-----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, AcE2K2ItATRFxPE81gDH2/b0jCJnFL/8Z3CxNHDn6dQ7p/fj0fS4497ugGptirr8 a4tWggRAZjEhSFX0YO5j5A== 0000720032-97-000007.txt : 19970505 0000720032-97-000007.hdr.sgml : 19970505 ACCESSION NUMBER: 0000720032-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970502 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIGGIE INTERNATIONAL INC /DE/ CENTRAL INDEX KEY: 0000720032 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] 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: 97594801 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 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, 1997 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) (216) 953-2700 (Registrant's telephone number) 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 9, 1997 Class A Common Stock, par value $.10 per share 13,684,941 Class B Common Stock, par value $.10 per share 4,712,747 2 FIGGIE INTERNATIONAL INC. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . .3 CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 . . . . . .3 CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 . . . . . . . . . . . . .4 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 . . . . . .6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . .7 Summary of Significant Accounting Policies . . . . . . . . .7 Receivables. . . . . . . . . . . . . . . . . . . . . . . . .7 Inventories. . . . . . . . . . . . . . . . . . . . . . . . .8 Discontinued Operations. . . . . . . . . . . . . . . . . . .8 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . .9 Credit Facility. . . . . . . . . . . . . . . . . . . . . . .9 Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . 10 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . 10 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Contingent Liabilities . . . . . . . . . . . . . . . . . . 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . .12 Results of Operations Summary. . . . . . . . . . . . . . . 12 Interstate Electronics Corporation . . . . . . . . . . . . 14 Scott. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Snorkel. . . . . . . . . . . . . . . . . . . . . . . . . . 16 Corporate and Unallocated Costs and Expenses . . . . . . . 17 Financial Position and Liquidity . . . . . . . . . . . . . 17 PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . 18 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 19 EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . 20 3 PART I. FINANCIAL INFORMATION FIGGIE INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (in thousands, except per share data) (Unaudited) 1997 1996 Net Sales $ 107,665 $ 96,701 Cost of Sales 79,441 71,240 Gross Profit on Sales 28,224 25,461 Operating Expenses: Selling, General and Administrative 12,412 12,980 Research and Development 3,556 3,133 Total Operating Expenses 15,968 16,113 Operating Income 12,256 9,348 Other Expense (Income): Refinancing Costs 131 218 Interest Expense 5,454 5,119 Interest Income (1,124) (211) Other, Net 475 381 Income from Continuing Operations before Income Tax 7,320 3,841 Income Tax 2,803 - Income from Continuing Operations 4,517 3,841 Discontinued Operations: Income from Operations - 365 Net Income $ 4,517 $ 4,206 Weighted Average Shares 18,589 18,791 Per Share Data Income from Continuing Operations $ 0.24 $ 0.20 Income from Discontinued Operations 0.00 0.02 Net Income $ 0.24 $ 0.22 See Notes to Consolidated Financial Statements. 4 FIGGIE INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 (in thousands) March 31, Dec. 31, 1997 1996 (Unaudited) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 44,605 $ 44,447 Trade Accounts Receivable, less Allowance for Uncollectible Accounts of $354 in 1997 and $311 in 1996 61,120 55,434 Inventories 59,481 59,365 Prepaid Expenses 2,776 1,703 Recoverable Income Taxes 7,663 7,689 Current Deferred Tax Asset 12,600 12,600 Net Assets Related to Discontinued Operations 10,145 7,446 Total Current Assets 198,390 188,684 PROPERTY, PLANT AND EQUIPMENT Land and Land Improvements 43,850 43,352 Buildings and Leasehold Improvements 35,712 35,526 Machinery and Equipment 53,659 52,553 133,221 131,431 Accumulated Depreciation (52,135) (50,200) 81,086 81,231 Equipment under Capital Leases 268 282 Net Property, Plant and Equipment 81,354 81,513 OTHER ASSETS Deferred Divestiture Proceeds, Net 19,591 20,073 Prepaid Pension Costs 10,811 10,811 Prepaid Rent on Leased Equipment 2,644 2,644 Intangible Assets 15,993 16,133 Investments 10,904 10,764 Cash Surrender Value of Insurance Policies 5,151 6,629 Prepaid Finance Costs 1,775 1,954 Deferred Tax Asset 27,899 30,595 Other 1,297 2,985 Total Other Assets 96,065 102,588 Total Assets $ 375,809 $ 372,785 5 FIGGIE INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 (in thousands, except par value) March 31, Dec. 31, 1997 1996 (Unaudited) LIABILITIES CURRENT LIABILITIES Accounts Payable $ 25,913 $ 27,305 Accrued Insurance Reserves 12,609 12,174 Accrued Compensation 8,758 9,045 Accrued Interest 8,617 4,395 Accrued Environmental Reserves 2,904 3,348 Accrued Liabilities and Expenses 5,776 9,520 Current Maturities of Long-Term Debt 2,029 2,100 Total Current Liabilities 66,606 67,887 Long-Term Debt 183,905 184,156 Non-Current Insurance Reserves 27,345 27,345 Other Non-Current Liabilities 19,465 18,888 Total Liabilities 297,321 298,276 STOCKHOLDERS' EQUITY Preferred Stock, $1.00 Par Value; Authorized, 3,217 Shares; Issued and Outstanding, None - - Class A Common Stock, $.10 Par Value; 1,367 1,370 Authorized, 18,000 Shares; Issued and Outstanding 1997 - 13,667; 1996 - 13,695 Class B Common Stock, $.10 Par Value; 471 471 Authorized, 18,000 Shares; Issued and Outstanding 1997 - 4,707; 1996 - 4,708 Capital Surplus 109,193 109,538 Accumulated Deficit (33,200) (37,717) Unearned Compensation (62) (74) Cumulative Translation Adjustment 719 921 Total Stockholders' Equity 78,488 74,509 Total Liabilities and Stockholders' Equity $ 375,809 $ 372,785 See Notes to Consolidated Financial Statements. 6 FIGGIE INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (in thousands) (Unaudited) 1997 1996 Operating Activities: Net Income $ 4,517 $ 4,206 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Depreciation and Amortization 1,978 1,739 Amortization of Unearned Compensation 12 140 Other, Net 20 585 Changes in Operating Assets and Liabilities Accounts Receivable (5,686) (7,899) Inventories (116) (3,417) Prepaid Items (1,073) (1,074) Other Assets 3,687 586 Accounts Payable (1,392) (2,050) Accrued Liabilities and Expenses 1,160 4,600 Accrued Income Taxes 2,322 - Other Liabilities (1) (2,731) Net Cash (Used) Provided by Operating Activities 5,428 (5,315) Investing Activities: Capital Expenditures for Continuing Operations (1,983) (1,560) Proceeds from Sale of Property, Plant and Equipment 82 727 Proceeds from Business Divestitures (2,699) 19,883 Net Cash (Used) Provided by Investing Activities (4,600) 19,050 Financing Activities: Principal Payments on Debt (322) (16,243) Common Stock Transactions, Net (348) 30 Net Cash (Used) by Financing Activities (670) (16,213) Net (Decrease) Increase in Cash and Cash Equivalents 158 (2,478) Cash and Cash Equivalents at Beginning of Year 44,447 25,856 Cash and Cash Equivalents at End of Period $ 44,605 $ 23,378 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, 1997 are not necessarily indicative of the results to be expected for the entire year. (1) Summary of Significant Accounting Policies: The financial statements have 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 1996 Form 10-K405. (2) Receivables: Receivables consist of the following components (in thousands): 3/31/97 12/31/96 U.S. Government Billed $10,488 $12,688 Unbilled 14,983 14,919 25,471 27,607 Commercial Billed 36,003 28,138 Allowance for Uncollectible Accounts (354) (311) $61,120 $55,434 U.S. Government receivables include amounts derived from contracts on which the Company performs on a prime contractor or subcontractor basis. Unbilled receivables represent the difference between revenue recognized on a percentage of completion basis for financial accounting and reporting purposes and amounts permitted to be billed to customers under contract terms. These amounts will be billed in subsequent periods based on provisions of the agreements. 8 (3) Inventories: Inventories consist of the following components (in thousands): 3/31/97 12/31/96 Raw Materials $22,832 $21,332 Work in Process 18,292 18,953 Finished Goods 20,751 20,907 Inventory Reserves (2,394) (1,827) $59,481 $59,365 (4) Discontinued Operations: In October, 1996, the Board of Directors decided to sell the Taylor Environmental Instruments business. 1996 financial statements have been restated and are summarized as follow (in thousands): As previously 1st Quarter 1996: Reported Taylor As Restated Net Sales $ 101,177 $ (4,476) $ 96,701 Income from Continuing Operations 4,206 (365) 3,841 Income from Discontinued Operations - 365 365 Net Income $ 4,206 $ - $ 4,206 The contract terms under which businesses were divested included representations and warranties, covenants and indemnification provisions made (a) by the Company to purchasers of the businesses and (b) by purchasers of businesses to the Company. Each transaction has contract terms specific to that transaction. The extent of representations and warranties made ranged from those qualified by time, knowledge, and dollar materiality to those representations and warranties which are unqualified. Covenants require the Company to act, or prevent the Company from acting, in a variety of ways, such as not competing with the purchasers of a business. Covenants also require the purchasers to act, or prevent them from acting, in a variety of ways. The duration of covenants ranges from those effective for a specified period of time to those which are indefinite. Remedies available for breaches of representations and warranties and covenants range from monetary relief in specific amounts for specific breaches or violations to unlimited amounts. Under the contracts, the Company has generally retained liability for events that occurred prior to sale. The Company believes that it has established appropriate accruals for losses that may arise, such as workers' compensation, product liability, general liability, environmental risks and federal and state tax matters. 9 The Company has indemnified purchasers and has received indemnifications from purchasers for a variety of items. In some transactions, a portion of the purchase price was held back or escrowed at banks to support indemnification provisions. Such amounts are reflected within the assets of the Company as deferred divestiture proceeds. Proceeds and other consideration from divestitures which will be paid to the Company upon fulfillment of contractual provisions, the passage of time, or the occurrence of future events have been recorded as non-current assets. Deferred divestiture proceeds consist of cash held in bank escrow accounts, cash held back by purchasers, receivables expected from purchasers arising from final calculations of the purchase price and cash due to the Company from future tax benefits under a tax sharing agreement with an unaffiliated public company, Rawlings Sporting Goods, Inc. Net assets related to discontinued operations as of March 31, 1997 in the amount of $10.1 million represent the net assets of Willoughby Assurance, Ltd., a dormant reinsurance subsidiary of the Company, installation contracts in process of completion from the "Automatic" Sprinkler business and former facilities of discontinued business units. Deferred divestiture proceeds and net assets related to discontinued operations include management's best estimates of the amounts expected to be realized on the collection and sale of discontinued operations. The amounts the Company will ultimately realize could differ materially from the amounts recorded. The Company has a reserve of $21.2 million at March 31, 1997 against these assets, which is presented as a deduction from deferred divestiture proceeds. (5) Income Taxes: For the three-month period ended March 31, 1997, federal income taxes of approximately $2.7 million at the statutory rate of 35 percent have been provided and have reduced the deferred tax asset. Actual income taxes that will be paid are expected to be substantially less than the statutory rate due to loss carryforwards. (6) Credit Facility: The Company has a $75 million, revolving credit loan and letter of credit facility ("Credit Agreement"). Within the Credit Agreement, the Company can issue up to $60 million in letters of credit. Borrowings are available up to the lesser of $75 million or a borrowing base which is tied to eligible receivables, inventory and equipment, less 50% of outstanding letters of credit. At the Company's option, borrowings bear interest at alternate rates based on (1) the higher of the U.S. prime rate for 90 day commercial paper or the Federal Funds rate plus 50 basis points or (2) LIBOR plus 200 to 250 basis points. The facility is secured by certain accounts receivable, inventory, machinery and equipment and intangibles. The facility contains various affirmative and negative covenants, including restrictions on dividends and certain financial covenants. The financial covenants include limitations on capital expenditures and requirements as to minimum tangible net worth, minimum earnings before interest, taxes, 10 depreciation and amortization, the current ratio and the fixed charge coverage ratio. The facility expires on January 1, 1999. As of March 31, 1997, $15.9 million of letters of credit were outstanding under the facility, there were no borrowings outstanding ($37.3 million was available) and all financial covenants have been satisfied. (7) Long-Term Debt: Total debt consists of the following components (in thousands): 3/31/97 12/31/96 Long-Term Debt: 9.875% Senior Notes due October 1, 1999 $174,000 $174,000 Mortgage Notes 10,877 11,076 Obligations under Capital Lease 1,057 1,180 Total 185,934 186,256 Less - Current Maturities (2,029) (2,100) Long-Term Debt $183,905 $184,156 The 9.875% Senior Notes are due October 1, 1999. Interest is payable semi- annually on April 1 and October 1. Mortgage notes are secured by real property, are due at various dates through 2009 and bear interest at rates ranging from 7.5% to 10.52%. (8) Capital Stock: Each share of Class A Common Stock is entitled to one-twentieth of one vote per share, while each share of Class B Common Stock is entitled to one vote per share, except, in each case, with respect to shares beneficially owned by a Substantial Stockholder (as defined in the Company's Restated Certificate of Incorporation, as amended), in which case the voting rights of such stock will be governed by the appropriate provisions of the Company's Restated Certificate of Incorporation. Earnings per share for the quarters ended March 31, 1997 and 1996 were calculated using the following share data. (in thousands) 1997 1996 Primary Weighted-Average Number of Shares: Allocated Shares 18,385 18,389 Common Stock Equivalents of Stock Options 204 324 Primary Weighted-Average 18,589 18,713 Fully Diluted Weighted-Average Number of Shares: Unallocated ESOP shares - 78 Fully Diluted Weighted-Average 18,589 18,791 11 (9) Leases: The Company leases manufacturing equipment under operating leases. The changes in rental commitments under operating leases during the quarter are as follows (in millions): Discontinued Continuing Operations Operations Total Rental commitments at December 31, 1996 $ 4.5 $ 18.9 $ 23.4 Rental payments to lessors (0.4) (1.9) (2.3) Buy out of equipment at lease-stipulated values (2.8) - (2.8) Rental commitments at March 31, 1997 $ 1.3 $ 17.0 $ 18.3 At the termination of the equipment leases, which is principally over the period December 1998 through June 1999, the Company is effectively required to purchase the equipment for a fixed price of approximately one-third the original lease value. As a result of these provisions and the anticipated need for continued use of the equipment in the Company's operations, the Company currently expects to purchase this equipment. The purchase price would be $9.0 million, less prepaid rent of $2.6 million. As to leased machinery and equipment that was not sold with divested business units, the Company is satisfying the rental payments through its internal funds until such equipment is sold or subleased. (10) Contingent Liabilities: The Company and its subsidiaries are defendants in various lawsuits arising in the ordinary course of business. In the opinion of management, any liability with respect to these matters will not have a material adverse effect on the Company's financial statements. Costs charged by the Company to the U.S. Government in the performance of U.S. Government contracts are subject to inquiry and audit. Several years are open. The Company has provided a reasonable reserve for possible disallowed costs. The Company has been cooperating with the U.S. Government in two criminal investigations, one involving possible improprieties at a facility where a division of the Company was a supplier, and the second involving the amount of corporate charges allocated to certain of the Company's operating units. The Company has furnished documents and other information and denies any wrongdoing in both investigations. Nevertheless, the ultimate resolution of these matters could result in sanctions and damages sought by the government, and affect the Company's ability to obtain future government contracts. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Summary 1st Qtr 1st Qtr (in thousands) 1997 1996 97 vs 96 Net Sales $ 107,665 $ 96,701 $ 10,964 Cost of Sales 79,441 71,240 8,201 Gross Profit on Sales 28,224 25,461 2,763 % of Net Sales 26.2% 26.3% Operating Expenses: Selling, General & Admin. 12,412 12,980 (568) Research and Development 3,556 3,133 423 Total Operating Expenses 15,968 16,113 (145) Operating Income $ 12,256 $ 9,348 $ 2,908 % of Net Sales 11.4% 9.7% Other Expense (Income): Refinancing Costs 131 218 (87) Interest Expense 5,454 5,119 335 Interest Income (1,124) (211) (913) Other, Net 475 381 94 Income from Continuing Operations before Income Tax 7,320 3,841 3,479 Income Tax 2,803 - 2,803 Income from Continuing Operations 4,517 3,841 676 Discontinued Operations, net of tax - 365 (365) Net Income $ 4,517 $ 4,206 $ 311 For the first quarter of 1997, Net Sales increased $11.0 million, or 11.3%, to $107.7 million from Net Sales of $96.7 million for the same period in 1996. Net Sales increased 9.0% at Snorkel and 21.3% at Scott. Of the $11.0 million increase, $6.0 million was due to shipments in 1997 of product that could not be shipped in late 1996 due to supplier component delays. Gross Profit for the quarter ended March 31 improved $2.8 million to $28.2 million and represented 26.2% of Net Sales as compared to 26.3% in 1996. Lower margins at Snorkel were offset by higher margins at Scott and Interstate Electronics. Selling, General and Administrative expenses decreased. As a percent of sales, Selling, General and Administrative expenses were 11.5% in 1997, compared to 13.4% in 1996. Operating Income amounted to $12.3 million in 1997, as compared to Operating Income of $9.3 million in 1996. Income taxes for 1997 were $2.8 million; an income tax provision was not recorded for 1996 due to operating loss carryforwards. 13 Net Income for the first quarter of 1997 increased $0.3 million, or 7.1%, to $4.5 million from $4.2 million for the same period in 1996. Segment Information The Company is a manufacturer of technology-driven products with operations in three reporting segments, Interstate Electronics Corporation, Scott 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. The results of operations for Interstate Electronics were as follows (in thousands): 1st Qtr 1st Qtr 1997 1996 97 vs 96 Net Sales $ 22,693 $ 22,447 $ 246 Cost of Sales 16,014 15,983 31 Gross Profit on Sales 6,679 6,464 215 % of Net Sales 29.4% 28.8% Operating Expenses: Selling, General & Admin. 3,303 3,083 220 Research and Development 1,647 1,796 (149) Total Operating Expenses 4,950 4,879 71 Operating Income $ 1,729 $ 1,585 $ 144 % of Net Sales 7.6% 7.1% Discussion of 1997 Compared to 1996: Net Sales increased slightly, 1.1%, as lower strategic weapons systems and display sales were offset by increased satellite communications and military GPS revenues. Gross margin improved from 28.8% to 29.4% due to the performance of the satellite communications area. Selling, General and Administrative expenses increased from $3.1 million in 1996 to $3.3 million in 1997, an increase from 13.7% to 14.6% as a percentage of Net Sales. This increase is a result of having added experienced commercial managers since the end of the first quarter of 1996. 15 Scott 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 manufactures protective breathing equipment, pilot and crew oxygen masks plus emergency oxygen for passengers on commercial, government and private aircraft. Scott also manufactures instruments to detect the presence of combustible or toxic gases and the lack of oxygen. The results of operations for Scott were as follows (in thousands): 1st Qtr 1st Qtr 1997 1996 97 vs 96 Net Sales $ 39,958 $ 32,941 $ 7,017 Cost of Sales 27,173 22,618 4,555 Gross Profit on Sales 12,785 10,323 2,462 % of Net Sales 32.0% 31.3% Operating Expenses: Selling, General & Admin. 3,644 3,147 497 Research and Development 1,178 625 553 Total Operating Expenses 4,822 3,772 1,050 Operating Income $ 7,963 $ 6,551 $ 1,412 % of Net Sales 19.9% 19.9% Discussion of 1997 Compared to 1996: Net Sales increased $7.0 million, or 21.3%. Of the increase, approximately $2.5 million was due to an unusually high level of sales of product that could not be shipped in 1996 due to supplier component delays. The balance of the increase is due to increased demand for the oxygen products by aviation customers and increased demand for Air-Paks by health and safety customers. Gross margin improved slightly as a result of the shift in product mix. Selling, General and Administrative expenses have increased slightly, but are consistent as a percentage of Net Sales when compared to the same period last year. Research and Development expenses have increased due to new product development expenses for the health and safety line of products. 16 Snorkel The Snorkel division manufacturers self-propelled aerial work platforms such as telescopic and articulating booms and scissorlifts for use in construction and maintenance activities. Snorkel also fabricates and services booms that are mounted on fire apparatus to deliver large quantities of water from elevated positions. The division also includes the operations of the Company's subsidiary which manufactures trailer mounted booms in New Zealand and distributes Snorkel products in Australia, New Zealand and Southeast Asia. The results of operations for Snorkel were as follows (in thousands): 1st Qtr 1st Qtr 1997 1996 97 vs 96 Net Sales $ 45,014 $ 41,313 $ 3,701 Cost of Sales 36,254 32,639 3,615 Gross Profit on Sales 8,760 8,674 86 % of Net Sales 19.5% 21.0% Operating Expenses: Selling, General & Admin. 2,670 2,679 (9) Research and Development 731 712 19 Total Operating Expenses 3,401 3,391 10 Operating Income $ 5,359 $ 5,283 $ 76 % of Net Sales 11.9% 12.8% Discussion of 1997 Compared to 1996: Net Sales increased 9.0% compared to 1996 as the result of $3.5 million of product, principally booms, delivered in the first quarter of 1997 that was not able to be shipped in 1996 due to supplier component delays. Gross margin decreased from 21.0% to 19.5% primarily due to volume and product mix differences between the two quarters as more small size, lower margin booms and fewer large size, higher margin scissorlifts were sold in 1997 compared to 1996. Selling, General and Administrative expenses remained constant and decreased as a percentage of Net Sales, from 6.5% in 1996 to 5.9% in 1997. 17 Corporate and Unallocated Costs and Expenses Corporate activity and unallocated costs and expenses were as follows (in thousands): 1st Qtr 1st Qtr 1997 1996 97 vs 96 Selling, General & Admin. $ 2,795 $ 4,071 $(1,276) Other Expenses (Income): Refinancing Costs 131 218 (87) Interest Expense 5,454 5,119 335 Interest Income (1,124) (211) (913) Other, Net 475 381 94 Discussion of 1997 Compared to 1996: Selling, General and Administrative expenses decreased 31.3% as a result of the 1997 benefit from prior year corporate cost savings initiatives. Interest Expense increased due to interest expense on the discounted present value of insurance reserves. Interest Income increased due to the improvement in the Company's net cash position and favorable rates. Financial Position and Liquidity Accounts Receivable at March 31, 1997 are $ 61.1 million, compared to $55.4 million as of the end of 1996. The increase is primarily due to increased sales at Scott and Snorkel. Inventories remained constant at $59.5 million. A small decrease in work-in- process production and finished goods levels reflect unfilled year-end orders for Scott and Snorkel customers was offset by an increase in raw materials necessary to meet production for rising backlogs. Expenditures for property, plant and equipment were $2.0 million in the first quarter of 1997 for production machinery, equipment and tooling. Capital expenditures in 1997 are expected to be approximately $7.5 million and funded from internally generated funds or leases. Liquidity is provided by the Company's cash and cash equivalents and the credit facility ($37.3 million was available at March 31, 1997). The Company expects to continue to focus on internal growth at all three of the segments; investigate acquisitions for Scott; and consider alternative strategies that may further enhance shareholder value. 18 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 NONE 19 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 INC. By: ________/s/____________ Steven L. Siemborski Senior Vice President and Chief Financial Officer (Duly Authorized and Principal Financial Officer) Date: May 2, 1997 20 EXHIBIT INDEX 27.0 Financial Data Schedule -----END PRIVACY-ENHANCED MESSAGE-----