-----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, Orv4AB28y8AfLC3mbaZ+PZA2DRd2Y0SM03WHCulsTC7ppAZZuio+lyloEKUiYrE5 MZD4IambMPm7WkQimThnrw== 0000720032-95-000002.txt : 19950517 0000720032-95-000002.hdr.sgml : 19950517 ACCESSION NUMBER: 0000720032-95-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIGGIE INTERNATIONAL INC /DE/ CENTRAL INDEX KEY: 0000720032 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 521297376 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08591 FILM NUMBER: 95539926 BUSINESS ADDRESS: STREET 1: 4420 SHERWIN RD CITY: WILLOUGHBY STATE: OH ZIP: 44094 BUSINESS PHONE: 2169532700 MAIL ADDRESS: STREET 1: 4420 SHERWIN RD CITY: WILLOUGHBY STATE: OH ZIP: 44094 FORMER COMPANY: FORMER CONFORMED NAME: FIGGIE INTERNATIONAL HOLDINGS INC DATE OF NAME CHANGE: 19870112 10-Q 1 FORM 10-Q FIRST QTR 1995 1 SECURITIES AND EXCHANGE COMMISSION Washington D.C. FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the quarter ended March 31, 1995 Commission file number 1-8591 FIGGIE INTERNATIONAL INC. (Exact name of registrant as specified in its charter) Delaware 52-1297376 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4420 Sherwin Road Willoughby, Ohio 44094 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (216) 953-2700 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 and Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Class Outstanding as of April 30, 1995 Class A Common Stock, par value $.10 per share 13,674,580 Class B Common Stock, par value $.10 per share 4,724,869 18,399,449 2 FIGGIE INTERNATIONAL INC. INDEX Page No. PART I. FINANCIAL INFORMATION Consolidated Statements of Income for the Three Months Ended March 31, 1995 and 1994 3 Consolidated Balance Sheets at March 31, 1995 and December 31, 1994 4 - 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1995 and 1994 6 Notes to Consolidated Financial Statements 7 - 12 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 18 PART II. OTHER INFORMATION 19 3 FIGGIE INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, (in thousands, except per share data) (Unaudited) 1995 1994 CONTINUING OPERATIONS: Net Sales $ 85,266 $ 73,111 Cost of Sales 63,013 56,386 Gross Profit on Sales 22,253 16,725 Operating Expenses: Selling, General and Administrative 13,830 20,466 Research and Development 3,510 2,837 Total Operating Expenses 17,340 23,303 Operating Income (Loss) 4,913 (6,578) Other Expense (Income): Refinancing Costs 4,522 3,431 Interest Expense 9,074 10,770 Interest Income (844) (584) Other, Net 199 (291) Loss before Income Tax Benefit (8,038) (19,904) Income Tax Benefit - 6,634 Loss from Continuing Operations (8,038) (13,270) Loss from Discontinued Operations, net of tax - (7,067) Net Loss $ (8,038) $(20,337) Weighted Average Shares 18,092 17,856 Per Share Data Loss from Continuing Operations $ (0.44) $ (0.74) Loss from Discontinued Operations - (0.40) Net Loss $ (0.44) $ (1.14) See Notes to Consolidated Financial Statements. 4 FIGGIE INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 1995 AND DECEMBER 31, 1994 (in thousands) March 31, Dec. 31, 1995 1994 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 30,154 $ 28,611 Restricted cash 25,302 18,716 Trade accounts receivable, less allowance for uncollectible accounts of $326 in 1995 and $259 in 1994 42,793 44,994 Inventories 43,038 38,845 Prepaid expenses 3,285 3,225 Recoverable income taxes - 8,108 Net assets related to discontinued operations 279,570 317,601 Total Current Assets 424,142 460,100 PROPERTY, PLANT AND EQUIPMENT Land and land improvements 29,522 29,699 Buildings and leasehold improvements 46,135 46,024 Machinery and equipment 71,982 70,587 147,639 146,310 Accumulated depreciation (43,940) (42,385) 103,699 103,925 Property under capital leases, less accumulated depreciation of $4,263 in 1995 and $4,709 in 1994 2,055 2,158 Net Property, Plant and Equipment 105,754 106,083 OTHER ASSETS Prepaid pension costs 10,196 9,964 Prepaid rent on leased equipment 17,075 17,075 Intangible assets 20,044 20,244 Cash surrender value of insurance policies 10,898 10,576 Non-current receivables 5,775 5,920 Prepaid finance costs 5,402 8,291 Other 4,676 6,211 Total Other Assets 74,066 78,281 Total Assets $ 603,962 $ 644,464 5 FIGGIE INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 1995 AND DECEMBER 31, 1994 (in thousands, except par value) March 31, Dec. 31, 1995 1994 (Unaudited) LIABILITIES CURRENT LIABILITIES Debt due within one year $ 136,501 $ 171,641 Accounts payable 55,433 55,398 Accrued insurance reserves 16,680 16,889 Accrued liabilities and expenses 73,912 64,706 Current maturities of long-term debt 6,044 7,179 Total Current Liabilities 288,570 315,813 Long-term debt 229,583 234,491 Other non-current liabilities 28,376 28,938 Total Liabilities 546,529 579,242 STOCKHOLDERS' EQUITY Preferred Stock, $1.00 par value; Authorized, 3,217 shares; Issued and Outstanding, none - - Class A common stock, $.10 par value; 1,366 1,370 Authorized, 18,000 shares; Issued and Outstanding 1995 - 13,658; 1994 - 13,695 Class B common stock, $.10 par value; 471 471 Authorized, 18,000 shares; Issued and Outstanding 1995 - 4,715; 1994 - 4,715 Capital surplus 109,521 110,518 Accumulated deficit (51,239) (43,198) Unearned compensation (2,683) (3,829) Cumulative translation adjustment (3) (110) Total Stockholders' Equity 57,433 65,222 Total Liabilities and Stockholders' Equity $ 603,962 $ 644,464 See Notes to Consolidated Financial Statements. 6 FIGGIE INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31 (in thousands) (Unaudited) 1995 1994 Operating Activities: Loss from Continuing Operations $ (8,038) $(13,270) Loss from Discontinued Operations - (7,067) Adjustments to Reconcile Net Loss to Net Cash Provided (Used) by Operating Activities Depreciation and Amortization 1,778 7,929 Amortization of Unearned Compensation 231 2,086 Other, Net 634 (2,184) Changes in Operating Assets and Liabilities Trade Accounts Receivable 1,548 (9,165) Allowance for Uncollectible Accounts (1,355) 146 Finance Receivables 724 6,673 Inventories (3,830) (7,717) Prepaid Items 3,821 (2,789) Prepaid Pension Cost (272) (398) Other Assets 3,314 (273) Accounts Payable (3,571) (20,474) Accrued Liabilities and Expenses 9,784 8,305 Accrued Income Taxes 13,354 29,170 Other Liabilities (1,956) 2,813 Net Cash Provided (Used) by Operating Activities 16,166 (6,215) Investing Activities: Capital Expenditures for Continuing Operations (2,346) (3,507) Capital Expenditures for Discontinued Operations (11,084) (8,823) Proceeds from Sale of Property, Plant and Equipment 2,546 2,655 Proceeds from Business Divestitures 46,916 25,624 (Purchases) Sales of Securities by Insurance Subs. (293) (1,399) Net Cash Provided by Investing Activities 35,739 14,550 Financing Activities: Proceeds from Debt - 671 Principal Payments on Debt (41,183) (2,101) Borrowings Under Notes Payable, Net - 27,121 Common Stock Transactions, Net (86) (142) Net Cash (Used) Provided by Financing Activities (41,269) 25,549 Net Increase in Cash and Cash Equivalents 10,636 33,884 Cash and Cash Equivalents at Beginning of Year 68,300 33,816 Cash and Cash Equivalents at End of Period $ 78,936 $ 67,700 - - Continuing Operations - Unrestricted $ 30,154 $ 63,474 - - Continuing Operations - Restricted $ 25,302 $ 1,800 - - Discontinued Operations $ 23,480 $ 2,426 See Notes to Consolidated Financial Statements. 7 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The financial information included herein has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and properly reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to present a fair statement of the financial results of operations for the periods covered by this report. The results of operations for the three months ended March 31, 1995 are not necessarily indicative of the results to be expected for the entire year. (1) Summary of Significant Accounting Policies: The financial statements for the three months ended March 31, 1995 and 1994 has been prepared in accordance with the accounting policies described in Note 1 of the Notes to Consolidated Financial Statements appearing in Figgie International Inc.'s 1994 Form 10-K. (2) Discontinued Operations: On February 15, 1995, the Company announced that the Board of Directors had approved a strategic business plan, effective December 31, 1994, designed to restore the Company to profitability. Under the plan, the Company will operate four technology-driven manufacturing companies, aggressively cut corporate overhead, sell its fourteen other businesses in 1995 and use the sale proceeds to reduce debt and operating lease obligations. The entities to be sold have been reported as discontinued operations for the year ended December 31, 1994. Net Assets Related to Discontinued Operations at March 31, 1995 consist primarily of accounts receivable, finance receivables, contracts in process, oil and gas interests, inventory, property, plant and equipment, and significant, specialized machinery, net of current liabilities of these businesses. Realization of these discontinued assets is based on management's best estimate and is subject to market conditions, timing and negotiations. During the first quarter of 1995, the Company sold through unrelated sales transactions the following businesses: Figgie Acceptance; Figgie Power Systems; SpaceGuard Products; and Figgie Packaging/Alfa Packaging Systems. 8 (3) Inventories: Inventories are summarized as follows: (in thousands) March 31, Dec. 31, 1995 1994 Manufacturing Inventories: Raw materials $ 24,030 $ 21,509 Work in process 6,865 6,138 Finished goods 12,558 11,219 Inventory reserves (2,031) (1,532) Total manufacturing inventories 41,422 37,334 Inventories applicable to government contracts 214,586 207,632 Less: Progress payments (212,970) (206,121) Net contracts in process 1,616 1,511 Total Inventories $ 43,038 $ 38,845 (4) Debt Refinancing: On August 1, 1994, the Company executed an agreement ("Override Agreement") with its significant unsecured institutional lenders to refinance approximately $315 million in indebtedness, letters of credit and related facilities ("Override Debt") of which $278 million was outstanding. At the same time, the Company refinanced approximately $172 million in outstanding operating leases. The Override Debt bears interest at a base rate plus 2% and a restructuring fee of 3 1/2%. Mortgages, the 9-7/8% Senior Notes, the 10-3/8% Subordinated Debentures and certain other debt and leases were not part of the refinanced debt. The Override Agreement precludes the Company from paying dividends and secures Override Debt with security interests in shares of certain subsidiaries of the Company and substantially all of the Company's accounts receivable, inventory, intellectual property and related assets. In December 1994, the Override Agreement was amended to permit the Company to obtain additional letter of credit facilities. On March 31, 1995, debt outstanding under the Override Agreement amounted to $135.8 million. On March 31, 1995, the Override Agreement was amended (the "Second Amendment"), to extend the expiration date to January 1, 1996, set principal amortization payments throughout 1995, reset the net worth, cash flow and capital expenditure financial covenants with amounts applicable to the Company's continuing operations and to permit the Company to incur additional indebtedness, as defined. Also effective March 31, 1995, the 2% interest payment deferral was terminated and the amount due was paid in April. Fees due under the original agreement and extension fees will require a refinancing cost of approximately $10.0 million in 1995 of which $4.5 million was expensed in the first quarter. 9 (4) Debt Refinancing: continued Pursuant to the Second Amendment, the Company has agreed to repay in 1995 a substantial portion of all of the remaining amounts outstanding under the Override Agreement, with any remaining amounts due January 1, 1996. The Company expects to fund these payments through the proceeds of the divesture of those businesses whose net assets are presented in the Company's balance sheet as Net Assets Related to Discontinued Operations; however, all Company sources, including cash reserves, working capital generated, and short-term facilities can be accessed for this purpose. At March 31, 1995, all required restrictions and financial covenants have been satisfied. (5) Debt Due Within One Year: Debt due within one year is as follows: (in thousands) 3/31/95 12/31/94 Average Average Outstanding Rate Outstanding Rate Override Debt $135,794 11.00% $167,364 10.50% Other Debt 707 8.64% 4,277 9.85% Total $136,501 $171,641 The Company has a receivable-based credit facility which permits borrowings of up to $20.0 million based on the balances of certain divisions' receivables. At March 31, 1995, $13.6 million was available under this facility. No amounts were borrowed as of March 31, 1995. (6) Long-Term Debt: Total long-term debt at March 31, 1995 and December 31, 1994 consisted of the following: (in thousands) 1995 1994 9.875% Senior Notes due 1999 $174,000 $174,000 10.375% Debentures due 1998 9,500 9,500 Mortgage notes 48,220 53,076 Obligations under capital leases 3,774 4,889 Other debt and notes 133 205 Total 235,627 241,670 Less - current maturities (6,044) (7,179) Long-term debt $229,583 $234,491 Mortgage notes secured by real property are due at various dates through 2009 and bear interest at rates ranging from 7.0% to 12.25%. During the quarter ended March 31, 1995, $4.2 million of mortgage notes were paid-off in connection with divested business units. 10 (7) Leases: The Company leases a substantial amount of manufacturing equipment under operating lease arrangements. The Company (through its now discontinued leasing and scaffolding subsidiaries) also leases the vehicle fleet and scaffolding equipment held for lease or rental. All monthly rent and other payments due under all leases have been made, and are current through March 31, 1995. On August 1, 1994, and concurrently with entering into the Override Agreement, the Company executed agreements with certain lessors to restructure approximately $172 million of outstanding leases. Effective March 31, 1995, the Company and those lessors amended certain financial covenants of the leases to conform to the financial covenants contained in the Second Amendment to the Override Agreement, and to accelerate certain fees and to amend other terms consistent with the Override Agreement. The changes in rental commitments under operating leases from those as of December 31, 1994 to those as of March 31, 1995 is as follows (in millions): Rental commitments under operating leases at December 31, 1994 including $120.6 related to discontinued operations $155.7 Payments to lessors 10.0 Elimination of rental commitments through sale of underlying assets or assignment of leases to purchasers 20.8 Rental commitments under operating leases at March 31, 1995, including $92.2 million related to discontinued operations $124.9 Funds to pay the $92.2 million of lease obligations related to discontinued operations are expected to be provided primarily through the divestiture proceeds of those businesses. With respect to machinery and equipment that is not purchased or is presently not utilized or underutilized, the Company expects to satisfy the rental payments through its internal funds until such equipment is sold, subleased or assigned. 11 (8) Contingent Liabilities: The Company has been working with the Federal Trade Commission toward the completion of a redress program. The Commission sought consumer redress in connection with the sale of heat detectors manufactured by the Company's Interstate Engineering division. The Court held that the Company could be required to pay refunds to those buyers who, after notification, can make a valid claim for redress. The Court required the Company to provide a bank letter of credit initially in the amount of $7.6 million and reduced currently to $4.0 million. The Company had established an accrual and, based on the current amount of claims received by the Redress Administrator, no additional material charge to earnings is anticipated. The Company expects to conclude this matter in the next several months. In a class action suit filed on April 18, 1994, in the U.S. District Court for the Northern District of Ohio against the Company and two former officers and directors, the plaintiff stockholder alleged that the defendants disseminated false and misleading information to the investing public concerning the Company's business, management, financial condition, and future prospects in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. A separate class action suit was filed by another stockholder on May 11, 1994, in the same court against the Company and certain former and present officers and directors setting forth similar allegations. Both suits seek monetary damages and costs and have been consolidated into one case. In two separate suits reported in the Company's 1993 Form 10-K Annual Report, three stockholders of the Company filed derivative complaints on October 13 and December 2, 1993 in the Common Pleas Court of Lake County, Ohio, seeking recovery on behalf of the Company for alleged self-dealing, waste of corporate assets, financial statement over-statements, gross mismanagement and participation or acquiescence in such practices by Directors of the Company, all of whom were named as defendants. The Court consolidated the two suits and subsequently dismissed them with respect to all defendants. The plaintiffs have appealed the Court's decision. On October 11, 1994 Deloitte & Touche LLP filed suit against the Company in the Cuyahoga County Common Pleas Court of Ohio alleging that the Company was in breach of contract for failure to pay for consulting services rendered by Deloitte & Touche in the approximate amount of $30 million plus interest. On the same date, the Company filed in the same court its complaint against Deloitte & Touche (and later against Deloitte & Touche LLP) alleging that in connection with consulting services rendered to the Company, Deloitte & Touche was liable for breach of contract, negligent misrepresentation, breach of fiduciary duty, professional negligence and fraudulent inducement. The Company seeks $250 million in compensatory damages as well as punitive damages, declaratory relief and an accounting. The Company also filed a counterclaim containing similar allegations, as well as claims of breach of warranty and the unlicensed and unauthorized practice of engineering, in response to the suit filed by Deloitte & Touche LLP. Deloitte & Touche LLP has counterclaimed in the Company's action and the Court has now consolidated the two cases. 12 On December 19, 1994 the Company, its subsidiary Figgie Properties Inc. and the Richard E. Jacobs Group filed an action against the City of Cleveland seeking specific performance of a 1989 Master Development Agreement pertaining to a proposed real estate project known as Chagrin Highlands. The Company's complaint also seeks a declaratory judgment that the Master Development Agreement is in full force and effect and asks for an injunction preventing the City from interfering with the rights of the plaintiffs under that Agreement as well as compensatory damages in the amount of $100 million. The City of Cleveland had filed a motion to dismiss the Company's complaint. On May 1, 1995, the Court denied the City's motion to dismiss the complaint and granted the City's motion to dismiss the Jacobs Group as plaintiff. Additionally, the Company and its subsidiaries are defendants in various lawsuits arising in the ordinary course of business. The Company has provided a reserve for the estimated liability related to all known cases. In the opinion of management, any additional liability with respect to these matters will not have a material adverse effect on the Company's financial statements. Costs incurred by the Company in the performance of U.S. Government contracts are subject to audit. In the opinion of management, the final settlement of these costs will not result in significant adjustments to recorded amounts. (9) Revised Quarterly Financial Data The unaudited, quarterly data included in the Company's 1994 Form 10-K, which had been restated to reflect the classification of certain businesses as discontinued operations, has been revised to adjust the classification of net loss between net loss from continuing operations and net loss from discontinued operations for the first and second quarters of 1994. The revised data is as follows: First Second Third Fourth Quarter Quarter Quarter Quarter (in thousands except for per share data) 1994 Restated: Net sales $ 73,111 $ 80,030 $ 79,792 $ 86,487 Gross profit 16,725 18,871 18,324 18,246 Net loss: Continuing Operations (13,270) (13,051) (10,848) (48,078) Discontinued operations (7,067) (4,820) (4,995) (64,601) Net loss $(20,337) $(17,871) $(15,843) $(112,679) Loss per share: Continuing operations $ (0.74) $ (0.73) $ (0.61) $ (2.74) Discontinued operations (0.40) (0.27) (0.28) (3.68) Net loss $ (1.14) $ (1.00) $ (0.89) $ (6.42) 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL SUMMARY Net Sales increased $12.2 million or 17% to $85.3 million. Sales increases were achieved at the Snorkel and Scott and Taylor segments, and a small decrease in sales occurred at Interstate Electronics. Gross Profit improved $5.5 million to $22.3 million and represented 26.1% to net sales as compared to 22.9% in 1994. All three segments achieved gross profit dollar improvement. Selling, General and Administrative expenses improved dramatically. As a percentage of net sales, selling, general and administrative expenses were 16.2% for the first quarter of 1995, compared to 28.0% in 1994. Lower Corporate G&A expense was responsible for substantially all of the improvement. Operating income amounted to $4.9 million in 1995, as compared to an operating loss of $6.6 million in 1994. The loss from continuing operations for the first three months of 1995 was $8.0 million, or $0.44 per share, as compared with a loss of $13.3 million, or $0.74 per share in 1994. The net loss for the first three months of 1995 was $8.0 million, or $0.44 per share, as compared with a loss of $20.3 million, or $1.14 per share in 1994, which included a $7.0 million loss ($.40 per share) from discontinued operations. SEGMENT INFORMATION The Company is a manufacturer of technology-driven products with operations in three reporting segments, Interstate Electronics Corporation, Scott and Taylor Environmental, and Snorkel. The results of operations are most meaningful when analyzed and discussed in this manner. 14 INTERSTATE ELECTRONICS CORPORATION Interstate Electronics develops and produces sophisticated telemetry, instrumentation, and data recording systems and position measuring systems, Global Positioning Systems ("GPS"), for the U.S. Navy's Polaris/Poseidon, TRIDENT, and TRIDENT II ships; precise GPS for aircraft and turnkey test ranges; and GPS for commercial and business aircraft navigation and landing systems. Interstate Electronics also designs and produces plasma, liquid crystal, and cathode-ray tube display systems for a variety of shipboard and aircraft applications. In addition, Interstate Electronics develops sophisticated bandwidth-on-demand satellite communication modems and terminals for both government and commercial applications. First quarter results of operations for Interstate Electronics were as follows: (in thousands) '95 vs. '94 1995 1994 Change Net Sales $24,787 $26,483 $(1,696) Cost of Sales 17,888 20,170 (2,282) Gross Profit on Sales 6,899 6,313 586 % of Net Sales 27.8% 23.8% Operating Expenses: Selling, General and Admin. 2,677 2,699 (22) Research and Development 2,187 1,519 668 Total Operating Expenses 4,864 4,218 646 Operating Profit $ 2,035 $ 2,095 $ (60) % of Net Sales 8.2% 7.9% Discussion of 1995 Compared to 1994 Net Sales decline reflects the continual drop in federal defense expenditures. The GPS business unit experienced a drop of $1.6 million in sales; however, the profitability for this unit increased due to two major programs: The Manching Range Program for Germany and the Low Rate Initial Production Program for Elgin Air Force Base. Selling expenses are higher due to increased activity in bid and proposal effort, and the pursuit of commercial business for bandwidth-on-demand and global positioning systems. General and administrative cost reductions more than offset the selling increases. Interstate Electronics' research and development effort is being shifted toward expenses relating to the introduction of two major commercial ventures: 1) A bandwidth-on-demand Time Divided Multiple Access ("TDMA") mesh network product from the Satellite Communication Systems product line, and 2) A Flight Management and Navigation Landing System ("FMS") from the Global Positioning Systems product line. The expenses in 1994 occurred during the initial product development phase of both products, while 1995 expenses primarily reflect the costs necessary to finalize the products. 15 SCOTT AND TAYLOR ENVIRONMENTAL Scott manufactures the Scott Air Pak and other life support products for fire fighting and personal protection against industrial contaminants. The air-purifying products provide protection against environmental and safety hazards. Scott is the largest manufacturer of protective breathing equipment, pilot and crew oxygen masks plus emergency oxygen for passengers on commercial, government and private aircraft. Scott is also a leading manufacturer of instruments to detect the presence of combustible or toxic gases and lack of oxygen. Taylor is a manufacturer of consumer thermometers, barometers and hygrometers. Taylor also manufactures and sells temperature and environmental measuring and testing devices. In addition to use in scientific laboratories, hospitals and universities, these devices are used in heating, ventilation and air conditioning (HVAC), food service and industrial applications. First quarter results of operations for Scott and Taylor Environmental were as follows: (in thousands) '95 vs. '94 1995 1994 Change Net Sales $30,510 $28,262 $ 2,248 Cost of Sales 20,565 19,155 1,410 Gross Profit on Sales 9,945 9,107 838 % of Net Sales 32.6% 32.2% Operating Expenses: Selling, General and Admin. 3,764 3,754 10 Research and Development 772 858 (86) Total Operating Expenses 4,536 4,612 (76) Operating Profit $ 5,409 $ 4,495 $ 914 % of Net Sales 17.7% 15.9% Discussion of 1995 Compared to 1994 Net sales increased by 8% due to strong orders for Aviation/Government breathing and oxygen related products. These increased sales were somewhat offset by lower sales of consumer thermometers. Cost of sales in 1995 relative to 1994 is slightly favorable due to cost reduction activities and the volume affect of increased sales over fixed costs. Selling, General and Administrative expenses have increased slightly as cost reductions mostly offset inflation. Research and development expenses are lower due to completion of major new programs commencing in prior years. 16 SNORKEL Snorkel manufacturers self-propelled aerial work platforms and scissorlifts for use in construction and maintenance activities and self-propelled telescopic and articulating booms. Snorkel also fabricates and services booms that are mounted on fire apparatus to deliver large quantities of water from elevated positions. First quarter results of operations for Snorkel were as follows: (in thousands) '95 vs. '94 1995 1994 Change Net Sales $29,969 $18,366 $11,603 Cost of Sales 24,560 14,985 9,575 Gross Profit on Sales 5,409 3,381 2,028 % of Net Sales 18.0% 18.4% Operating Expenses: Selling, General and Admin. 1,850 1,569 281 Research and Development 551 460 91 Total Operating Expenses 2,401 2,029 372 Operating Profit $ 3,008 $ 1,352 $ 1,656 % of Net Sales 10.0% 7.4% Discussion of 1995 Compared to 1994 Net sales increased 63% due to high domestic market demand for aerial work platforms ("AWP"), rebounding municipal fire service markets, international AWP expansion and continued improvement in output of the production facilities. Gross profit amounts improved significantly as compared with 1994 due to the increase in net sales. However, as a percentage of net sales, gross profit declined due to the costs incurred with outsourcing of component parts and the final quarter of operations at the Wathena, Kansas facility. In an effort to curb these additional costs, substantial efforts are underway to insource component products and the relocation of the Wathena, Kansas fabrication plant was completed this quarter. Selling, General and Administrative expenses as a percentage of net sales improved over 2 percentage points to approximately 6% despite a 63% increase in net sales. Research and development expenses increased due to new product expenditures in both articulating booms and fire service products. 17 CORPORATE AND UNALLOCATED COSTS AND EXPENSES First quarter Corporate activity and unallocated costs and expenses were as follows: (in thousands) '95 vs. '94 1995 1994 Change Cost of Sales $ - $ 2,076 $(2,076) Selling, General and Admin. $ 5,539 $12,444 $(6,905) Other Expenses (Income): Refinancing Costs 4,522 3,431 1,091 Interest Expense 9,074 10,770 (1,696) Interest Income (844) (584) (260) Other, Net 199 (291) 490 Discussion of 1995 Compared to 1994 Cost of sales were primarily associated with the centralized manufacturing and technology centers ("Centers") created as part of the factory automation program. These Centers were shut down in 1994 to reduce costs. The costs represent machinery-related rental expenses and, in 1994, inventory was written off. Selling, General and Administrative expenses were reduced significantly in 1995. These reductions included legal and professional fees, a 40% reduction in corporate staff, the elimination of two corporate aircraft, and numerous other cost-cutting measures. The Refinancing Costs are for professional and lender fees related to the liquidity crisis of late 1993 and the first half of 1994 and the resultant Override Agreement which restructured $487 million of debt and leases on August 1, 1994. The 1995 expenses are predominantly lender fees, while 1994 expenses were for professional fees. Interest expense decreased due to lower override debt that was mostly offset by higher interest rates, a short-term factoring line in 1994 that is unused in 1995 and lower mortgage interest. 18 Financial Position and Liquidity Receivables decreased $2.2 million to $42.8 million, reflecting collections of the sales from the months of November and December in 1994. Inventories increased by $4.2 million due to a shortage of vendor supplied quality parts which resulted in unfinished production remaining in inventory over month end. Cash flow from operations and working capital were $16.2 million, which was principally the tax refund. The paydown of debt required $41.2 million, which was funded by proceeds from divestitures and the tax refund. Expenditures for property, plant and equipment were $2.3 million for continuing operations ($13.4 million for all operations) in 1995. Continuing operations' expenditures are anticipated to be between $9.0 and $15.0 million for the year. The primary focus of 1995 expenditures is for improvements in manufacturing efficiencies and tooling related to the production of new products. Capital for these expenditures is expected to be provided from internally generated funds. As discussed in the Notes to the consolidated financial statements, the Company completed a complex debt refinancing, which was initiated in December, 1993 and completed on August 1, 1994. This refinancing precludes the Company from incurring additional indebtedness and did not provide additional financing to the Company; rather, it specified repayment and other terms through June 30, 1995. The Company has completed negotiations with lenders that are party to its override credit facility (see footnote 4 of Notes to the Financial Statements) to extend the Override Agreement from June 30, 1995 to January 1, 1996. The Company intends to sell in 1995 those businesses whose net assets are presented in the Company's balance sheet as Net Assets Related to Discontinued Operations, and will use a substantial portion of the proceeds to amortize the debt throughout the remainder of 1995. The aforementioned extension will allow the Company to operate in a more orderly manner in enhancing the profitability of the continuing business segments and in divesting the discontinued businesses and reducing corporate overhead. The Company continues to make progress in implementing actions aimed at restoring overall profitability. Through May 15, 1995, the Company has sold five businesses, Figgie Power Systems, Figgie Acceptance, Spaceguard Products, Figgie/Alfa Packaging Systems, and Medical Centers, and used the proceeds to reduce debt. The Company has signed letters of intent for the sale of two other businesses, executed a definitive agreement for one business and has distributed offering memorandums for the remaining businesses. Liquidity from unrestricted cash as of March 31, 1995 was $30.2 million. Cash requirements from operations along with the high but diminishing costs of interest and fees to service outstanding debt requires the timely divestiture of the discontinued operations. As these entities are divested, the Company will continue to paydown its outstanding debt and benefit from lower operating expenses. In addition to the unrestricted cash, the Company also has additional unused borrowing facilities of approximately $13.6 million. 19 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits 27.0 Financial Data Schedule (b) Reports on Form 8-K filed during the quarter - Form 8-K dated February 7, 1995, filed February 22, 1995 under Item 2 and setting forth pro forma financial information under Item 7. - Form 8-K dated February 15, 1995, filed March 31, 1995, setting forth a press release exhibit. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Figgie International Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIGGIE INTERNATIONAL By: /s/ Steven L. Siemborski Steven L. Siemborski Senior Vice President and Chief Financial Officer (Duly Authorized and Principal Financial Officer) Date: May 15, 1995 EX-27 2
5 0000720032 FIGGIE INTERNATIONAL 1,000 U.S. DOLLARS 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 1 55,456 0 43,119 326 43,038 424,142 147,639 43,940 603,962 288,570 229,583 1,837 0 0 55,596 603,962 85,266 85,266 63,013 80,353 4,522 64 8,230 (8,038) 0 (8,038) 0 0 0 (8,038) (0.44) (0.44)
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