UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-K
(Mark One)
| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the fiscal year ended December 31, 20192022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to
Commission File Number 1-6003
FEDERAL SIGNAL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 36-1063330 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
1415 West 22nd Street,, Oak Brook,, Illinois
(Address of principal executive offices)
60523
(Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, par value $1.00 per share | FSS | New York Stock Exchange | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
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.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | ||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||||
| Emerging growth company | ☐ | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | |||||||||||||||||
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of June 30, 2019,2022, the aggregate market value of voting stock held by non-affiliates was $1,587,687,375.$2,110,562,803. For purposes of the foregoing calculation only, executive officers and directors of the registrant have been deemed to be affiliates.
As of January 31, 2020,February 28, 2023, the number of shares outstanding of the registrant’s common stock was 60,582,953.60,754,664.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Documents Incorporated By Reference
Portions of the registrant’s definitive proxy statement for the 20202023 Annual Meeting of Stockholders are incorporated by reference in Part III.
FEDERAL SIGNAL CORPORATION
TABLE OF CONTENTS
| PART I | Page | |||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 1B. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
| Item 7. | ||||||||
| Item 7A. | ||||||||
| Item 8. | ||||||||
| Item 9. | ||||||||
| Item 9A. | ||||||||
| Item 9B. | ||||||||
| PART III | ||||||||
| Item 10. | ||||||||
| Item 11. | ||||||||
| Item 12. | ||||||||
| Item 13. | ||||||||
| Item 14. | ||||||||
| PART IV | ||||||||
| Item 15. | ||||||||
| Item 16. | ||||||||
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.
These risks and uncertainties, some of which are beyond the Company’s control, include, but are not limited to, the risk factors described under Item 1A, Risk Factors as set forth in Part I, as well as those discussed elsewhere in this Form 10-K.10-K and in our subsequently filed documents, as applicable. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time.time including, for example, the ongoing coronavirus pandemic and the governmental responses to the pandemic. The Company cannot predict such factors, nor can it assess the impact, if any, of such factors on its results of operations, financial condition or cash flow. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results. The Company disclaims any responsibility to update any forward-looking statement provided in this Form 10-K.
ADDITIONAL INFORMATION
The Company is subject to the reporting and information requirements of the Exchange Act and, as a result, is obligated to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and information with the SEC, as well as amendments to those reports. The Company makes these filings available free of charge through our website at www.federalsignal.com as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC. Information on our website does not constitute part of this Form 10-K. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.
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PART I
Item 1. Business.
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, industrial vacuum loaders, vacuum- and hydro-excavation trucks (collectively, “safe-digging” trucks), street sweepers, road-marking and line-removal equipment, waterblasting equipment, dump truck bodies, trailers, and safety and security systems, including technology-based products and solutions for the public safety market. In addition, the Company engages in the sale of parts, service and repair, equipment rentals and training as part of a comprehensive aftermarket offering to its customers. The Company operates 1521 principal manufacturing facilities in five countries and provides products and integrated solutions to customers in all regions of the world.
Narrative Description of Business
Products manufactured and supplied, and services rendered, by the Company are divided into two reportable 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 the Company’s reportable segments.
Financial information concerning the Company’s two reportable segments for each of the three years in the period ended December 31, 2019,2022, is included in Note 17 – Segment Information to the accompanying consolidated financial statements and is incorporated herein by reference. Information regarding
During the Company’s discontinuedyear ended December 31, 2022, the Company completed the acquisition of substantially all of the assets and operations is included in Note 19 – Discontinued Operations to the accompanying consolidated financial statements and is incorporated herein by reference.of TowHaul Corporation (“TowHaul”).
Environmental Solutions Group
The Company’s Environmental Solutions Group is a leading manufacturer and supplier of a full range of street sweepers, sewer cleaners, industrial vacuum loaders, safe-digging trucks, high-performance waterblasting equipment, road-marking and line-removal equipment, dump truck bodies, trailers and trailers.metal extraction support equipment. The Group manufactures vehicles and equipment in the U.S. and Canada that are sold under the Elgin®, Vactor®, Guzzler®, TRUVACTM®, WestechTM, Jetstream®, Mark Rite Lines, Ox Bodies®, Crysteel®, J-Craft®, Duraclass®, Rugby®, Travis®, OSW, NTE, WTB, Ground Force, TowHaul®, Bucks® and TravisSwitch-N-Go®brand names. The Group’s product offerings also include certain products manufactured by other companies, such as refuse and recycling collection vehicles, camera systems, ice resurfacing equipment and snow-removal equipment. Products are sold to both municipal and industrial customers either through a dealer network or direct sales to service customers generally depending on the type and geographic location of the customer. 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 extended the Environmental Solutions Group’s existing sales channel and increased the number of service centers through which its parts, service and rental offerings can be provided to current and potential customers. The acquisition of JJE also broadened the Environmental Solutions Group’s product offerings to include other products, such as refuse and recycling collection vehicles, camera systems, ice resurfacing equipment and snow-removal equipment. In addition to vehicle and equipment sales, the Group also engages in the sale of parts, service and repair, equipment rentals and training as part of a completecomprehensive aftermarket offering to its current and potential customers through its service centers located across North America.
Under the Elgin brand name, the Company sells a leading U.S. brand of street sweepers primarily designed for large-scale cleaning of curbed streets, parking lots and other paved surfaces utilizing mechanical sweeping, vacuum and recirculating air technology. Vactor is a leading manufacturer of equipment solutions for cleaning and maintaining sewers and catch basins. Under the TRUVAC brand name, introduced in 2019, the Company manufactures a range of premium vacuum- and hydro-excavation trucks designed to satisfy the safe-digging requirements of businesses or organizations that locate and verify underground utility lines and pipes. Guzzler is a leader in industrial vacuum loaders used to manage industrial waste or recover and recycle valuable raw materials. Westech is a manufacturer of high-quality, rugged vacuum-excavation trucks. Jetstream manufactures high-pressure waterblasting equipment and accessories for commercial and industrial cleaning and maintenance operations. TheMark Rite Lines Equipment Company, Inc. (“MRL”), is a U.S. manufacturer of truck-mounted and ride-on road-marking and line-removal equipment. Ground Force Manufacturing LLC (“Ground Force”) and TowHaul are leading manufacturers of specialty vehicles that support the extraction of metals. Truck Bodies & Equipment International (“TBEI”) manufactures and sells dump truck bodies and trailers under the Ox Bodies, Crysteel, J-Craft, Duraclass, Rugby, Travis, OSW, NTE and TravisWTB brand names, as well as a range of interchangeable truck body systems and waste-hauling products under the Bucks and Switch-N-Go brand names.
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Safety and Security Systems Group
The Company’s Safety and Security Systems Group is a leading manufacturer and supplier of comprehensive systems and products that law enforcement, fire rescue, emergency medical services, campuses, military facilities and industrial sites use to protect people and property. Offerings include systems for community alerting, emergency vehicles, first responder interoperable communications and industrial communications. Specific products include public safety equipment, such as vehicle lightbars and sirens, industrial signaling equipment, public warning systems and general alarm/public address systems. Products are sold under the Federal SignalTM, Federal Signal VAMA®, and Victor®brand names. The Group operates manufacturing facilities in the U.S., EuropeSpain, the United Kingdom (“U.K.”), and South Africa.
Marketing and Distribution
Depending primarily on the type and geographic location of the end-customer, the Environmental Solutions Group uses either a dealer network including JJE, or direct sales to serve customers. The 2017 acquisition of Truck Bodies and Equipment International (“TBEI”) increased the number of dealers within the Company’s network and also added additional direct sales resources. The dealer network serves both municipal and industrial end-markets. Within municipal markets, the majority of the Company’s dealers operate exclusively in their assigned territory. In conjunction with selling vehicles to end-customers, dealer representatives demonstrate vehicle functionality and capability and provide vehicle service. In addition to selling products manufactured by the Company, JJE distributescertain of our businesses distribute and re-sellsre-sell products manufactured by other companies. The Company believes its regional, national and global dealer networks for vehicles is a distinguishing factor from its competitors. The Company has an ownership interest in certain dealers.
The Environmental Solutions Group’s direct sales channel concentrates primarily on the industrial, utility and construction market segments. To support current and potential customers in these market segments, and the service centers provide post-sale service, ancillary parts and equipment rentals. The acquisitionGroup also engages in the sale of JJE increased the number of service centers through which its parts, service and rental offerings can be provided to currentrepair, equipment rentals and potential customers.training through its service centers located across North America.
The Safety and Security Systems Group sells to industrial customers through wholesalers and distributors who are supported by Company sales personnel or independent manufacturer representatives. Products are also sold to municipal and governmental customers through active independent distributors, as well as through original equipment manufacturers and the direct sales force. The Company sells comprehensive integrated warning and interoperable communications through a combination of the direct sales force and independent distributors. International sales are made through independent foreign distributors or on a direct basis.
Customers and Backlog
No single customer accounted for 10% or more of the Company’s net sales in any year within the three-year period ended December 31, 2019. Of the $1,269.0 million total orders reported in 2019, approximately 34% were from U.S. municipal and governmental customers, 44% were from U.S. commercial and industrial customers and 22% were from non-U.S. customers.2022.
The Company’s backlog totaled $386.9$879 million at December 31, 20192022, compared to $337.7$629 million at December 31, 2018. The increase of $49.2 million, or 15%, was primarily due to continued strong demand for sewer cleaners and safe-digging trucks, as well as higher orders for road-marking and line-removal equipment and refuse trucks.2021. Backlogs vary by group due to the nature of the Company’s products and the buying patterns of its customers. The Environmental Solutions Group typically experiences an average backlog of approximately three to six months of shipments. The Safety and Security Systems Group typically experiences an average backlog of approximately two months of shipments. ProductionWhile supply chain disruption and customer demand have contributed to longer lead times for certain businesses, production of the Company’s December 31, 20192022 backlog is expected to be substantially completed during 2020.2023.
Suppliers
The Company purchases a wide variety of raw materials from around the world for use in the manufacture of its products, although the majority of currentits purchases are currently from North American sources. To minimize risks relating to availability, price and quality of key products and components, the Company is party to numerous strategic supplier arrangements. Although certain materials are obtained from either a single-source supplier or a limited number of suppliers, the Company has generally identified alternative sources to minimize the interruption of its business in the event of supply disruptions. However, the Company may incur supply disruptions and unanticipated costs in transitioning to a new supplier.
Components critical to the production of the Company’s vehicles, such as engines, are purchased from a select number of suppliers. The Company also purchases raw and fabricated steel, as well as commercial chassis, from multiple sources. In addition, we may incorporate chassis provided directly by our customers in our production process. AsIn those situations, the Company’s production processes rely upon the customer providing the chassis on a distributortimely basis. Certain of equipment manufactured by other companies, JJE reliesthe Company’s businesses also rely on the availability of equipmentinventory supplied by others to meet customer demand.
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suppliers, re-engineering products, expanding its supply base globally, leveraging overall purchasing volumes to obtain favorable pricing and availability in sufficient quantities and developing a closer working relationship with key suppliers. However, the Company believes it has adequate suppliescan provide no assurance that those efforts will be successful. Although global supply chain disruptions and sourcesinflationary pressure have recently shown some signs of availability ofeasing, the raw materialsCompany anticipates that component shortages, production delays and components necessary to meet its needs.elevated material costs may persist into 2023.
Competition
Within the Environmental Solutions Group, Elgin is recognized as a market leader among domestic sweeper competitors and differentiates itself primarily on product performance. The Vactor, TRUVAC and Guzzler brands each maintain a leading domestic position in their respective marketplaces by enhancing product performance with leading technology and application flexibility. Jetstream is a market leader in the in-plant cleaning segment of the U.S. waterblast industry, competing on product performance, rapid delivery and solutions services. JJEJoe Johnson Equipment, Inc. with Joe Johnson Equipment (USA), Inc., (collectively, “JJE”), is a leading Canadian-based distributor of maintenance equipment for municipal and industrial markets. TBEI includes a portfolio of regional dump truck body and trailer brands with market leadership positions in distinct geographies and product categories, differentiating itself with its broad regional distribution network, focus on customer responsiveness and operational expertise. MRL is a market-leading manufacturer of road-marking and line-removal equipment. Ground Force and TowHaul are leading manufacturers of specialty vehicles that support the extraction of metals.
Within specific product categories and domestic markets, the businesses within the Safety and Security Systems Group are among the market leaders. TheThis Group’s international market position varies from leader to ancillary participant depending on the geographic region and product line. Generally, competition is intense within all of thethis Group’s product lines and purchase decisions are made based on price, features, reputation, performance and service, often within competitive bidding situations.
Patents and Trademarks
The Company owns a number of patents and possesses rights under others to which it attaches importance, but it does not believe that its business as a whole is materially dependent upon any such patents or rights. The Company also owns a number of trademarks, including those listed within the “Narrative Description of Business” section above. We believe these trademarks are important in connection with the identification of our products and associated goodwill with customers, but no material part of the Company’s business is dependent on our trademarks.
The Company believes that its employees are key to its ability to deliver exceptional products and services to its customers. The Company applies a holistic total rewards strategy, designed to recruit, motivate, and retain talented employees at all levels of the organization and offer competitive, market-based compensation programs and attractive benefit packages.
Human Rights
The Company is committed to respecting and upholding the internationally recognized human rights principles of the United Nations’ Guiding Principles on Business and Human Rights and the Universal Declaration of Human Rights. In every state and country where the Company operates, it upholds standards that meet or exceed those established by local, state, and national legal frameworks, and the Company expects its partners, suppliers, vendors, and contractors to do the same. The Company has published a human rights policy, setting forth its commitment to equality and nondiscrimination, elimination of all forms of forced or compulsory labor, the effective abolition of childhood labor, workers’ rights to freedom of association and unionization, and protecting employees’ ability to confidentially report policy violations.
Diversity, Equity and Inclusion
The Company is committed to promoting and supporting diversity, equity and inclusion (“DE&I”). The Company believes that behaving inclusively is the right thing to do. The Company also believes that hearing different voices, and seeking different perspectives and ideas, leads to better results. The Company strives to promote diversity on its Board of Directors, senior
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management and in leadership roles throughout the Company. Currently, two of the Company’s seven directors self-identify as members of a minority group.
In addition, two of the Company’s directors are female, placing the Company in line with the average for companies in the Russell 3000 Index. Of the companies in the Russell 3000 Index, approximately 6% have a female Chief Executive Officer (“CEO”), and the Company is proud to be among that group. In addition, 60% of the Company’s current executive officers are female, including the Company’s President and CEO, Vice President and General Counsel, and Vice President, Chief Accounting Officer and Controller.
The Company’s commitment to DE&I throughout the organization is further evidenced by its policies related to various aspects of employment, including, but not limited to, recruiting, selecting, hiring, employment placement, job assignment, compensation, access to benefits, selection for training, use of facilities, and participation in Company-sponsored employee activities. During 2021, the Company’s Executive Leadership Team, comprised of business leaders from across the organization, completed a comprehensive DE&I educational awareness training led by an industry expert. In 2022, this same group completed additional training on the importance of building inclusive workplaces. Additionally, the Company piloted DE&I training at a key manufacturing location in 2022.
Employee Recruitment, Training and Development
The Company believes that identifying and developing the next generation of business leaders is important to its long-term success, and is proud to support its employees in furthering their education with tuition reimbursement programs and training.
The Company’s recruitment program follows a defined process to attract and hire top talent, including a college internship program designed to identify and cultivate an early-in-career pipeline of talent, and employee referral bonus programs. The Company additionally engages external professional recruiting firms to supplement its internal recruiting efforts, as needed.
The Company provides extensive training to employees within its facilities, ranging from topics such as workplace safety, anti-fraud, anti-discrimination and anti-harassment training, to advanced instruction in lean manufacturing principles and inside sales training programs. On average, the Company’s employees each receive more than 10 hours of job training per year, with some employees of certain business units each averaging nearly 80 hours of training per year.
Through its Tuition Assistance Program, the Company also aims to assist and encourage employees to expand their knowledge, skills, and job effectiveness by continuing their education at local accredited institutions of higher learning. Certain of the Company’s businesses also partner with nearby universities, from time to time, to offer courses and programs directly related to the employee’s growth in the business.
The Company maintains a robust annual performance management process across the organization. Employees start the process by working with their supervisors to set individual performance goals. Progress against those objectives is tracked throughout the year, culminating in the year-end performance review process, which involves the completion of an employee self-assessment and a discussion between the employee and their supervisor on goal accomplishment and defined core competencies. In addition, the Company’s annual talent and succession management processes are designed to identify and develop next-level successors through a variety of assignments and experiential learning.
The Company actively seeks opportunities for regular engagement and communication with its CEO and other senior executive leaders with its broader employee population. In addition, many of the Company’s businesses perform employee engagement surveys that provide valuable feedback to the management teams.
The Company is committed to the communities in which it operates, and to developing a strong pipeline from which it can recruit new talent. Many of the Company’s businesses support their local high schools with cooperative learning extension programs at their manufacturing plants, hosting in-person or virtual tours of our facilities, and providing scholarships and “signing-day” offers to high school seniors. The Company’s employees raise funds and donate time to a variety of community engagement initiatives and support expanded outreach to diverse communities.
The Company’s employees also donate time and expertise through volunteering and mentorship programs, and work with local colleges on training programs to teach valuable technical skills that can be applied in the workplace. Many of the Company’s businesses also recruit summer interns from regional universities, providing hands-on experience in a manufacturing setting and building a pipeline for future engineers, information technology specialists and financial analysts. These programs attempt to help the Company’s next generation, and others, understand what career paths may be available to them and to explore future job opportunities with the Company.
Safety
The Company considers the safety of its employees a significant focus and strives to have zero workplace injuries. The Company has established an enterprise-wide Safety Council, which includes representatives from several of our manufacturing facilities. The Safety Council meets regularly to collaborate and implement safety improvement measures, including workplace
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hazard reduction programs and awards focusing on continuous improvement initiatives and the reduction of incident frequency.
The Company continues to monitor the impact of the pandemic on its business and employees, while ensuring the ongoing support of customer sites to remain operational, and will implement or modify its policies to adapt to changing circumstances arising from the coronavirus pandemic.
Governmental Regulation of the Environment
As part of its ongoing commitment to environmental, social and governance initiatives, the Company endeavors to establish environmentally-friendly policies and objectives, and believes that these actions are also consistent with cost-effective operating practices. With the application of these policies, 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. Capital expenditures in 20192022 attributable to compliance with such laws were not material. The Company also 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.
Seasonality
Certain of the Company’s businesses are susceptible to the influences of seasonal factors, including buying patterns, delivery patterns and productivity influences from holiday periods and weather. In general, the Company tends to have lower equipment sales in the first calendar quarter of each year compared to other quarters as a result of these factors. In addition, rental income and parts sales are generally higher in the second and third quarters of the year, because many of the Company’s products are used for maintenance activities in North America, where usage is typically lower during periods of harsher weather conditions.
Executive Officers of the Registrant
The following is a list of the Company’s executive officers, including their ages, business experience and positions as of February 1, 2020:2023:
Jennifer L. Sherman, age 55,58, was appointed President and Chief Executive OfficerCEO 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.
Lauren B. Elting, age 38,41, was appointed Vice President and Chief Accounting Officer in April 2022. Ms. Elting also serves as the Company’s Corporate Controller, ina position she has held since May 2018. Prior to joining the Company in January 2017, Ms. Elting worked at Ernst & Young, LLP from 2004 to 2016, most recently as Senior Audit Manager.
Ian A. Hudson, age 43,46, 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 62,65, 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.
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Item 1A. Risk Factors.
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.
Macroeconomic and Industry Risks
Our financial results are subject to U.S. economic uncertainty.
In 2019,2022, we generated approximately 78%80% 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. Certain market factors indicate the U.S. economy may experience a significant downturn in the near future. 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 changes to policies and regulations under the current U.S. administration, and how any such changes may impact the Company’s operations, is currently uncertain.
The extent to which the coronavirus pandemic will continue to adversely impact our business, financial condition and operating results is highly uncertain and cannot be predicted but could be material.
The coronavirus pandemic has created, and may continue to create, significant worldwide volatility, uncertainty and disruption, including substantial curtailment of business activities, slowdowns, suspensions or delays of production and commercial activity, and weakened economic conditions, both in the United States and in many foreign countries. The actual and potential impacts of the pandemic that could adversely impact the Company’s business, financial condition and operating results, which could be material, will depend on numerous evolving factors, including the emergence of new variants, decreased labor availability, production delays and continued supply chain disruptions, and changes in safety protocols. Additionally, a possible recession or market correction resulting from the spread of coronavirus, or otherwise, could materially affect our business and the value of our stock. To the extent coronavirus adversely affects our business, it may heighten other risks described in this “Risk Factors” section.
We have international operations that are subject to compliance with domestic and foreign laws and regulations, economic and political uncertainties and conflicts and foreign currency rate fluctuations.
Our business is subject to fluctuations in demand and changing international economic, legal and political conditions that are beyond our control. In 2019,2022, approximately 22%20% 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, and changes in these laws, regulations and policies by the U.S. and foreign governments. In addition, we may be exposed to risks and adverse economic effects associated with changes in tax laws, geopolitical conflicts, 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 and local labor market conditions,conditions. Further, government administrations and agencies, the investment community, employees and other stakeholders have had an increased focus on certain climate change and other environmental, social and governance (“ESG”) factors, issues and initiatives. Regulatory and other legal changes in some cases, international hostilities.laws in response to such ESG matters could require material efforts and costs by us to comply with such changes. The costs of compliance with thesethe various laws, regulations and policies canapplicable to us could be significant and penalties for non-compliance could significantly impact our business.
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To the extent that our international operations are affected by adverse foreign economic or political conditions, we may experience disruptions and losses that 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.
Recent increases in inflation in the United States and elsewhere could adversely affect our business.
We are subjectexposed to a numberinflation effects, which could negatively affect our business, financial condition and results of restrictive debt covenants.
The execution of our growth strategy is dependent upon the continued availability of credit and third-party financing arrangements for our customers.
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. Further, certain government agencies, including the U.S. Treasury, have implemented or signaled the implementation of policies that have resulted and may continue to result in significantly increased interest rates and borrowing costs. 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 operate in highly competitive markets.
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.
Strategic and Operational Risks
The inability to obtain raw materials, component parts and/or finished goods in a timely and cost-effective manner would adversely affect our ability to manufacture and market our products.
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. Although the vast majority of our raw materials and component parts are sourced domestically, certain of our suppliers are based overseas, and certain of our domestic suppliers may source subcomponents from overseas. Global markets for various products and goods have suffered, and are continuing to suffer, material disruptions to certain supply chains, in part due to the coronavirus pandemic and geopolitical conflicts. Changes in our relationships with suppliers, shortages in availability of materials, production delays, regulatory restrictions, public health crises, or other supply chain disruptions, whether due to our suppliers or customers, could have a material adverse effect on our ability to timely manufacture and deliver products to our customers. 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.
As economies around the world have recovered since the initial onset of the pandemic, sharp increases in demand have created significant disruption to the global supply chain, which has adversely affected our ability to receive goods on a timely basis and increased our material costs. Short-term or sustained increases in market demand may exceed our suppliers’ production capacity or otherwise strain our supply chain. Our failure, or our suppliers’ failure, to meet the demand for raw materials and components could adversely affect our business and results of operations.
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During 2022, our manufacturing operations continued to be adversely affected by supply chain disruptions. We are currently experiencing supply shortages and inflationary pressure for certain components and raw materials, including chassis, hydraulic pumps and electronic components that are important to our manufacturing processes. When facing supply-related challenges, we may increase our inventory levels and purchase commitments to shorten lead times and to help maintain adequate inventory levels to meet customer expectations. While we actively monitor and take steps in an effort to mitigate supply chain risk, there can be no assurance that our ongoing mitigation plans will prevent disruptions that may arise from shortages of materials that we use in the production of our products.
Challenges within global logistics networks, including trucking and chassis shortages and shortages in labor availability, have also contributed to delays in receiving key manufacturing components, increased order backlogs and higher transportation costs. Such logistical disruption may cause us to incur higher freight costs to expedite the receipt of components from our suppliers or the delivery of products to our customers, and may also result in longer lead times for our customers.
Uncertainties related to the magnitude and duration of global supply chain disruptions may continue to adversely affect our business and our outlook. If we are unable to recover a substantial portion of the increase in material and transportation costs from our customers through price adjustments and/or surcharges, our business or results of operations could be adversely affected. We may also experience an increase in order cancellations if any such pricing actions are not accepted by our customers.
Failure to keep pace with technological developments may adversely affect our operations.
We are engaged in an industry that will be affected by future technological developments. The introduction of products or processes utilizing new technologies, including those resulting from any new ESG regulations, could require us and our suppliers to make significant changes to existing products or processes in order for them to remain marketable and competitive. Our success will depend upon our ability to source, develop and introduce on a timely and cost-effective basis new products, applications and processes that keep pace with technological developments, ESG regulations and address increasingly sophisticated customer requirements. We may not be successful in identifying, sourcing, 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 or our suppliers 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.
Our efforts to develop new products and services or enhance existing products and services involve substantial research, development and marketing expenses, and the resulting new or enhanced products or services may not generate sufficient revenues to justify the expense.
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.
Disruptions within our dealer network or the inability of our dealers to secure adequate access to capital could adversely affect our business.
We rely on national and global dealer networks to market certain of our products and services. As a result, our business with respect to these products and services is influenced by our ability to manage new and existing relationships with dealers. While we have relatively low turnover of dealers, from time to time, we or a dealer may choose to terminate the relationship as a result of difficulties that our dealers experience in operating their businesses due to economic conditions or other factors. While we do not believe our business is dependent on any single dealer, 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. DeteriorationRecent significant increases in interest rates and any future deterioration in the liquidity or credit worthiness of our dealers could have a significant adverse effect on our business. From time to time, we may provide financing assistance to dealers or consider taking ownership positions. The loss or termination of a significant dealer, or a
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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.
We may be unsuccessful in our future acquisitions, if any, which may have an adverse effect on our business.
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:
•integrating the operations, financial reporting, disparate systems and processes and personnel of acquired companies;
•managing geographically dispersed operations;
•diverting management’s attention from other business concerns;
•changing the competitive landscape, including disrupting existing sales channels or markets;
•entering markets or lines of business in which we have either limited or no direct experience; and
•losing key employees, customers and strategic partners of acquired companies.
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.
Businesses acquired by us may have liabilities that are not known to us.
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 expected. In these circumstances, we cannot assure that our rights to indemnification 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.
We could incur restructuring and impairment charges as we continue to evaluate opportunities to restructure our business and rationalize our manufacturing operations in an effort to optimize our cost structure.
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.
Indebtedness Risk
We are subject to a number of restrictive debt covenants.
Our credit facility contains certain restrictive debt covenants and customary events of default. Our ability to comply with these restrictive covenants may be affected by the other factors described in this “Risk Factors” section, as well as other factors outside of our control, including increased indebtedness and/or lower earnings as a result of the coronavirus pandemic. Failure to comply with one or more of these restrictive covenants may result in an event of default which, if not cured by us or waived by our lenders, allows our lenders to declare all amounts outstanding as due and payable. Such an acceleration of the maturity of our indebtedness may cause us to incur substantial costs and may prevent or limit us from engaging in transactions that benefit us, including responding to changing business and economic conditions and taking advantage of attractive business opportunities.
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Human Capital and Labor Risks
Our ability to operate effectively could be impaired if we fail to attract and retain key personnel.
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.
Additionally, availability of labor in the markets in which we operate has declined in recent years and competition for such labor has increased, especially under the economic crises experienced through the coronavirus pandemic. A significant increase in wages paid by competitors for employees similar to our work force could result in insufficient availability of workers and/or increase our labor costs. In the event prevailing wage rates continue to increase in the markets in which we operate, we may be required to concurrently increase the wages paid to our employees to maintain the quality of our work force and customer service. If the supply of skilled labor is constrained or our costs of attracting and maintaining a workforce increase and such costs, our profit margins could decrease as well our ability to maximize production and meet customer demand.
Our business may be adversely impacted by work stoppages and other labor relations matters.
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, 2019,2022, approximately 15%10% of our U.S. hourly workers were represented by labor unions and were covered by collective bargaining agreements with various unions. 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. In addition, the stoppage of work for a prolonged period of time at one, or several, of our principal manufacturing facilities, due to public health concerns, or any other reason, could materially adversely affect our business.
Our pension funding requirements and expenses are affected by certain factors outside of our control, including the performance of plan assets, the discount rate used to value liabilities, actuarial assumptions and experience and legal and regulatory changes.
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 84%86% as of December 31, 2019.2022. 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. 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.
Data Security and Intellectual Property Risks
Increased information technology security threats and more sophisticated cybersecurity attacks pose a risk to our systems, networks, products and operations.
We rely upon information technology systems and networks, some of which are managed by third parties, to support a variety of business processes and activities, and to comply with regulatory, legal and tax requirements. Additionally, in the ordinary course of business, we collect and store sensitive information relating to our businesses, customers, suppliers and employees. Sensitive information may also be stored by our vendors and on the platforms and networks of third-party providers. The secure operation of these information technology systems and networks and processing and maintenance of this information is critical to the Company’s business operations and strategy.
These information technology systems and networks may be susceptible to damage, disruptions or shutdowns due to hardware failures, computer viruses, cybersecurity attacks, telecommunication failures, user errors, catastrophic events or other factors. Further, information technology security threats are growing in frequency and sophistication. Accordingly, we have implemented and continue to implement measures to address cybersecurity attacks and mitigate potential risks to our systems from these information technology-related disruptions. Despite the information security measures we have taken, our systems and networks remain potentially vulnerable to attacks, as do those of our vendors and third-party providers. Cybersecurity attacks on the Company, our vendors or our third-party providers could potentially result in the compromising of confidential information, misuse of our systems and networks, manipulation and destruction of data, misappropriation of assets or
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production stoppages and supply shortages, which in turn could adversely affect our reputation, financial condition, results of operations or cash flow.
Although we have not suffered any significant cyber incidents that have had a material business impact, we and our vendors have, from time to time, been the target of malicious cyber threats. While various procedures and controls have been and are being utilized to mitigate information technology risks, there can be no guarantee that the actions and controls that we and our third-party providers have implemented will be sufficient to protect our systems, information or other property. Further, the amount of insurance coverage we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity attack.
Infringement of, or an inability to protect, our intellectual property rights could adversely affect our business.
We rely on a combination of patents, trademarks, copyrights, nondisclosure agreements, information technology security systems, physical security and other measures to protect our proprietary intellectual property and the intellectual property of certain customers and suppliers. However, we cannot be certain that our efforts to protect these intellectual property rights will be sufficient. Intellectual property protection is subject to applicable laws in various jurisdictions where interpretations and protections differ or can be unpredictable and costly to enforce. Further, our ability to protect our intellectual property rights may be limited in certain foreign jurisdictions that do not have, or do not enforce, strong intellectual property rights. Any failure to protect or enforce our intellectual property rights could have a material adverse effect on our competitive position, financial condition, results of operations or cash flow.
Legal and Financial Risks
We may incur material losses and costs as a result of lawsuits or claims that may be brought against us which are related to product liability, warranty, product recalls, intellectual property, client service interruptions or other matters.
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 impaired their hearing and that the sirens are, therefore, defective. In addition, we are subject to other claims and litigation from time to time, as further described in the accompanying notes to our consolidated financial statements. We could experience material product liability or warranty costs in the future and incur significant costs to defend ourselves against these claims. While we carry insurance and maintain reserves for product liability claims, our insurance coverage may be inadequate if such claims do arise, and any defense costs and liability not covered by insurance could have a material adverse impact on our financial condition, results of operations or cash flow. A future claim could involve the imposition of punitive damages, the award of which, pursuant to state laws, may not be covered by insurance. In addition, warranty and certain other claims are not typically covered by insurance. Any product liability or warranty issues may adversely impact our reputation as a manufacturer of high-quality, safe products and may have a material adverse effect on our business.
The costs associated with complying with environmental, safety and safetyother ESG regulations could lower our margins.
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. Increased public awareness and concern regarding climate change and other ESG matters at numerous levels of government in various jurisdictions may lead to additional international, national, regional and local legislative and regulatory responses, and compliance with any new rules could be difficult and costly. These regulations could include environmental requirements applicable to manufacturing and vehicle emissions and regulations impacting our supply chain both nationally and internationally. Complying with environmental, safety and safetyother ESG requirements has added and will continue to add to the cost of our products, and could increase the capital required to support our business.business and could affect the products and services that we offer. 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. Further, climate change regulations at the federal, state or local level or in international jurisdictions could require us to limit emissions, change our manufacturing processes or product offerings, or undertake other activities which may require us to incur additional expense. These requirements may increase the cost of our products, which may diminish demand for those products.
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An impairment in the carrying value of goodwill, intangible assets or long-lived assets could negatively affect our financial position and results of operations.
As of December 31, 2019,2022, goodwill and intangible assets represented 33%30% and 14% of total consolidated assets, respectively. Rental equipment and properties and equipment are long-lived assets, which also collectively represented more than 5%19% of our total consolidated assets as of December 31, 2019.2022. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if indicators of impairment exist. Definite-lived intangible assets and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In evaluating the potential for impairment of goodwill, intangible assets and long-lived assets, we make assumptions regarding future operating performance, business trends, competition and market and general economic conditions. Such analyses further require us to make certain assumptions about our sales, operating margins, growth rates and discount rates. There are inherent uncertainties related to these factors. An impairment charge may result from, among other things, a significant decline in operating results, adverse market conditions, unfavorable changes in applicable laws or regulations, or a variety of other factors. Our total consolidated assets and results of operations for the applicable period could be materially adversely affected if any such charge is recorded.
Item 1B. Unresolved Staff Comments.
None.
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Item 2. Properties.
As of December 31, 2019,2022, the Company utilized 1116 principal manufacturing plants located throughout the U.S., as well as two in Europe, onetwo 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, 2019,2022, the Company devoted approximately 1.92.4 million square feet to manufacturing and 0.91.0 million square feet to sales, service, warehousing and office space. Of the total square footage, approximately 81%82% is devoted to the Environmental Solutions Group and 19%18% to the Safety and Security Systems Group. Approximately 42%65% of the total square footage is owned by the Company with the remaining 58% being35% being leased. Owned facilities are subject to lienliens under the Company’s SecondThird Amended and Restated Credit Agreement dated July 30, 2019October 21, 2022 (the “2019“2022 Credit Agreement”).
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.
Item 3. Legal Proceedings.
The information concerning the Company’s legal proceedings included in Note 13 – Legal Proceedings to the accompanying consolidated financial statements is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
The Company’s common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “FSS”.
Holders
As of January 31, 2020,February 28, 2023, there were 1,5131,492 holders of record of the Company’s common stock.
Securities Authorized for Issuance under Equity Compensation
Information concerning the Company’s equity compensation plans is included under Item 12 of Part III of this Form 10-K.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities by the Company during the year ended December 31, 2019.2022.
Purchases of Equity Securities
The following table provides a summary of the Company’s repurchase activity for its common stock during the three months ended December 31, 2019:2022:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (a) | |||||||||
| October 2019 (9/29/19 - 11/2/19) | — | — | — | $ | 29,198,155 | ||||||||
| November 2019 (11/3/19 - 11/30/19) | — | — | — | 29,198,155 | |||||||||
| December 2019 (12/1/19 - 12/31/19) | — | — | — | 29,198,155 | |||||||||
| Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (a) | |||||||||||||||||||||||
| October 2022 (10/2/22 - 11/5/22) | — | $ | — | — | $ | 59,052,829 | ||||||||||||||||||||
| November | — | — | — | 59,052,829 | ||||||||||||||||||||||
| December 2022 (12/4/22 - 12/31/22) | — | — | — | 59,052,829 | ||||||||||||||||||||||
authorization under our previously described repurchase program adopted in 2014 being subject to the March 2020 program.
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Performance Graph
The following graph compares the cumulative five-year total return to stockholders of the Company’s common stock relative to the cumulative total returns of the Russell 2000 index, the S&P Midcap 400 index, the S&P Industrials index, and the S&P Industrials600 Capital Goods index. The graph assumes that the value of the investment in the Company’s common stock, and in each index, was $100 on December 31, 20142017 and assumes reinvestment of all dividends through December 31, 2019.2022.
Copyright© 20202023 Russell Investment Group. All rights reserved.
Copyright© 20202023 Standard & Poor’s, a division of S&P Global. All rights reserved.
| As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Federal Signal Corporation | $ | 100.00 | $ | 104.34 | $ | 104.89 | $ | 137.19 | $ | 137.72 | $ | 225.72 | Federal Signal Corporation | $ | 100.00 | $ | 100.38 | $ | 164.53 | $ | 171.08 | $ | 225.50 | $ | 244.04 | |||||||||||||||||||||||||||||||||
| Russell 2000 | 100.00 | 95.59 | 115.95 | 132.94 | 118.30 | 148.49 | Russell 2000 | 100.00 | 88.99 | 111.70 | 134.00 | 153.85 | 122.41 | |||||||||||||||||||||||||||||||||||||||||||||
| S&P Midcap 400 | 100.00 | 97.82 | 118.11 | 137.30 | 122.08 | 154.07 | S&P Midcap 400 | 100.00 | 88.92 | 112.21 | 127.54 | 159.12 | 138.34 | |||||||||||||||||||||||||||||||||||||||||||||
| S&P Industrials | 100.00 | 97.47 | 115.85 | 140.22 | 121.58 | 157.29 | S&P Industrials | 100.00 | 86.71 | 112.17 | 124.59 | 150.89 | 142.63 | |||||||||||||||||||||||||||||||||||||||||||||
| S&P 600 Capital Goods | S&P 600 Capital Goods | 100.00 | 85.79 | 111.20 | 128.64 | 161.27 | 154.30 | |||||||||||||||||||||||||||||||||||||||||||||||||||
The stock price performance included in this graph is not necessarily indicative of future stock price performance. Notwithstanding anything set forth in any of our previous filings under the Securities Act or the Exchange Act, which might be incorporated into future filings in whole or part, including this Form 10-K, the preceding performance graph shall not be deemed incorporated by reference into any such filings.
Item 6. Selected Financial Data.[Reserved]
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| For the Years Ended December 31, | |||||||||||||||||||
| ($ in millions, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||
| Results of Operations: | |||||||||||||||||||
| Net sales | $ | 1,221.3 | $ | 1,089.5 | $ | 898.5 | $ | 707.9 | $ | 768.0 | |||||||||
Operating income (a) (b) (c) (d) (e) | 147.1 | 121.5 | 73.6 | 60.8 | 107.4 | ||||||||||||||
Income from continuing operations (a) (b) (c) (d) (e) | 108.4 | 93.7 | 60.5 | 39.4 | 65.8 | ||||||||||||||
| Gain (loss) from discontinued operations and disposal, net of tax | 0.1 | 0.3 | 1.1 | 4.4 | (2.3 | ) | |||||||||||||
Net income (a) (b) (c) (d) (e) | $ | 108.5 | $ | 94.0 | $ | 61.6 | $ | 43.8 | $ | 63.5 | |||||||||
| Financial Position: | |||||||||||||||||||
| Capital expenditures | $ | 35.4 | $ | 14.1 | $ | 8.0 | $ | 6.1 | $ | 9.6 | |||||||||
| Depreciation and amortization | 41.5 | 36.4 | 30.0 | 19.1 | 12.3 | ||||||||||||||
| Total assets | 1,165.5 | 1,023.8 | 992.3 | 643.2 | 666.5 | ||||||||||||||
Total debt (f) | 220.5 | 210.1 | 277.7 | 64.0 | 44.1 | ||||||||||||||
| Common Stock Data: | |||||||||||||||||||
| Diluted earnings per share — continuing operations | $ | 1.76 | $ | 1.53 | $ | 1.00 | $ | 0.64 | $ | 1.04 | |||||||||
| Cash dividends per common share | 0.32 | 0.31 | 0.28 | 0.28 | 0.25 | ||||||||||||||
| Weighted average shares outstanding — diluted (in millions) | 61.6 | 61.2 | 60.4 | 61.2 | 63.4 | ||||||||||||||
| Performance Measures: | |||||||||||||||||||
| Operating margin | 12.0 | % | 11.2 | % | 8.2 | % | 8.6 | % | 14.0 | % | |||||||||
Adjusted EBITDA (g) | $ | 191.3 | $ | 158.6 | $ | 111.5 | $ | 84.7 | $ | 118.2 | |||||||||
Adjusted EBITDA margin (g) | 15.7 | % | 14.6 | % | 12.4 | % | 12.0 | % | 15.4 | % | |||||||||
| Other Data: | |||||||||||||||||||
| Total orders | $ | 1,269.0 | $ | 1,173.2 | $ | 1,018.0 | $ | 674.4 | $ | 686.1 | |||||||||
| Backlog | 386.9 | 337.7 | 257.5 | 137.0 | 171.3 | ||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||
| ($ in millions) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||
| Income from continuing operations | $ | 108.4 | $ | 93.7 | $ | 60.5 | $ | 39.4 | $ | 65.8 | |||||||||
| Add: | |||||||||||||||||||
| Interest expense | 7.9 | 9.3 | 7.3 | 1.9 | 2.3 | ||||||||||||||
| Pension settlement charges | — | — | 6.1 | — | — | ||||||||||||||
| Hearing loss settlement charges | — | 0.4 | 1.5 | — | — | ||||||||||||||
| Debt settlement charges | — | — | — | 0.3 | — | ||||||||||||||
| Acquisition and integration-related expenses | 2.5 | 1.5 | 2.7 | 1.4 | — | ||||||||||||||
| Restructuring | — | — | 0.6 | 1.7 | 0.4 | ||||||||||||||
| Executive severance costs | — | — | 0.7 | — | — | ||||||||||||||
Purchase accounting effects (a) | 0.2 | 0.7 | 4.4 | 3.6 | — | ||||||||||||||
| Other expense (income), net | 0.6 | 0.6 | (0.8 | ) | 1.8 | 5.2 | |||||||||||||
| Income tax expense | 30.2 | 17.9 | 0.5 | 17.4 | 34.1 | ||||||||||||||
| Depreciation and amortization | 41.5 | 36.4 | 30.0 | 19.1 | 12.3 | ||||||||||||||
| Adjusted EBITDA | $ | 191.3 | $ | 160.5 | $ | 113.5 | $ | 86.6 | $ | 120.1 | |||||||||
Less: Deferred gain recognition (b) | — | (1.9 | ) | (2.0 | ) | (1.9 | ) | (1.9 | ) | ||||||||||
| Adjusted EBITDA, as revised | $ | 191.3 | $ | 158.6 | $ | 111.5 | $ | 84.7 | $ | 118.2 | |||||||||
| Net sales | $ | 1,221.3 | $ | 1,089.5 | $ | 898.5 | $ | 707.9 | $ | 768.0 | |||||||||
| Adjusted EBITDA margin | 15.7 | % | 14.7 | % | 12.6 | % | 12.2 | % | 15.6 | % | |||||||||
| Adjusted EBITDA margin, as revised | 15.7 | % | 14.6 | % | 12.4 | % | 12.0 | % | 15.4 | % | |||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
Executive Summary
The Company is a leading global manufacturer and supplier of (i) vehicles and equipment for maintenance and infrastructure end-markets, including sewer cleaners, industrial vacuum loaders, safe-digging trucks, street sweepers, waterblasting equipment, road-marking and line-removal equipment, dump truck bodies, trailers and trailersmetal extraction support equipment, and (ii) public safety equipment, such as vehicle lightbars and sirens, industrial signaling equipment, public warning systems and general alarm/public address systems. In addition, we engage in the sale of parts, service and repair, equipment rentals and training as part of a comprehensive aftermarket offering to our customer base. We operate 1521 manufacturing facilities in five countries and provide products and integrated solutions to municipal, governmental, industrial and commercial customers in all regions of the world.
As described in Note 17 – Segment Information to the accompanying consolidated financial statements, the Company’s business units are organized in two reportable segments: the Environmental Solutions Group and the Safety and Security Systems Group.
Customer demand for our product and service offerings during the year ended December 31, 2022 has been at unprecedented levels, with the ongoing strength in orders contributing to a record backlog of $879 million as of December 31, 2022.
However, the direct and indirect effects of the ongoing coronavirus pandemic continued to impact our ability to maximize production levels during the year ended December 31, 2022. Specifically, the increased demand for our products combined with ongoing global supply chain disruptions have affected our ability to obtain a sufficient quantity of raw materials and purchased components, including chassis, hydraulics and other parts, that are necessary to our production processes and to deliver products to our customers. With these supply chain challenges, we have also experienced increases in the cost of raw materials and have taken measures to mitigate the associated impacts, such as implementing price increases and surcharges. From a labor perspective, the Company continuedexperienced an escalated level of coronavirus-related absences at several locations early in the year, which improved as the year progressed. While we continue to focuswork to mitigate these challenges as they arise, we cannot provide assurance that such efforts would continue to be successful in addressing a further significant deterioration in the global supply chain, if applicable, which could impact our ability to service our customers, effectively roll out and realize price increases to offset the effects of commodity inflation and sustain our profit margins.
We continue to closely monitor the impact of the coronavirus pandemic, including emerging variants, on executingour business, including how it is affecting our employees, customers, supply chain and distribution network. The overall magnitude of the direct and indirect impact of the pandemic on our operating and financial results remains uncertain and will largely depend on the duration of the pandemic and the measures implemented in response, as well as the effect on our customers and suppliers.
Operating and Financial Performance in 2022
Despite the challenges created by a volatile supply chain and the coronavirus pandemic, the Company was able to sustain a high level of financial performance and make progress against its keyseveral long-term objectives includingin 2022. Included among the Company’s highlights in 2022 were the following:
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•For the Company’s achievement against these objectives in 2019 include the following:year ended December 31, 2022, we reported income from continuing operations of $120.4 million, an increase of $19.8 million, or 20%, from last year.
•On a consolidated basis, we reported a 110-basis point year-over-year improvement in our adjusted EBITDA* margin, delivering returnsof $215.0 million for the year ended December 31, 2022, an increase of $34.5 million, or 19%, from last year.
•Adjusted EBITDA margin* for the year ended December 31, 2022 was 15.0%, up from 14.9% last year and towards the high endhigh-end of our current target range.
•With our strong balance sheet, positive operating cash flow, and increased capacity under our new revolving credit facility, we are well positioned to continue to invest in internal growth initiatives, pursue strategic acquisitions and consider ways to return value to stockholders.stockholders, as we did during 2022:
◦We continue to invest in Streator, Illinois. new product development and are encouraged that these efforts will provide additional opportunities to further diversify our customer base, penetrate new end-markets and/or gain access to new geographic regions.
◦We are making good progress oncompleted our ninth acquisition since 2016 with the building construction and our efforts to hire up to 90 new employees at the facility.acquisition of TowHaul.
•To highlight our ongoing focus on operating in a socially responsible and sustainable manner, we published our third annual Sustainability Report in May 2022.
*The Company uses adjusted earnings before interest, tax, depreciation and amortization (“adjusted EBITDA”) and the ratio of adjusted EBITDA to net sales (“adjusted EBITDA margin”) as additional measures which are representative of its underlying performance and to improve the comparability of results across reporting periods. Refer to the Results of Operations section for further discussion regarding these non-GAAP metrics and a reconciliation of each to the most comparable GAAP measure for each of the periods presented.
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| For the Years Ended December 31, | Change | ||||||||||||||||||||||||||||
| ($ in millions, except per share data) | 2022 | 2021 | 2020 | 2022 vs. 2021 | 2021 vs. 2020 | ||||||||||||||||||||||||
| Net sales | $ | 1,434.8 | $ | 1,213.2 | $ | 1,130.8 | $ | 221.6 | $ | 82.4 | |||||||||||||||||||
| Cost of sales | 1,089.9 | 924.5 | 837.2 | 165.4 | 87.3 | ||||||||||||||||||||||||
| Gross profit | 344.9 | 288.7 | 293.6 | 56.2 | (4.9) | ||||||||||||||||||||||||
| Selling, engineering, general and administrative expenses | 171.7 | 149.2 | 149.2 | 22.5 | — | ||||||||||||||||||||||||
| Amortization expense | 12.9 | 10.9 | 9.6 | 2.0 | 1.3 | ||||||||||||||||||||||||
| Acquisition and integration-related (benefits) expenses | (0.5) | (2.1) | 2.1 | 1.6 | (4.2) | ||||||||||||||||||||||||
| Restructuring | — | — | 1.3 | — | (1.3) | ||||||||||||||||||||||||
| Operating income | 160.8 | 130.7 | 131.4 | 30.1 | (0.7) | ||||||||||||||||||||||||
| Interest expense | 10.3 | 4.5 | 5.7 | 5.8 | (1.2) | ||||||||||||||||||||||||
| Debt settlement charges | 0.1 | — | — | 0.1 | — | ||||||||||||||||||||||||
| Pension settlement charges | — | 10.3 | — | (10.3) | 10.3 | ||||||||||||||||||||||||
| Other (income) expense, net | (0.5) | (1.7) | 1.1 | 1.2 | (2.8) | ||||||||||||||||||||||||
| Income before income taxes | 150.9 | 117.6 | 124.6 | 33.3 | (7.0) | ||||||||||||||||||||||||
| Income tax expense | 30.5 | 17.0 | 28.5 | 13.5 | (11.5) | ||||||||||||||||||||||||
| Income from continuing operations | 120.4 | 100.6 | 96.1 | 19.8 | 4.5 | ||||||||||||||||||||||||
| Gain from discontinued operations and disposal, net of tax | — | — | 0.1 | — | (0.1) | ||||||||||||||||||||||||
| Net income | $ | 120.4 | $ | 100.6 | $ | 96.2 | $ | 19.8 | $ | 4.4 | |||||||||||||||||||
| Other data: | |||||||||||||||||||||||||||||
| Operating margin | 11.2 | % | 10.8 | % | 11.6 | % | 0.4 | % | (0.8) | % | |||||||||||||||||||
Adjusted EBITDA (a) | $ | 215.0 | $ | 180.5 | $ | 182.2 | $ | 34.5 | $ | (1.7) | |||||||||||||||||||
Adjusted EBITDA margin (a) | 15.0 | % | 14.9 | % | 16.1 | % | 0.1 | % | (1.2) | % | |||||||||||||||||||
| Diluted earnings per share — Continuing operations | $ | 1.97 | $ | 1.63 | $ | 1.56 | $ | 0.34 | $ | 0.07 | |||||||||||||||||||
| Total orders | 1,692.2 | 1,538.8 | 1,047.1 | 153.4 | 491.7 | ||||||||||||||||||||||||
| Backlog | 879.2 | 628.9 | 303.9 | 250.3 | 325.0 | ||||||||||||||||||||||||
| Depreciation and amortization | 54.7 | 50.4 | 44.8 | 4.3 | 5.6 | ||||||||||||||||||||||||
A discussion of changes in the Company’s financial condition and illustratesresults of operations during the key financial indicators used to assess our consolidated financial results:
| For the Years Ended December 31, | Change | ||||||||||||||||||
| ($ in millions, except per share data) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||
| Net sales | $ | 1,221.3 | $ | 1,089.5 | $ | 898.5 | $ | 131.8 | $ | 191.0 | |||||||||
| Cost of sales | 898.5 | 807.4 | 677.3 | 91.1 | 130.1 | ||||||||||||||
| Gross profit | 322.8 | 282.1 | 221.2 | 40.7 | 60.9 | ||||||||||||||
| Selling, engineering, general and administrative expenses | 173.2 | 159.1 | 144.3 | 14.1 | 14.8 | ||||||||||||||
| Acquisition and integration-related expenses | 2.5 | 1.5 | 2.7 | 1.0 | (1.2 | ) | |||||||||||||
| Restructuring | — | — | 0.6 | — | (0.6 | ) | |||||||||||||
| Operating income | 147.1 | 121.5 | 73.6 | 25.6 | 47.9 | ||||||||||||||
| Interest expense | 7.9 | 9.3 | 7.3 | (1.4 | ) | 2.0 | |||||||||||||
| Pension settlement charges | — | — | 6.1 | — | (6.1 | ) | |||||||||||||
| Other expense (income), net | 0.6 | 0.6 | (0.8 | ) | — | 1.4 | |||||||||||||
| Income before income taxes | 138.6 | 111.6 | 61.0 | 27.0 | 50.6 | ||||||||||||||
| Income tax expense | 30.2 | 17.9 | 0.5 | 12.3 | 17.4 | ||||||||||||||
| Income from continuing operations | 108.4 | 93.7 | 60.5 | 14.7 | 33.2 | ||||||||||||||
| Gain from discontinued operations and disposal, net of tax | 0.1 | 0.3 | 1.1 | (0.2 | ) | (0.8 | ) | ||||||||||||
| Net income | $ | 108.5 | $ | 94.0 | $ | 61.6 | $ | 14.5 | $ | 32.4 | |||||||||
| Other data: | |||||||||||||||||||
| Operating margin | 12.0 | % | 11.2 | % | 8.2 | % | 0.8 | % | 3.0 | % | |||||||||
Adjusted EBITDA (a) | $ | 191.3 | $ | 158.6 | $ | 111.5 | $ | 32.7 | $ | 47.1 | |||||||||
Adjusted EBITDA margin (a) | 15.7 | % | 14.6 | % | 12.4 | % | 1.1 | % | 2.2 | % | |||||||||
| Diluted earnings per share — Continuing operations | $ | 1.76 | $ | 1.53 | $ | 1.00 | $ | 0.23 | $ | 0.53 | |||||||||
| Total orders | 1,269.0 | 1,173.2 | 1,018.0 | 95.8 | 155.2 | ||||||||||||||
| Backlog | 386.9 | 337.7 | 257.5 | 49.2 | 80.2 | ||||||||||||||
| Depreciation & amortization | 41.5 | 36.4 | 30.0 | 5.1 | 6.4 | ||||||||||||||
Year ended December 31, 2022 vs. year ended December 31, 2021
Net sales
Net sales for the year ended December 31, 2022 increased by $221.6 million, or 18%, compared to the prior year. Withinyear, inclusive of the effects of acquisitions and pricing actions. The Environmental Solutions Group reported a net sales increased by $129.4 increase of $186.6
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million, or 15%19%, primarily due to a $39.7$30.6 million contribution from MRL,improvement in aftermarket revenues and increases in shipmentssales of safe-digging trucks, street sweepers, and dump truck bodies, metal extraction support equipment, sewer cleaners, safe-digging trucks, trailers, street sweepers, road-marking and line-removal equipment, hoists and industrial vacuum loaders of $38.1$40.9 million, $18.0$33.1 million, $32.6 million, $18.3 million, $12.2 million, $11.5 million, $11.3 million, $8.7 million and $11.9$6.1 million, respectively. In addition, aftermarket revenues increased by $15.9Partially offsetting these improvements was a $9.1 million represented by higher rental incomereduction in shipments of refuse trucks and improved parts and service sales.a $5.7 million unfavorable foreign currency translation impact. Within the Safety and Security Systems Group, net sales increased by $2.4$35.0 million, or 1%17%, primarily due to improvements in sales of public safety equipment, industrial signaling equipment and public safety productswarning systems of $6.6$28.1 million, $9.4 million and $1.4$3.8 million, respectively, partially offset by a $2.7$6.3 million reduction in sales of warning systems and an unfavorable foreign currency translation impact of $2.9 million.impact.
Cost of sales
For the year ended December 31, 2019,2022, cost of sales increased by $91.1$165.4 million, or 11%18%, compared to the prior year, largely due to an increase of $94.6$143.9 million, or 14%18%, within the Environmental Solutions Group, primarily attributablerelated to increased sales volumes, additional cost of salescosts from the MRL acquisition,prior-year acquisitions, higher material costs, and a $4.6$0.9 million increase in depreciation expense, partially offset by a $0.4$5.4 million reduction in purchase accounting expenses. This increase was partially offset by a
Gross profit
For the year ended December 31, 2019,2022, gross profit increased by $40.7$56.2 million, or 14%19%, compared to the prior year, primarily due to improvements of $34.8a $42.7 million and $5.9 millionimprovement within the Environmental Solutions Group and a $13.5 million increase within the Safety and Security Systems Group, respectively.Group. Gross marginprofit as a percentage of net sales (“gross profit margin”) for the year ended December 31, 20192022 was 26.4%24.0%, compared to 25.9%23.8% in the prior year, primarily driven by improvements within the Environmental Solutions Group and Safety and Security Group and Environmental SolutionsSystems Group of 22030 basis points and 5020 basis points, respectively. Margin improvements were primarily attributable to improved operating leverage, benefits from pricing actions and favorable sales mix.
Selling, engineering, general and administrative (“SEG&A”) expenses
For the year ended December 31, 2019, selling, engineering, general and administrative (“2022, SEG&A”)&A expenses increased by $14.1$22.5 million, or 9%15%, compared to the prior year, primarily due to increases of $16.9 million, $5.4 million and $0.2 million within the Environmental Solutions Group, and the Safety and Security Systems Group of $8.2 million and $1.4 million,Corporate, respectively. In addition, Corporate SEG&A expenses increased by $4.5 million. As a percentage of net sales, SEG&A expenses decreased from 14.6%12.3% in the prior year, to 14.2%12.0% in the current year.
Operating income
Operating income for the year ended December 31, 20192022 increased by $25.6$30.1 million, or 21%23%, to $147.1 million, compared to the prior year. Within the Environmental Solutions Group, operating income for the year, ended December 31, 2019 increased by $26.4 million, or 23%, largely due to higher sales volumesthe $56.2 million improvement in gross profit, partially offset by the $22.5 million increase in SEG&A expenses, a $2.0 million increase in amortization expense and improved operating leverage, as well as a $3.6$1.6 million contribution from MRL. Within the Safety and Security Systems Group, operating income for the year ended December 31, 2019 increased by $4.5 million, or 13%, largely due to benefits from pricing actions and improved sales mix, while Corporate expenses increased by $5.3 million.reduction in acquisition-related benefits. Consolidated operating margin for the year ended December 31, 20192022 was 12.0%11.2%, compared to 11.2%10.8% in the prior year.
Interest expense
Interest expense for the year ended December 31, 2019 decreased2022 increased by $1.4$5.8 million, or 15%129%, compared to the prior year, largely due to loweran increase in average debt levels and higher interest rates.
Pension settlement charges
During the effectsyear ended December 31, 2021, the Company recognized a pension settlement charge of $10.3 million in connection with the purchase of a reduction ingroup annuity contract from an insurance company, under which approximately $25 million of the projected benefit obligation of the Company’s interest rate resulting fromU.S. defined benefit plan was transferred to the refinancing of its revolving credit facility.insurance company. For further discussion, see Note 11 – Pension and Other Post-Employment Plans to the accompanying consolidated financial statements.
Other (income) expense, (income), net
For the year ended December 31, 2019,2022, Other (income) expense, (income), net, totaled $0.6$0.5 million of expense,income, largely due to the recognition of $0.9$0.6 million of net periodic pension expense.benefit. For the year ended December 31, 2018,2021, Other (income) expense, (income), net, totaled $0.6$1.7 million of expense,income, largely due to $0.4the recognition of $1.1 million of net periodic pension expensebenefit and $0.3 million of foreign currency transaction losses.gains.
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Income tax expense
The Company recognized income tax expense of $30.2$30.5 million for the year ended December 31, 2019,2022, compared to $17.9$17.0 million for the year ended December 31, 2018.2021. The increase in income tax expense in the current year was primarily due to higher earnings, a $3.2 million reduction in the amount of excess tax benefits from stock compensation activity compared to the prior year, and the non-recurrence of an $8.6 millionfewer discrete tax planning benefit which was recognizedbenefits than in the prior year. In the year partially offset byended December 31, 2022, the recognition ofCompany recognized a $0.8$2.6 million tax benefit from the release of statea valuation allowance that had previously been recorded against deferred tax assets associated with foreign tax credits in the U.S., which are now considered more-likely-than-not to be realized, primarily due to tax planning. The Company also recognized a $1.1 million tax benefit during the current year associated with the release of a valuation allowance in the U.K., as the associated deferred tax assets are now considered more-likely-than-not to be realized primarily due to increased projections of future taxable income. In the year ended December 31, 2021, the Company recognized a $3.4 million tax benefit associated with the release of state valuation allowances and a $0.8$3.3 million increasetax benefit associated with the remeasurement of deferred taxes for changes in excessstate tax benefitsapportionment, both of which primarily resulted from stock compensation activity. Thea change in tax status and other tax planning activities executed during the year. Including these items, the Company’s effective tax rate for the year ended December 31, 20192022 was 21.8%20.2%, compared to 16.0%14.5% in 2018.2021. For further discussion, see Note 10 – Income Taxes to the accompanying consolidated financial statements.
Income from continuing operations
Income from continuing operations was $108.4 million for the year ended December 31, 2019, up $14.72022 increased by $19.8 million, or 16%20%, compared to the prior year, largely due to the improvedincreased operating income and the $1.4 million reductionnon-recurrence of the pension settlement charge recognized in interest expense,the prior year, partially offset by the $12.3a $13.5 million increase in income tax expense.expense, the $5.8 million increase in interest expense, a $1.2 million reduction in other income and a $0.1 million debt settlement charge.
The following table summarizes the Company’s adjusted EBITDA and adjusted EBITDA margin and reconciles income from continuing operations to adjusted EBITDA for each of the yearthree years in the period ended December 31, 2017, primarily driven by a 210 basis point gross margin improvement within2022:
| For the Years Ended December 31, | |||||||||||||||||
| ($ in millions) | 2022 | 2021 | 2020 | ||||||||||||||
| Income from continuing operations | $ | 120.4 | $ | 100.6 | $ | 96.1 | |||||||||||
| Add (less): | |||||||||||||||||
| Interest expense | 10.3 | 4.5 | 5.7 | ||||||||||||||
| Pension settlement charges | — | 10.3 | — | ||||||||||||||
| Acquisition and integration-related (benefits) expenses | (0.5) | (2.1) | 2.1 | ||||||||||||||
| Restructuring | — | — | 1.3 | ||||||||||||||
Coronavirus-related expenses (a) | — | 1.2 | 2.3 | ||||||||||||||
| Debt settlement charges | 0.1 | — | — | ||||||||||||||
Purchase accounting effects (b) | — | 0.3 | 0.3 | ||||||||||||||
| Other (income) expense, net | (0.5) | (1.7) | 1.1 | ||||||||||||||
| Income tax expense | 30.5 | 17.0 | 28.5 | ||||||||||||||
| Depreciation and amortization | 54.7 | 50.4 | 44.8 | ||||||||||||||
| Adjusted EBITDA | $ | 215.0 | $ | 180.5 | $ | 182.2 | |||||||||||
| Net sales | $ | 1,434.8 | $ | 1,213.2 | $ | 1,130.8 | |||||||||||
| Adjusted EBITDA margin | 15.0 | % | 14.9 | % | 16.1 | % | |||||||||||
(a)Coronavirus-related expenses relate to direct expenses incurred in connection with the Environmental Solutions Group, associated with improved operating leverage, benefits from actions taken inCompany's response to higher commoditythe coronavirus pandemic, that are incremental to, and separable from, normal operations. Such expenses primarily relate to incremental paid time off provided to employees and costs favorable sales mix andincurred to implement enhanced workplace safety protocols.
(b)Purchase accounting effects represent the reduction in purchase accounting expenses, described above, partially offset by the higher depreciation expense.
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| ($ in millions) | 2019 | 2018 | 2017 | ||||||||
| Total orders | $ | 1,269.0 | $ | 1,173.2 | $ | 1,018.0 | |||||
| Change in orders year-over-year | 8.2 | % | 15.2 | % | 50.9 | % | |||||
| Change in U.S. municipal and government orders year-over-year | 1.4 | % | 3.5 | % | 18.3 | % | |||||
| Change in U.S. industrial and commercial orders year-over-year | 11.0 | % | 28.5 | % | 139.6 | % | |||||
| Change in non-U.S. orders year-over-year | 13.9 | % | 8.4 | % | 21.2 | % | |||||
| Backlog | $ | 386.9 | $ | 337.7 | $ | 257.5 | |||||
| Change in backlog year-over-year | 14.6 | % | 31.1 | % | 88.0 | % | |||||
Environmental Solutions
The following table summarizes the Environmental Solutions Group’s operating results as of, and for the years ended, December 31, 2019, 20182022, 2021 and 2017:2020:
| For the Years Ended December 31, | Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | 2020 | 2022 vs. 2021 | 2021 vs. 2020 | ||||||||||||||||||||||||
| Net sales | $ | 1,190.6 | $ | 1,004.0 | $ | 915.8 | $ | 186.6 | $ | 88.2 | |||||||||||||||||||
| Operating income | 144.5 | 120.5 | 124.3 | 24.0 | (3.8) | ||||||||||||||||||||||||
| Other data: | |||||||||||||||||||||||||||||
| Operating margin | 12.1 | % | 12.0 | % | 13.6 | % | 0.1 | % | (1.6) | % | |||||||||||||||||||
| Total orders | $ | 1,444.2 | $ | 1,297.3 | $ | 840.0 | $ | 146.9 | $ | 457.3 | |||||||||||||||||||
| Backlog | 824.4 | 576.4 | 282.5 | 248.0 | 293.9 | ||||||||||||||||||||||||
| Depreciation and amortization | 50.3 | 46.7 | 41.3 | 3.6 | 5.4 | ||||||||||||||||||||||||
| For the Years Ended December 31, | Change | ||||||||||||||||||
| ($ in millions) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||
| Net sales | $ | 992.9 | $ | 863.5 | $ | 692.6 | $ | 129.4 | $ | 170.9 | |||||||||
| Operating income | 139.4 | 113.0 | 72.4 | 26.4 | 40.6 | ||||||||||||||
| Other data: | |||||||||||||||||||
| Operating margin | 14.0 | % | 13.1 | % | 10.5 | % | 0.9 | % | 2.6 | % | |||||||||
| Total orders | $ | 1,038.0 | $ | 945.8 | $ | 806.3 | $ | 92.2 | $ | 139.5 | |||||||||
| Backlog | 357.6 | 310.3 | 231.1 | 47.3 | 79.2 | ||||||||||||||
| Depreciation and amortization | 38.1 | 32.6 | 25.7 | 5.5 | 6.9 | ||||||||||||||
Year ended December 31, 20192022 vs. year ended December 31, 20182021
Total orders increased by $92.2$146.9 million, or 10%11%, for the year ended December 31, 2019.2022, inclusive of the effects of acquisitions and pricing actions. U.S. orders increased by $60.6$122.3 million, or 8%11%, primarily due to the acquisition of MRL which contributed $54.9 million of orders, as well as increasesimprovements in orders for safe-digging trucks, street sweepers, sewer cleaners, industrial vacuum loaders and dump truck bodiesrefuse trucks of $17.8$53.3 million, $33.2 million, $22.3 million, $12.2 million and $3.2$8.6 million, respectively. Additionally, aftermarket orders improveddemand increased by $10.1$32.7 million. Partially offsetting these improvements were reductions in orders for street sweepers, industrial vacuum loaders,dump truck bodies and trailersmetal extraction support equipment of $9.5 million, $8.7$27.1 million and $5.6$5.1 million, respectively. Non-U.S. orders increased by $31.6$24.6 million, or 19%11%, primarily due to increasesimprovements in orders for refuse trucks, safe-digging trucks, andmetal extraction support equipment, street sweepers, of $14.3 million, $11.6 million and $7.7 million, respectively. In addition, the acquisition of MRL contributed $1.9 million of orders,snow removal equipment, refuse trucks, and aftermarket demand increased by $5.1 million.of $31.4 million, $4.0 million, $3.0 million, $2.8 million and $2.1 million, respectively. Partially offsetting these improvements were reductions in orders for safe-digging trucks and industrial vacuum loaders snow removal trucks, and sewer cleaners of $5.7 million, $2.0$10.1 million and $1.7$4.8 million, respectively.respectively, as well as a $6.2 million unfavorable foreign currency translation impact.
Net sales increased by $129.4$186.6 million, or 15%19%, for the year ended December 31, 2019.2022, primarily due to increased sales volumes, inclusive of the effects of acquisitions, pricing actions and higher chassis revenues. U.S. sales increased by $103.9$194.3 million, or 15%24%, largely due to a $31.9 million increase in aftermarket revenues and increases in sales of dump truck bodies, sewer cleaners, metal extraction support equipment, safe-digging trucks, trailers, road-marking and line-removal equipment, street sweepers, hoists, industrial vacuum loaders and refuse trucks of $36.6 million, $32.6 million, $19.5 million, $17.7 million, $12.2 million, $12.0 million, $10.9 million, $8.7 million, $6.1 million and $5.0 million, respectively. Non-U.S. sales decreased by $7.7 million, or 4%, primarily due to a $38.8$14.1 million contribution from MRL,reduction in shipments of refuse trucks, a $5.7 million unfavorable foreign currency translation impact and increasesa $3.2 million reduction in salesshipments of safe-digging trucks,camera systems, primarily associated with the timing of a large fleet shipment in the prior year. Partially offsetting these reductions were improvements in shipments of metal extraction support equipment and dump truck bodies street sweepers, waterblasting equipment, and sewer cleaners of $29.1 million, $12.3 million, $10.1 million, $4.2$13.6 million and $3.6$4.3 million, respectively. In addition, aftermarket revenues increased by $10.4 million, represented by higher rental income and improved parts and service sales. Partially offsetting these increases was a $5.2 million reduction in sales of trailers. Non-U.S. sales increased by $25.5 million, or 16%, primarily due to increases in sales of safe-digging trucks, street sweepers, and sewer cleaners of $9.0 million, $7.9 million, and $6.4 million, respectively. In addition, the MRL acquisition contributed $0.9 million of incremental sales and aftermarket revenues increased by $5.5 million. Partially offsetting these increases were reductions in shipments of snow removal trucks and waterblasting equipment of $2.6 million and $1.9 million, respectively.
Cost of sales increased by $94.6$143.9 million, or 14%18%, for the year ended December 31, 2019,2022, primarily attributablerelated to increased sales volumes, additional costinclusive of sales from the MRL acquisition,effects of acquisitions, higher material costs, and a $4.6$1.4 million increase in depreciation expense, partially offset by a $0.4$5.4 million reduction in purchase accounting expenses. Grossfavorable foreign currency translation impact. Including these factors, gross profit margin improved to 23.4% from 22.9% in the prior-year period, primarily due to improved operating leverage, benefits from pricing actions, and favorable sales mix.
SEG&A expenses and a $0.2 million increase in acquisition-related expenses.
Operating income increased by $24.0 million, or 20%, for the year ended December 31, 2018 increased by $40.6 million, or 56%,2022, largely due to a $53.8$42.7 million increase in gross profit and a $0.2 million decrease in acquisition-related costs, partially offset by the $13.2$16.9 million increase in SEG&A expenses.expenses and a $2.0 million increase in amortization expense.
Backlog was $310.3$824 million at December 31, 2018, up 34%2022, compared to $231.1$576 million at December 31, 2017. The increase is primarily due to the effects of improved demand for vacuum trucks, sewer cleaners and street sweepers in the U.S.
21
Safety and Security Systems
The following table summarizes the Safety and Security Systems Group’s operating results as of, and for the years ended, December 31, 2019, 20182022, 2021 and 2017:2020:
| For the Years Ended December 31, | Change | For the Years Ended December 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ($ in millions) | 2022 | 2021 | 2020 | 2022 vs. 2021 | 2021 vs. 2020 | |||||||||||||||||||||||||||||||||||||
| Net sales | $ | 228.4 | $ | 226.0 | $ | 205.9 | $ | 2.4 | $ | 20.1 | Net sales | $ | 244.2 | $ | 209.2 | $ | 215.0 | $ | 35.0 | $ | (5.8) | |||||||||||||||||||||||||||
| Operating income | 38.6 | 34.1 | 27.0 | 4.5 | 7.1 | Operating income | 40.8 | 32.7 | 35.5 | 8.1 | (2.8) | |||||||||||||||||||||||||||||||||||||
| Other data: | Other data: | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating margin | 16.9 | % | 15.1 | % | 13.1 | % | 1.8 | % | 2.0 | % | Operating margin | 16.7 | % | 15.6 | % | 16.5 | % | 1.1 | % | (0.9) | % | |||||||||||||||||||||||||||
| Total orders | $ | 231.0 | $ | 227.4 | $ | 211.7 | $ | 3.6 | $ | 15.7 | Total orders | $ | 248.0 | $ | 241.5 | $ | 207.1 | $ | 6.5 | $ | 34.4 | |||||||||||||||||||||||||||
| Backlog | 29.3 | 27.4 | 26.4 | 1.9 | 1.0 | Backlog | 54.8 | 52.5 | 21.4 | 2.3 | 31.1 | |||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 3.3 | 3.7 | 4.1 | (0.4 | ) | (0.4 | ) | Depreciation and amortization | 4.2 | 3.6 | 3.4 | 0.6 | 0.2 | |||||||||||||||||||||||||||||||||||
Year ended December 31, 20192022 vs. year ended December 31, 20182021
Total orders increased by $3.6$6.5 million, or 2%3%, for the year ended December 31, 2019.2022. U.S. orders increased by $0.1$18.7 million, or 13%, compared to the prior year, primarily driven by improvements in orders for public safety equipment, warning systems and industrial signaling equipment of $1.5$8.4 million, $8.1 million and $0.8 million, respectively, partially offset by a $2.2 million, decreaserespectively. Non-U.S. orders decreased by $12.2 million, or 12%, largely due to a $13.8 million reduction in orders for public safety products. Non-U.S. orders increasedequipment, primarily associated with the timing of a large fleet order in the prior year, as well as a $5.8 million unfavorable foreign currency translation impact, partially offset by $3.5a $7.5 million or 4%, largely due to improvementsimprovement in orders for industrial signaling equipment and public safety products of $5.9 million and $5.3 million, respectively, partially offset by a $4.7 million reduction in orders for warning systems and an unfavorable foreign currency translation impact of $3.0 million.equipment.
Net sales increased by $2.4$35.0 million, or 1%17%, for the year ended December 31, 2019.2022, inclusive of the effects of higher sales volumes and pricing actions. U.S. sales increased by $0.9$28.8 million, or 1%23%, primarilydriven by improvements in sales of public safety equipment, warning systems and industrial signaling equipment of $19.2 million, $6.7 million and $2.9 million, respectively. Non-U.S. sales increased by $6.2 million, or 7%, largely due to improvements in sales of public safety equipment and industrial signaling equipment and warning systems of $1.4$8.9 million and $1.0$6.5 million, respectively, partially offset by a $1.5$6.3 million reduction in sales of public safety products. Non-U.S. sales increased by $1.5 million, or 2%, primarily due to improvements in sales of industrial signaling equipmentunfavorable foreign currency translation impact and public safety products of $5.2 million anda $2.9 million, respectively, which were partially offset by a $3.7 million reduction in sales of warning systems and an unfavorable foreign currency translation impact of $2.9 million.systems.
Cost of sales decreasedincreased by $3.5$21.5 million, or 2%16%, for the year ended December 31, 2019, largely due2022, primarily related to favorablehigher sales mixvolumes and increased material costs, partially offset by a $4.8 million favorable foreign currency translation impact of $2.1 million, partially offset by higher sales volumes.impact. Gross profit margin for the year ended December 31, 2019 improved to 39.5%2022 was 37.1%, compared to 37.3%36.9% in the prior year, with the improvement primarily dueattributable to improved operating leverage from higher sales volumes and benefits from pricing actions, and improved sales mix in comparison to the prior year.partially offset by higher material costs.
SEG&A expenses increased by $5.4 million for the year ended December 31, 2019 were $1.4 million, or 3%, higher than the prior year,2022, primarily due to increasedhigher selling expenses, associated with new product developmentincluding increases in sales commissions and other growth initiatives.marketing costs. As a percentage of net sales, SEG&A expenses were 22.6%20.4% in the current year, compared to 22.2%with 21.2% in the prior year.
Operating income increased by $8.1 million, or 25%, for the year ended December 31, 2019 increased by $4.5 million, or 13%, largely2022, primarily due to a $5.9$13.5 million increase in gross profit, partially offset by the $1.4$5.4 million increase in SEG&A expenses.
Backlog was $29.3$55 million at December 31, 20192022, compared to $27.4$53 million at December 31, 2018. The increase was primarily due to increased international orders for public safety products.2021.
Corporate Expense
Corporate operating expenses were $30.9$24.5 million, $25.6$22.5 million and $25.8$28.4 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.
For the year ended December 31, 2019,2022, corporate operating expenses increased by $5.3 million, primarily driven by higher post-employment expenses, employee-related costs and information technology investments. In addition, acquisition-related expenses increased by $0.8$2.0 million, primarily due to thea $1.8 million reduction in acquisition of MRL.
22
The Company’s hearing loss litigation has historically been managed by the Company’s legal staff resident at the corporate office and not by management at either segment. In accordance with Accounting Standards Codification (“ASC”) 280, Segment Reporting, which provides that segment reporting should follow the management of the item and that certain expenses may be corporate expenses, these legal expenses (which are not part of the normal operating activities of any of our reportable segments) are reported and managed as corporate expenses.
Financial Condition, Liquidity and Capital Resources
The Company uses 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 20192022 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.
The Company’s cash and cash equivalents totaled $31.6$47.5 million, $37.4$40.5 million and $37.5$81.7 million as of December 31, 2019, 20182022, 2021 and 2017,2020, respectively. As of December 31, 2019, $13.82022, $19.4 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. The Company uses this cash to fund the operating activities of its foreign subsidiaries and for further investment in foreign operations. Generally, the Company has considered such cash to be permanentlyindefinitely reinvested in its foreign operations and the Company’s 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 cause the Company 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 $103.4$71.8 million, $92.8$101.8 million and $73.5$136.2 million in 2019, 20182022, 2021 and 2017,2020, respectively. The $10.6 million, or 11%, increasereduction in cash generated by continuing operating activities in 20192022 compared to the prior year was primarily due to increases in working capital, including higher earningsaccounts receivable, largely due to increases in net sales, and a $7.0strategic stocking of critical inventory components, such as chassis, to support demand levels and partially mitigate ongoing supply chain constraints. In addition, the Company had increased rental fleet investment in response to strong customer demand for rental and used equipment. Partially offsetting these increases was an $8.6 million reduction in pension contributions. These improvements were partially offset by a $4.1 million increase in income tax payments, primarily as a $3.1 million increaseresult of prior-year tax planning initiatives which resulted in acquisition-
Net cash used for continuing investing activities totaled $84.4$99.7 million, $11.0$168.7 million and $277.1$34.4 million in 2019, 20182022, 2021 and 2017,2020, respectively. In each of the years presented, cash was used to fund the purchase of properties and equipment, with $35.4$53.0 million, $14.1$37.4 million and $8.0$29.7 million of capital expenditures in 2019, 20182022, 2021 and 2017,2020, respectively. The increaseCapital expenditures in 2022 included the acquisition of the Company’s University Park, Illinois manufacturing facility for $28 million, and capital expenditures in 2019 was largely related to2021 included the expansion of the primary production facilitypurchase of the Company’s Vactor Manufacturing, Inc. subsidiary. In addition, asElgin, Illinois manufacturing facility for $19.8 million. As discussed further in Note 2 – Acquisitions in 2019to the accompanying consolidated financial statements, during 2022 the Company completed the acquisition of TowHaul for initial consideration of $43.3 million. In addition, during 2022 the Company paid an initial $49.6$4.3 million to acquire MRL, netcertain distribution rights from dealers and funded a $1.6 million post-closing adjustment related to the 2021 acquisition of substantially all of the assets and operations of Deist Industries, Inc. In 2021, the Company completed three acquisitions for aggregate initial consideration of $131.8 million, excluding cash acquired. In 2018,2020, the Company paid $6.2 million to acquire certain assets and operations of Public Works Equipment and Supply, Inc. (“PWE”) and received an adjustment for working capital$0.8 million as part of the finalization of certain post-closing adjustments in connection with the acquisition of MRL.
Net cash of $35.5 million and other post-closing items$26.4 million was provided by financing activities in the amount of $3.0 million relating2022 and 2021, respectively, compared to the TBEI acquisition, which was completed in 2017 for an initial payment of $269.2 million.
23
On July 30, 2019,October 21, 2022, the Company entered into the 2019Third Amended and Restated Credit Agreement (the “2022 Credit Agreement”), by and among the Company (the “U.S. Borrower”) and certain of its foreign subsidiaries (collectively, the “Borrowers”), Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender, JPMorgan ChasePNC Bank, N.A.National Association and Truist Bank as syndication agent,agents, and the other lenders and parties signatory thereto.
The 20192022 Credit Agreement is a $500senior secured credit facility which provides the Borrowers access to an aggregate principal amount of $800 million, consisting of (i) a revolving credit facility maturing on July 30, 2024, thatin an amount up to $675 million (the “Revolver”) and (ii) a term loan facility in an amount up to $125 million. The Revolver provides for borrowings in the form of loans or letters of credit up to the aggregate availability under the facility, with a sub-limit of $75$100 million for letters of credit. The 2019 Credit Agreement allows for the Borrowers to borrowBorrowings can be made in denominations of U.S. Dollars, Canadian Dollars, Euros or British Pounds (with borrowings in non-U.S. currencies subject to a sublimit of $200$300 million). In addition, the Company may causeexpand its borrowing capacity under the commitments to increase2022 Credit Agreement by up to an additional $250the greater of (i) $400 million and (ii) 100% of Consolidated EBITDA for the applicable four-quarter period preceding such expansion notice, subject to the approval of the applicable lenders providing such additional financing.borrowings in the form of increases to their revolving facility commitment, or funding of incremental term loans. Borrowings under the 20192022 Credit Agreement may be used for working capital and general corporate purposes, including acquisitions. The 2022 Credit Agreement matures on October 21, 2027.
The Company’s material domestic subsidiaries provide guarantees for all obligations of the Borrowers under the 20192022 Credit Agreement, which is secured by a first priority security interest in (i) all existing or hereafter acquired domestic property and assets of the U.S. BorrowerCompany and material domestic subsidiaries, (ii) the stock or other equity interests in each of the material domestic subsidiaries and (iii) 65% of outstanding voting capital stock of certain first-tier foreign subsidiaries, subject to certain exclusions.
Borrowings under the 20192022 Credit Agreement bear interest, at the Company’s option, at a base rate or a LIBOR rate,an Adjusted Term Secured Overnight Financing Rate (“SOFR”), Adjusted Eurocurrency Rate or Adjusted Daily Simple SONIA Rate (as each is defined in the 2022 Credit Agreement), plus, in each case, an applicable margin. The applicable margin ranges from zero to 0.75% for base rate borrowings and 1.00% to 1.75% for LIBORAdjusted Term SOFR, Adjusted Eurocurrency Rate or Adjusted Daily Simple SONIA Rate borrowings. The Company must also pay a commitment fee to the lenders ranging between 0.10% to 0.25% per annum on the unused portion of the $500$675 million revolving credit facilityRevolver along with other standard fees. Letter of creditApplicable margin, issuance fees and other customary expenses are payable on outstanding letters of credit in an amount equal to the applicable LIBOR margin plus other customary fees.credit.
The Company is subject to certain net leverage ratio and interest coverage ratio financial covenants under the 20192022 Credit Agreement that are to be measured at each fiscal quarter-end. The Company was in compliance with all such covenants as of December 31, 2019. The 20192022 Credit Agreement also includes a series ofcertain “covenant holiday” periods, which allow for the temporary increase of the minimum net leverage ratio following the completion of a permitted acquisition, or a series of acquisitions, when the aggregate consideration over a period of twelve months exceeds $75 million. In addition, the 20192022 Credit Agreement includes customary negative covenants, subject to certain exceptions, restricting or limiting the Company’s and its subsidiaries’ ability to, among other things: (i) make non-ordinary course dispositions of assets; (ii) make certain fundamental business changes, such as mergers, consolidations or any similar combination; (iii) make restricted payments, including dividends and stock repurchases; (iv) incur indebtedness; (v) make certain loans and investments; (vi) create liens;
(vii) transact with affiliates; (viii) enter into certain sale/leaseback transactions; (ix) make negative pledges; and (x) modify subordinated debt documents.
Under the 20192022 Credit Agreement, restricted payments, including dividends and stock repurchases, shall be permitted if (i) the Company’s leverage ratio is less than or equal to 3.25;3.25x; (ii) the Company is in compliance with all other financial covenants; and (iii) there are no existing defaults under the 20192022 Credit Agreement. If its leverage ratio is more than 3.25,3.25x, the Company is still permitted to fund (i)(1) up to $35 million of dividend payments and stock repurchases;repurchases annually; and (ii) an(2) additional incremental $50 million of other cash payments.payments up to the greater of $65 million or 5% of consolidated total assets for the term of the 2022 Credit Agreement.
The 20192022 Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the 20192022 Credit Agreement and the commitments from the lenders may be terminated.
The 20192022 Credit Agreement amended and restated the Company’sSecond Amended 2016and Restated Credit Agreement (as amended, the “2019 Credit Agreement”), which provided the Company with a $400$500 million revolving credit facility.
24
In connection with entering into the execution of the 20192022 Credit Agreement during the year ended December 31, 2019,2022, the Company incurred $1.0wrote off $0.1 million of unamortized deferred financing fees associated with the 2019 Credit Agreement, and incurred $1.9 million of new debt issuance costs. SuchThe new fees have been deferred and are being amortized over the five-year term.term as a component of Interest expense on the Consolidated Statements of Operations.
As of December 31, 2019,2022, there was $219.9$361.0 million of cash drawn and $11.2 million of undrawn letters of credit under the 20192022 Credit Agreement, with $268.9$427.8 million of net availability for borrowings.
The following table summarizes the gross borrowings and gross payments under the Company’s revolving credit facilities:
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||||||
| (in millions) | 2019 | 2018 | 2017 | (in millions) | 2022 | 2021 | 2020 | |||||||||||||||||||||
| Gross borrowings | $ | 84.0 | $ | 8.0 | $ | 262.7 | Gross borrowings | $ | 137.0 | $ | 214.0 | $ | 82.6 | |||||||||||||||
| Gross payments | 76.6 | 70.1 | 53.6 | Gross payments | 55.8 | 143.5 | 94.4 | |||||||||||||||||||||