UNITED STATES 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

As of June 30, 2017,2018, the aggregate market value of voting stock held by non-affiliates was $1,015,057,931.$1,371,933,852. For purposes of the foregoing calculation only, executive officers and directors of the registrant have been deemed to be affiliates.

As of January 31, 2018,2019, the number of shares outstanding of the registrant’s common stock was 59,999,955.60,148,935.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (“Form 10-K”) is being filed by Federal Signal Corporation and its subsidiaries (referred to collectively as the “Company,” “we,” “our” or “us” herein, unless the context otherwise indicates) with the United States (“U.S.”) Securities and Exchange Commission (the “SEC”), and includes comments made by management that may contain words such as “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “project,” “estimate” and “objective” or similar terminology, or the negative thereof, concerning the Company’s future financial performance, business strategy, plans, goals and objectives. These expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning the Company’s possible or assumed future performance or results of operations and are not guarantees. While these statements are based on assumptions and judgments that management has made in light of industry experience as well as perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances, they are subject to risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different.

ADDITIONAL INFORMATION

PART I

Federal Signal Corporation, founded in 1901, was reincorporated as a Delaware corporation in 1969. The Company designs, manufactures and supplies a suite of products and integrated solutions for municipal, governmental, industrial and commercial customers. The Company’s portfolio of products that it manufactures includes sewer cleaners, vacuum trucks, street sweepers, waterblasters, dump truck bodies, trailers, and safety and security systems, including technology-based products and solutions for the public safety market. Following the acquisition of substantially all of the assets and operations of Joe Johnson Equipment, Inc. and Joe Johnson Equipment (USA), Inc. (collectively, “JJE”) in 2016, the Company also distributes and re-sells products manufactured by other companies, which include refuse and recycling collection vehicles, camera systems, ice resurfacing equipment and snow-removal equipment. In addition, we sell parts and provide service, repair, equipment rentals and training as part of a comprehensive aftermarket offering to our customers. Federal Signal Corporation and its subsidiaries operate 14 principal manufacturing facilities in five countries around the world and provide products and integrated solutions to customers in all regions of the world.

Products manufactured and supplied, and services rendered, by the Company are divided into two major operatingreportable segments: the Environmental Solutions Group and the Safety and Security Systems Group. The individual operating businesses are organized as such because they share certain characteristics, including technology, marketing, distribution and product application, which create long-term synergies. Corporate contains those items that are not included in our operatingreportable segments.

Financial information concerning the Company’s two operatingreportable segments for each of the three years in the period ended December 31, 2017,2018, is included in Note 1516 – Segment Information to the accompanying consolidated financial statements and is incorporated herein by reference. Information regarding the Company’s discontinued operations is included in Note 18 – Discontinued Operations to the accompanying consolidated financial statements and is incorporated herein by reference.

The Company employed approximately 3,1003,300 people in its businesses at December 31, 2017,2018, with the Company’s U.S. hourly workers accounting for approximately 52% of its total workforce. Approximately 18%17% of the Company’s U.S. hourly workers were represented by unions at December 31, 2017. We believe2018. The Company believes that ourits labor relations with ourits employees are good.

The Company believes it complies with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. The Company endeavors to establish environmentally-friendly policies and objectives, and believes that these actions are also consistent with cost-effective operating practices. Capital expenditures in 20172018 attributable to compliance with such laws were not material. The Company believes that the overall impact of compliance with environmental regulations will not have a material adverse effect on our financial position, results of operations or cash flow.

In May 2012, the Company sold a facility in Pearland, Texas. The facility was previously used by the Company’s discontinued Pauluhn business, which manufactured marine, offshore and industrial lighting products. It is probable that the site will require remediation and as such, asAs of December 31, 20172018 and 2016, $0.52017,

$0.4 million and $0.6$0.5 million, respectively, of reserves related to the environmental remediation of the Pearland facility have been included in liabilities of discontinued operations on the Consolidated Balance Sheets. The Company’s estimate may change as more information becomes available; however, the costs are not expected to have a material adverse effect on the Company’s results of operations, financial position or cash flow.

The following is a list of the Company’s executive officers, their ages, business experience and positions as of February 1, 2018:2019:

Jennifer L. Sherman, age 53,54, was appointed President and Chief Executive Officer effective January 1, 2016. Ms. Sherman was also appointed to the Board of Directors effective January 1, 2016. Since joining the Company in 1994, Ms. Sherman has served in various roles of increasing responsibility, most recently as Senior Vice President and Chief Operating Officer from April 2014 to December 31, 2015. Ms. Sherman also previously served as Senior Vice President, Chief Administrative Officer, General Counsel and Secretary from 2010 to April 2014, Senior Vice President, Human Resources, General Counsel and Secretary from 2008 to 2010, and Vice President, General Counsel and Secretary from 2004 to 2008.

Robert E. Fines, age 59,60, was appointed Vice President and General Manager of TBEI in June 2017, following the Company’s acquisition of TBEI, where Mr. Fines had served as Chief Executive Officer since 2008. Prior to joining TBEI, Mr. Fines held senior management positions at Kirtland Capital, Avery Dennison and GE Plastics.

Ian A. Hudson, age 41,42, was appointed Senior Vice President and Chief Financial Officer in October 2017. Mr. Hudson joined the Company in August 2013 as Vice President and Corporate Controller. Prior to joining the Company, Mr. Hudson served as Director of Accounting – Latin America and Asia Pacific at Groupon, Inc. from June 2012 to August 2013. Prior to that role, Mr. Hudson worked at Ernst & Young, LLP from 1998 to 2012, most recently as Senior Audit Manager.

Mark D. Weber, age 60,61, was appointed Senior Vice President and Chief Operating Officer in January 2018, upon rejoining the Company after four years at Supreme Industries, Inc. (“Supreme”). Mr. Weber joined Supreme in May 2013 as President and Chief Executive Officer, serving in that capacity up to the sale of Supreme to Wabash National Corporation, which was completed in September 2017. Prior to joining Supreme, Mr. Weber worked for 17 years as an executive within the Company’s Environmental Solutions Group, including a decade as Group President.

These officers hold office until the next annual meeting of the Board of Directors following their election and until their successors have been elected and qualified.

There are no family relationships among any of the foregoing executive officers.

We may occasionally make forward-looking statements and estimates such as forecasts and projections of our future performance or statements of our plans and objectives. These forward-looking statements may be contained in, but are not limited to, filings with the SEC, including this Form 10-K, press releases made by us and oral statements made by our officers. Actual results could differ materially from those contained in such forward-looking statements. Important factors that could cause our actual results to differ from those contained in such forward-looking statements include, but are not limited to, the risks described below.

In 2017,2018, we generated approximately 75%78% of our net sales in the U.S. Our ability to be profitable depends heavily on varying conditions in the U.S. governmental and municipal markets, as well as the overall U.S. economy. The industrial markets in which we compete are subject to considerable cyclicality, and move in response to cycles in the overall business environment. Many of our customers are municipal government agencies, and as a result, we are dependent on municipal government spending. Spending by our municipal customers can be affected by federal, state and local political circumstances, budgetary constraints, changing priorities, actual or potential government shutdowns and other factors. The U.S. government and municipalities depend heavily on tax revenues as a source of spending and accordingly, there is a historical correlation that suggests a lag of one to two years between the condition of the U.S. economy and our sales to the U.S. government and municipalities. Therefore, downturns in the U.S. economy are likely to result in decreases in demand for our products. During previous economic downturns, we experienced decreases in sales and profitability, and we expect our business to remain subject to similar economic fluctuations in the future. In addition, the extent of any potential impact of the enactment of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) on the U.S. economy is currently uncertain. Changesmay result in changes in federal, state and local tax revenues which may result from the 2017 Tax Act may have ancould impact ongovernmental spending and demand for our products.

Our business is subject to fluctuations in demand and changing international economic, legal and political conditions that are beyond our control. In 2017,2018, approximately 25%22% of our net sales were to customers outside the U.S. and we expect a significant portion of our revenues to come from international sales in the foreseeable future. Operating in the international marketplace exposes us to a number of risks, including the need to comply with U.S. and foreign laws and regulations applicable to our foreign operations, such as the Foreign Corrupt Practices Act, the United Kingdom (“U.K.”) Bribery Act and their counterparts in other foreign jurisdictions in which we operate, restrictive domestic and international trade regulations, including the imposition of tariffs and trade barriers on our products, changes in these laws, regulations and policies by the U.S. and foreign governments,governments. In addition, we may be exposed to risks associated with actual or threatened imposition of tariffs or trade barriers on our products or materials incorporated into our products, actual or threatened trade disputes, including so-called “trade wars,” political and economic instability in the jurisdictions in which we operate, foreign receivables collection risk, local labor market conditions, and, in some cases, international hostilities. The costs of compliance with these various laws, regulations and policies can be significant and penalties for non-compliance could significantly impact our business.

To the extent that our international operations are affected by adverse foreign economic or political conditions, we may experience disruptions and losses which could have a material impact on our financial position, results of operations or cash flow. To mitigate the risk of foreign receivables collection, we may obtain letters of credit from international customers to satisfy concerns regarding the collectability of amounts billed to customers.

Some of our contracts are denominated in foreign currencies, which may expose us to risks of fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. Changes in the value of foreign currencies over the long term could increase our U.S. dollar costs for, or reduce our U.S. dollar revenues from, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency fluctuations could adversely affect our results of operations.

Economic downturns result in tighter credit markets, which could adversely affect our customers’ ability to secure financing or to secure financing at favorable terms or interest rates necessary to proceed or continue with purchases of our products and services. Our customers’ or potential customers’ inability to secure financing for projects could result in the delay, cancellation or downsizing of new purchases or the suspension of purchases already under contract, which could cause a decline in the demand for our products and services and negatively impact our financial position, results of operations or cash flow.

We place a high priority on developing new products and services, as well as enhancing our existing products and services. As a result of these efforts, we may be required to expend substantial research, development and marketing resources, and the time and expense required to develop a new product or service or enhance an existing product or service are difficult to predict. We may not succeed in developing, introducing or marketing new products or services or product or service enhancements. In addition, we cannot be certain that any new or enhanced product or service will generate sufficient revenue to justify the expense and resources devoted to the related product diversification effort.

We continue to evaluate opportunities to restructure our business and rationalize our manufacturing operations in an effort to optimize our cost structure. These actions could result in significant charges that could adversely affect our financial condition and results of operations. Future actions could result in restructuring and related charges, including but not limited to impairments, employee termination costs and charges for pension and other postretirement contractual benefits and pension curtailments that could be significant and could have an adverse effect on our financial condition, results of operations or cash flow.

The markets in which we operate are highly competitive. Many of our competitors have significantly greater financial resources than we do. The intensity of this competition, which is expected to continue, can result in price discounting and margin pressures throughout the industry and may adversely affect our ability to increase or maintain prices for our products. In addition, certain of our competitors may have lower overall labor or material costs. In some cases, our contracts with municipal and other governmental customers are awarded and renewed through competitive bidding. We may not be successful in obtaining or renewing these contracts, which could have an adverse effect on our financial condition, results of operations or cash flow.

We are exposed to product liability and warranty claims in the normal course of business in the event that our products actually or allegedly fail to perform as expected, or the use of our products results, or is alleged to result, in bodily injury and/or property damage. For example, we have been sued by firefighters seeking damages claiming that exposure to our sirens has

We are engaged in an industry that will be affected by future technological developments. The introduction of products or processes utilizing new technologies could render our existing products or processes obsolete or unmarketable. Our success will depend upon our ability to develop and introduce on a timely and cost-effective basis new products, applications and

processes that keep pace with technological developments and address increasingly sophisticated customer requirements. We may not be successful in identifying, developing and marketing new products, applications and processes and product or process enhancements. We may experience difficulties that could delay or prevent the successful development, introduction and marketing of product or process enhancements or new products, applications or processes. Our products, applications or processes may not adequately meet the requirements of the marketplace and achieve market acceptance. Our financial condition, results of operations or cash flow could be materially and adversely affected if we were to incur delays in developing new products, applications or processes or product or process enhancements, or if our products do not gain market acceptance.

We purchase from suppliers raw materials, component parts and finished goods to be used in the manufacturing and sale of our products. In addition, we may incorporate vehicle chassis provided directly by our customers in our production process. Changes in our relationships with suppliers, shortages or production delays, whether due to our suppliers or customers, regulatory restrictions or work stoppages by the employees of our suppliers or the chassis suppliers for our customers could have a material adverse effect on our ability to timely manufacture and market products. In addition, increases in the costs of purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or our inability to market products. In addition, our profit margins would decrease if prices of purchased raw materials, component parts or finished goods increase and we are unable to pass on those increases to our customers.

Our ability to operate our businesses and implement our strategies depends in part on the efforts of our executive officers and other key employees. In addition, our future success will depend on, among other factors, our ability to attract and retain qualified personnel. The loss of the services of any key employee or the failure to attract or retain other qualified personnel could have a material adverse effect on our business or business prospects.

We rely on national and global dealer networks to market certain of our products and services. A disruption in our dealer network, or with a significant dealer, or within a specific market, could have an adverse impact on our business within the affected market. In addition, our dealers require adequate liquidity to finance their operations, including purchases of our products. Dealers are subject to numerous risks and uncertainties that could unfavorably affect their liquidity positions, including, among other things, continued access to adequate financing sources on a timely basis on reasonable terms. These sources of financing are vital to our ability to sell products through our dealer network. Deterioration in the liquidity or credit worthiness of our dealers could have a significant adverse effect on our business. The loss or termination of a significant dealer,

or a significant number of dealers, could cause difficulties in marketing and distributing our products and have an adverse effect on our business, financial condition, results of operations or cash flow.

As a portion of our workforce is unionized, we are subject to risk of work stoppages and other labor relations matters. As of December 31, 2017,2018, approximately 18%17% of our U.S. hourly workers were represented by labor unions and were covered by collective bargaining agreements with various unions. Many of these agreements include provisions that limit our ability to realize cost savings. Our current collective bargaining agreement with the International Brotherhood of Electrical Workers is due to expire in April 2019. Any strikes, threats of strikes or other organized disruptions in connection with the negotiation of new labor agreements or other negotiations could materially adversely affect our business as well as impair our ability to implement further measures to reduce costs and improve production efficiencies.

Our funding obligations and pension expense for our defined benefit pension plans are driven by the performance of assets set aside in trusts for these plans, the discount rate used to value the plans’ liabilities, actuarial assumptions and experience and legal and regulatory funding requirements. Changes in these factors could have an adverse impact on our financial condition, results of operations or cash flow. In addition, a portion of our pension plan assets are invested in equity securities, which can experience significant declines if financial markets weaken. The level of the funding of our defined benefit pension plan liabilities was approximately 80%79% as of December 31, 2017.2018. Funding of the Company’s U.S. defined benefit pension plan is determined in accordance with guidelines set forth in the Employee Retirement Income Security Act (“ERISA”). The current year funding status was impacted by a lower discount rate than in the prior year. Our future pension expenses and funding requirements could increase significantly due to the effect of adverse changes in the discount rate, asset values or the estimated expected return on plan assets. In addition, we could become legally required to make increased cash contributions to the pension plans, and these contributions could be material and negatively affect our cash flow.

We, like other manufacturers, continue to face heavy governmental regulation of our products, especially in the areas of the environment and employee health and safety. Complying with environmental and safety requirements has added and will continue to add to the cost of our products, and could increase the capital required to support our business. While we believe that we are in compliance in all material respects with these laws and regulations, we may be adversely impacted by costs, liabilities or claims with respect to our operations under existing laws or those that may be adopted. These requirements are complex, change frequently and have tended to become more stringent over time. Therefore, we could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions as a result of violation of, or liabilities under, environmental laws and safety regulations. These requirements may increase the cost of our products, which may diminish demand for those products. In addition, uneven application of environmental or safety regulations could place our products at a cost or features disadvantage, which could reduce our revenues and profitability.

Our long-term strategy includes exploring acquisitions of companies or businesses to facilitate our growth, enhance our global market position and broaden our product offerings. Such acquisitions may help us expand into adjacent markets, add complementary products and services or allow us to leverage our distribution channels. In connection with this strategy, we could face certain risks and uncertainties in addition to those we face in the day-to-day operations of our business. We also may be unable to identify suitable targets for acquisition or to make acquisitions at favorable prices. If we identify a suitable acquisition candidate, our ability to successfully implement the acquisition would depend on a variety of factors, including our ability to obtain financing on acceptable terms. In addition, our acquisition activities could be disrupted by overtures from competitors for the targeted companies, governmental regulation and rapid developments in our industry that decrease the value of a potential target’s products or services.

Acquisitions involve risks, including those associated with the following:

We also may not achieve anticipated revenue and cost benefits associated with our acquisitions. Acquisitions may not be accretive to our earnings and may negatively impact our results of operations as a result of, among other things, the incurrence of debt, acquisition costs, impairment of goodwill and amortization of other intangible assets. In addition, future acquisitions could result in dilutive issuances of equity securities.

We may assume liabilities in connection with the acquisition of businesses. There may be liabilities that we fail or are unable to discover in the course of performing due diligence investigations on the acquired businesses, or that may be more material than we discovered. In these circumstances, we cannot assure that our rights to indemnification from the sellers of the acquired businesses to us will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the businesses or property acquired. Further, these liabilities could result in unexpected legal or regulatory exposure, unexpected increases in taxes or other adverse effects on our business. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial condition, results of operations or cash flow.

None.

As of December 31, 2017,2018, the Company utilized ten principal manufacturing plants located throughout the U.S., as well as two in Europe, one in Canada and one in South Africa. The Company also leases facilities within the U.S., Europe and Canada from which we provide sales, service and/or equipment rentals. As of December 31, 2017,2018, the Company devoted approximately 1.6 million square feet to manufacturing and 0.70.8 million square feet to sales, service, warehousing and office space. Of the total square footage, approximately 77%78% is devoted to the Environmental Solutions Group and 23%22% to the Safety and Security

The Company believes its properties, and related machinery and equipment, are well-maintained, suitable and adequate for their intended purposes. In the aggregate, these facilities are of sufficient capacity for the Company’s current business needs. However, the Company may make additional investments in certain facilities in the future in response to increased demand for the Company’s products.

The information concerning the Company’s legal proceedings included in Note 1112 – Legal Proceedings to the accompanying consolidated financial statements is incorporated herein by reference.

Not applicable.

PART II

As of January 31, 2018,2019, there were 1,5971,571 holders of record of the Company’s common stock.

Information concerning the Company’s equity compensation plans is included under Item 12 of Part III of this Form 10-K.

The following table summarizes selected financial information of the Company as of, and for each of the five years in the period ended, December 31, 2017:

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide information that is supplemental to, and shall be read together with, the consolidated financial statements and the accompanying notes contained in this Form 10-K. Information in MD&A is intended to assist the reader in obtaining an understanding of (i) the consolidated financial statements, (ii) the Company’s business segments and how the results of those segments impact the Company’s results of operations and financial condition as a whole and (iii) how certain accounting principles affect the Company’s consolidated financial statements.

The Company is a leading global manufacturer and supplier of (i) vehicles and equipment for maintenance and infrastructure end-markets, including sewer cleaners, vacuum trucks, street sweepers, dump truck bodies and trailers and (ii) safety, security and communication equipment, such as lights, sirens and warning systems. Following the acquisition of JJE in 2016, the Company also distributes and re-sells products manufactured by other companies, which include refuse and recycling collection vehicles, camera systems, ice resurfacing equipment and snow-removal equipment. In addition, we sell parts and provide service, repair, equipment rentals and training as part of a comprehensive aftermarket offering to our customer base. We operate 14 manufacturing facilities in five countries around the world and provide products and integrated solutions to municipal, governmental, industrial and commercial customers in all regions of the world.

During 2017,2018, the Company continued to focus on executing against its key long-term objectives, including the following:

The following table summarizes our Consolidated Statements of Operations and illustrates the key financial indicators used to assess our consolidated financial results:

Net sales increased by $190.6 million, or 27%, for the year ended December 31, 2017, compared to the prior year. Within the Environmental Solutions Group, net sales increased by $201.9 million, or 41%, largely due to the addition of $109.4 million of net sales from the TBEI acquisition, approximately $54.7 million of incremental net sales resulting from the prior-year JJE acquisition, including increases in rental income and sales of used equipment, and improved domestic sales of sewer cleaners and vacuum trucks. In the Safety and Security Systems Group, net sales decreased by $11.3 million, or 5%, primarily due to lower sales into global public safety markets and decreased sales of outdoor warning systems.

For the year ended December 31, 2017, cost of sales increased by $152.5$152.8 million, or 29%, compared to the prior year, largely due to an increase of $162.1$162.4 million, or 42%, within the Environmental Solutions Group, primarily driven by increased sales volumes, additional cost of sales from the TBEI acquisition and the effects of a full year of JJE activity in the current-year period2017 compared with seven months last year,in 2016, recognition of approximately $0.8 million more expense associated with purchase accounting effects and a $6.5 million increase in depreciation expense, largely resulting from depreciation on rental equipment acquired in the JJE transaction. This increase was partially offset by a decrease in cost of sales of $9.6 million, or

For the year ended December 31, 2017, gross profit increased by $38.1$37.8 million, or 21%, compared to the prior year, primarily due to a $39.8$39.5 million improvement in the Environmental Solutions Group, partially offset by a $1.7 million reduction within the Safety and Security Systems Group. Gross margin for the year ended December 31, 2017 was 24.6%, compared to 25.9% in the prior year, largely due to incremental depreciation expense and purchase accounting expense effects, partially offset by gross margin improvement within the Safety and Security Systems Group related to the savings associated with material and labor cost reduction initiatives.

For the year ended December 31, 2017, SEG&A expenses increased by $22.4$24.8 million, or 18%21%, primarily represented by a $21.0$21.1 million increase within the Environmental Solutions Group, largely the result of the addition of expenses of businesses acquired, in the current and prior year, a $4.7 million increase in amortization expense and strategic investments in our sales force to support our organic growth initiatives. SEG&A expenses with the Safety and Security Systems Group decreasedincreased by $0.6$0.3 million in comparison to the prior year, while Corporate SEG&A expenses increased by $2.0$3.4 million, primarily driven by the recognition of $0.7 million in executive severance costs, increased legal expenses associated with hearing loss litigation and higher employee incentive compensation costs, partially offset by lower pension expenses.costs.

Operating income for the year ended December 31, 2017 increased by $9.4$12.8 million, or 16%21%, to $67.1$73.6 million, primarily driven by a $18.3$17.9 million operating income improvement within the Environmental Solutions Group, associated with increased sales volumes, a $6.2 million operating income contribution from TBEI and the effects of including a full year of operating income from JJE in 2017, compared to only seven months in the prior year.2016. TBEI’s operating income contribution in the current-year period2017 included the effects of amortization expense on intangible assets acquired, which, coupled with the increased JJE activity, contributed to an increase in the Environmental Solutions Group’s depreciation and amortization expense of $11.2 million. In addition, there was a $0.8 million increase in purchase accounting expense effects and a $0.5 million increase in acquisition-related costs in the current year.2017. Within the Safety and Security Systems Group, operating income in the year ended December 31, 2017 was unchanged from the prior year at $27.0decreased by $0.9 million, with reductions in SEG&A expenses and restructuring expenses of $0.6 million and $1.1 million, respectively, offsetting athe $1.7 million decrease in gross profit.profit and $0.3 million increase in SEG&A expenses being partially offset by a $1.1 million reduction in restructuring charges. In addition to the $2.0$3.4 million increase in SEG&A expenses, corporate expenses in the year ended December 31, 2017 also included a $6.1 million pension settlement charge, a $0.8 million increase in acquisition-related expenses and higher expenses associated with hearing loss litigation.expenses. Consolidated operating margin for the year ended December 31, 2017, inclusive of the incremental depreciation and amortization, purchase accounting expense effects, pension and hearing loss settlement charges and acquisition costs, was 7.5%8.2%, compared to 8.2%8.6% in the prior year.

Interest expense for the year ended December 31, 2017 increased by $5.4 million or 284%, compared to the prior year, largely due to higher average debt levels following the acquisition of TBEI.

The Company recognized income tax expense of $0.5 million for the year ended December 31, 2017, compared to $17.4 million for the year ended December 31, 2016. The decrease in expense was primarily due to the recognition of a $23.0 million net tax benefit associated with the revaluation of the Company’s net deferred tax liabilities in the U.S. following the reduction of the federal corporate tax rate included in the 2017 Tax Act, partially offset by a $2.2 million net increase in valuation allowance, inclusive of a $3.0 million valuation allowance recorded against the Company’s foreign tax credits as a result of the enactment of the 2017 Tax Act, the recognition of $0.6 million of additional tax expense associated with a change in the state tax rate in Illinois, and additional taxes resulting from higher pre-tax earnings. The Company’s effective tax rate for the year

Income from continuing operations was $60.5 million for the year ended December 31, 2017, compared with $39.4 million in the prior year, largely due to the improved operating income, the $16.9 million reduction in income tax expense, the $2.6 million increase in other income and the absence of $0.3 million in debt settlement charges, in connection with the Company’s prior-year debt refinancing, partially offset by the $5.4 million increase in interest expense, associated with higher average debt levels following the acquisition of TBEI and the $0.1$6.1 million reduction in other income.pension settlement charge.

On the date of acquisition, JJE had a backlog of orders from its end customers of $43.3 million. These acquired orders were included in total orders reported for the year ended December 31, 2016.

On the date of acquisition, TBEI had a backlog of orders from its end customers of $44.8 million. These acquired orders were included in total orders reported for the year ended December 31, 2017.

U.S. municipal and governmental orders increased by $55.8 million, or 18%, primarily due to a $56.0 million improvement within the Environmental Solutions Group, largely represented by increases in orders for street sweepers and sewer cleaners of $24.0 million and $20.4 million, respectively, and a $13.9 million increase in orders for dump truck bodies following the acquisition of TBEI. This improvement was partially offset by a $0.2 million reduction in municipal orders within the Safety and Security Systems Group.

U.S. industrial and commercial orders increased by $247.0 million, or 140%, largely driven by a $239.9 million increase within the Environmental Solutions Group, primarily related to improvements in orders for vacuum trucks and sewer cleaners of $50.4 million and $29.2 million, respectively, the acquisition of TBEI, which contributed $138.0 million, and the effects of the inclusion of JJE orders for a full year in 2017 versus seven months in 2016. Within the Safety and Security Systems Group, industrial orders were up $7.1 million, due to increased orders of outdoor warning systems, public safety products and industrial products of $4.0 million, $2.5 million and $0.6 million, respectively.

Non-U.S. orders increased by $40.8 million, or 21%, largely due to a $35.6 million increase within the Environmental Solutions Group, reflecting increased Canadian orders following the acquisition of JJE in June of 2016. Orders within the Safety and Security Systems Group increased by $5.2 million, driven by improved orders in industrial and coal markets, partially offset by reduced orders from international public safety markets.

Backlog was $337.7 million at December 31, 2018 as compared to $257.5 million at December 31, 2017 as compared to $137.0 million at December 31, 2016.2017. The increase of $120.5$80.2 million, or 88%31%, was primarily due to a $114.5$79.2 million increase in backlog within the Environmental Solutions Group, largely due to the TBEI acquisition, whose backlog at December 31, 2017 was $42.5 million, and higher demand for vacuum trucks, sewer cleaners and street sweepers in the U.S. In addition, backlog within the Safety and Security Systems Group improved by $6.0$1.0 million, primarily due to increased orders for outdoor warnings systems, as well as the timing of large police orders within public safety markets.products.

The following table summarizes the Environmental Solutions Group’s operating results as of and for the years ended December 31, 2018, 2017 2016 and 2015:2016:

The following table summarizes the Safety and Security Systems Group’s operating results as of and for the years ended December 31, 2018, 2017 2016 and 2015:2016:

Year ended December 31, 2017 vs. year ended December 31, 2016

Corporate operating expenses were $32.3$25.6 million, $23.4$25.8 million and $26.0$21.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.

For the year ended December 31, 2018, corporate operating expenses decreased by $0.2 million, primarily driven by a $1.2 million decrease in acquisition and 2015, respectively.integration-related expenses, reductions in hearing loss litigation and post-employment expenses and the absence of $0.7 million in executive severance costs, partially offset by higher employee incentive and stock compensation costs.

For the year ended December 31, 2017, corporate operating expenses increased by $8.9$4.2 million, primarily driven by a $6.1 million pension settlement charge, a $0.8 million increase in acquisition and integration-related expenses associated with the TBEI acquisition, the recognition of $0.7

TBEI acquisition, the recognition of $0.7 million in executive severance costs, increased legal expenses associated with hearing loss litigation and higher employee incentive compensation costs, partially offset by lower pension expenses.

The Company useduses its cash flow from operations to fund growth and to make capital investments that sustain its operations, reduce costs, or both. Beyond these uses, remaining cash is used to pay down debt, repurchase shares, fund dividend payments and make pension contributions. The Company may also choose to invest in the acquisition of businesses. In the absence of significant unanticipated cash demands, we believe that the Company’s existing cash balances, cash flow from operations and borrowings available under the Amended 2016 Credit Agreement will provide funds sufficient for these purposes. The net cash flows associated with the Company’s rental equipment transactions are included in cash flow from operating activities. Subsequent to the acquisition of JJE, net cash flows from rental equipment transactions mayhave become more significant, and as such, cash flow from operating activities may not be directly comparable with amounts reported in periods prior to the acquisition.

The Company’s cash and cash equivalents totaled $37.4 million, $37.5 million $50.7 million and $76.0$50.7 million as of December 31, 2018, 2017 2016 and 2015,2016, respectively. As of December 31, 2017, $20.22018, $19.9 million of cash and cash equivalents was held by foreign subsidiaries. Cash and cash equivalents held by subsidiaries outside the U.S. typically are held in the currency of the country in which it is located. This cash is used to fund the operating activities of our foreign subsidiaries and for further investment in foreign operations. Historically, we considered such cash to be permanently reinvested in our foreign operations and our current plans do not demonstrate a need to repatriate such cash to fund U.S. operations. However, in the event that these funds were needed to fund U.S. operations or to satisfy U.S. obligations, they generally could be repatriated. The repatriation of these funds may have caused us to incur additional U.S. income tax expense, dependent on income tax laws and other circumstances at the time any such amounts were repatriated.

Net cash provided by continuing operating activities totaled $92.8 million, $73.5 million and $26.7 million in 2018, 2017 and $91.1 million in 2017, 2016, and 2015, respectively. The $19.3 million, or 26%, increase in cash generated by continuing operating activities in 20172018 compared to 2016the prior year was largely the result ofprimarily due to higher earnings and benefits from reductionsadditional cash generated by TBEI in primary working capitala full-year of activity this year compared to seven months in the prior year. These improvements were partially offset by increases in income tax payments and pension contributions of $7.7 million and $2.4 million, respectively, as well as higher incentive compensation payments in comparison to the same period of the prior year. We began 2017 with higher total primary working capital levels (defined as accounts receivable and inventories, net, less accounts payable and customer deposits, excluding primary working capital acquired during the year) than when entering the prior year, partly due to the acquisition of JJE, whose inventory levels at any point in time can fluctuate based on demand given the distribution model, as well as the advanced purchase of inventory to meet anticipated production requirements. Partially offsetting this improvement was a $5.5 million year-over-year increase in interest payments. The operating cash flow in the prior-year period was also lower by approximately $11 million as a result of the non-cash settlement, in connection with the acquisition, of accounts receivable due from JJE.

Net cash used for continuing investing activities totaled $11.0 million, $277.1 million and $103.0 million in 2018, 2017 and $11.5 million in 2017, 2016, and 2015, respectively. In each of the years presented, cash was used to fund the purchase of properties and equipment, with $14.1 million, $8.0 million $6.1 million and $9.6$6.1 million of capital expenditures in 2018, 2017 2016 and 2015,2016, respectively. As discussed in Note 23 – Acquisitions, in 2017,2018, the Company paidreceived an adjustment for working capital and other post-closing items in the amount of $3.0 million relating to the TBEI acquisition, which was completed in 2017 for an initial payment of $269.2 million to acquire TBEI.million. In 2016, the Company paid $96.6 million to acquire

NetIn 2018, net cash of $81.2 million was used for continuing financing activities, while in 2017, net cash of $190.7 million was provided by continuing financing activities in 2017, compared with a netactivities. In 2018, the Company repaid $62.1 million of borrowings under its revolving credit facility, funded cash usagedividends of $37.1$18.7 million and $33.0repurchased $1.2 million in 2016 and 2015, respectively.of treasury stock. In 2017, in connection with the funding of the acquisition of TBEI, the Company borrowed $243.0 million against its revolving credit facility.

Between the TBEI acquisition date and the end of 2017, approximately $34 million of net borrowings were repaid. In addition, the Company funded cash dividends of $16.8 million and redeemed $2.9 million of stock in order to remit funds to tax authorities to satisfy employees’ minimum tax withholdings following the vesting of stock-based compensation. In 2016, the Company borrowed $64.8 million against its revolving credit facility, funded cash dividends of $16.9 million, repurchased $37.8 million of treasury stock, and redeemed $2.7 million of stock in order to remit funds to tax authorities to satisfy employees’ minimum tax withholdings following the vesting of stock-based compensation. The Company also paid the remaining $43.4 million of term loan debt outstanding under the Company’s March 13, 2013 Credit Agreement (the “2013 Credit Agreement”) and spent $1.1 million on fees in connection with its debt refinancing. In 2015, the Company funded cash dividends of $15.6 million, repurchased $10.6 million of treasury stock, and redeemed $3.2 million of stock in order to remit funds to tax authorities to satisfy employees’ minimum tax withholdings following the vesting of stock-based compensation. The Company also paid $5.8 million in scheduled term loan repayments. Offsetting these financing cash outflows were $1.0 million of proceeds from stock option exercises and a $1.6 million excess tax benefit, representing the difference between stock-based compensation expense deductible for income tax and recognized for financial reporting purposes.

For the year ended December 31, 2017, there was no cash drawn against2018, gross payments and gross borrowings under the Company’s non-U.S. lines of credit which provide for borrowings up to $0.2 million.

The Company paid income taxes of $21.6 million in 2018, $13.9 million in 2017 and $13.3 million in 2016 and $9.6 million in 2015.2016.

The following table summarizes the Company’s contractual obligations and payments due by period as of December 31, 2017:2018:

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company considers the following policies to be the most critical in understanding the judgments that are involved in the preparation of the Company’s consolidated financial statements and the uncertainties that could impact the Company’s financial condition, results of operations or cash flow.

Goodwill represents the excess of the cost of an acquired business over the amounts assigned to its net assets. Goodwill is not amortized but is tested for impairment at a reporting unit level on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair valuefrequently if indicators of a reporting unit below its carrying amount.impairment exist. The Company performed its annual goodwill impairment test as of October 31, 2017.2018.

A qualitative approach is applied when the Company concludes that it is not “more likely than not” that the fair value of a reporting unit is less than its carrying value. In this situation, the Company would not be required to perform the two-stepquantitative impairment test described below. Management applied the qualitative approach to assess the goodwill of its reporting units for potential impairment in 2018 and 2017 and concluded that it was not “more likely than not” that the fair value of the Company’s reporting units were less than their carrying values.

The first step inAs previously described, the quantitative two-step approach is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of theno impairment testcharge is unnecessary.required. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwillthis difference is recorded as an impairment test is performedcharge not to measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill withexceed the carrying amount of that goodwill. If the carrying amountThe

Company generally determines the fair value of its reporting units using two valuation methods: the “Income Approach — Discounted Cash Flow Analysis” method, and the “Market Approach — Guideline Public Company Method.”

Under the “Income Approach — Discounted Cash Flow Analysis” method, the key assumptions consider projected sales, cost of sales and operating expenses. These assumptions wereare determined by management utilizing our internal operating plan, including growth rates for revenues and operating expenses and margin assumptions. An additional key assumption under this approach is the discount rate, which is determined by reviewing current risk-free rates of capital and current market interest rates and by evaluating the risk premium relevant to the business segment. If our assumptions relative to growth rates were to change, our fair value calculation may change, which could result in impairment.

Under the “Market Approach — Guideline Public Company Method,” the Company identifiedidentifies several publicly traded companies, which we believe have sufficiently relevant similarities to our businesses. For these companies, the Company useduses market values to calculate the mean ratio of invested capital to revenues and invested capital to EBITDA. Similar to the income approach discussed above, sales, cost of sales, operating expenses and their respective growth rates are key assumptions utilized. The market prices of the Company’s common stock and other guideline companies are additional key inputs. If these market prices increase, the estimated market value would increase. Conversely, if market prices decrease, the estimated market value would decrease.

The results of these two methods are weighted based upon management’s evaluation of the relevance of the two approaches.

Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from estimated financial results due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of any goodwill impairment charge, or both. Future declines in the overall market value of the Company may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value.

Revenue is measured as the outsetamount of an arrangement,consideration the Company determines the arrangement fee is not, or is presumed notexpects to be fixedentitled to in exchange for transferring products or determinable, revenue is deferredproviding services. Expected returns and subsequentlyallowances are estimated and recognized as amounts become duebased primarily on an analysis of historical experience, with Net sales presented net of such returns and payable and all other criteria for revenue recognition have been met.allowances.

The Company enters into sales arrangements that may provide for multiple deliverablesperformance obligations to a customer. These arrangements may include software and non-software components that function together to deliver the products’ essential functionality. The Company identifies all goods and/or servicesperformance obligations that are to be delivered separately under the sales arrangement and allocates revenue to each deliverableperformance obligation based on its relative fair values. Fair values are generally established using reliable third-party objective evidence, or management’s best estimate ofstandalone selling price. The Company uses an observable price to determine the standalone selling price including prices chargedor a cost plus margin approach when sold separately by the Company.one is not available. In general, revenues are separated betweenperformance obligations include hardware, integration and installation services. The allocated revenue for each deliverableperformance obligation is then recognized using appropriate revenue recognition methods.as such performance obligations are satisfied.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recorded with respect to net operating losses and other tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income of the period that includes the enactment date.

In the fourth quarter ofDecember 2017, the 2017 Tax Act was enacted. Among its provisions, the 2017 Tax Act reducesreduced the U.S. federal corporate tax rate from 35% to 21% (effective in 2018), requiresrequired companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and createscreated new taxes on certain foreign sourced earnings. As discussed in Note 1 - Summary of Significant Accounting Policies, the consolidated financial statements for the year ended December 31, 2017 include the Company’s provisional estimates of the impact of the 2017 Tax Act, in accordance with SAB 118. The Company expects to adjust the provisional amounts throughout the measurement period as the Company’s calculations are refined and additional interpretive guidance becomes available.

Due to the measurement period as additional interpretivecomplexities of implementing the provisions of the 2017 Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance is issued.

The guidance on accounting for income taxes provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. A high degree of judgment is required to determine if, and the extent that, valuation allowances should be recorded against deferred tax assets. A valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized.

We continually evaluate the need to maintain a valuation allowance for deferred tax assets based on our assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance.