EX-99.1 3 c82440exv99w1.txt EARNINGS RELEASE DATED 1/29/04 [FEDERAL SIGNAL CORPORATION LOGO] CONTACT: Stephanie K. Kushner RELEASE DATE: IMMEDIATE (630) 954-2020 FEDERAL SIGNAL CORPORATION ANNOUNCES FOURTH QUARTER EPS OF $.24 PER SHARE, FULL YEAR EPS OF $.79 -- HIGHLIGHTS -- - Strong quarterly orders of $308 million, up 17% from third quarter and 8% from prior year - Improved performance for Fire Rescue - fourth quarter orders up and margins strengthen - Full year operating cash flow of $75 million strengthens balance sheet - Manufacturing debt to capitalization improved to 40% -------------------------------------------------------------------------------- Oak Brook, Illinois, January 29, 2004 -- Federal Signal Corporation today reported diluted earnings per share of $.24 for the fourth quarter of 2003 on sales of $316 million. These results compare to $.28 per share earned on sales of $292 million in 2002's fourth quarter. Sales rose 8% due to increased deliveries of fire rescue equipment and higher non-U.S. sales, mainly due to the benefit of the weaker U.S. dollar. The decline in operating earnings was mainly in Safety Products, due to weaker demand and earnings for parking systems and emergency vehicular lights and sirens. Operating earnings for Fire Rescue and Environmental Products improved significantly from weak results in the fourth quarter of 2002. For the full year, diluted earnings per share from continuing operations totaled $.79 on sales of $1.21 billion. Sales increased 14% over 2002 sales of $1.06 billion while earnings per share declined from last year's $1.01. The increase in sales was largely associated with the refuse truck body business acquisitions, and strong deliveries of fire rescue equipment in North America. Earnings and operating margin declined, reflecting a less favorable sales mix in several groups and costs and expenses incurred from shutdowns of manufacturing facilities. In addition, pension costs increased in 2003 by approximately $.04 per share. Robert D. Welding, the company's newly elected president and chief executive officer, stated, "We are encouraged by our fourth quarter orders which were the highest the company has experienced since the beginning of this business cycle. We saw very strong North American fire rescue orders in the quarter and are seeing some uptick in our tooling and other short lead-time industrial-based businesses. Refuse truck orders remain soft, and we are seeing mixed results in our other global municipal and industrial markets. Our businesses have achieved operational improvements during the year as evidenced by better U.S. fire rescue deliveries, reduced inventories, closure of some satellite manufacturing plants and higher employee productivity. We are well positioned to benefit from further recovery in our end markets and will continue to focus on improving our operational execution. I am personally excited about the opportunities I see with our businesses, and am committed to improving returns for our shareholders." OPERATING RESULTS BY GROUP ENVIRONMENTAL PRODUCTS GROUP Fourth quarter orders declined 4% as lower refuse truck body orders more than offset stronger demand for sewer cleaners and industrial vacuum trucks. Sales rose 11% due to higher global sweeper deliveries and increased sales of front loading refuse truck bodies. Earnings increased 30% against a weak prior year, and operating margin improved to 6.0% from 5.2% in 2002. The improvement reflects higher sweeper sales and margins, and reduced integration costs for the refuse truck body operations. For the year, orders increased 16% and sales increased 19% due to the full year effect of the refuse truck body acquisitions which closed in late 2002. Excluding refuse truck bodies, orders for the group declined 4% and sales declined 5% reflecting weak U.S. municipal demand. Full year operating margin declined from 7.7% to 5.0% reflecting the addition of the refuse truck body business which remains cyclically weaker and less profitable than the other business units in the group. Also impacting 2003 profitability were one-time costs incurred earlier in the year to consolidate U.S. sweeper production facilities and to convert European sweepers to new EU standards as well as lower interest revenues from the wind-down of the industrial leasing portfolio. FIRE RESCUE GROUP Orders in the fourth quarter increased 36% to $121 million; most of the increase was in North American municipal markets. Sales increased 17% due to improved throughput in our U.S. plants and stronger demand for products produced in our Canadian operations. Operating income nearly doubled in the quarter; operating margin increased 2 percentage points primarily on the strength of higher sales volume and initial results of productivity improvement activities. Full year orders declined 2% due to weak U.S. municipal and governmental demand in the middle two quarters of the year and lower export sales, which are generally volatile. Partly offsetting this decline was the beneficial translation effect of the weak U.S. dollar on international orders. For the full year, sales increased 24% and operating income increased 29%. Strong backlogs at the beginning of 2003 and improvements in productivity in U.S. production facilities contributed to the improvements. The group incurred significant costs throughout the year to improve its selling and manufacturing processes in its U.S. operations. Also favorable were sales and earnings from our Finland-based aerial products business, which benefited from strong demand for its new Allrounder multi-function aerial ladder and pumper vehicle. SAFETY PRODUCTS GROUP Fourth quarter orders declined 9%. While the group's industrial-based products and outdoor warning systems showed improvement over last year, orders for municipal vehicular emergency lights and sirens declined sharply. This decline was partly due to a large one-time order received in 2002 to convert vehicles for the Spanish national police, as well as a continued weak U.S. municipal police products market. Sales declined 6% in the quarter, essentially reflecting the changes in orders, as most of this group's business is on relatively short lead times. Operating income declined 41%, in part reflecting the lower sales levels. Also contributing to the earnings reduction was lower profitability in the group's parking systems division, a less favorable sales mix and increased pension and employee benefit costs. For the full year, orders declined 7%; excluding the effect of the large Dallas/Ft. Worth International Airport parking project booked in 2002, orders were essentially flat. U.S. municipal orders, which comprise about one-quarter of this group's business, declined 12%, largely in the second half. Industrial/commercial orders were flat, and international orders rose, due primarily to currency effects. Sales increased 3% for the full year while earnings declined 23%. Operating margin declined from 15.3% to 11.4% reflecting $2.5 million of costs associated with the shutdown of a facility in the U.K. during the first half of 2003. Also impacting results adversely were a lower margin sales mix in several of the businesses, and higher employee benefit expenses. TOOL GROUP Fourth quarter sales increased 8% due to strength in industrial die component sales and the benefit of the stronger Euro, which more than offset weaker cutting tool sales. Operating income declined $.5 million despite the increased sales volume. This was largely due to more sales of third party resale products which carry a lower margin, higher costs for mold tooling, and increased overhead expenses, partly due to higher pension costs for U.S. employees. Operating margins declined to 9.1% from 11.2% in the prior year. Full year sales increased 2% due to increased international sales, largely attributable to the stronger European currencies. This more than offset the unfavorable impact of 5% weaker U.S. industrial orders, mainly for cutting tools. Operating income declined 15% due to lower margins on third party resale product, price pressure in cutting tool products, the costs and operating inefficiencies associated with the closure of a New York production facility in the first half of the year, and higher employee benefit costs. CORPORATE AND OTHER Corporate expense in the fourth quarter increased to $3.8 million reflecting provisions to increase bad debt reserves and higher postretirement service cost expense. Interest expense declined 17% from the prior year due to lower average debt balances and lower interest rates. Other expense in the quarter reflected a dispute settlement with a non-U.S. dealer and an operating loss posted from a small, minority-interest investment in a long-held manufacturing business. The effective tax rate declined in the fourth quarter to 16% from last year's 21% reflecting the higher relative impact of tax credits and tax-free municipal income. The full-year effective tax rate was 18%; the full-year rate also included the first quarter effect of a one-time benefit of a tax deduction associated with the closure of a production facility in the U.K. CASH FLOW AND DEBT Operating cash flow totaled $75 million for the year; while still strong, this was down from the $88 million in 2002, in large part reflecting the timing of customer advances. Inventory productivity continued to show improvement with inventory turns rising to 4.8 at year-end. Outstanding receivables rose in light of the disproportionate increase in foreign sales with longer payment terms, the mix of customer sales and outstandings on multi-year contracts. Capital spending totaled $17.9 million for the year, somewhat below the 2002 spending level. Manufacturing debt was again reduced in the quarter; now at $265 million, manufacturing debt represented 40% of capitalization, down from 44% ($296 million) at the beginning of the year. ******************************************************************************** Federal Signal will host its fourth quarter conference call Thursday, January 29, 2004 at 11:00 a.m. Eastern Time to highlight results of the fourth quarter, and discuss the company's outlook. The call will last approximately one hour. You may listen to the conference call over the Internet through Federal Signal's website at http://www.federalsignal.com. To listen to the call live, we recommend you go to the website at least fifteen minutes in advance to register and to download and install (if necessary) the required free audio software. If you are unable to listen to the live broadcast, a replay accessible from our website will be available shortly after the call concludes through 5:00 p.m. Eastern Time, Sunday, February 29, 2004. Federal Signal Corporation is a global manufacturer of leading niche products in four operating groups: environmental vehicles and related products, fire rescue vehicles, safety and signaling products, and consumable industrial tooling. Based in Oak Brook, Illinois, the company's shares are traded on the New York Stock Exchange under the symbol FSS. This release contains various forward-looking statements as of the date hereof and we undertake no obligation to update these statements regardless of new developments or otherwise. Statements in this release that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic conditions in various regions, product and price competition, supplier and raw material prices, foreign currency exchange rate changes, interest rate changes, increased legal expenses and litigation results, legal and regulatory developments such as the FIRE Act grant program and other risks and uncertainties described in filings with the Securities and Exchange Commission. FEDERAL SIGNAL CORPORATION (NYSE) CONSOLIDATED FINANCIAL DATA FOR THE FOURTH QUARTER AND FULL YEAR 2003 AND 2002 (IN THOUSANDS EXCEPT PER SHARE DATA)
Percent 2003 2002 change ---- ---- ------ QUARTER DECEMBER 31: Sales $ 315,996 $ 292,078 8% Net income 11,319 13,180 -14% Share earns (diluted): Net income .24 .28 -14% Average common shares outstanding 48,004 47,692 Sales $ 315,996 $ 292,078 8% Cost of sales (236,407) (211,781) Operating expenses (60,653) (58,957) --------------- ---------------- Operating income 18,936 21,340 -11% Interest expense (4,583) (5,489) Other income (expense) (818) 642 Minority interest (9) 104 --------------- ---------------- Income before income taxes 13,526 16,597 Income taxes (2,207) (3,417) --------------- ---------------- Net income $ 11,319 $ 13,180 -14% =============== ================ Gross margin on sales 25.2% 27.5% Operating margin on sales 6.0% 7.3% Comprehensive income 18,054 1,030
Percent 2003 2002 change ---- ---- ------ 12 MONTHS: Sales $ 1,206,798 $ 1,057,201 14% Income: Income from continuing operations 37,672 46,179 -18% Income from discontinued operations, loss on sale net of tax (369) Cumulative effect of change in accounting (7,984) --------------- ---------------- Net income 37,303 38,195 -2% =============== ================ Share earns (diluted): Income from continuing operations .79 1.01 -22% Income from discontinued operations, loss on sale net of tax (.01) Cumulative effect of change in accounting (.17) --------------- ---------------- Net income .78 .83 -6% =============== ================ Average common shares outstanding 47,984 45,939 Sales $ 1,206,798 $ 1,057,201 14% Cost of sales (891,723) (758,205) Operating expenses (249,097) (217,053) --------------- ---------------- Operating income 65,978 81,943 -19% Interest expense (19,750) (20,075) Other income (expense) (414) (895) Minority interest 203 129 --------------- ---------------- Income before income taxes 46,017 61,102 Income taxes (8,345) (14,923) --------------- ---------------- Income from continuing operations 37,672 46,179 -18% Income from discontinued operations, loss on sale net of tax (369) Cumulative effect of change in accounting (7,984) --------------- ---------------- Net income $ 37,303 $ 38,195 -2% =============== ================ Gross margin on sales 26.1% 28.3% Operating margin on sales 5.5% 7.8% Net cash provided by operations: Net income $ 37,303 $ 38,195 Cumulative effect of change in accounting 7,984 Depreciation and amortization 24,435 23,995 Working capital changes and other 13,639 18,176 --------------- ---------------- Net cash provided by operations 75,377 88,350 -15% =============== ================ Capital expenditures 17,850 20,144 Comprehensive income 53,195 29,890
Percent 2003 2002 change ---- ---- ------ GROUP RESULTS: Quarter December 31: Sales Environmental Products $ 91,994 $ 82,529 11% Fire Rescue 112,762 96,512 17% Safety Products 70,362 75,043 -6% Tool 40,878 37,994 8% ---------------- --------------- Total group revenues $ 315,996 $ 292,078 8% ================ =============== Operating income Environmental Products $ 5,540 $ 4,254 30% Fire Rescue 5,732 2,892 98% Safety Products 7,782 13,287 -41% Tool 3,726 4,252 -12% ---------------- --------------- Total group operating income $ 22,780 $ 24,685 -8% ================ =============== 12 months: Sales Environmental Products $ 352,946 $ 296,372 19% Fire Rescue 415,761 334,213 24% Safety Products 278,352 270,273 3% Tool 159,739 156,343 2% ---------------- --------------- Total group revenues $ 1,206,798 $ 1,057,201 14% ================ =============== Operating income Environmental Products $ 17,723 $ 22,961 -23% Fire Rescue 14,473 11,239 29% Safety Products 31,821 41,432 -23% Tool 15,923 18,716 -15% ---------------- --------------- Total group operating income $ 79,940 $ 94,348 -15% ================ ===============
December 31, December 31, 2003 2002 ---- ---- ASSETS Manufacturing activities:- Current assets: Cash and cash equivalents $ 10,119 $ 9,782 Trade accounts receivable, net of allowances for doubtful accounts 196,356 181,843 Inventories 180,688 183,802 Prepaid expenses 16,389 19,390 ----------------- ---------------- Total current assets 403,552 394,817 Properties and equipment 125,573 143,932 Goodwill, net of accumulated amortization 366,414 348,435 Other deferred charges and assets 60,759 44,046 ----------------- ---------------- Total manufacturing assets 956,298 931,230 Net assets of discontinued operations, including financial assets 10,392 Financial services activities - Lease financing receivables, net of allowances for doubtful accounts 230,111 226,788 ----------------- ---------------- Total assets $ 1,186,409 $ 1,168,410 ================= ================ LIABILITIES Manufacturing activities:- Current liabilities: Short-term borrowings $ 70,837 $ 16,432 Trade accounts payable 82,525 76,082 Accrued liabilities and income taxes 131,008 129,370 ----------------- ---------------- Total current liabilities 284,370 221,884 Long-term borrowings 194,130 279,544 Long-term pension and other liabilities 38,692 32,656 Deferred income taxes 44,820 33,495 ----------------- ---------------- Total manufacturing liabilities 562,012 567,579 ----------------- ---------------- Financial services activities - Borrowings 201,347 202,022 Minority interest in subsidiary 541 744 SHAREHOLDERS' EQUITY 422,509 398,065 ----------------- ---------------- Total liabilities and shareholders' equity $ 1,186,409 $ 1,168,410 ================= ================ Supplemental data: Manufacturing debt 264,967 295,976 Debt-to-capitalization ratio: Manufacturing 40% 44% Financial services 87% 87%