.4 $156.4 $160.3 $139.1 $9.5 $97.4 extraordinary 24.9 34.7 20.2 22.6 35.3 39.3 items Add: fixed charges $182.3 $191.1 $180.5 $161.7 $44.8 $136.7 Fixed charges: Interest expense (gross) $19.7 27.7 $14.4 $18.0 $28.6 $31.8 One-third of rent 5.2 7.0 5.8 4.6 6.7 7.5 expense $24.9 $34.7 $20.2 $22.6 $35.3 $39.3 Ratio 7.32 5.51 8.94 7.15 1.27 3.48 EX-27 3
5 1000 9-MOS DEC-31-1996 SEP-30-1996 24400 90 366339 17667 237900 707600 737055 428726 1572800 434800 306200 0 0 78100 577100 1572800 1518300 1518300 1064900 1343000 0 0 17900 157400 63000 94400 0 0 0 94400 1.90 0
EX-27 4
5 1000 9-MOS DEC-31-1995 SEP-30-1995 1000 1013 333810 14874 250441 735859 710492 394987 1618212 367097 525206 0 0 77823 478925 1618212 1361600 1361600 959100 1219500 0 0 17500 124600 44800 79800 (64000) 0 0 15800 0.32 0
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