EX-13 4 0004.txt 2000 ANNUAL REPORT TO SHAREHOLDERS FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- OPERATING RESULTS (DOLLARS IN MILLIONS): Net sales (a) $1,106.1 $ 977.2 $936.8 $858.6 $814.1 $744.9 $611.1 $506.7 $462.1 $407.9 $368.1 Income before income taxes (a,b) $ 84.4 $ 79.3 $ 79.4 $ 81.5 $ 86.6 $ 77.8 $ 66.2 $ 57.6 $ 51.7 $ 47.4 $ 38.5 Income from continuing operations (b) $ 57.7 $ 54.4 $ 55.1 $ 56.9 $ 57.8 $ 51.9 $ 44.3 $ 39.0 $ 35.6 $ 32.1 $ 25.6 Operating margin (a) 10.5% 10.4% 10.4% 11.2% 11.8% 12.1% 12.2% 12.4% 12.3% 12.8% 11.8% Return on average common shareholders' equity (b,c) 16.2% 17.0% 19.1% 20.6% 23.8% 22.0% 22.3% 21.0% 20.0% 20.0% 20.4% COMMON STOCK DATA (PER SHARE) (d): Income from continuing operations -- diluted $ 1.27 $ 1.18 $ 1.20 $ 1.24 $ 1.26 $ 1.13 $ .96 $ .85 $ .77 $ .70 $ .56 Cash dividends $ .76 $ .74 $ .71 $ .67 $ .58 $ .50 $ .42 $ .36 $ .31 $ .27 $ .22 Market price range: High $ 24.13 $ 28.06 $27.50 $26.75 $28.25 $25.88 $21.38 $21.00 $17.63 $15.19 $10.75 Low $ 14.75 $ 15.06 $20.00 $19.88 $20.88 $19.63 $16.88 $15.75 $12.38 $ 9.25 $ 6.19 Average common shares outstanding (in thousands) 45,521 45,958 45,846 45,840 45,885 45,776 45,948 46,155 46,157 46,126 46,038 FINANCIAL POSITION AT YEAR-END (DOLLARS IN MILLIONS): Working capital (e) $ 60.0 $ 71.6 $116.0 $ 41.6 $ 40.6 $ 48.8 $ 53.9 $ 52.8 $ 49.5 $ 44.9 $ 42.7 Current ratio (e) 1.2 1.3 1.6 1.2 1.2 1.3 1.4 1.5 1.6 1.5 1.5 Total assets $ 991.1 $ 948.6 $836.0 $727.9 $703.9 $620.0 $521.6 $405.7 $363.7 $341.2 $295.8 Long-term debt, net of current portion $ 125.4 $ 134.4 $137.2 $ 32.1 $ 34.3 $ 39.7 $ 34.9 $ 21.1 $ 16.2 $ 15.6 $ 15.8 Shareholders' equity $ 357.4 $ 354.0 $321.8 $299.8 $272.8 $248.1 $220.3 $199.2 $179.0 $164.8 $146.4 Debt-to-capitalization ratio (e) 45% 42% 37% 30% 28% 29% 22% 1% 2% 1% 2% OTHER (DOLLARS IN MILLIONS): New business (a) $1,113.7 $1,018.8 $967.9 $888.8 $851.3 $704.9 $631.5 $526.0 $455.0 $405.2 $398.2 Backlog (a) $ 361.0 $ 344.1 $305.0 $254.7 $227.6 $190.0 $204.0 $167.6 $143.4 $146.8 $142.0 Net cash provided by operating activities $ 64.4 $ 57.7 $ 75.5 $ 64.2 $ 61.4 $ 62.9 $ 53.8 $ 48.8 $ 40.2 $ 43.9 $ 48.3 Net cash (used for) investing activities $ (64.8) $ (105.1) $(93.0) $(38.4) $(54.2) $(88.1) $(96.9) $(38.1) $(26.9) $(47.8) $(14.7) Net cash provided by (used for) financing activities $ 5.2 $ 40.9 $ 22.2 $(27.5) $ (4.1) $ 29.9 $ 45.1 $(10.3) $(11.2) $ 2.5 $(34.6) Capital expenditures (a) $ 22.3 $ 23.4 $ 19.2 $ 18.2 $ 15.2 $ 14.2 $ 9.9 $ 9.1 $ 7.6 $ 10.4 $ 6.6 Depreciation (a) $ 19.5 $ 17.1 $ 14.9 $ 13.3 $ 11.8 $ 10.5 $ 8.9 $ 7.5 $ 6.8 $ 6.2 $ 5.9 Employees (a) 6,936 6,750 6,531 6,102 5,721 5,469 4,638 3,847 3,635 3,505 3,356
--------------- (a) continuing operations only; amounts prior to 2000 restated for discontinuance of the Sign Group operations (b) in 1996, includes gain on sale of subsidiary of $4.7 million pre-tax, $2.8 million after-tax or $.06 per share (c) in 1995, includes the impact of a nonrecurring charge for a litigation settlement related to a discontinued business of $4.2 million after-tax (d) reflects 3-for-2 stock splits in 1990, 1991 and 1992, and a 4-for-3 stock split in 1994 (e) manufacturing operations only FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------------- 2000 1999 ---- ---- ASSETS Manufacturing activities: Current assets Cash and cash equivalents $ 13,556,000 $ 8,764,000 Accounts receivable, net of allowances for doubtful accounts of $2,629,000 and $2,901,000, respectively 167,964,000 152,956,000 Inventories--Note B 157,619,000 159,970,000 Prepaid expenses 9,797,000 8,895,000 ------------ ------------ Total current assets 348,936,000 330,585,000 Properties and equipment--Note C 112,596,000 111,212,000 Other assets Intangible assets, net of accumulated amortization 274,925,000 273,844,000 Other deferred charges and assets 25,873,000 23,592,000 ------------ ------------ Total manufacturing assets 762,330,000 739,233,000 ------------ ------------ Net assets of discontinued operations, including financial assets 14,558,000 18,132,000 Financial services activities--Lease financing and other receivables, net of allowances for doubtful accounts of $683,000 and $976,000, respectively, and net of unearned finance revenue--Note D 214,230,000 191,261,000 ------------ ------------ Total assets $991,118,000 $948,626,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Manufacturing activities: Current liabilities Short-term borrowings--Note E $145,813,000 $ 99,204,000 Accounts payable 60,878,000 68,533,000 Accrued liabilities Compensation and withholding taxes 25,387,000 22,071,000 Other 48,395,000 60,851,000 Income taxes--Note F 8,447,000 8,340,000 ------------ ------------ Total current liabilities 288,920,000 258,999,000 Other liabilities Long-term borrowings--Note E 125,449,000 134,410,000 Deferred income taxes--Note F 27,835,000 28,574,000 ------------ ------------ Total manufacturing liabilities 442,204,000 421,983,000 ------------ ------------ Financial services activities--Borrowings--Note E 191,483,000 172,610,000 ------------ ------------ Total liabilities 633,687,000 594,593,000 ------------ ------------ Shareholders' equity--Notes I and J Common stock, $1 par value, 90,000,000 shares authorized, 47,067,000 and 46,889,000 shares issued, respectively 47,067,000 46,889,000 Capital in excess of par value 68,693,000 66,762,000 Retained earnings--Note E 299,985,000 276,951,000 Treasury stock, 1,763,000 and 775,000 shares, respectively, at cost (34,302,000) (17,023,000) Deferred stock awards (1,847,000) (2,238,000) Accumulated other comprehensive income (22,165,000) (17,308,000) ------------ ------------ Total shareholders' equity 357,431,000 354,033,000 ------------ ------------ Total liabilities and shareholders' equity $991,118,000 $948,626,000 ============ ============
See notes to consolidated financial statements. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------------- 2000 1999 1998 ---- ---- ---- Net sales $1,106,127,000 $ 977,209,000 $ 936,834,000 Costs and expenses Cost of sales (768,783,000) (676,607,000) (646,455,000) Selling, general and administrative (220,690,000) (199,250,000) (192,507,000) -------------- -------------- -------------- Operating income 116,654,000 101,352,000 97,872,000 Interest expense (31,401,000) (23,339,000) (19,336,000) Other income (expense), net (839,000) 1,296,000 824,000 -------------- -------------- -------------- Income before income taxes 84,414,000 79,309,000 79,360,000 Income taxes--Note F (26,759,000) (24,926,000) (24,225,000) -------------- -------------- -------------- Income from continuing operations 57,655,000 54,383,000 55,135,000 Income from discontinued operations, net of taxes 726,000 3,154,000 4,261,000 Cumulative effect of change in accounting (844,000) -------------- -------------- -------------- Net income $ 57,537,000 $ 57,537,000 $ 59,396,000 ============== ============== ============== Basic net income per share Income from continuing operations $ 1.27 $ 1.19 $ 1.21 Income from discontinued operations, net of taxes .02 .07 .09 Cumulative effect of change in accounting (.02) -------------- -------------- -------------- Net income $ 1.27 $ 1.26 $ 1.30 ============== ============== ============== Diluted net income per share Income from continuing operations $ 1.27 $ 1.18 $ 1.20 Income from discontinued operations, net of taxes .02 .07 .09 Cumulative effect of change in accounting (.02) -------------- -------------- -------------- Net income* $ 1.26 $ 1.25 $ 1.30 ============== ============== ==============
--------------- * amounts may not add to total due to rounding See notes to consolidated financial statements. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------- 2000 1999 1998 ---- ---- ---- Net income $57,537,000 $57,537,000 $59,396,000 Other comprehensive income (loss)--Foreign currency translation adjustment, net (4,857,000) (6,590,000) 2,059,000 ----------- ----------- ----------- Comprehensive income $52,680,000 $50,947,000 $61,455,000 =========== =========== ===========
See notes to consolidated financial statements. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------- 2000 1999 1998 ---- ---- ---- Operating activities Net income $ 57,537,000 $ 57,537,000 $ 59,396,000 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting 844,000 Depreciation 19,482,000 17,057,000 14,938,000 Amortization 9,575,000 8,740,000 7,141,000 Provision for doubtful accounts 881,000 2,098,000 1,358,000 Deferred income taxes (220,000) 983,000 4,961,000 Other, net (102,000) 365,000 345,000 Changes in operating assets and liabilities, net of effects from acquisitions of companies Accounts receivable (10,012,000) (10,162,000) (5,943,000) Inventories 7,522,000 (29,634,000) (13,213,000) Prepaid expenses (120,000) (4,020,000) 1,116,000 Accounts payable (9,567,000) 12,490,000 9,372,000 Accrued liabilities (10,702,000) 46,000 (1,562,000) Income taxes (728,000) 2,156,000 (2,416,000) ------------- ------------- ------------- Net cash provided by operating activities 64,390,000 57,656,000 75,493,000 ------------- ------------- ------------- Investing activities Purchases of properties and equipment (22,288,000) (23,404,000) (19,173,000) Principal extensions under lease financing agreements (143,850,000) (131,791,000) (109,132,000) Principal collections under lease financing agreements 122,412,000 108,004,000 102,342,000 Payments for purchases of companies, net of cash acquired, excludes $15,715,000 of common stock issued in 1999 (24,401,000) (57,932,000) (64,349,000) Other, net 3,297,000 27,000 (2,717,000) ------------- ------------- ------------- Net cash used for investing activities (64,830,000) (105,096,000) (93,029,000) ------------- ------------- ------------- Financing activities Addition to short-term borrowings, net 61,482,000 78,768,000 58,184,000 Increase (reduction) in long-term borrowings (4,961,000) (2,883,000) 4,902,000 Purchases of treasury stock (17,279,000) (3,592,000) (9,842,000) Cash dividends paid to shareholders (34,534,000) (33,574,000) (32,145,000) Other, net 524,000 2,169,000 1,067,000 ------------- ------------- ------------- Net cash provided by financing activities 5,232,000 40,888,000 22,166,000 ------------- ------------- ------------- Increase (decrease) in cash and cash equivalents 4,792,000 (6,552,000) 4,630,000 Cash and cash equivalents at beginning of year 8,764,000 15,316,000 10,686,000 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 13,556,000 $ 8,764,000 $ 15,316,000 ============= ============= =============
See notes to consolidated financial statements. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A--SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Federal Signal Corporation and all of its subsidiaries. All significant intercompany balances and transactions have been eliminated. CASH EQUIVALENTS: The company considers all highly liquid investments with a maturity of three-months or less, when purchased, to be cash equivalents. INVENTORIES: Inventories are stated at the lower of cost or market. At December 31, 2000 and 1999, approximately 52% and 55%, respectively, of the company's inventories are costed using the LIFO (last-in, first-out) method. The remaining portion of the company's inventories is costed using the FIFO (first-in, first-out) method. PROPERTIES AND DEPRECIATION: Properties and equipment are stated at cost. Depreciation, for financial reporting purposes, is computed principally on the straight-line method over the estimated useful lives of the assets. INTANGIBLE ASSETS: Intangible assets principally consist of costs in excess of fair values of net assets acquired in purchase transactions and are generally being amortized over forty years. Accumulated amortization aggregated $41,876,000 and $34,184,000 at December 31, 2000 and 1999, respectively. The company makes regular periodic assessments to determine if factors are present which indicate that an impairment of intangibles may exist. If factors indicate that an impairment may exist, the company makes an estimate of the related future cash flows. The undiscounted cash flows, excluding interest, are compared to the related book value including the intangibles. If such cash flows are less than the book value, the company makes an estimate of the fair value of the related business to determine the amount of impairment loss, if any, to be recorded as a reduction of the recorded intangibles. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FINANCIAL INSTRUMENTS: The company enters into agreements (derivative financial instruments) to manage the risks associated with interest rates and foreign exchange rates. The company does not actively trade such instruments nor enter into such agreements for speculative purposes. The company principally utilizes two types of derivative financial instruments: 1) interest rate swaps to manage its interest rate risk, and 2) foreign currency forward exchange contracts to manage risks associated with sales and purchase commitments denominated in foreign currencies. The differential between the interest to be received and the interest to be paid under interest rate swap agreements is accrued as interest rates change and is recognized as an adjustment to interest expense; the related amount payable to or receivable from the counterparties is included in accrued liabilities or other assets. Unrealized gains and losses on the forward exchange contracts are deferred and recognized in income in the same period as the related hedged foreign currency transaction. REVENUE RECOGNITION: Effective January 1, 2000, the company changed its method of accounting for recognizing revenues as required by Staff Accounting Bulletin No. 101 issued by the Securities and Exchange Commission. Effective with the change, the company recognizes revenues for product sales based upon the respective terms of delivery for each sale agreement. In years prior to 2000, the company recognized substantially all of its revenues for product sales as products were shipped, as this method was then in compliance with generally accepted accounting principles. See Note P. INCOME PER SHARE: Basic net income per share is calculated using income available to common shareholders (net income) divided by the weighted average number of common shares outstanding during the year. Diluted net income per share is calculated in the same manner except that the denominator is increased to include the weighted number of additional shares that would have been outstanding had dilutive stock option shares been actually issued. The company uses the treasury stock method to calculate dilutive shares. See Note N for the calculation of basic and diluted net income per share. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE B--INVENTORIES Inventories at December 31 are summarized as follows:
2000 1999 ---- ---- Finished goods $ 45,636,000 $ 40,590,000 Work in process 45,127,000 60,893,000 Raw materials 66,856,000 58,487,000 ------------ ------------ Total inventories $157,619,000 $159,970,000 ============ ============
If the first-in, first-out cost method, which approximates replacement cost, had been used exclusively by the company, inventories would have aggregated $166,956,000 and $169,404,000 at December 31, 2000 and 1999, respectively. NOTE C--PROPERTIES AND EQUIPMENT A comparative summary of properties and equipment at December 31 is as follows:
2000 1999 ---- ---- Land $ 5,291,000 $ 5,717,000 Buildings and improvements 51,755,000 50,365,000 Machinery and equipment 184,990,000 169,110,000 Accumulated depreciation (129,440,000) (113,980,000) ------------ ------------ Total properties and equipment $112,596,000 $111,212,000 ============ ============
NOTE D--LEASE FINANCING AND OTHER RECEIVABLES As an added service to its customers, the company is engaged in financial services activities. These activities primarily consist of providing long-term financing for certain U.S. customers purchasing vehicle-based products from the company's Environmental Products and Fire Rescue groups. A substantial portion of these receivables is due from municipalities. Financing is provided through sales-type lease contracts with terms that range typically two to ten years. At the inception of the lease, the company records the product sales price and related costs and expenses of the sale. Financing revenues are included in income over the life of the lease. The amounts recorded as lease financing receivables represent amounts equivalent to normal selling prices less subsequent customer payments. Lease financing and other receivables will become due as follows: $67,180,000 in 2001, $39,711,000 in 2002, $30,732,000 in 2003, $23,336,000 in 2004, $16,722,000 in 2005 and $37,232,000 thereafter. At December 31, 2000 and 1999, unearned finance revenue on these leases aggregated $34,354,000 and $31,290,000, respectively. NOTE E--DEBT Short-term borrowings at December 31 consisted of the following:
2000 1999 ---- ---- Commercial paper $299,073,000 $210,602,000 Notes payable 32,027,000 57,278,000 Current maturities of long-term debt 6,196,000 3,934,000 ------------ ------------ Total short-term borrowings $337,296,000 $271,814,000 ============ ============
Of the above amounts, $191,483,000 and $172,610,000 are classified as financial services activities borrowings at December 31, 2000 and 1999, respectively. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Long-term borrowings at December 31 consisted of the following:
2000 1999 ---- ---- 6.79% unsecured note payable in annual installments of $10,000,000 in 2007-2011 $ 50,000,000 $ 50,000,000 7.59% unsecured note payable in 2001 ($4,000,000) and 2002 ($8,000,000) 12,000,000 12,000,000 7.99% unsecured note payable in 2004 15,000,000 15,000,000 Floating rate (5.79% at December 31, 2000) secured note payable in monthly installments ending in 2004 2,889,000 6,907,000 Notes payable backed by long-term credit lines (7.6% at December 31, 2000) 50,000,000 50,000,000 Other 1,756,000 4,437,000 ------------ ------------ 131,645,000 138,344,000 Less current maturities 6,196,000 3,934,000 ------------ ------------ Total long-term borrowings $125,449,000 $134,410,000 ============ ============
Aggregate maturities of long-term debt amount to approximately $6,196,000 in 2001, $9,525,000 in 2002, $924,000 in 2003, $65,000,000 in 2004 and $50,000,000 thereafter. The fair values of borrowings are not substantially different from recorded amounts. The 7.59% and 7.99% notes contain various restrictions relating to maintenance of minimum working capital, payments of cash dividends, purchases of the company's stock, and principal and interest of any subordinated debt. At December 31, 2000, all of the company's retained earnings were free of any restrictions and the company was in compliance with the financial covenants of its debt agreements. The company paid interest of $31,780,000 in 2000, $24,888,000 in 1999 and $18,600,000 in 1998. Weighted average interest rates on short-term borrowings were 7.6% and 6.2% at December 31, 2000 and 1999, respectively. See Note H regarding the company's utilization of derivative financial instruments relating to outstanding debt. At December 31, 2000, the company had unused credit lines of $375,000,000, of which $241,000,000 expires June 14, 2001 and $134,000,000 expires June 17, 2004. Commitment fees, paid in lieu of compensating balances, were insignificant. NOTE F--INCOME TAXES The provisions for income taxes consisted of the following:
2000 1999 1998 ---- ---- ---- CURRENT: Federal $19,119,000 $17,942,000 $14,150,000 Foreign 5,036,000 3,759,000 2,486,000 State and local 2,824,000 2,242,000 2,628,000 ----------- ----------- ----------- 26,979,000 23,943,000 19,264,000 DEFERRED: Federal 426,000 291,000 3,222,000 Foreign (424,000) 347,000 1,619,000 State and local (222,000) 345,000 120,000 ----------- ----------- ----------- (220,000) 983,000 4,961,000 ----------- ----------- ----------- Total income taxes $26,759,000 $24,926,000 $24,225,000 =========== =========== ===========
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Differences between the statutory federal income tax rate and the effective income tax rate are summarized below:
2000 1999 1998 ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 2.0 2.1 2.2 Tax-exempt interest (3.3) (3.2) (3.2) Other, net (2.0) (2.5) (3.5) ---- ---- ---- Effective income tax rate 31.7% 31.4% 30.5% ==== ==== ====
The company had net current deferred income tax benefits of $2,877,000 and $3,396,000 recorded in the balance sheet at December 31, 2000 and 1999, respectively. The company paid income taxes of $24,481,000 in 2000, $21,933,000 in 1999 and $24,419,000 in 1998. Net deferred tax liabilities (assets) comprised the following at December 31, 2000: Depreciation and amortization--$32,748,000; revenue recognized on custom manufacturing contracts--$3,406,000; accrued pension benefits--$6,002,000; accrued expenses deductible in future periods--$(14,135,000); and other--$(3,063,000). Net deferred tax liabilities (assets) comprised the following at December 31, 1999: Depreciation and amortization--$28,909,000; revenue recognized on custom manufacturing contracts--$2,484,000; accrued pension benefits--$5,030,000; accrued expenses deductible in future periods--$(10,319,000); and other--$(926,000). Income before taxes consisted of the following:
2000 1999 1998 ---- ---- ---- United States $71,734,000 $65,753,000 $66,886,000 Non-U.S. 12,680,000 13,556,000 12,474,000 ----------- ----------- ----------- $84,414,000 $79,309,000 $79,360,000 =========== =========== ===========
NOTE G--POSTRETIREMENT BENEFITS The company and its subsidiaries sponsor a number of defined benefit retirement plans covering certain of its salaried employees and hourly employees not covered by plans under collective bargaining agreements. Benefits under these plans are primarily based on final average compensation and years of service as defined within the provisions of the individual plans. The company also participates in several multiemployer retirement plans that provide defined benefits to employees under certain collective bargaining agreements. U.S. BENEFIT PLANS The components of net periodic pension (credit) are summarized as follows:
2000 1999 1998 ---- ---- ---- Company-sponsored plans Service cost $ 2,251,000 $ 3,036,000 $ 2,546,000 Interest cost 4,537,000 4,313,000 3,947,000 Expected return on plan assets (8,961,000) (8,165,000) (7,225,000) Amortization of transition amount (230,000) (230,000) (183,000) Other (228,000) (8,000) (8,000) ----------- ----------- ----------- (2,631,000) (1,054,000) (923,000) Multiemployer plans 636,000 690,000 661,000 ----------- ----------- ----------- Net periodic pension (credit) $(1,995,000) $ (364,000) $ (262,000) =========== =========== ===========
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following summarizes the changes in the projected benefit obligation and plan assets, the funded status of the company-sponsored plans and the major assumptions used to determine these amounts.
2000 1999 ---- ---- Projected benefit obligation, January 1 $52,024,000 $ 62,079,000 Service cost 2,251,000 3,036,000 Interest cost 4,537,000 4,313,000 Actuarial (gain)loss 6,369,000 (15,411,000) Benefits paid (3,686,000) (1,993,000) Curtailment credit (839,000) ----------- ------------ Projected benefit obligation, December 31 $60,656,000 $ 52,024,000 =========== ============ Fair value of plan assets, January 1 $69,008,000 $ 72,903,000 Adjustment to prior year actual return 1,805,000 Actual return on plan assets 951,000 (1,917,000) Company contribution 3,000 Benefits paid (3,686,000) (1,981,000) ----------- ------------ Fair value of plan assets, December 31 $68,078,000 $ 69,008,000 =========== ============ Funded status of plan, December 31 $ 7,422,000 $ 16,984,000 Unrecognized actuarial (gain)loss 3,708,000 (9,080,000) Unrecognized prior service cost (96,000) (110,000) Unrecognized net transition obligation (1,078,000) (1,308,000) ----------- ------------ Net amount recognized as prepaid benefit cost in the balance sheet $ 9,956,000 $ 6,486,000 =========== ============
Plan assets consist principally of a broadly diversified portfolio of equity securities and corporate and U.S. government obligations. Included in plan assets at December 31, 2000 and 1999 were 653,400 shares of the company's common stock valued at $12,823,000 and $10,495,000, respectively. Dividends paid on the company's common stock to the pension trusts aggregated $497,000 and $484,000, respectively, for the years ended December 31, 2000 and 1999. The company curtailed the pension benefits of employees of a discontinued business in 2000; the resulting credit of $839,000 was reported as a component of income from discontinued operations. The following significant assumptions were used in determining pension costs for the three-year period ended December 31, 2000:
2000 1999 1998 ---- ---- ---- Discount rate 8.1% 6.8% 7.2% Rate of increase in compensation levels 4% 4% 4% Expected long-term rate of return on plan assets 12% 12% 12%
The weighted average discount rates used in determining the actuarial present value of all pension obligations at December 31, 2000 and 1999 were 7.7% and 8.1%, respectively. The company also sponsors a number of defined contribution pension plans covering a majority of its employees. Participation in the plans is at each employee's election. Company contributions to these plans are based on a percentage of employee contributions. The cost of these plans, including the plans of companies acquired during the three-year period ended December 31, 2000, was $4,886,000 in 2000, $3,993,000 in 1999, and $3,790,000 in 1998. The company also provides certain medical, dental and life benefits to certain eligible retired employees. These benefits are funded when the claims are incurred. Participants generally become eligible for these benefits at age 60 after completing at least fifteen years of service. The plan provides for the payment of specified percentages of medical and dental expenses reduced by any deductible and payments made by other primary group coverage and government programs. The company will continue to reduce the percentage of the cost of benefits that it will pay since the company's future costs are limited to 150% of the 1992 cost. Accumulated FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) postretirement benefit liabilities of $3,890,000 and $3,522,000 at December 31, 2000 and 1999, respectively, were fully accrued. The net periodic postretirement benefit costs have not been significant during the three-year period ended December 31, 2000. NON-U.S. BENEFIT PLAN A wholly-owned subsidiary sponsors a defined benefit plan for substantially all of its employees in the United Kingdom. Benefits under this plan are based on final compensation and years of service as defined within the provisions of the plan. Net periodic pension credits during the three-year period ended December 31, 2000 were not significant. The following summarizes the changes in the projected benefit obligation and plan assets, the funded status of the company-sponsored plans and the major assumptions used to determine these amounts.
2000 1999 ---- ---- Projected benefit obligation, October 1 $37,068,000 $40,520,000 Service cost 542,000 696,000 Interest cost 2,240,000 2,308,000 Actuarial (gain)loss (630,000) (3,430,000) Employee contributions 102,000 112,000 Benefits paid (1,766,000) (1,884,000) Increase (decrease) due to translation (3,907,000) (1,254,000) ----------- ----------- Projected benefit obligation, September 30 $33,649,000 $37,068,000 =========== =========== Fair value of plan assets, October 1 $39,540,000 $39,222,000 Actual return on plan assets 4,372,000 3,276,000 Company contribution 397,000 164,000 Employee contribution 102,000 112,000 Benefits paid (1,766,000) (1,884,000) Plan expenses (135,000) (124,000) Increase (decrease) due to translation (4,317,000) (1,226,000) ----------- ----------- Fair value of plan assets, September 30 $38,193,000 $39,540,000 =========== =========== Funded status of plan, September 30 $ 4,544,000 $ 2,472,000 Unrecognized actuarial loss 749,000 2,794,000 ----------- ----------- Net amount recognized as prepaid benefit cost in the balance sheet $ 5,293,000 $ 5,266,000 =========== ===========
Plan assets consist principally of a broadly diversified portfolio of equity securities, U.K. government obligations and fixed interest securities. The following significant assumptions were used in determining pension costs for the three-year period ended December 31, 2000:
2000 1999 1998 ---- ---- ---- Discount rate 6.5% 6% 7.5% Rate of increase in compensation levels 3% 3.5% 4% Expected long-term rate of return on plan assets 8.5% 8% 8%
The weighted average discount rate used in determining the actuarial present value of all pension obligations at September 30, 2000 and 1999 was 6.5%. NOTE H--DERIVATIVE FINANCIAL INSTRUMENTS At December 31, 2000, the company had one agreement with a financial institution to swap interest rates. This agreement is based on a notional amount of $25,000,000. The company pays interest at a fixed rate of 5.13% and receives interest at the three-month LIBOR rate. The swap expires in February 2008. The agreement allows the counterparty to cancel the swap at three-month intervals commencing in February 2001. If at any three- FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) month extension date the counterparty decides not to extend the swap, it is terminated and no further obligations are due by either party. At December 31, 1999, the company had similar swap agreements on notional amounts totaling $150 million. The estimated cost (benefit) to terminate these agreements was $169,000 and ($599,000) at December 31, 2000 and 1999, respectively. Except for the agreement described above, these swap agreements expired or were terminated in 2000 resulting in insignificant gains or losses. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as later amended, the adoption of which will be required by no later than January 1, 2001. This statement standardizes the accounting treatment for derivative instruments. The company has determined that this statement will have an insignificant effect on its reported results of operations; the company is required to adopt the provisions of this statement on January 1, 2001. NOTE I --STOCK-BASED COMPENSATION The company's stock benefit plans, approved by the company's shareholders, authorize the grant of benefit shares or units to key employees and directors. The plan approved in 1988 authorized, until May 1998, the grant of up to 2,737,500 benefit shares or units (as adjusted for subsequent stock splits and dividends). The plan approved in 1996 and amended in 1999 authorizes the grant of up to 2,500,000 benefit shares or units until April 2006. These share or unit amounts exclude amounts that were issued under predecessor plans. Benefit shares or units include stock options, both incentive and non-incentive, stock awards and other stock units. Stock options are primarily granted at the fair market value of the shares on the date of grant and become exercisable one year after grant at a rate of one-half annually and are exercisable in full on the second anniversary date. All options and rights must be exercised within ten years from date of grant. At the company's discretion, vested stock option holders are permitted to elect an alternative settlement method in lieu of purchasing common stock at the option price. The alternative settlement method permits the employee to receive, without payment to the company, cash, shares of common stock or a combination thereof equal to the excess of market value of common stock over the option purchase price. The company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25, no compensation expense is recognized when the exercise price of stock options equals the market price of the underlying stock on the date of grant. Stock option activity for the three-year period ended December 31, 2000 follows (number of shares in 000's, prices in dollars per share):
OPTION SHARES WEIGHTED AVERAGE PRICE ($) --------------------- --------------------------- 2000 1999 1998 2000 1999 1998 ---- ---- ---- ---- ---- ---- Outstanding at beginning of year 2,312 2,025 2,036 19.29 18.80 17.98 Granted 63 489 180 18.65 18.57 23.56 Canceled or expired (36) (35) (59) 21.74 21.99 22.43 Exercised (161) (167) (132) 11.05 10.65 11.77 ----- ----- ----- Outstanding at end of year 2,178 2,312 2,025 19.84 19.29 18.80 ===== ===== ===== Exercisable at end of year 1,588 1,468 1,523 19.95 18.71 18.00 ===== ===== =====
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For options outstanding at December 31, 2000, the number (in thousands), weighted average exercise prices in dollars per share, and weighted average remaining terms were as follows:
PERIOD IN WHICH OPTIONS WERE GRANTED ------------------------------------------------- 00-99 98-97 96-95 94-93 92-91 AGGREGATE ----- ----- ----- ----- ----- --------- Number outstanding 513 549 442 305 369 2,178 Exercise price range ($): High 26.13 25.38 24.75 20.62 15.87 26.13 Low 14.94 20.06 20.12 16.00 11.17 11.17 Weighted average: Exercise price ($) 18.53 21.71 23.98 19.81 13.93 19.84 Remaining term (years) 9 7 5 3 1 6
The weighted average fair value of options granted was $4.86 per share during 2000, $3.58 per share during 1999 and $5.24 per share during 1998. The fair value of options was estimated at the grant date using a Black-Scholes option pricing model with the following weighted average assumptions; risk free interest rates of 5.0% in 2000, 6.4% in 1999 and 4.6% in 1998; dividend yield of 3.9% in 2000, 4.8% in 1999 and 2.5% in 1998; market volatility of the company's common stock of .27 in 2000, .23 in 1999 and .20 in 1998; and a weighted average expected life of the options of approximately 8 years for 2000 and 7 years for 1999 and 1998. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the option's vesting period. On a pro forma basis, the company's net income would have been $56,800,000 or $1.25 per share for the year ended December 31, 2000, $56,523,000 or $1.23 per share for the year ended December 31, 1999 and $58,202,000 or $1.27 per share for the year ended December 31, 1998. The calculated pro forma impact on 1998-2000 net income and net income per share amounts are not necessarily indicative of future amounts until application of the disclosure rules are applied to all outstanding, nonvested awards. The intent of the Black-Scholes option valuation model is to provide estimates of fair values of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the use of highly subjective assumptions including expected stock price volatility. The company has utilized the Black-Scholes method to produce the pro forma disclosures required under Statement of Financial Accounting Standards No. 123, "Accounting and Disclosure of Stock-Based Compensation". In management's opinion, existing valuation models do not necessarily provide a reliable single measure of the fair value of its employee stock options because the company's employee stock options have significantly different characteristics from those of traded options and the assumptions used in applying option valuation methodologies, including the Black-Scholes model, are highly subjective. Stock award shares are granted to employees at no cost. Awards primarily vest at the rate of 25% annually commencing one year from the date of award, provided the recipient is still employed by the company on the vesting date. The cost of stock awards, based on the fair market value at the date of grant, is being charged to expense over the four-year vesting period. The company granted stock award shares of 69,500 in 2000, 65,000 in 1999 and 58,000 in 1998. The fair values of these shares were $1,108,000, $1,712,000 and $1,289,000, respectively. Compensation expense related to stock award shares recorded during these periods was $1,499,000, $1,308,000 and $1,173,000, respectively. Under the 1988 plan, no benefit shares or units were available for future grant during the three-year period ending December 31, 2000. Under the 1996 plan, the following benefit shares or units were available for future grant: 937,000 at December 31, 2000, 1,040,000 at December 31, 1999 and 69,000 at December 31, 1998. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE J--SHAREHOLDERS' EQUITY The company has 90,000,000 authorized shares of common stock, $1 par value and 800,000 authorized and unissued shares of preference stock, $1 par value. The changes in shareholders' equity for each of the three years in the period ended December 31, 2000 were as follows:
ACCUMULATED COMMON CAPITAL IN DEFERRED OTHER STOCK EXCESS OF RETAINED TREASURY STOCK COMPREHENSIVE PAR VALUE PAR VALUE EARNINGS STOCK AWARDS INCOME --------- ---------- -------- -------- -------- ------------- Balance at December 31, 1997-- 46,501,000 shares issued $46,501,000 $61,029,000 $226,432,000 $(19,695,000) $(1,718,000) $(12,777,000) Net income 59,396,000 Cash dividends declared (32,462,000) Exercise of stock options: Cash proceeds 100,000 1,292,000 Exchange of shares 31,000 129,000 (160,000) Stock awards granted 58,000 1,231,000 (1,289,000) Tax benefits related to stock compensation plans 265,000 Retirement of treasury stock (22,000) (482,000) 504,000 Purchases of 444,000 shares of treasury stock (9,466,000) Amortization of deferred stock awards 1,173,000 Foreign currency translation adjustment, net 2,059,000 Other (3,000) (344,000) ----------- ----------- ------------ ------------ ----------- ------------ Balance at December 31, 1998-- 46,668,000 shares issued 46,668,000 63,461,000 253,366,000 (29,161,000) (1,834,000) (10,718,000) Net income 57,537,000 Cash dividends declared (33,952,000) Exercise of stock options: Cash proceeds 147,000 1,472,000 Exchange of shares 21,000 99,000 (120,000) Stock awards granted 65,000 1,647,000 (1,712,000) Tax benefits related to stock compensation plans 363,000 Retirement of treasury stock (12,000) (280,000) 292,000 Purchases of 141,000 shares of treasury stock (3,582,000) Issued 706,000 shares from treasury for purchases of companies 15,715,000 Amortization of deferred stock awards 1,308,000 Foreign currency translation adjustment, net (6,590,000) Other (167,000) ----------- ----------- ------------ ------------ ----------- ------------ Balance at December 31, 1999-- 46,889,000 shares issued 46,889,000 66,762,000 276,951,000 (17,023,000) (2,238,000) (17,308,000) Net income 57,537,000 Cash dividends declared (34,503,000) Exercise of stock options: Cash proceeds 82,000 961,000 Exchange of shares 79,000 697,000 (776,000) Stock awards granted 69,000 1,039,000 (1,108,000) Tax benefits related to stock compensation plans 302,000 Retirement of treasury stock (52,000) (1,068,000) 1,120,000 Purchases of 988,000 shares of treasury stock (17,279,000) Amortization of deferred stock awards 1,499,000 Foreign currency translation adjustment, net (4,857,000) Other (344,000) ----------- ----------- ------------ ------------ ----------- ------------ Balance at December 31, 2000-- 47,067,000 shares issued $47,067,000 $68,693,000 $299,985,000 $(34,302,000) $(1,847,000) $(22,165,000) =========== =========== ============ ============ =========== ============
In July 1998, the company declared a dividend distribution of one preferred share purchase right on each share of common stock outstanding on and after August 18, 1998. This plan replaces a similar plan approved in 1988. The rights are not exercisable until the rights distribution date, defined as the earlier of: 1) the tenth day following a public announcement that a person or group of affiliated or associated persons acquired or obtained FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) the right to acquire beneficial ownership of 20% or more of the outstanding common stock or 2) the tenth day following the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 30% or more of such outstanding common shares. Each right, when exercisable, entitles the holder to purchase from the company one one-hundredth of a share of Series A Preferred stock of the company at a price of $100 per one one-hundredth of a preferred share, subject to adjustment. The company is entitled to redeem the rights at $.10 per right, payable in cash or common shares, at any time prior to the expiration of twenty days following the public announcement that a 20% position has been acquired. In the event that the company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power is sold, proper provision will be made so that each holder of a right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of a right, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the exercise price of the right. The rights expire on August 18, 2008 unless earlier redeemed by the company. Until exercised, the holder of a right, as such, will have no rights as a shareholder, including, without limitation, the right to vote or to receive dividends. NOTE K--ACQUISITIONS During the three-year period ended December 31, 2000, the company made the following acquisitions, principally all for cash, except as otherwise noted. In March 2000, the company acquired P.C.S. Company. Located near Detroit, Michigan, P.C.S. offers a comprehensive line of tooling components for the plastic injection mold and the die cast industries. The company also made a small Environmental Products Group acquisition during the first quarter of 2000. As a result of the 2000 acquisitions, the company recorded approximately $9.9 million of working capital, $3.8 million of fixed and other assets and $10.7 million of costs in excess of fair value. The assigned values of these acquisitions are based upon preliminary estimates. In July 1999, the company acquired Clapp & Haney Tool Company for cash and stock. Located near Toledo, Ohio, Clapp & Haney is the leading U.S. manufacturer and marketer of polycrystalline diamond and cubic boron nitride consumable tooling. The company also made a small Safety Products Group acquisition during the early part of 1999. As a result of the 1999 acquisitions, the company recorded approximately $4.9 million of working capital, $12.2 million of fixed and other assets and $56.1 million of costs in excess of fair value. In January 1998, the company acquired Saulsbury Fire Equipment Corporation and Five Star Manufacturing Company. In August 1998, the company acquired Jetstream of Houston. Saulsbury, located in Tully, New York, is the leading manufacturer of stainless steel-bodied fire trucks and rescue vehicles in the United States. Five Star, based in Youngsville, North Carolina, manufactures mechanical and recirculating air street sweepers. Located in Houston, Texas, Jetstream is a leading manufacturer of high-pressure waterblasting equipment. The company also made several small Safety Products Group acquisitions during the last half of 1998. As a result of the 1998 acquisitions, the company recorded approximately $10.5 million of working capital, $8.0 million of fixed and other assets and $47.9 million of costs in excess of fair value. All of the acquisitions in the three-year period ended December 31, 2000 have been accounted for as purchases. Accordingly, the results of operations of the acquired companies have been included in the consolidated statements of income from the effective dates of the acquisitions. Assuming the 2000 and 1999 acquisitions occurred January 1, 1999, the company estimates that reported consolidated net sales would have changed less than 1% in 2000 and increased by 4% in 1999, while reported net income would have changed less than 1% in 2000 and increased by 4% in 1999. The company made no significant changes to the values originally assigned to assets and liabilities recorded as a result of acquisitions made prior to 2000. NOTE L--LEGAL PROCEEDINGS The company is subject to various claims, other pending and possible legal actions for product liability and other damages and other matters arising out of the conduct of the company's business. The company believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not have a material adverse effect on the company's consolidated financial position or the results of operations. NOTE M--SEGMENT AND RELATED INFORMATION The company has four continuing operating segments as defined under Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". Business units are FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) organized under each segment because they share certain characteristics, such as technology, marketing, and product application, which create long-term synergies. The principal activities of the company's operating segments are as follows: ENVIRONMENTAL PRODUCTS--Environmental Products manufactures a variety of self-propelled street cleaning vehicles, vacuum loader vehicles, municipal catch basin/sewer cleaning vacuum trucks and waterblasting equipment. Environmental Products sells primarily to municipal customers, contractors and government customers. FIRE RESCUE--Fire Rescue manufactures chassis; fire trucks, including Class A pumpers, mini-pumpers and tankers; airport and other rescue vehicles, aerial access platforms and aerial ladder trucks. This group sells primarily to municipal customers, volunteer fire departments and government customers. SAFETY PRODUCTS--Safety Products produces a variety of visual and audible warning and signal devices; paging, local signaling, and building security, parking and access control systems; hazardous area lighting; and equipment for storage, transfer, use and disposal of flammable and hazardous materials. The group's products are sold primarily to industrial, municipal and government customers. TOOL--Tool manufactures a variety of consumable tools which include die components for the metal stamping industry, a large selection of precision metal products for nonstamping needs and a line of precision cutting and grooving tools including polycrystalline diamond and cubic boron nitride products for superhard applications. The group's products are sold predominately to industrial markets. Net sales by operating segment reflect sales of products and services and financial revenues to external customers, as reported in the company's consolidated statements of income. Intersegment sales are insignificant. The company evaluates performance based on operating income of the respective segment. Operating income includes all revenues, costs and expenses directly related to the segment involved. In determining segment operating income, neither corporate nor interest expenses are included. Operating segment depreciation expense, identifiable assets and capital expenditures relate to those assets that are utilized by the respective operating segment. Corporate assets consist principally of cash and cash equivalents, notes and other receivables and fixed assets. The accounting policies of each operating segment are the same as those described in the summary of significant accounting policies. See Note K for a discussion of the company's acquisition activity during the three-year period ended December 31, 2000. Non-U.S. sales, which include sales exported from the U.S. and sales made by non-U.S. operations, aggregated $274,168,000 in 2000, $265,249,000 in 1999 and $266,562,000 in 1998. Sales exported from the U.S. aggregated $102,402,000 in 2000, $104,940,000 in 1999 and $98,135,000 in 1998. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of the company's continuing operations by segment for the three-year period ended December 31, 2000 is as follows:
2000 1999 1998 ---- ---- ---- Net sales Environmental Products $ 255,269,000 $ 247,097,000 $ 219,812,000 Fire Rescue 389,311,000 310,008,000 318,038,000 Safety Products 267,062,000 261,940,000 253,020,000 Tool 194,485,000 158,164,000 145,964,000 -------------- -------------- -------------- Total net sales $1,106,127,000 $ 977,209,000 $ 936,834,000 ============== ============== ============== Operating income Environmental Products $ 23,101,000 $ 24,454,000 $ 19,559,000 Fire Rescue 24,940,000 10,900,000 14,526,000 Safety Products 43,721,000 41,384,000 40,601,000 Tool 35,298,000 33,303,000 31,426,000 Corporate expense (10,406,000) (8,689,000) (8,240,000) -------------- -------------- -------------- Total operating income 116,654,000 101,352,000 97,872,000 Interest expense (31,401,000) (23,339,000) (19,336,000) Other income (expense) (839,000) 1,296,000 824,000 -------------- -------------- -------------- Income before income taxes $ 84,414,000 $ 79,309,000 $ 79,360,000 ============== ============== ============== Depreciation and amortization Environmental Products $ 5,030,000 $ 4,609,000 $ 3,869,000 Fire Rescue 5,304,000 5,299,000 4,605,000 Safety Products 8,978,000 8,925,000 8,210,000 Tool 8,907,000 6,115,000 4,448,000 Corporate 838,000 849,000 947,000 -------------- -------------- -------------- Total depreciation and amortization $ 29,057,000 $ 25,797,000 $ 22,079,000 ============== ============== ============== Identifiable assets Manufacturing activities Environmental Products $ 149,622,000 $ 143,320,000 $ 139,819,000 Fire Rescue 201,960,000 200,950,000 178,818,000 Safety Products 220,867,000 227,073,000 224,605,000 Tool 175,884,000 155,095,000 85,013,000 Corporate 13,997,000 12,795,000 10,803,000 -------------- -------------- -------------- Total manufacturing activities 762,330,000 739,233,000 639,058,000 -------------- -------------- -------------- Financial services activities Environmental Products 69,055,000 66,096,000 51,499,000 Fire Rescue 145,175,000 125,165,000 114,163,000 -------------- -------------- -------------- Total financial services activities 214,230,000 191,261,000 165,662,000 -------------- -------------- -------------- Total identifiable assets $ 976,560,000 $ 930,494,000 $ 804,720,000 ============== ============== ============== Additions to long-lived assets Environmental Products $ 5,574,000 $ 3,241,000 $ 32,685,000 Fire Rescue 4,958,000 4,598,000 18,603,000 Safety Products 5,333,000 13,496,000 17,348,000 Tool 19,857,000 70,243,000 6,404,000 Corporate 23,000 26,000 33,000 -------------- -------------- -------------- Total additions to long-lived assets $ 35,745,000 $ 91,604,000 $ 75,073,000 ============== ============== ============== Financial revenues (included in net sales) Environmental Products $ 6,113,000 $ 5,170,000 $ 3,904,000 Fire Rescue 8,082,000 7,166,000 7,606,000 -------------- -------------- -------------- Total financial revenues $ 14,195,000 $ 12,336,000 $ 11,510,000 ============== ============== ==============
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Due to the nature of the company's customers, a significant portion of the Environmental Products and Fire Rescue financial revenues is exempt from federal income tax. A summary of the company's continuing operations by geographic area for the three-year period ended December 31, 2000 is as follows:
2000 1999 1998 ---- ---- ---- UNITED STATES Net sales $934,361,000 $816,900,000 $768,407,000 Operating income 103,704,000 88,012,000 83,199,000 Long-lived assets 344,367,000 334,833,000 266,337,000 ALL NON-U.S. (principally Europe) Net sales $171,766,000 $160,309,000 $168,427,000 Operating income 12,950,000 13,340,000 14,673,000 Long-lived assets 69,027,000 73,815,000 75,448,000
The company had no significant amounts of sales to or long-lived assets in an individual country outside of the United States. During 2000, the company decided to divest the operations of the Sign Group and began to search for a qualified buyer of that business. Sign manufactures for sale or lease illuminated, non-illuminated and electronic advertising sign displays primarily for commercial and industrial markets. It also enters contracts to provide maintenance service for the signs it manufactures as well as for signs manufactured by others. The results of the Sign operations are reported as discontinued operations in the financial statements; 1999 and 1998 financial statements have been appropriately restated. The company also incurred $3,744,000 in restructuring charges during 2000 relating to the consolidation of facilities and operations. Of this amount, the Environmental Products Group incurred costs of $2,773,000 and the Tool Group incurred $971,000. NOTE N--NET INCOME PER SHARE The following table summarizes the information used in computing basic and diluted income per share for the three-year period ending December 31, 2000:
2000 1999 1998 ---- ---- ---- Numerator for both basic and diluted income per share computations -- net income $57,537,000 $57,537,000 $59,396,000 =========== =========== =========== Denominator for basic income per share-- weighted average shares outstanding 45,388,000 45,775,000 45,568,000 Effect of employee stock options (dilutive potential common shares) 133,000 183,000 278,000 ----------- ----------- ----------- Denominator for diluted income per share -- adjusted shares 45,521,000 45,958,000 45,846,000 =========== =========== ===========
NOTE O--COMMITMENTS The company leases certain facilities and equipment under operating leases, some of which contain options to renew. Total rental expense on all operating leases was $8,297,000 in 2000, $8,037,000 in 1999 and $8,426,000 in 1998. Sublease income and contingent rentals relating to operating leases were insignificant. At December 31, 2000, minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $30,701,000 payable as follows: $7,097,000 in 2001, $5,515,000 in 2002, $3,777,000 in 2003, $3,295,000 in 2004, $2,798,000 in 2005 and $8,219,000 thereafter. At December 31, 2000, the company had outstanding standby letters of credit aggregating $17,214,000 principally to act as security for retention levels related to casualty insurance policies and to guarantee the performance of subsidiaries that engage in export transactions to foreign governments and municipalities. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE P--CHANGE IN ACCOUNTING In the fourth quarter of 2000, the company changed its method of accounting for recognizing revenues for product sales. Effective with this change, retroactively applied to January 1, 2000, the company recognizes revenues based upon the respective terms of delivery for each sale agreement. This change was required by Staff Accounting Bulletin (SAB) No. 101 issued by the Securities and Exchange Commission. In years prior to 2000, the company recognized substantially all of its revenues for product sales as products were shipped, as this method was then in compliance with generally accepted accounting principles. For the restated three-month period ended March 31, 2000 and the year ended December 31, 2000, the company recognized sales of $10,052,000 and the related operating income of $1,362,000 resulting from the change in accounting method; these amounts were previously recognized in sales and income in 1999 under the company's previous accounting method. These sales and the related income also account for the cumulative effect of the change in accounting method on prior years, which resulted in a charge to net income of $844,000 (net of taxes of $518,000), or $.02 per diluted share. This charge reflects the adoption of SAB No. 101 and is included in the restated three-month period ended March 31, 2000 and the year ended December 31, 2000. Pro-forma net income amounts for the three-year period ending December 31, 2000, assuming the change in method was retroactively applied to the beginning of that period, are as follows:
2000 1999 1998 ---- ---- ---- Net income $58,381,000 $57,268,000 $59,436,000 Diluted net income per share $ 1.28 $ 1.25 $ 1.30
Presented below is a summary of the originally reported and restated income statement data for the first three three-month periods of the year ended December 31, 2000:
MARCH 31 JUNE 30 SEPTEMBER 30 ---------------------- ---------------------- ---------------------- ORIGINALLY ORIGINALLY ORIGINALLY REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED ---------- -------- ---------- -------- ---------- -------- Net sales $271,670 $260,181 $278,217 $286,825 $ 270,884 $258,577 Gross margin 85,323 82,807 87,245 88,786 83,019 80,534 Income from continuing operations 14,297 13,763 16,012 16,198 15,715 14,705 Income (loss) from discontinued operations 939 939 172 172 (25) (25) Cumulative effect of change in accounting (844) Net income 15,236 13,858 16,184 16,370 15,690 14,680 Per share data--diluted: Income from continuing operations .31 .30 .35 .36 .35 .32 Income (loss) from discontinued operations .02 .02 Cumulative effect of change in accounting (.02) Net income* .33 .30 .36 .36 .35 .32
* amounts may not add due to rounding FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE Q-- SELECTED QUARTERLY DATA (UNAUDITED) (in thousands of dollars except per share amounts)
FOR THE THREE-MONTH PERIOD ENDED ----------------------------------------------------------------------------------------- 2000 1999 ------------------------------------------- ------------------------------------------- MARCH JUNE SEPTEMBER DECEMBER MARCH JUNE SEPTEMBER DECEMBER 31* 30* 30* 31 31 30 30 31 ----- ---- --------- -------- ----- ---- --------- -------- Net sales $260,181 $286,825 $258,577 $300,544 $235,661 $242,991 $237,243 $261,314 Gross margin 82,807 88,786 80,534 85,217 72,058 73,582 74,244 80,718 Income from continuing operations 13,763 16,198 14,705 12,989 12,239 12,677 13,373 16,094 Income (loss) from discontinued operations 939 172 (25) (360) 808 1,015 416 915 Cumulative effect of change in accounting (844) Net income 13,858 16,370 14,680 12,629 13,047 13,692 13,789 17,009 Per share data-- diluted: Income from continuing operations .30 .36 .32 .29 .27 .28 .29 .35 Income (loss) from discontinued operations .02 (.01) .02 .02 .01 .02 Cumulative effect of change in accounting (.02) Net income .30 .36 .32 .28 .29 .30 .30 .37 Pro-forma amounts assuming change in accounting (Note P): Net income 14,702 16,370 14,680 12,629 12,834 13,389 14,263 16,782 Diluted net income per share .32 .36 .32 .28 .28 .29 .31 .36 Dividends paid per share .190 .190 .190 .190 .185 .185 .185 .185 Market price range per share High 18.50 21.50 22.94 24.13 28.06 26.19 22.38 20.13 Low 14.75 16.50 16.75 17.13 20.00 19.81 18.69 15.06
* indicates periods restated for change in accounting (see Note P) In 2000 the company incurred pre-tax restructuring charges (see Note M) of $75,000, $837,000 and $2,832,000 for each of the three-month periods ending June 30, September 30 and December 31, respectively. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Federal Signal Corporation We have audited the accompanying consolidated balance sheets of Federal Signal Corporation and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of income, comprehensive income and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federal Signal Corporation and subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. As discussed in Notes A and P to the financial statements, in 2000 the company changed its method of revenue recognition. [ERNST & YOUNG LLP SIGNATURE] Chicago, Illinois January 25, 2001 FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES FINANCIAL REVIEW CONSOLIDATED RESULTS OF OPERATIONS Federal Signal Corporation's net sales increased 13% in 2000 to $1.11 billion compared to the $.98 billion in 1999. Income from continuing operations increased 6% to $57.7 million in 2000; excluding restructuring charges incurred in the company's Environmental Products and Tool groups, income from continuing operations increased 10%. Diluted income per share from continuing operations increased 8% to $1.27 in 2000; excluding restructuring charges, income per share from continuing operations increased 12% to $1.32. Net income in 2000 remained flat at $57.5 million with diluted net income per share increasing $.01 to $1.26 in 2000. Net income and net income per share amounts included $.7 million ($.02 per share) income from the discontinued operations of the Sign Group and a charge of $.8 million ($.02 per share) for the cumulative effect of a change in accounting for revenue recognition. The improved results from the company's continuing operations reflected growth in sales and earnings before restructuring charges in all four continuing groups, led by the significantly increased results of the Fire Rescue Group. Federal Signal's 13% sales increase in 2000 was a result of a 1% increase in prices and a 12% increase in volume including approximately 3% relating to added volume from acquired businesses. Sales to customers in the United States increased 17% in 2000 and sales to non-U.S. customers increased 3% (9% in functional currency). Incoming orders increased 9% in 2000 with orders from U.S. customers increasing 10% and orders from non-U.S. customers increasing 8%. Net sales increased to $.98 billion in 1999 from $.94 billion in 1998. Income from continuing operations declined 1% to $54.4 million in 1999, or $1.18 per share on a diluted basis, compared to $55.1 million in 1998, or $1.20 per share. This decline was principally a result of lower earnings in the company's Fire Rescue Group. The 1999 sales increase of 4% was a result of a 1% increase in prices and a 3% increase in volume including 3% relating to added volume from acquired businesses. Sales to customers in the United States increased 6% in 1999 while sales to non-U.S. customers declined slightly. Incoming orders also increased 5% in 1999 with orders from U.S. customers increasing 5% and orders from non-U.S. customers increasing 7%. The company focuses on operating margin, rather than either the gross margin component or the selling, general, and administrative (SG&A) cost component of operating margin when setting overall Federal Signal performance targets and monitoring results. The reasons for this focus are: 1) the distinct differences in the cost structures of the company's businesses, and 2) the varying growth rates of these individual businesses. This combination dictates that the separate operating margin components are only useful in managing individual business performance. In looking at total profitability of the company's U.S. and non-U.S. operations, the company recognizes that some of its U.S. operations have benefited from selling their products through distribution channels of non-U.S. operations. The following table summarizes the company's gross margins and operating margins for the last five years (percent of sales):
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales 69.5 69.2 69.0 68.4 69.1 ----- ----- ----- ----- ----- Gross profit margin 30.5 30.8 31.0 31.6 30.9 SG&A expenses 20.0 20.4 20.6 20.4 19.1 ----- ----- ----- ----- ----- Operating margin 10.5% 10.4% 10.4% 11.2% 11.8% ===== ===== ===== ===== =====
Gross profit margins of 30.5% in 2000 are somewhat lower than the average of the 1996-1999 period (31.1%). SG&A expenses as a percent of sales began improving somewhat in 1999 and improved again in 2000 to 20.0%, which includes the effect of $3.7 million of restructuring charges incurred in the company's Environmental Products and Tool groups. Excluding restructuring charges, SG&A expenses were 19.6% of sales in 2000; this compares favorably to the 1996-1999 average of 20.1%. Operating margin for 2000 excluding the restructuring charges was 10.9%, the highest since 1997 and compares to the average of 11.0% for the 1996-1999 period. Since operating margins have declined from the company's rate achieved in 1996, an explanation of that trend is warranted. The decline in the company's operating margin prior to 2000, for the most part, reflects lower operating margins of the Fire Rescue Group. Operating margins of the company's continuing businesses outside of the Fire Rescue Group were 14.8% in 2000 and compared favorably to a fairly consistent level of 14.6% averaged in the 1996-1999 period. In 1997 through 1999, significant operating issues in the Fire Rescue Group adversely affected the company's margins. Chassis and related component supply shortages, while affecting many of the company's vehicle-based businesses in 1997 and 1998, had its most severe impact on the U.S.-based fire FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES FINANCIAL REVIEW (CONTINUED) rescue business. Shortages of components and skilled people and installation of an enterprise resource planning system adversely affected Fire Rescue sales and earnings in 1999. During 2000, Fire Rescue achieved dramatic improvements in throughput, productivity, customer service and quality and saw the group's operating margin expand to 6.4% from the 3.5% experienced in 1999. Interest expense increased $8.1 million in 2000, largely as a result of borrowings related to businesses acquired for cash in mid-1999 and early 2000, a $17 million purchase of company stock and a $23 million increase in financial services assets. The increase in interest expense of $4.0 million in 1999 was largely a result of borrowings related to acquisitions of businesses for cash in 1999, production-related increases in inventories and increases in financial services assets, partially offset by lower interest rates. Weighted average interest rates on short-term borrowings were 6.5% in 2000, 5.4% in 1999 and 5.8% in 1998. The company's effective tax rate in 2000 of 31.7% was up slightly from the 31.4% in 1999 with no significant changes in the underlying factors influencing these rates. The 1999 rate increased from the 30.5% in 1998 largely as a result of a few individually insignificant factors. At the end of 2000, the company changed its assumptions for discount rates used in determining the actuarial present values of accumulated and projected benefit obligations for its postretirement plans. The company reduced the discount rate to 7.7% at the end of 2000 from the 8.1% used at the end of 1999 for its U.S. plan because of the lower interest rate environment experienced at the end of 2000. The company expects that the change in this assumption will not have a significant impact on 2001 results of operations. Certain of the company's businesses are susceptible to the influences of seasonal buying or delivery patterns. The company's businesses which tend to have lower sales in the first calendar quarter compared to other quarters as a result of these influences are street sweeping, fire rescue products, outdoor warning, municipal emergency signal products, parking systems and signage. GROUP OPERATIONS All four of the company's continuing operating segments achieved higher sales and earnings excluding restructuring charges in 2000 with Fire Rescue achieving significant increases. Tool Group sales and earnings also were well above 1999 as a result of solid performances by newly-acquired businesses. ENVIRONMENTAL PRODUCTS Environmental Products orders rose 12% and sales increased 3% in 2000 while operating income declined 6%. Excluding restructuring charges of $2.8 million incurred to consolidate the group's vacuum truck operations into its Streator, Illinois facility, operating income increased 6%. The group's sales growth was due to broadly good performance in sweepers, waterblasters and municipal vacuum trucks. In 1999 group sales and earnings increased 12% and 25%, respectively, while orders increased 5%. Sales and earnings from municipal sewer cleaners increased significantly in 1999, due in part from a very large backlog at the beginning of the year; the group's 1999 results also benefited from a 1998 acquisition of a manufacturer of high pressure waterblasters. Offsetting a part of these increases were lower sales and a profit decline in industrial vacuum trucks reflecting weak markets for this product line in 1999. FIRE RESCUE In 2000 Fire Rescue orders increased 10%; earnings more than doubled on a 26% increase in sales. Orders for the group were strong in good North American municipal markets. The group's Florida-based manufacturing operations increased productivity, throughput and quality and saw operating margin improve to 6.4% in 2000 from 3.5% in 1999. Sales at the Finland-based operations were modestly higher, despite the markka weakening against the U.S. dollar, and income declined as this unit incurred costs related to the rollout of several new products. In 1999 Fire Rescue sales declined 3% and earnings fell 25%. Fire Rescue orders improved 6% as markets remained active throughout 1999. The group's sales and earnings declines reflected the significant production problems experienced throughout 1999 by the Florida-based operations. Component supply problems continued into 1999 and the Florida-based operation's April 1, 1999 implementation of an enterprise resource planning system and shortages of qualified workers also had a negative effect on production. The Florida-based FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES FINANCIAL REVIEW (CONTINUED) operation saw fourth quarter 1999 production and shipments improve substantially over levels achieved in the first part of 1999 establishing the foundation for improved levels of performance in 2000. SAFETY PRODUCTS Safety Products orders decreased 3% in 2000 while sales increased 2%; operating income increased 6%. An improved operating margin reflected municipal market sales strength offsetting continued weak oilfield-related sales. In 1999 Safety Products Group sales increased 4% and earnings increased 2%; orders increased 4%. The group's emergency vehicle signal, parking and outdoor warning system product lines saw significant sales and earnings gains in 1999. These improvements were partially offset in 1999 by lower sales and earnings of hazardous area lighting products, which resulted from very weak energy-related market conditions, and lower earnings from sales of hazardous liquid containment products. TOOL Tool Group orders increased 24% and sales increased 23% in 2000; earnings increased 6% including restructuring charges of $1.0 million. Excluding the restructuring charges, operating income increased 9%. The group's results reflected the benefits of two acquisitions, which performed strongly, restructuring charges incurred to consolidate two superhard cutting tool operations, and weak U.S. auto and broad industrial markets in the second half of the year. In 1999 Tool Group orders and sales increased 7% and 8%, respectively; earnings increased 6%. The mid-1999 acquisition of Clapp & Haney Tool Company more than offset the effects of slow markets, which produced lower sales and earnings in some of the group's other tool businesses. Excluding the effect of the acquisition in 1999, U.S. sales increased 1% while non-U.S. sales declined 5% reflecting lower automotive die build programs in Germany and Japan. SIGN The company decided to divest the Sign Group and began searching for a buyer of this business. The group saw markets weaken in 2000 and sales and operating income declined from 1999 results. The results of this group are reported as discontinued operations in the company's consolidated financial statements. FINANCIAL SERVICES ACTIVITIES The company maintains a large investment ($214 million and $191 million at December 31, 2000 and 1999, respectively) in lease financing and other receivables that are generated by its environmental products and fire rescue operations. For the five-year period ending December 31, 2000, these assets continued to be leveraged in accordance with the company's stated financial objectives (see further discussion in "Financial Position and Cash Flow"). Financial services assets have repayment terms generally ranging from two to ten years. The increases in these assets resulted from increasing sales of environmental and fire rescue products as well as continuing acceptance by customers of the benefits of using the company as their source of financing vehicle purchases. FINANCIAL POSITION AND CASH FLOW The company emphasizes generating strong cash flows from operations, reaching a record $75.5 million in 1998. Cash flow from operations declined to $57.7 million in 1999 as inventory levels increased to support higher production in vehicle businesses, particularly Fire Rescue. Cash flow from operations again increased in 2000 to $64.4 million largely reflecting improvements in receivables management. The company expects improvement in its operating cash flow as it continues to focus aggressively on earnings growth as well as working capital management, particularly inventories. During the 1996-2000 period, the company utilized its strong cash flows from operations and available debt capacity to: 1) fund in whole or in part strategic acquisitions of companies operating in markets related to those already served by the company; 2) purchase increasing amounts of equipment principally to provide for further cost reductions and increased productive capacity for the future as well as tooling for new products; 3) increase FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES FINANCIAL REVIEW (CONTINUED) its investment in financial services activities; 4) pay increasing amounts in cash dividends to shareholders; and 5) repurchase a small percentage of its outstanding common stock each year. Cash flows for the five-year period ending December 31, 2000 are summarized as follows (in millions):
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Cash provided by (used for): Operating activities $ 64.4 $ 57.7 $ 75.5 $ 64.2 $ 61.4 Investing activities (64.8) (105.1) (93.0) (38.4) (54.2) Financing activities 5.2 40.9 22.2 (27.5) (4.1)
In order to show the distinct characteristics of the company's investment in its manufacturing activities and its investment in its financial services activities, the company has presented separately these investments and their related liabilities. Different ratios of debt and equity support each of these two types of activities. One of the company's financial objectives is to maintain a strong financial position. At December 31, 2000, the company's debt-to-capitalization ratio of its manufacturing operations was 45% compared to 42% a year earlier. The increase largely reflects the $24 million used for acquisitions of businesses during 2000; the company expects to modestly reduce the debt-to-capitalization ratio of its manufacturing operations during 2001. The company believes that its financial assets, due to their overall quality, are capable of sustaining a leverage ratio of 87%. At both December 31, 2000 and 1999, the company's debt-to-capitalization ratio for its financial services activities was 87% for its continuing operations. As indicated earlier, management focuses substantial effort on improving the utilization of the company's working capital. The company's current ratio for its manufacturing operations was 1.2 at December 31, 2000 and 1.3 at December 31, 1999. The decline in 2000 is largely due to additional short-term borrowings incurred primarily to fund acquisitions and repurchase common stock. The company anticipates that its financial resources and major sources of liquidity, including cash flow from operations, will continue to be adequate to meet its operating and capital needs in addition to its financial commitments. MARKET RISK MANAGEMENT The company is subject to risks associated with changes in interest rates and foreign exchange rates. The company principally utilizes two types of derivative financial instruments: 1) interest rate swaps and 2) foreign exchange forward contracts to manage risks associated with sales and purchase commitments denominated in foreign currencies. The company does not hold or issue derivative financial instruments for trading or speculative purposes and is not a party to leveraged derivatives. The company uses interest rate swap agreements to reduce interest rate risk. Interest rate swaps change the fixed/floating interest rate mix of the company's debt portfolio. At December 31, 2000, the company was party to an interest rate swap agreement with a notional amount of $25,000,000. See Note H to the consolidated financial statements for a description of this agreement. The company manages its exposure to interest rate movements by maintaining a proportionate relationship between fixed-rate debt to total debt within established percentages. The company uses actual fixed-rate borrowings as well as interest rate swap agreements to provide fixed interest rates. Approximately 40% of the company's debt is used to support financial services assets; the average remaining life of those assets is typically under three years. The company is currently comfortable with a sizeable portion of floating rate debt, since a rise in borrowing rates would normally correspond with a rise in lending rates in a reasonable period. FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES FINANCIAL REVIEW (CONTINUED) Significant interest rate sensitive instruments at December 31, 2000 and 1999 were as follows (dollars in millions):
2000 1999 -------------------------------------------------------------------- --------------- FAIR FAIR 2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE TOTAL VALUE ---- ---- ---- ---- ---- ---------- ----- ----- ----- ----- Long-term debt Fixed rate Principal $ 5.5 $ 8.1 $0.2 $15.0 $ 50.0 $ 78.8 $ 79.4 $ 81.4 $ 74.7 Average interest rate 7.1% 7.1% 7.1% 7.1% 6.8% 7.0% 6.9% Variable rate Principal $ 0.7 $ 1.4 $0.8 $50.0 $ 52.9 $ 52.9 $ 56.9 $ 56.9 Average interest rate 7.5% 7.5% 7.6% 7.6% 7.6% 6.1% Short-term debt -- variable rate Principal $331.1 $331.1 $331.1 $267.9 $267.9 Average interest rate 7.6% 7.6% 6.2% Interest rate swaps (pay fixed, receive variable) Notional amount $ 25.0 $ 25.0 $ (0.2) $150.0 $ 0.6 Average pay rate 5.1% Average receive rate 6.8%
The company had an insignificant amount of foreign exchange forward contracts outstanding at December 31, 2000.