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 and rapid delivery.
3
Research and Development
The information concerning the Company’s research and development activities included in Note 1516 of the Consolidated Financial Statements included under Item 8 of Part II of thisForm 10-K is incorporated herein by reference.
Patents and Trademarks
The Company owns a number of patents and possesses rights under others to which it attaches importance, but 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 that it believes are important in connection with the identification of its products and associated goodwill with customers, but no material part of the Company’s business is dependent on such trademarks.
Employees
The Company employed over 3,300approximately 2,600 people in ongoing businesses at the close of 2008.2009. Approximately 32% of the Company’s domestic hourly workers were unionizedrepresented by unions at December 31, 2008.2009. The Company believes relations with its employees continue to be good.
Governmental Regulation of the Environment
The Company believes it substantially 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 20082009 attributable to compliance with such laws were not material. The Company believes that the overall impact of compliance with environmental regulations will not have a material adverse effect on its future operations.
Seasonality
Certain of the Company’s businesses are susceptible to the influences of seasonal buying or delivery patterns.patterns causing lower sales typically in both the first and third calendar quarters compared to other quarters. The Company’s businesses which tend to have lower sales in the first calendar quarter compared to other quarters as a result of these influences are street sweeping, fire rescue products, outdoor warning, emergency signaling productsexperience this seasonality include aerial platforms and parking systems.European light bars and sirens.
Additional Information
The Company makes its Annual Reports onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K, other reports and information filed with the SEC and amendments to those reports available, free of charge, through its Internet website(http://www.federalsignal.com)as soon as reasonably practical after it electronically files or furnishes such materials to the SEC. Additionally, the Company makes its proxy statement and its Annual Report to stockholders available at the same internet website ((http://www.federalsignal.com)www.federalsignal.com), free of charge, when sent to stockholders prior to the meeting date. All of the Company’s filings may be read or copied at the SEC’s Public Reference Room at 100 F. Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at1-800-SEC-0330. The SEC maintains an Internet website(http://www.sec.gov)that contains reports, proxy and information statements and other information regarding issuers that file electronically.
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, among other things, filings with the Securities and Exchange Commission, including this Annual Report on
4
Form 10-K, press releases made by us and in 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
4
results to differ from those contained in such forward-looking statements include, among other things, the risks described below.
The execution of our growth strategy is dependent upon the continued availability of credit andthird-party financing arrangements for our customers.
The recent economic downturn has resulted in tighter credit markets, which could adversely affect our customers’ ability to secure the financing necessary to proceed or continue with purchases of our products and services. Our customers’ or potential customers’ inability to secure financing for projects could result in the delay, cancellation or down-sizing 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 revenues and earnings.
We rely on access to financial markets to finance a portion of our working capital requirements and support our liquidity needs. Access to these markets may be adversely affected by factors beyond our control, including turmoil in the financial services industry, volatility in securities trading markets and general economic downturns.
We draw upon our revolving credit facility and our operating cash flow to fund working capital needs, capital expenditures, strategic acquisitions, pension contributions, debt repayments, share repurchases and dividends. Market disruptions such as those currently beingrecently experienced in the U.S.United States and abroad have materially impacted liquidity in the credit and debt markets, making financing terms for borrowers less attractive and in certain cases have resulted in the unavailability of certain types of financing. Continued uncertainty in the financial markets may negatively impact our ability to access additional financing or to refinance our existing credit facility or existing debt arrangements on favorable terms or at all, which could negatively affect our ability to fund current and future operations as well as future acquisitions and development. These disruptions may include turmoil in the financial services industry, unprecedented volatility in the markets where our outstanding securities trade, and general economic downturns in the areas where we do business. If we are unable to access monies at competitive rates, or if our short-term or long-term borrowings costs dramatically increase, our ability to finance our operations, meet our short-term obligations and implement our operating strategy could be adversely affected.
Our financial results are subject to considerable cyclicality.
Our ability to be profitable depends heavily on varying conditions in the United States government and municipal markets and the overall United States 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 governmental agencies, and as such, we are dependent on municipal government spending. Spending by our municipal customers can be affected by local political circumstances, budgetary constraints, and other factors. The United States government and municipalities depend heavily on tax revenues as a source of their spending and, accordingly, there is a historical correlation, of a one or two year lag between the overall strength of the United States economy and our sales to the United States government and municipalities. Therefore, downturns in the United States economy are likely to result in decreases in demand for our products. During previous economic downturns, we experienced decreases in sales and profitability, and we expect our business to remain subject to similar economic fluctuations in the future.
The inability to obtain raw materials, component parts, and/or finished goods in a timely andcost-effective manner from suppliers would adversely affect our ability to manufacture and market our products.
We purchase raw materials and component parts from suppliers to be used in the manufacturing of our products. In addition, we purchase certain finished goods from suppliers. Changes in our relationships with suppliers or increases in the costs of purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or our inability to market products. In addition, our profit margins would decrease if prices of purchased raw materials, component parts or finished goods increase and we are unable to pass on those increases to our customers.
5
We operate in highly competitive markets.
The markets in which we operate are highly competitive. The intensity of this competition, which is expected to continue, can result in price discounting and margin pressures throughout the industry and adversely affects our ability to increase or maintain prices for our products. In addition, certain of our competitors may have lower overall labor or material costs.
We have international operations that are subject to foreign economic and political uncertainties.
Our business is subject to fluctuations in demand and changing international economic and political conditions which are beyond our control. During 2008,2009, approximately 43%44% of our sales were to customers outside the United States; with approximately 32%31% of sales being supplied from our overseas operations. We expect a significant and increasing portion of our revenues and profits to come from international sales for the foreseeable future. Operating in the international marketplace exposes us to a number of risks, including abrupt changes in foreign government policies and regulations and, in some cases, international hostilities. To the extent that our international operations are affected by unexpected and adverse foreign economic and political conditions, we may experience project disruptions and losses which could significantly reduce our revenues and profits.
Some of our contracts are denominated in foreign currencies, which result in additional risk of fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. Although currency exposure is hedged in the short term, over the longer term changes in the value of foreign currencies 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 affect our profits.
Failure to keep pace with technological developments may adversely affect our operations.
We are engaged in an industry which will be affected by future technological developments. The introduction of products or processes utilizing new technologies could render our existing products or processes obsolete or unmarketable. Our success will depend upon our ability to develop and introduce on a timely and cost-effective basis new products, processes and applications that keep pace with technological developments and address increasingly sophisticated customer requirements. We may not be successful in identifying, developing and marketing new products, applications and processes and product or process enhancements. We may experience difficulties that could delay or prevent the successful development, introduction and marketing of product or process enhancements or new products, applications or processes. Our products, applications or processes may not adequately meet the requirements of the marketplace and achieve market acceptance. Our business, operating results and financial condition could be materially and adversely affected if we were to incur delays in developing new products, applications or processes or product or process enhancements or if our products do not gain market acceptance.
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, including finance personnel, research professionals, technical sales professionals and engineers. The loss of the services of any key employee or the failure to attract or retain other qualified personnel could have a material adverse effect on our business or business prospects.
We may incur material losses and costs as a result of product liability, warranty, recall claims or other lawsuits or claims that may be brought against us.
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 injuryand/or property damage. Accordingly, we could experience material warranty or product liability costs in the future and incur significant costs to defend against these claims. We carry insurance and maintain reserves for product liability claims. However, we cannot be assured that our insurance coverage will be adequate if such claims do arise, and any liability not covered by insurance could have a material adverse impact on our results
6
of operations and financial position. 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 or other claims are not typically covered by insurance coverage. 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 and safety 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. Complying with environmental and safety requirements has added and will continue to add to the cost of our products, and could increase the capital required. 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 violations, or liabilities under, environmental laws and safety regulations.
We may be required to recognize impairment charges for our goodwill and other indefinite lived intangible assets.
In accordance with generally accepted accounting principles, we periodically assess our goodwill and other indefinite lived intangible assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets and market capitalization declines may result in impairments to goodwill and other long lived assets. Future impairment charges could significantly affect our results of operations in the periods recognized. Impairment charges would also reduce our consolidated shareholders’ equity and increase ourdebt-to-total-capitalization ratio, which may result in an event of default on our credit facility and other debt facilities. Upon an event of default, if not waived by our lenders, our lenders may declare all amounts outstanding as due and payable.
We are subject to a number of restrictive debt covenants.
Our credit facility and other debt instruments contain certain restrictive debt covenants and other customary events of default that may hinder our ability to continue operating or to take advantage of attractive business opportunities. These restrictive covenants include, among other things, an interest coverage ratio of 3.00:1 in all quarters effective with the first quarter of 2009 and a minimum net worthmaximumdebt-to-total-capitalization ratio of $275.0 million at all times.0.5:1.0. Our ability to comply with these restrictive covenants may be affected by the other factors described in this “Risk Factors” section and other factors outside our control. Failure to comply with one or more of these restrictive covenants may result in an event of default. Upon an event of default, if not waived by our lenders, our lenders may declare all amounts outstanding as due and payable. If we are unable to comply with the restrictive covenants in the future, we would be required to obtain further modifications from our lenders or secure another source of financing. If our current lenders accelerate the maturity of our indebtedness, we may not have sufficient capital available at that time to pay the amounts due to our lenders on a timely basis. In addition, these restrictive covenants may prevent us from engaging in transactions that benefit us, including responding to changing business and economic conditions and taking advantage of attractive business opportunities.
Our strategy to pursue growth through selective acquisitions may not be successful.
Our long-term strategy includes expanding into adjacent markets through selective acquisitions of companies, complementary technologies and organic growth. This strategy may involve the acquisition of companies that enable us to build on our existing strength in a market or that give us access to proprietary technologies that are strategically valuable or allows 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 theday-to-day operations of our business. The acquisitions that we may consider may not be successfully consummated. Our acquisition activities can be disrupted by overtures from competitors for the targeted candidates, governmental regulation and rapid developments in our industry. We may face additional risks and uncertainties following an acquisition including: (i) the difficulty in integrating the newly-acquired business and operations in an efficient and effective manner; (ii) the
7
inability to achieve strategic objectives, cost savings, expected levels of profitability and other benefits from the acquisition; (iii) the lack of success by the acquired business in its markets; (iv) the loss of key employees of the acquired business; (v) the diversion of the attention of senior management from our operations; and (vi) the liabilities that were not known at the time of the acquisition or the need to address tax or accounting issues. If we fail to timely recognize or address these matters or to devote adequate resources to them, we may fail to achieve our growth strategy or otherwise realize the intended benefits of the acquisition. Even if we are unable to integrate our business operations successfully, the integration may not result in the realization of the full benefits of synergies, cost savings, profitability, innovation and operational efficiencies that may be possible from the integration or that the benefits will be achieved within the forcasted period of time. In addition, our acquisition activities could require us to secure additional debt or equity financing, which we may not be able to secure on favorable terms or at all.
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 this product diversification effort.
| |
Item 1B. | Unresolved Staff Comments. |
None.
As of December 31, 2008,2009, the Company utilized 108 principal manufacturing plants located throughout North America, as well as 9 in Europe, 1 in South Africa and 1 in the Far East.
In total, the Company devoted approximately 1.1 million square feet to manufacturing and 0.80.7 million square feet to service, warehousing and office space as of December 31, 2008.2009. Of the total square footage, approximately 47%43% is devoted to the Safety and Security Systems Group, 8%9% to the Fire Rescue Group and 45%48% to the Environmental Solutions Group. Approximately 22%18% of the total square footage is owned by the Company with the remaining 78%82% being leased.
All of the Company’s properties, as well as the related machinery and equipment, are considered to be 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.
| |
Item 3. | Legal Proceedings. |
The information concerning the Company’s legal proceedings included in Note 1415 of the financial statementsConsolidated Financial Statements contained under Item 8 of Part II of thisForm 10-K is incorporated herein by reference.
7
| |
Item 4. | Submission of Matters to a Vote of Security Holders. |
No matters were submitted to a vote of security holders through the solicitation of proxies or otherwise during the three months ended December 31, 2008.2009.
8
| |
Item 4A. | Executive Officers. |
The following is a list of the Company’s executive officers, their ages, business experience and positions and offices as of February 1, 2009:2010:
William H. Osborne, age 49, was appointed Chief Executive Officer and President in September 2008 and elected to the Board of Directors in April 2009. Mr. Osborne was President and Chief Executive Officer of Ford of Australia in 2008. From 2005 to 2008 Mr. Osborne was the President and Chief Executive Officer of Ford of Canada and from 2003 to 2005 he was the Executive Director, Pickup Truck and Commercial Vehicles, North American Truck Business of Ford Motor Company.
William G. Barker, III, age 50,51, was appointed Senior Vice President and Chief Financial Officer in December 2008. Mr. Barker was Senior Vice President and Chief Financial Officer of Sun-Times Media Group from 2007 to 2008. He was Vice President, Finance and Strategy, Gatorade of PepsiCo, Inc. from 2001 to 2007.
David E. Janek, age 45,46, was appointed Vice President and Controller in August 2008. Mr. Janek was Vice President and Treasurer from 2006 to 2008 and was Vice President Finance, Safety and Security Systems Group from 2002 to 2006.
Fred H. Lietz, age 54, was appointed Vice President and Chief Procurement Officer in May 2007. Mr. Lietz was Vice President of Global Procurement and Logistics at Andrew Corporation from 2001 to 2006.
David R. McConnaughey, age 52, was appointed President of Federal Signal’s Safety and Security Systems Group in March 2006. Previously, Mr. McConnaughey was President Maytag All Brand Service from 2005 to March 2006 and Vice President Maytag All Brand Service from 2004 to 2005. Previously, Mr. McConnaughey held several roles with Maytag Corporation including Vice President and G.M. Amana Brand 2003 to 2004 and Vice President Supply Chain 2002 to 2003.
William H. Osborne, age 48, was appointed Chief Executive Officer and President in September 2008. Mr. Osborne was President and Chief Executive Officer of Ford of Australia in 2008. From 2005 to 2008 Mr. Osborne was the President and Chief Executive Officer of Ford of Canada and from 2003 to 2005 he was the Executive Director, Pickup Truck and Commercial Vehicles, North American Truck Business of Ford Motor Company.
Esa Peltola, age 57,58, was appointed President of Bronto Skylift Oy Ab in July 2007. Mr. Peltola was Managing Director of Bronto Skylift from 1998 to 2007.
Jennifer L. Sherman, age 44,45, was appointed Senior Vice President, Human Resources, General Counsel and Secretary in April 2008. Ms. Sherman was Vice President, General Counsel and Secretary from 2004 to 2007 and was Deputy General Counsel and Assistant Secretary from 1998 to 2004.
Mark D. Weber, age 51,52, was appointed President of the Environmental Solutions Group in April 2003. Mr. Weber was Vice President Sweeper Products for the Environmental Solutions Group from 2002 to 2003 and General Manager of Elgin Sweeper Company from 2001 to 2002.
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.
PART II
| |
Item 5. | Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
The Company’s common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol FSS. At December 31, 2008,2009, there were no material restrictions on the Company’s ability to pay dividends. The information concerning the Company’s market price range data included in Note 1819 of the Consolidated Financial Statements contained under Item 8 of Part II of thisForm 10-K is incorporated herein by reference.
As of January 31, 2009,2010, there were 2,7112,556 holders of record of the Company’s common stock.
89
The following table presents the Fire Rescue Group’s results of operations for each of the three years in the period ended December 31 2008 ($ in millions):
Operating income rose 32% in 2008 and operating margins improved as a result of the increased sales volumes. Higher product costs for steel and other components and inefficiencies caused by the plant expansion offset some of the sales volume impact.
The following table presents the Environmental Solutions Group’s results of operations for each of the three years in the period ended December 31 2008 ($ in millions):
The Company’s products generally carry express warranties that provide repairs at no cost to the customer. The length of the warranty term depends on the product sold, but generally extends from six months to five years based on the terms that are generally accepted in the Company’s marketplaces. Certain components necessary to manufacture the Company’s vehicles (including chassis, engines and transmissions) are covered under an original manufacturers’ warranty. Such manufacturers’ warranties are extended directly to end customers.
The Company accrues its estimated exposure to warranty claims at the time of sale based upon historical warranty claim costs as a percentage of sales. Management reviews these estimates on a quarterly basis and adjusts the warranty provisions as actual experience differs from historical estimates. Infrequently, a material warranty issue can arise which is outside the norm of the Company’s historical experience; costs related to such issues, if any, are provided for when they become probable and estimable.
Due to the nature of the products manufactured, the Company is subject to product liability claims in the ordinary course of business. The Company is partially self-funded for workers’ compensation and product liability claims with various retention and excess coverage thresholds. After the claim is filed, an initial liability is estimated, if any is expected, to resolve the claim. This liability is periodically updated as more claim facts become known. The establishment and update of liabilities for unpaid claims, including claims incurred but not reported, is based on the assessment by the Company’s claim administrator of each claim, an independent actuarial valuation of the nature and severity of total claims and management’s estimate. The Company utilizes a third-party claims administrator to pay claims, track and evaluate actual claims experience and ensure consistency in the data used in the actuarial valuation. Management believes that the reserve established at December 31, 20082009 appropriately reflects the Company’s risk exposure. The Company has not established a reserve for potential losses resulting from hearing loss litigation (see Note 1415 to the Company’s Consolidated Financial Statements included in Item 8 of Part II of thisForm 10-K);. ifIf the Company is not successful in its defense after exhausting all appellate options, it will record a charge for such claims, to the extent they exceed insurance recoveries, at the appropriate time.
grant date fair values. We use the Black-Scholes option pricing model to estimate the fair value of the stock option awards. The Black-Scholes model requires the use of highly subjective and complex assumptions, including the Company’s stock price, expected volatility, expected term, risk-free interest rate and expected dividend yield. For expected volatility, we base the assumption on the historical volatility of the Company’s common stock. The expected term of the awards is based on historical data regarding employees’ option exercise behaviors. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of the awards. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. In addition to the requirement for fair value estimates, SFASASC Topic 718 (SFAS No. 123(R)) also requires the recording of expense that is net of an anticipated forfeiture rate. Therefore, only expenses associated with awards that are ultimately expected to vest are included in our financial statements. Our forfeiture rate is determined based on our historical option cancellation experience.
We evaluate the Black-Scholes assumptions that we use to value our awards on a quarterly basis. With respect to the forfeiture rate, we revise the rate if actual forfeitures differ from our estimates. If factors change and we employ different assumptions, stock-based compensation expense related to future stock-based payments may differ significantly from estimates recorded in prior periods.
Financial Market Risk Management
The Company is subject to market risk associated with changes in interest rates and foreign exchange rates. To mitigate this risk, the Company utilizes interest rate swaps and foreign currency options and forward contracts. The Company does not hold or issue derivative financial instruments for trading or speculative purposes and is not party to leveraged derivatives contracts.
21
Interest Rate Risk
The Company manages its exposure to interest rate movements by targeting a proportionate relationship between fixed-rate debt to total debt generally within established percentages of between 40% and 60%. The Company uses funded fixed-rate borrowings as well as interest rate swap agreements to balance its overall fixed/floating interest rate mix.
The following table presents the principal cash flows and weighted average interest rates by year of maturity for the Company’s total debt obligations held at December 31, 20082009 ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected Maturity Date | | Fair
| | | Expected Maturity Date | | Fair
| |
| | 2009 | | 2010 | | 2011 | | 2012 | | Thereafter | | Total | | Value | | | 2010 | | 2011 | | 2012 | | 2013 | | Thereafter | | Total | | Value | |
|
Fixed rate | | $ | 25.1 | | | $ | 25.1 | | | $ | 25.2 | | | $ | 68.0 | | | $ | — | | | $ | 143.4 | | | $ | 146.7 | | | $ | 25.1 | | | $ | 9.1 | | | $ | 42.7 | | | $ | — | | | $ | — | | | $ | 76.9 | | | $ | 77.8 | |
Average interest rate | | | 5.7 | % | | | 5.6 | % | | | 5.5 | % | | | 5.2 | % | | | — | | | | 5.5 | % | | | — | | | | 7.5 | % | | | 7.3 | % | | | 7.2 | % | | | — | | | | — | | | | 7.4 | % | | | — | |
Variable rate | | $ | — | | | $ | 20.0 | | | $ | — | | | $ | 97.0 | | | $ | 10.0 | | | $ | 127.0 | | | $ | 127.0 | | | $ | 16.8 | | | $ | 1.4 | | | $ | 101.9 | | | $ | 7.0 | | | $ | — | | | $ | 127.2 | | | $ | 127.2 | |
Average interest rate | | | — | | | | 4.2 | % | | | — | | | | 4.0 | % | | | 4.9 | % | | | 4.1 | % | | | — | | | | 2.0 | | | | 1.8 | % | | | 1.8 | % | | | 3.4 | % | | | — | | | | 1.9 | % | | | — | |
The following table presents notional amounts and weighted average interest rates by expected (contractual) maturity date for the Company’s interest rate swap contracts held at December 31, 20082009 ($ in millions). Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected Maturity Date | | Fair
| | | Expected Maturity Date | | Fair
| |
| | 2009 | | 2010 | | 2011 | | 2012 | | Thereafter | | Total | | Value | | | 2010 | | 2011 | | 2012 | | 2013 | | Thereafter | | Total | | Value | |
|
Pay fixed, receive variable | | $ | 15.0 | | | $ | 35.0 | | | $ | 10.0 | | | $ | — | | | $ | — | | | $ | 60.0 | | | $ | (2.7 | ) | | $ | 70.0 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 70.0 | | | $ | (0.5 | ) |
Average pay rate | | | 6.8 | % | | | 5.8 | % | | | 8.3 | % | | | — | | | | — | | | | — | | | | — | | | | 2.0 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Average receive rate | | | 1.5 | % | | | 1.6 | % | | | 1.6 | % | | | — | | | | — | | | | — | | | | — | | | | 0.4 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Receive fixed, pay variable | | $ | 10.0 | | | $ | 10.0 | | | $ | 10.0 | | | $ | 20.0 | | | $ | — | | | $ | 50.0 | | | $ | 1.7 | | |
Average pay rate | | | 5.3 | % | | | 5.4 | % | | | 5.4 | % | | | 3.3 | % | | | — | | | | — | | | | — | | |
Average receive rate | | | 6.8 | % | | | 6.8 | % | | | 6.8 | % | | | 5.2 | % | | | — | | | | — | | | | — | | |
See Note 78 to the consolidated financial statementsConsolidated Financial Statements in thisForm 10-K for a description of these agreements. A 100 basis point increase or decrease in variable interest rates in 20082009 would have increased or decreased interest expense by $1.3$0.9 million, respectively.
23
Foreign Exchange Rate Risk
Although the majority of our sales, expenses and cash flows are transactiontransacted in U.S. dollars, we havethe Company has exposure to changes in foreign currency exchange rates, primarily the Euro and British Pound.pound. If average annual foreign exchange rates collectively weakened against the U.S. dollar by 10%, our pre-tax earnings in 20082009 would have decreased by $3.0$1.2 million from foreign currency translation.
The Company has foreign currency exposures related to buying and selling in currencies other than the local currency in which it operates. The Company utilizes foreign currency options and forward contracts to manage these risks.
22
The following table summarizes the Company’s foreign currency derivative instruments as of December 31, 2008.2009. All are expected to settle in 20092010 ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected
| | | | | Expected
| | | |
| | Settlement Date
| | | | | Settlement Date | | | |
| | 2009 | | | | | 2010 | | | |
| | | | Average
| | | | | | | Average
| | | |
| | Notional
| | Contract
| | Fair
| | | Notional
| | Contract
| | Fair
| |
| | Amount | | Rate | | Value | | | Amount | | Rate | | Value | |
|
Forward contracts: | | | | | | | | | | | | | | | | | | | | | | | | |
Buy U.S dollars, sell Euros | | | $ | 18.4 | | | | 1.4 | | | $ | (0.3 | ) |
Buy Euros, sell U.S. dollars | | $ | 11.6 | | | | 1.5 | | | $ | (0.5 | ) | | | 2.2 | | | | | | | | (0.1 | ) |
Buy U.S dollars, sell Euros | | | 19.7 | | | | | | | | 1.7 | | |
Buy Euros, sell CAD | | | 11.9 | | | | | | | | (1.5 | ) | |
Buy British Pounds, sell Euros | | | | 2.5 | | | | | | | | — | |
Other currencies | | | 5.4 | | | | | | | | (1.0 | ) | | | 1.0 | | | | | | | | — | |
| | | | | | |
Total forward contracts | | | 48.6 | | | | | | | | (1.3 | ) | |
Options: | | | | | | | | | | | | | |
Buy U.S. dollars, sell Euros | | | 10.6 | | | | 1.5 | | | | 1.6 | | |
| | | | | | | | | | |
Total foreign currency derivatives | | $ | 59.2 | | | | | | | $ | 0.3 | | | $ | 24.1 | | | | | | | $ | (0.4 | ) |
| | | | | | | | | | |
See Note 78 to the Consolidated Financial Statements in thisForm 10-K for a description of these agreements.
Forward exchange contracts are recorded as a natural hedge when the hedged item is a recorded asset or liability that is revalued each accounting period, in accordance with SFAS No. 52,ASC Topic 830, “Foreign Currency Translation”Matters” (SFAS No. 52). For derivatives designated as natural hedges, changes in fair values are reported in the “Other income (expense)” line of the Consolidated Statements of Operations.
Other Matters
The Company has a business conduct policy applicable to all employees and regularly monitors compliance with that policy. The Company has determined that it had no significant related party transactions in each of the three years in the period ended December 31, 2008.2009.
| |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
The information contained under the caption Financial Market Risk Management included in Item 7 of thisForm 10-K is incorporated herein by reference.
| |
Item 8. | Financial Statements and Supplementary Data. |
2324
FEDERAL SIGNAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | |
| | Page |
|
| | | 2526 | |
| | | 2728 | |
| | | 2829 | |
| | | 2930 | |
| | | 3031 | |
| | | 3132 | |
2425
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Stockholders of Federal Signal Corporation
We have audited the accompanying consolidated balance sheets of Federal Signal Corporation as of December 31, 20082009 and 2007,2008, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008.2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federal Signal Corporation at December 31, 20082009 and 2007,2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008,2009, in accordanceconformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 56 to the consolidated financial statements, on January 1, 2007, Federal Signal Corporation changed its method of accounting for uncertain tax positions to conform with Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” Additionally, as discussed in Note 1 to the consolidated financial statements, on December 31, 2006, Federal Signal Corporation changed its method of accounting for defined benefit pension and other postretirement benefit plans to conform with SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).”
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Federal Signal Corporation’s internal control over financial reporting as of December 31, 2008,2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2009,26, 2010, expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, ILIllinois
February 27, 200926, 2010
2526
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Federal Signal Corporation
We have audited Federal Signal Corporation’s internal control over financial reporting as of December 31, 2008,2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Federal Signal Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Federal Signal Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008,2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Federal Signal Corporation as of December 31, 20082009 and 2007,2008, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 20082009 of Federal Signal Corporation and our report dated February 27, 200926, 2010 expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, ILIllinois
February 27, 200926, 2010
2627
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | |
| | December 31, | | | December 31, | |
| | 2008 | | 2007 | | | 2009 | | 2008* | |
| | ($ in millions) | | | ($ in millions) | |
|
ASSETS | ASSETS | ASSETS |
Current assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 23.4 | | | $ | 12.5 | | | $ | 21.1 | | | $ | 23.4 | |
Short-term investments | | | 10.0 | | | | — | | | | — | | | | 10.0 | |
Accounts receivable, net of allowances for doubtful accounts of $2.0 million and $3.8 million, respectively | | | 153.2 | | | | 147.8 | | |
Inventories — Note 2 | | | 137.1 | | | | 121.8 | | |
Accounts receivable, net of allowances for doubtful accounts of $2.5 million and $2.0 million, respectively | | | | 120.2 | | | | 136.1 | |
Inventories — Note 3 | | | | 112.1 | | | | 131.6 | |
Other current assets | | | 21.6 | | | | 28.6 | | | | 26.0 | | | | 21.0 | |
| | | | | | | | | | |
Total current assets | | | 345.3 | | | | 310.7 | | | | 279.4 | | | | 322.1 | |
Properties and equipment — Note 3 | | | 65.4 | | | | 59.5 | | |
Properties and equipment — Note 4 | | | | 65.5 | | | | 62.5 | |
Other assets | | | | | | | | | | | | | | | | |
Goodwill — Note 11 | | | 328.1 | | | | 344.7 | | |
Intangible assets, net — Note 11 | | | 47.8 | | | | 65.2 | | |
Deferred tax assets — Note 5 | | | 30.3 | | | | 1.8 | | |
Goodwill — Note 12 | | | | 319.6 | | | | 303.6 | |
Intangible assets, net — Note 12 | | | | 52.7 | | | | 47.8 | |
Deferred tax assets — Note 6 | | | | 17.5 | | | | 31.2 | |
Deferred charges and other assets | | | 4.4 | | | | 5.4 | | | | 1.7 | | | | 4.5 | |
| | | | | | | | | | |
Total assets of continuing operations | | | 821.3 | | | | 787.3 | | | | 736.4 | | | | 771.7 | |
Assets of discontinued operations, net — Note 12 | | | 12.7 | | | | 382.3 | | |
Assets of discontinued operations, net — Note 13 | | | | 8.5 | | | | 67.3 | |
| | | | | | | | | | |
Total assets | | $ | 834.0 | | | $ | 1,169.6 | | | $ | 744.9 | | | $ | 839.0 | |
| | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current liabilities | | | | | | | | | | | | | | | | |
Short-term borrowings — Note 4 | | $ | 12.6 | | | $ | 2.6 | | |
Current portion of long-term borrowings — Note 4 | | | 25.1 | | | | 45.4 | | |
Short-term borrowings — Note 5 | | | $ | — | | | $ | 12.6 | |
Current portion of long-term borrowings — Note 5 | | | | 41.9 | | | | 25.1 | |
Accounts payable | | | 56.4 | | | | 66.2 | | | | 45.2 | | | | 47.5 | |
Accrued liabilities | | | | | | | | | | | | | | | | |
Compensation and withholding taxes | | | 25.1 | | | | 26.8 | | | | 20.8 | | | | 23.3 | |
Customer deposits | | | 17.4 | | | | 17.7 | | | | 10.4 | | | | 17.4 | |
Other | | | 49.8 | | | | 56.6 | | | | 48.1 | | | | 48.2 | |
| | | | | | | | | | |
Total current liabilities | | | 186.4 | | | | 215.3 | | | | 166.4 | | | | 174.1 | |
Long-term borrowings — Note 4 | | | 241.2 | | | | 240.7 | | |
Long-term pension liabilities | | | 58.0 | | | | 12.6 | | |
Deferred gain — Note 3 | | | 26.2 | | | | — | | |
Long-term borrowings — Note 5 | | | | 159.7 | | | | 241.2 | |
Long-term pension and other postretirement benefit liabilities | | | | 39.6 | | | | 58.0 | |
Deferred gain — Note 4 | | | | 24.2 | | | | 26.2 | |
Other long-term liabilities | | | 13.3 | | | | 19.7 | | | | 12.2 | | | | 13.3 | |
Deferred income taxes — Note 5 | | | — | | | | 25.2 | | |
| | | | | | | | | | |
Total liabilities of continuing operations | | | 525.1 | | | | 513.5 | | | | 402.1 | | | | 512.8 | |
Liabilities of discontinued operations — Note 12 | | | 24.4 | | | | 210.8 | | |
Liabilities of discontinued operations — Note 13 | | | | 14.1 | | | | 39.1 | |
| | | | | | | | | | |
Total liabilities | | | 549.5 | | | | 724.3 | | | | 416.2 | | | | 551.9 | |
Shareholders’ equity — Notes 8 and 9 | | | | | | | | | |
Common stock, $1 par value per share, 90.0 million shares authorized, 49.3 million and 49.4 million shares issued, respectively | | | 49.3 | | | | 49.4 | | |
Shareholders’ equity — Notes 9 and 10 | | | | | | | | | |
Common stock, $1 par value per share, 90.0 million shares authorized, 49.6 million and 49.3 million shares issued, respectively | | | | 49.6 | | | | 49.3 | |
Capital in excess of par value | | | 106.4 | | | | 103.2 | | | | 93.8 | | | | 106.4 | |
Retained earnings | | | 226.4 | | | | 333.8 | | | | 240.4 | | | | 229.0 | |
Treasury stock, 1.9 million and 1.5 million shares, respectively, at cost | | | (36.1 | ) | | | (30.1 | ) | |
Treasury stock, 0.8 million and 1.9 million shares, respectively, at cost | | | | (15.8 | ) | | | (36.1 | ) |
Accumulated other comprehensive (loss) income | | | | | | | | | | | | | | | | |
Foreign currency translation, net | | | (4.1 | ) | | | 15.9 | | | | 8.5 | | | | (4.1 | ) |
Net derivative loss, cash flow hedges, net | | | (0.9 | ) | | | (2.0 | ) | | | (0.7 | ) | | | (0.9 | ) |
Unrecognized pension and postretirement losses, net | | | (56.5 | ) | | | (24.9 | ) | | | (47.1 | ) | | | (56.5 | ) |
| | | | | | | | | | |
Total | | | (61.5 | ) | | | (11.0 | ) | |
Total accumulated other comprehensive (loss) | | | | (39.3 | ) | | | (61.5 | ) |
| | | | | | | | | | |
Total shareholders’ equity | | | 284.5 | | | | 445.3 | | | | 328.7 | | | | 287.1 | |
| | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 834.0 | | | $ | 1,169.6 | | | $ | 744.9 | | | $ | 839.0 | |
| | | | | | | | | | |
See notes to consolidated financial statements.
27
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | |
| | For the Years Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | ($ in millions, except per share data) | |
|
Net sales | | $ | 958.8 | | | $ | 934.3 | | | $ | 792.7 | |
Costs and expenses | | | | | | | | | | | | |
Cost of sales | | | 706.9 | | | | 685.9 | | | | 576.5 | |
Selling, engineering, general and administrative | | | 193.7 | | | | 173.2 | | | | 157.1 | |
Restructuring charges — Note 13 | | | 2.7 | | | | — | | | | — | |
| | | | | | | | | | | | |
Operating income | | | 55.5 | | | | 75.2 | | | | 59.1 | |
Interest expense | | | 15.3 | | | | 18.5 | | | | 17.0 | |
Loss on investment in joint venture | | | 13.0 | | | | 3.3 | | | | 1.9 | |
Other expense (income) | | | 0.9 | | | | (0.2 | ) | | | 0.2 | |
| | | | | | | | | | | | |
Income before income taxes | | | 26.3 | | | | 53.6 | | | | 40.0 | |
Income tax benefit (provision) — Note 5 | | | 5.0 | | | | (13.9 | ) | | | (8.8 | ) |
| | | | | | | | | | | | |
Income from continuing operations | | | 31.3 | | | | 39.7 | | | | 31.2 | |
Discontinued operations — Note 12: | | | | | | | | | | | | |
(Loss) gain from discontinued operations and disposal, net of tax benefit of $18.0 million, $4.0 million and $2.5 million, respectively | | | (126.9 | ) | | | 15.2 | | | | (8.5 | ) |
| | | | | | | | | | | | |
Net (loss) income | | $ | (95.6 | ) | | $ | 54.9 | | | $ | 22.7 | |
| | | | | | | | | | | | |
Basic and diluted earnings (loss) per share Earnings from continuing operations | | $ | 0.66 | | | $ | 0.83 | | | $ | 0.65 | |
(Loss) gain from discontinued operations and disposal, net of taxes | | | (2.67 | ) | | | 0.32 | | | | (0.18 | ) |
| | | | | | | | | | | | |
Net (loss) earnings per share | | $ | (2.01 | ) | | $ | 1.15 | | | $ | 0.47 | |
| | | | | | | | | | | | |
| | |
* | | Prior periods have been adjusted to reflect a change in accounting method as discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
28
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
| | | Capital in
| | | | | | | | | | | | Accumulated
| | | | |
| | Stock
| | | Excess of
| | | | | | | | | Deferred
| | | Other
| | | | |
| | Par
| | | Par
| | | Retained
| | | Treasury
| | | Stock
| | | Comprehensive
| | | | |
| | Value | | | Value | | | Earnings | | | Stock | | | Awards | | | Loss | | | Total | |
| | ($ in millions) | |
|
Balance at December 31, 2005 | | | 48.8 | | | | 98.2 | | | | 278.9 | | | | (18.1 | ) | | | (4.8 | ) | | | (26.7 | ) | | | 376.3 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | 22.7 | | | | | | | | | | | | | | | | 22.7 | |
Foreign currency translation | | | | | | | | | | | | | | | | | | | | | | | 10.0 | | | | 10.0 | |
Unrealized losses on derivatives, net of $1.3 million tax benefit | | | | | | | | | | | | | | | | | | | | | | | (2.2 | ) | | | (2.2 | ) |
Minimum pension liability, net of $2.3 million tax expense | | | | | | | | | | | | | | | | | | | | | | | 4.0 | | | | 4.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 34.5 | |
Adjustments to adopt SFAS 158, net of $4.8 million tax benefit | | | | | | | | | | | | | | | | | | | | | | | (8.2 | ) | | | (8.2 | ) |
Cash dividends declared | | | | | | | | | | | (11.5 | ) | | | | | | | | | | | | | | | (11.5 | ) |
Reclassification of deferred stock awards | | | | | | | (4.8 | ) | | | | | | | | | | | 4.8 | | | | | | | | — | |
Share based payments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exercise of stock options | | | | | | | 0.5 | | | | | | | | | | | | | | | | | | | | 0.5 | |
Excess tax benefits on share based payments | | | | | | | 0.3 | | | | | | | | | | | | | | | | | | | | 0.3 | |
Awards and options | | | 0.3 | | | | 5.5 | | | | | | | | | | | | | | | | | | | | 5.8 | |
Treasury stock purchases | | | | | | | | | | | | | | | (12.1 | ) | | | | | | | | | | | (12.1 | ) |
Other | | | | | | | 0.1 | | | | 0.6 | | | | 0.1 | | | | | | | | | | | | 0.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2006 | | $ | 49.1 | | | $ | 99.8 | | | $ | 290.7 | | | $ | (30.1 | ) | | $ | — | | | $ | (23.1 | ) | | $ | 386.4 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | 54.9 | | | | | | | | | | | | | | | | 54.9 | |
Foreign currency translation | | | | | | | | | | | | | | | | | | | | | | | 11.7 | | | | 11.7 | |
Unrealized losses on derivatives, net of $1.2 million tax benefit | | | | | | | | | | | | | | | | | | | | | | | (2.0 | ) | | | (2.0 | ) |
Amortization of pension and postretirement losses, net of $1.8 million tax expense | | | | | | | | | | | | | | | | | | | | | | | 1.9 | | | | 1.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 66.5 | |
Adjustments to adopt FIN 48 | | | | | | | | | | | (0.7 | ) | | | | | | | | | | | | | | | (0.7 | ) |
Adjustments to adopt SFAS 158, net of $0.0 million tax expense | | | | | | | | | | | 0.4 | | | | | | | | | | | | 0.5 | | | | 0.9 | |
Cash dividends declared | | | | | | | | | | | (11.5 | ) | | | | | | | | | | | | | | | (11.5 | ) |
Share based payments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock awards and options | | | 0.3 | | | | 3.2 | | | | | | | | | | | | | | | | | | | | 3.5 | |
Excess tax benefits on share based payments | | | | | | | 0.2 | | | | | | | | | | | | | | | | | | | | 0.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2007 | | $ | 49.4 | | | $ | 103.2 | | | $ | 333.8 | | | $ | (30.1 | ) | | $ | — | | | $ | (11.0 | ) | | $ | 445.3 | |
Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | (95.6 | ) | | | | | | | | | | | | | | | (95.6 | ) |
Foreign currency translation | | | | | | | | | | | | | | | | | | | | | | | (20.0 | ) | | | (20.0 | ) |
Unrealized gains on derivatives, net of $0.7 million tax expense | | | | | | | | | | | | | | | | | | | | | | | 1.1 | | | | 1.1 | |
Change in unrecognized losses related to pension benefit plans, net of $16.3 million tax benefit | | | | | | | | | | | | | | | | | | | | | | | (31.6 | ) | | | (31.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | (146.1 | ) |
Adjustment to adopt EITF 06 — 04 | | | | | | | | | | | (0.3 | ) | | | | | | | | | | | | | | | (0.3 | ) |
Cash dividends declared | | | | | | | | | | | (11.5 | ) | | | | | | | | | | | | | | | (11.5 | ) |
Share based payments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-vested stock and options | | | | | | | 2.9 | | | | | | | | | | | | | | | | | | | | 2.9 | |
Stock awards | | | | | | | 0.6 | | | | | | | | | | | | | | | | | | | | 0.6 | |
Common stock cancelled | | | (0.1 | ) | | | (0.3 | ) | | | | | | | | | | | | | | | | | | | (0.4 | ) |
Treasury stock purchases | | | | | | | | | | | | | | | (6.0 | ) | | | | | | | | | | | (6.0 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | $ | 49.3 | | | $ | 106.4 | | | $ | 226.4 | | | $ | (36.1 | ) | | $ | — | | | $ | (61.5 | ) | | $ | 284.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | For the Years Ended December 31, | |
| | 2009 | | | 2008* | | | 2007* | |
| | ($ in millions, except per share data) | |
|
Net sales | | $ | 752.5 | | | $ | 879.0 | | | $ | 854.8 | |
Costs and expenses | | | | | | | | | | | | |
Cost of sales | | | 558.9 | | | | 643.6 | | | | 623.8 | |
Selling, engineering, general and administrative | | | 159.1 | | | | 182.9 | | | | 162.3 | |
Restructuring charges — Note 14 | | | 1.5 | | | | 2.7 | | | | — | |
| | | | | | | | | | | | |
Operating income | | | 33.0 | | | | 49.8 | | | | 68.7 | |
Interest expense | | | 11.4 | | | | 15.3 | | | | 18.5 | |
(Gain) loss on investment in joint venture | | | (1.2 | ) | | | 13.0 | | | | 3.3 | |
Other expense (income) | | | 0.5 | | | | 0.8 | | | | (0.2 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 22.3 | | | | 20.7 | | | | 47.1 | |
Income tax (provision) benefit — Note 6 | | | (4.6 | ) | | | 6.5 | | | | (12.0 | ) |
| | | | | | | | | | | | |
Income from continuing operations | | | 17.7 | | | | 27.2 | | | | 35.1 | |
Discontinued operations — Note 13 | | | | | | | | | | | | |
Gain (loss) from discontinued operations and disposal, net of tax charge (benefit) of $1.6 million, ($16.2) million and ($2.2) million, respectively | | | 5.4 | | | | (122.2 | ) | | | 19.6 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 23.1 | | | $ | (95.0 | ) | | $ | 54.7 | |
| | | | | | | | | | | | |
Basic and diluted earnings (loss) per share | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 0.36 | | | $ | 0.57 | | | $ | 0.73 | |
Earnings (loss) from discontinued operations and disposal, net of taxes | | | 0.11 | | | | (2.56 | ) | | | 0.41 | |
| | | | | | | | | | | | |
Net earnings (loss) per share | | $ | 0.47 | | | $ | (1.99 | ) | | $ | 1.14 | |
| | | | | | | | | | | | |
| | |
* | | Prior periods have been adjusted to reflect a change in accounting method as discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
29
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | |
| | For the Years Ended
| |
| | December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | ($ in millions) | |
|
Operating activities | | | | | | | | | | | | |
Net (loss) income | | $ | (95.6 | ) | | $ | 54.9 | | | $ | 22.7 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | |
Loss (gain) on discontinued operations and disposal | | | 126.9 | | | | (15.2 | ) | | | 8.5 | |
Loss on joint venture | | | 13.0 | | | | 3.3 | | | | 1.9 | |
Depreciation and amortization | | | 15.5 | | | | 14.1 | | | | 9.5 | |
Stock option and award compensation expense | | | 2.9 | | | | 3.5 | | | | 5.8 | |
Provision for doubtful accounts | | | 7.2 | | | | 0.7 | | | | 0.8 | |
Deferred income taxes | | | (14.6 | ) | | | 5.4 | | | | (2.0 | ) |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions of companies | | | | | | | | | | | | |
Accounts receivable | | | (16.2 | ) | | | 3.5 | | | | (29.9 | ) |
Inventories | | | (17.6 | ) | | | (18.5 | ) | | | (20.6 | ) |
Other current assets | | | 1.8 | | | | (0.6 | ) | | | (1.6 | ) |
Accounts payable | | | (8.1 | ) | | | (2.5 | ) | | | 12.2 | |
Customer deposits | | | — | | | | 3.6 | | | | 1.7 | |
Accrued liabilities | | | (2.7 | ) | | | 0.4 | | | | 1.4 | |
Income taxes | | | (8.0 | ) | | | (2.6 | ) | | | (1.3 | ) |
Pension contributions | | | (11.5 | ) | | | (6.7 | ) | | | (11.3 | ) |
Other | | | 4.5 | | | | (1.0 | ) | | | (0.4 | ) |
| | | | | | | | | | | | |
Net cash (used for) provided by continuing operating activities | | | (2.5 | ) | | | 42.3 | | | | (2.6 | ) |
Net cash provided by discontinued operating activities | | | 126.2 | | | | 23.1 | | | | 32.3 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 123.7 | | | | 65.4 | | | | 29.7 | |
Investing activities | | | | | | | | | | | | |
Purchases of properties and equipment | | | (28.5 | ) | | | (20.1 | ) | | | (12.2 | ) |
Proceeds from sales of properties and equipment | | | 38.0 | | | | 0.6 | | | | 0.2 | |
Investment in joint venture | | | — | | | | — | | | | (1.9 | ) |
Payments for acquisitions, net of cash acquired | | | — | | | | (147.5 | ) | | | — | |
Other, net | | | (10.1 | ) | | | (1.7 | ) | | | — | |
| | | | | | | | | | | | |
Net cash used for continuing investing activities | | | (0.6 | ) | | | (168.7 | ) | | | (13.9 | ) |
Net cash provided by (used for) discontinued investing activities | | | 55.2 | | | | 62.1 | | | | (5.4 | ) |
| | | | | | | | | | | | |
Net cash provided by (used for) investing activities | | | 54.6 | | | | (106.6 | ) | | | (19.3 | ) |
Financing activities | | | | | | | | | | | | |
Increase (reduction) in short-term borrowings, net | | | 0.6 | | | | (28.3 | ) | | | 23.7 | |
Proceeds from issuance of long-term borrowings | | | 148.8 | | | | 230.1 | | | | 23.6 | |
Repayment of long-term borrowings | | | (169.5 | ) | | | (142.2 | ) | | | (98.0 | ) |
Purchases of treasury stock | | | (6.0 | ) | | | — | | | | (12.1 | ) |
Cash dividends paid to shareholders | | | (11.5 | ) | | | (11.5 | ) | | | (11.5 | ) |
Other, net | | | 0.2 | | | | 0.4 | | | | 1.1 | |
| | | | | | | | | | | | |
Net cash (used for) provided by continuing financing activities | | | (37.4 | ) | | | 48.5 | | | | (73.2 | ) |
Net cash used for discontinued financing activities | | | (129.3 | ) | | | (11.7 | ) | | | (9.8 | ) |
| | | | | | | | | | | | |
Net cash (used for) provided by financing activities | | | (166.7 | ) | | | 36.8 | | | | (83.0 | ) |
| | | | | | | | | | | | |
Effects of foreign exchange rate changes on cash | | | (0.7 | ) | | | 1.1 | | | | 2.2 | |
Increase (decrease) in cash and cash equivalents | | | 10.9 | | | | (3.3 | ) | | | (70.4 | ) |
Cash and cash equivalents at beginning of year | | | 12.5 | | | | 15.8 | | | | 86.2 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 23.4 | | | $ | 12.5 | | | $ | 15.8 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
| | | Capital in
| | | | | | | | | Accumulated
| | | | | | | |
| | Stock
| | | Excess of
| | | | | | | | | Other
| | | | | | | |
| | Par
| | | Par
| | | Retained
| | | Treasury
| | | Comprehensive
| | | | | | | |
| | Value | | | Value | | | Earnings | | | Stock | | | Loss | | | Total | | | | |
| | | | | | | | ($ in millions) | | | | | | | | | | |
|
Balance at December 31, 2006* | | $ | 49.1 | | | $ | 99.8 | | | $ | 292.9 | | | $ | (30.1 | ) | | $ | (23.1 | ) | | $ | 388.6 | | | | | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | 54.7 | | | | | | | | | | | | 54.7 | | | | | |
Foreign currency translation | | | | | | | | | | | | | | | | | | | 11.7 | | | | 11.7 | | | | | |
Unrealized losses on derivatives, net of $1.2 million tax benefit | | | | | | | | | | | | | | | | | | | (2.0 | ) | | | (2.0 | ) | | | | |
Amortization of pension and postretirement losses, net of $1.8 million tax expense | | | | | | | | | | | | | | | | | | | 1.9 | | | | 1.9 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 66.3 | | | | | |
Adjustments to adopt ASC 740 (FIN 48) | | | | | | | | | | | (0.7 | ) | | | | | | | | | | | (0.7 | ) | | | | |
Adjustments to adopt ASC 715 (SFAS 158), net of $0.0 million tax expense | | | | | | | | | | | 0.4 | | | | | | | | 0.5 | | | | 0.9 | | | | | |
Cash dividends declared | | | | | | | | | | | (11.5 | ) | | | | | | | | | | | (11.5 | ) | | | | |
Share based payments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock awards and options | | | 0.3 | | | | 3.2 | | | | | | | | | | | | | | | | 3.5 | | | | | |
Excess tax benefits on share based payments | | | | | | | 0.2 | | | | | | | | | | | | | | | | 0.2 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2007* | | | 49.4 | | | | 103.2 | | | | 335.8 | | | | (30.1 | ) | | | (11.0 | ) | | | 447.3 | | | | | |
Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | (95.0 | ) | | | | | | | | | | | (95.0 | ) | | | | |
Foreign currency translation | | | | | | | | | | | | | | | | | | | (20.0 | ) | | | (20.0 | ) | | | | |
Unrealized gains on derivatives, net of $0.7 million tax expense | | | | | | | | | | | | | | | | | | | 1.1 | | | | 1.1 | | | | | |
Change in unrecognized losses related to pension benefit plans, net of $16.3 million tax benefit | | | | | | | | | | | | | | | | | | | (31.6 | ) | | | (31.6 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | (145.5 | ) | | | | |
Adjustment to adopt ASC Topic 715 (EITF 06 — 04) | | | | | | | | | | | (0.3 | ) | | | | | | | | | | | (0.3 | ) | | | | |
Cash dividends declared | | | | | | | | | | | (11.5 | ) | | | | | | | | | | | (11.5 | ) | | | | |
Share based payments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-vested stock and options | | | | | | | 2.9 | | | | | | | | | | | | | | | | 2.9 | | | | | |
Stock awards | | | | | | | 0.6 | | | | | | | | | | | | | | | | 0.6 | | | | | |
Common stock cancelled | | | (0.1 | ) | | | (0.3 | ) | | | | | | | | | | | | | | | (0.4 | ) | | | | |
Treasury stock purchases | | | | | | | | | | | | | | | (6.0 | ) | | | | | | | (6.0 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008* | | | 49.3 | | | | 106.4 | | | | 229.0 | | | | (36.1 | ) | | | (61.5 | ) | | | 287.1 | | | | | |
Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | 23.1 | | | | | | | | | | | | 23.1 | | | | | |
Foreign currency translation | | | | | | | | | | | | | | | | | | | 12.6 | | | | 12.6 | | | | | |
Unrealized gains on derivatives, net of $0.1 million tax expense | | | | | | | | | | | | | | | | | | | 0.2 | | | | 0.2 | | | | | |
Change in unrecognized gains related to pension benefit plans, net of $5.4 million tax expense | | | | | | | | | | | | | | | | | | | 9.4 | | | | 9.4 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 45.3 | | | | | |
Cash dividends declared | | | | | | | | | | | (11.7 | ) | | | | | | | | | | | (11.7 | ) | | | | |
Share based payments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-vested stock and options | | | | | | | 3.1 | | | | | | | | | | | | | | | | 3.1 | | | | | |
Stock awards | | | 0.4 | | | | 0.4 | | | | | | | | | | | | | | | | 0.8 | | | | | |
Common stock cancelled | | | (0.1 | ) | | | (0.2 | ) | | | | | | | | | | | | | | | (0.3 | ) | | | | |
Issuance of common stock from treasury | | | | | | | (15.9 | ) | | | | | | | 20.3 | | | | | | | | 4.4 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2009 | | $ | 49.6 | | | $ | 93.8 | | | $ | 240.4 | | | $ | (15.8 | ) | | $ | (39.3 | ) | | $ | 328.7 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
* | | Prior periods have been adjusted to reflect change in accounting method discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
30
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | |
| | For the Years Ended
| |
| | December 31, | |
| | 2009 | | | 2008* | | | 2007* | |
| | ($ in millions) | |
|
Operating activities | | | | | | | | | | | | |
Net income (loss) | | $ | 23.1 | | | $ | (95.0 | ) | | $ | 54.7 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | |
(Gain) loss on discontinued operations and disposal | | | (5.4 | ) | | | 122.2 | | | | (19.6 | ) |
(Gain) loss on joint venture | | | (1.2 | ) | | | 13.0 | | | | 3.3 | |
Depreciation and amortization | | | 15.3 | | | | 14.9 | | | | 13.3 | |
Stock option and award compensation expense | | | 3.1 | | | | 2.9 | | | | 3.5 | |
Provision for doubtful accounts | | | 0.9 | | | | 7.1 | | | | 0.6 | |
Deferred income taxes | | | 3.6 | | | | (14.4 | ) | | | 6.2 | |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions of companies | | | | | | | | | | | | |
Accounts receivable | | | 17.4 | | | | (14.2 | ) | | | (0.9 | ) |
Inventories | | | 20.9 | | | | (18.6 | ) | | | (19.6 | ) |
Other current assets | | | (0.7 | ) | | | 1.9 | | | | (1.3 | ) |
Accounts payable | | | (3.1 | ) | | | (10.4 | ) | | | 1.6 | |
Customer deposits | | | (7.4 | ) | | | — | | | | 3.6 | |
Accrued liabilities | | | (5.9 | ) | | | (1.9 | ) | | | 0.3 | |
Income taxes | | | 2.0 | | | | (7.9 | ) | | | (3.5 | ) |
Pension contributions | | | (1.0 | ) | | | (11.5 | ) | | | (6.7 | ) |
Other | | | (3.3 | ) | | | 4.5 | | | | (1.0 | ) |
| | | | | | | | | | | | |
Net cash provided by (used for) continuing operating activities | | | 58.3 | | | | (7.4 | ) | | | 34.5 | |
Net cash provided by discontinued operating activities | | | 4.1 | | | | 131.1 | | | | 30.9 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 62.4 | | | | 123.7 | | | | 65.4 | |
Investing activities | | | | | | | | | | | | |
Purchases of properties and equipment | | | (14.6 | ) | | | (28.0 | ) | | | (19.5 | ) |
Proceeds from sales of properties and equipment | | | 4.0 | | | | 38.0 | | | | 0.6 | |
Payments for acquisitions, net of cash acquired | | | (13.5 | ) | | | — | | | | (147.5 | ) |
Other, net | | | 10.0 | | | | (10.1 | ) | | | (1.7 | ) |
| | | | | | | | | | | | |
Net cash used for continuing investing activities | | | (14.1 | ) | | | (0.1 | ) | | | (168.1 | ) |
Net cash provided by discontinued investing activities | | | 45.1 | | | | 54.7 | | | | 61.5 | |
| | | | | | | | | | | | |
Net cash provided by (used for) investing activities | | | 31.0 | | | | 54.6 | | | | (106.6 | ) |
Financing activities | | | | | | | | | | | | |
(Reduction) increase in short-term borrowings, net | | | (12.6 | ) | | | 0.6 | | | | (28.3 | ) |
Proceeds from issuance of long-term borrowings | | | 12.5 | | | | 148.8 | | | | 230.1 | |
Repayment of long-term borrowings | | | (77.6 | ) | | | (169.5 | ) | | | (142.2 | ) |
Purchases of treasury stock | | | — | | | | (6.0 | ) | | | — | |
Cash dividends paid to shareholders | | | (11.7 | ) | | | (11.5 | ) | | | (11.5 | ) |
Other, net | | | 0.2 | | | | 0.2 | | | | 0.4 | |
| | | | | | | | | | | | |
Net cash (used for) provided by continuing financing activities | | | (89.2 | ) | | | (37.4 | ) | | | 48.5 | |
Net cash used for discontinued financing activities | | | (7.3 | ) | | | (129.3 | ) | | | (11.7 | ) |
| | | | | | | | | | | | |
Net cash (used for) provided by financing activities | | | (96.5 | ) | | | (166.7 | ) | | | 36.8 | |
| | | | | | | | | | | | |
Effects of foreign exchange rate changes on cash | | | 0.8 | | | | (0.7 | ) | | | 1.1 | |
(Decrease) increase in cash and cash equivalents | | | (2.3 | ) | | | 10.9 | | | | (3.3 | ) |
Cash and cash equivalents at beginning of year | | | 23.4 | | | | 12.5 | | | | 15.8 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 21.1 | | | $ | 23.4 | | | $ | 12.5 | |
| | | | | | | | | | | | |
| | |
* | | Prior periods have been adjusted to reflect change in accounting method discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
31
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data)
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying consolidated financial statements include the accounts of Federal Signal Corporation and all of its significant subsidiaries (the “Company”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements include estimates and assumptions by management that effect the amounts reported in the consolidated financial statements. Actual results could differ from these estimates. The operating results of businesses divested during 2009, 2008 2007 and 20062007 have been excluded since the date of sale, and have been reported prior to sale as discontinued operations (See Note 12 ).13). Certain prior year amounts have been reclassified to conform to the current presentation.
As of July 1, 2009, the Company changed its method for accounting for certain inventories fromlast-in, first-out (LIFO) tofirst-in, first-out (FIFO). The Company adopted this change in accounting principle retrospectively (See Note 3).
Foreign Operations: Assets and liabilities of foreign subsidiaries, other than those whose functional currency is the U.S. dollar, are translated at current exchange rates with the related translation adjustments reported in stockholders’ equity as a component of accumulated other comprehensive income (loss). Income statement accounts are translated at the average exchange rate during the period. Where the U.S. dollar is considered the functional currency, monetary assets and liabilities are translated at current exchange rates with the related adjustment included in net income. Non-monetary assets and liabilities are translated at historical exchange rates. The Company incurs foreign currency transaction gains/losses relating to assets and liabilities that are denominated in a currency other than the functional currency. For 2009, 2008 2007 and 2006,2007, the Company incurred foreign currency transaction losses, included in other expenses in the Consolidated Statement of Operations, of $0.5$0.3 million, $0.4$0.7 million and $0.6$0.5 million, respectively.
Cash equivalents: The Company considers all highly liquid investments with a maturity of three-months or less, when purchased, to be cash equivalents.
Short-term investments: Short termShort-term investments are stated at cost since they represent highly liquid certificates of deposit that mature June 11, 2009.in less than 12 months.
Accounts receivable, lease financing and other receivables and allowances for doubtful accounts: A receivable is considered past due if payments have not been received within agreed upon invoice terms. The Company’s policy is generally to not charge interest on trade receivables after the invoice becomes past due, but to charge interest on lease receivables. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments on the outstanding accounts receivable and outstanding lease financing and other receivables. The allowances are each maintained at a level considered appropriate based on historical and other factors that affect collectibility. These factors include historical trends of write-offs, recoveries and credit losses; portfolio credit quality; and current and projected economic and market conditions. If the financial condition of the Company’s customers were to deteriorate, resulting in a reduced ability to make payments, additional allowances may be required.
Inventories: The Company’s inventories are statedvalued at the lower of cost or market. At December 31, 2008 and 2007, approximately 78% of the Company’s inventories were costedCost is determined using the FIFO method. The remaining portion of the Company’s inventories is costed using the LIFO(last-in,first-in, first-out)first-out (“FIFO”) method. Included in the cost of inventories are raw materials, direct wages and associated production costs.
Properties and depreciation: Properties and equipment are stated at cost. Depreciation, for financial reporting purposes, is computed principally onusing the straight-line method over the estimated useful lives of the assets. Depreciation ranges from 8 to 40 years for buildings and 3 to 15 years for machinery and equipment. Leasehold improvements are depreciated over the shorter of the remaining life of the lease or the useful life of the improvement. Property, plant and equipment and other
32
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
long-term assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is
31
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
recognized for the difference between the fair value and carrying value of the asset or group of assets. Such analyses necessarily involve significant judgment.
Goodwill and Other Intangible assets: IntangibleGoodwill and other intangible assets principally consist of costs inprimarily result from business acquisitions. The excess of fair values ofcost over net assets of businesses acquired in purchase transactions. Theseis recorded as goodwill. Goodwill and indefinite lived intangible assets are assessed yearly for impairment in the fourth quarter and also between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Definite lived intangible assets are amortized using the straight-line method.method over the estimated useful lives of the amounts.
Stock-based compensation plans: The Company has various stock-based compensation plans, described more fully in Note 8.9.
The Company accounts for stock-based compensation in accordance with the provisions of SFASASC Topic 718, “Compensation — Stock Compensation” (SFAS 123(R)). The fair value stock options are determined using a Black-Scholes option pricing model.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Warranty: Sales of many of the Company’s products carry express warranties based on the terms that are generally accepted in the Company’s marketplaces. The Company records provisions for estimated warranty at the time of sale based on historical experience and periodically adjusts these provisions to reflect actual experience. Infrequently, a material warranty issue can arise which is beyond the scope of the Company’s historical experience. The Company provides for these issues as they become probable and estimable.
Product liability and workers’ compensation liability: Due to the nature of the Company’s products, the Company is subject to claims for product liability and workers’ compensation in the normal course of business. The Company is self-funded for a portion of these claims. The Company establishes a reserve using a third-party actuary for any known outstanding matters, including a reserve for claims incurred but not yet reported.
Financial instruments: The Company enters into agreements (derivative financial instruments) to manage the risks associated with interest rates and foreign exchange rates. The Company does not actively trade such instruments nor enter into such agreements for speculative purposes. The Company principally utilizes two types of derivative financial instruments: 1) interest rate swaps to manage its interest rate risk, and 2) foreign currency forward exchange and option contracts to manage risks associated with sales and expenses (forecast or committed) denominated in foreign currencies.
On the date a derivative contract is entered into, the Company designates the derivative as one of the following types of hedging instruments and accounts for the derivative as follows:
Fair value hedge: A hedge of a recognized asset or liability or an unrecognized firm commitment is declared as a fair value hedge. For fair value hedges, both the effective and ineffective portions of the changes in the fair value of the derivative, along with the gain or loss on the hedged item that is attributable to the hedged risk, are recorded in earnings and reported in the consolidated statements of operations on the same line as the hedged item.
Cash flow hedge: A hedge of a forecast transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability is declared as a cash flow hedge. The effective portion of the change in the
33
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
fair value of a derivative that is declared as a cash flow hedge is recorded in accumulated other comprehensive income. When the hedged item impacts the statement of operations, the gain or loss previously included in accumulated other comprehensive income is reported on the same line in the consolidated statements of operations as the hedged item. In addition, both the fair value of changes excluded from the Company’s effectiveness
32
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
assessments and the ineffective portion of the changes in the fair value of derivatives used as cash flow hedges are reported in selling, general and administrative expensesOther income (expense) in the consolidated statements of operations.
The Company formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded in the consolidated balance sheets at fair value in other deferred charges and assets and other accrued liabilities. This process includes linking derivatives that are designated as hedges of specific forecast transactions. The Company also formally assesses, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer likely to occur, the Company discontinues hedge accounting, and any deferred gains or losses are recorded in selling, general and administrative expenses.Other income (expense). Amounts related to terminated interest rate swaps are deferred and amortized as an adjustment to interest expense over the original period of interest exposure, provided the designated liability continues to exist or is probable of occurring.
Fair value of financial instruments: In September 2006, the Financial Accounting Standards Board (FASB) issued FAS 157,ASC Topic 820, “Fair Value Measurements and Disclosures,” (SFAS No. 157) which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosure about fair value measurements. In February 2008, the FASB issued FASB Staff PositionNo. 157-b, “Effective Date of FASB Statement No. 157” (“FSP 157-b”), which provides a one year deferral of the effective date of FAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. In accordance with this interpretation, theThe Company has only adopted the provisions of FAS 157ASC Topic 820 (SFAS No. 157) with respect to its financial assets and liabilities that are measured at fair value within the financial statements as of January 1, 2008. The Company adopted the provisions of ASC Topic 820 (SFAS No. 157) with respect to its non-financial assets andnon-financial liabilities as of January 1, 2009. The adoption of FAS 157ASC Topic 820 (SFAS No. 157) did not have a material impact on the Company’s fair value measurements. The provisions of FAS 157 have not been appliedmeasurements and the required disclosures are contained in the notes to non-financial assetsConsolidated Financial Statements.
ASC Topic 820 (SFAS No. 157) established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and non-financial liabilities.Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
In February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment to FASB StatementASC Topic 825, “Financial Instruments”, (SFAS No. 115,”159), which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Company adopted this statement as of January 1, 2008 and has elected not to apply the fair value option to any of its financial instruments at this time.
Business Combinations: In December 2007, the FASB issued ASC Topic 805, “Business Combinations” (SFAS No. 141(R)) which expands the definition of a business and a business combination, requires the fair value of the purchase price of an acquisition including the issuance of equity securities to be determined on the acquisition date, requires that all assets, liabilities, contingent consideration, contingencies and in-process research and development costs of an acquired business be recorded at fair value at the acquisition date, requires that acquisition costs generally be expensed as incurred, requires that restructuring costs generally be expensed in periods subsequent to the acquisition date, and requires changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period to impact income tax expense. The Company adopted the guidance on January 1, 2009.
34
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Split-dollar life insurance arrangements: In September 2006, the accordance with ASC Topic715-60, “Defined benefit plans — other postretirement”(EITF issuedEITF 06-04,06-04), “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Split-Dollar Life Insurance Arrangements”.EITF 06-04which concludes that an employer should recognize a liability for post-employment benefits promised to an employee. This guidance is effective for fiscal years beginning after December 15, 2007. The Company has one arrangement that meets these criteria and has recorded a liability of approximately $0.4 million and $0.3 million in 2008.
Earnings (loss) per share: Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average common shares outstanding, which totaled 47.7 million, 47.9 million and 48.0 million for 2008, 2007 and 2006, respectively. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding plus additional common shares that would have been outstanding assuming the exercise of stock options that are dilutive. The Company uses the treasury stock method to calculate dilutive shares. The weighted average number of shares outstanding for diluted earnings (loss) per share were 47.7 million, 47.9 million and 48.0 million for 2008, 2007 and 2006, respectively. In 2008, 2007 and 2006, options to purchase 2.5 million, 2.4 million and 2.6 million shares of common stock, respectively, were excluded from the calculation of the number of shares outstanding as their effects were anti-dilutive. For the year endedat December 31, 2009 and 2008, 28,503 performance share units were also excluded from the calculation of the number of shares outstanding for diluted earnings per share because their effects were anti-dilutive.
33
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)respectively.
Revenue recognition: The Company recognizes revenue when all of the following are satisfied: persuasive evidence of an arrangement exists, the price is fixed or determinable, collectibility is reasonably assured and title has passed or services have been rendered. Typically, title passes at time of shipment, however occasionally title passes later or earlier than shipment due to customer contracts or letter of credit terms. Infrequently, a sales contract qualifies for percentage of completion or for multiple-element accounting. For percentage of completion revenues, the Company utilizes thecost-to-cost method and the contract payments are received as progress payments as costs are incurred or based on installation and performance milestones. At the inception of a sales-type lease, the Company records the product sales price and related costs and expenses of the sale. Financing revenues are included in income over the life of the lease. Management believes that all relevant criteria and conditions are considered when recognizing revenues.
Net sales: Net sales are net of returns and allowances. Returns and allowances are calculated and recorded as a percentage of revenue based upon historical returns. Gross sales includes sale of products and billed freight related to product sales. Freight has not historically comprised a material component of gross sales.
Product shipping costs: Product shipping costs are expensed as incurred and are included in cost of sales.
Postretirement benefits: In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132R (“SFAS 158”). Under SFAS 158, the funded status of each pension and other postretirement benefit plan at the year-end measurement date is required to be reported as an asset (for overfunded plans) or a liability (for underfunded plans), replacing the accrued or prepaid asset currently recorded and reversing any amounts previously recorded with respect to any additional minimum liability.
The Company adopted the recognition provisions of SFAS 158 effective December 31,2006. As a result of adopting the recognition provisions, the Company recognized an increase in accumulated other comprehensive loss of $8.2 million, net of a $4.8 million tax benefit.
The Company also adopted the measurement date provisions of SFAS 158 as of December 31, 2007. Previously, the Company’s non-US defined benefit plan had a September 30 measurement date. The effect of this adoption increased pension assets and retained earnings by $0.4 million.
Investments: In 2005, the Company entered into an agreement with the Shanghai Environmental Sanitary Vehicle and Equipment Factory (SHW) and United Motor Works (UMW) to form a joint venture (“China Joint Venture”) to manufacture specialty vehicles in the Peoples Republic of China.China (“China joint Venture”). The investment in the joint venture iswas accounted for under the equity method in accordance with APB No. 18.method. The Company’s 50% interest in the venture doesdid not represent a controlling interest. In February 2009, the Company decided to terminate funding to this venture as a review of the market and forecasts of the joint venture’s cash flows indicated its bank debt was unlikely to be repaid and that its assets were impaired. A charge of $10.4 million was taken in 2008 and reported in the Statements of Operations as loss on investment in joint venture to write-down completely the Company’s investment and to reflect the Company’s $9.4 million obligation to guaranty the debt of the joint venture and $1.0 million obligation to guaranty the investment of UMW. In 2009, the partners agreed to voluntarily liquidate the joint venture. A net gain of $1.2 million was reported in the Statements of Operations as a gain in investment in joint venture that pertains primarily to the liquidation of assets. The debt guaranty is included in Short-term Borrowings and the investment guaranty is included in Accrued liabilities — Other in the Consolidated Balance Sheet at December 31, 2008. The Company’s share of operating losses was $0, $2.6 million $3.3 million and $1.9$3.3 million, in each of the three years ended December 31, 2008, 2007, and 2006, respectively.
34
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
NOTE 2 — INVENTORIES
Inventories at December 31 are summarized as follows:
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Raw materials | | $ | 67.0 | | | $ | 62.3 | |
Work in process | | | 34.1 | | | | 26.4 | |
Finished goods | | | 36.0 | | | | 33.1 | |
| | | | | | | | |
Total inventories | | $ | 137.1 | | | $ | 121.8 | |
| | | | | | | | |
If the Company had used thefirst-in, first-out cost method exclusively, which approximates replacement cost, inventories would have aggregated $141.5 million and $125.2 million at December 31,2009, 2008, and 2007, respectively.
NOTE 32 — PROPERTIES AND EQUIPMENTEARNINGS (LOSS) PER SHARE
PropertiesEarnings(Loss) per share — basic is computed by dividing income or loss available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Earnings (loss) per share — diluted reflects the potential dilution that could occur if options issued under stock-based compensation awards were converted into common stock. In 2009, 2008 and equipment2007, options to purchase 2.1 million, 2.5 million and 2.4 million shares of the Company’s common stock had exercise prices that were greater than the average market price of those shares during the respective reporting periods. As a result, these shares are excluded from the earnings per share calculation as they are anti-dilutive.
The following is a reconciliation of net income (loss) to earnings per share — basic and diluted — at December 31 are summarized as follows:
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Land | | $ | 1.4 | | | $ | 3.6 | |
Buildings and improvements | | | 20.7 | | | | 31.9 | |
Machinery and equipment | | | 141.3 | | | | 126.4 | |
Accumulated depreciation | | | (98.0 | ) | | | (102.4 | ) |
| | | | | | | | |
Total properties and equipment | | $ | 65.4 | | | $ | 59.5 | |
| | | | | | | | |
In July 2008, the Company entered into sale-leaseback transactions for its Elgin and University Park, Illinois plant locations. Net proceeds received were $35.8 million resulting($ in a deferred gain of $29.0 million. The deferred gain will be amortized over the15-year life of the respective leases.
The Company leases certain facilities and equipment under operating leases, some of which contain options to renew. Total rental expense on all operating leases was $9.5 million in 2008, $8.0 million in 2007 and $6.1 million in 2006. Sublease income and contingent rentals relating to operating leases were insignificant. At December 31, 2008, minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $74.9 million payable as follows: $9.9 million in 2009, $7.5 million in 2010, $6.5 million in 2011, $5.6 million in 2012, $4.6 million in 2013 and $40.8 million thereafter.
NOTE 4 — DEBT
Short-term borrowings at December 31 consisted of the following:
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Capital lease obligations | | $ | — | | | $ | 1.8 | |
China Joint Venture debt guarantee | | | 9.4 | | | | — | |
Other foreign lines of credit | | | 3.2 | | | | 0.8 | |
| | | | | | | | |
Total short-term borrowings | | $ | 12.6 | | | $ | 2.6 | |
| | | | | | | | |
millions, except per share amounts):
35
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Long-Term BorrowingsComputation of Earnings (Loss) per Common Share
(in millions, except per share data)
| | | | | | | | | | | | |
| | 2009 | | | 2008 | | | 2007 | |
|
Income from continuing operations | | $ | 17.7 | | | $ | 27.2 | | | $ | 35.1 | |
Gain (loss) from discontinued operations and disposal, net of tax | | | 5.4 | | | | (122.2 | ) | | | 19.6 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 23.1 | | | $ | (95.0 | ) | | $ | 54.7 | |
| | | | | | | | | | | | |
Average shares outstanding — basic | | | 48.6 | | | | 47.7 | | | | 47.9 | |
Dilutive effect of stock options and other | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Diluted shares outstanding | | | 48.6 | | | | 47.7 | | | | 47.9 | |
| | | | | | | | | | | | |
Earnings from continuing operations per share | | | | | | | | | | | | |
Basic | | $ | 0.36 | | | $ | 0.57 | | | $ | 0.73 | |
| | | | | | | | | | | | |
Diluted | | $ | 0.36 | | | $ | 0.57 | | | $ | 0.73 | |
| | | | | | | | | | | | |
Earnings (loss) from discontinued operations per share | | | | | | | | | | | | |
Basic | | $ | 0.11 | | | $ | (2.56 | ) | | $ | 0.41 | |
| | | | | | | | | | | | |
Diluted | | $ | 0.11 | | | $ | (2.56 | ) | | $ | 0.41 | |
| | | | | | | | | | | | |
Earnings (loss) per share | | | | | | | | | | | | |
Basic | | $ | 0.47 | | | $ | (1.99 | ) | | $ | 1.14 | |
| | | | | | | | | | | | |
Diluted | | $ | 0.47 | | | $ | (1.99 | ) | | $ | 1.14 | |
| | | | | | | | | | | | |
NOTE 3 — INVENTORIES
Inventories at December 31 are summarized as follows ($ in millions):
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Raw materials | | $ | 53.9 | | | $ | 64.3 | |
Work in process | | | 28.0 | | | | 34.6 | |
Finished goods | | | 30.2 | | | | 32.7 | |
| | | | | | | | |
Total inventories | | $ | 112.1 | | | $ | 131.6 | |
| | | | | | | | |
Prior to July 1, 2009 the Company valued certain inventories under thelast-in, first-out cost method (“LIFO”). As of July 1, 2009, the method of accounting for these inventories was changed from the LIFO method to the FIFO method. As of December 31, 2008, approximately 22% of total inventories were valued under the LIFO method of accounting. The Company believes that this change is to a preferable method which better reflects the current cost of inventory on its consolidated balance sheets. Additionally, this change conforms all of the Company’s inventories to a consistent costing method providing better comparability across businesses and peers. The Company has applied this change retrospectively to all prior periods presented herein in accordance with accounting principles relating to accounting changes. As a result of the retrospective change in accounting principle, opening retained earnings as of January 1, 2007 increased by $2.2 million.
Additionally, 2008 cost of sales decreased by $0.9 million, income from continuing operations increased by $0.6 million and the net loss decreased by $0.6 million for the year ended December 31, 2008. In 2007, cost of sales increased by $0.2 million, income from continuing operations decreased $0.1 million and net income decreased
36
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
$0.1 million. Basic and diluted earnings (loss) per share for the years ended December 31, 2008 and 2007 increased $0.02 per share, and decreased $0.01 per share, respectively, by the change in method. The elimination of LIFO increased inventory by $4.1 million, decreased deferred tax assets by $1.5 million and increased shareholders equity by $2.6 million, the amount of the LIFO-based reserves, net of related tax liabilities as of December 31, 2008. Had the Company continued to value a portion of its inventories under the LIFO method for the year ended December 31, 2009, actual results reflected herein would not have been significantly different.
NOTE 4 — PROPERTIES AND EQUIPMENT
Properties and equipment at December 31 are summarized as follows ($ in millions):
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Land | | $ | 0.3 | | | $ | 0.3 | |
Buildings and improvements | | | 24.1 | | | | 17.3 | |
Machinery and equipment | | | 138.1 | | | | 135.5 | |
Accumulated depreciation | | | (97.0 | ) | | | (90.6 | ) |
| | | | | | | | |
Total properties and equipment | | $ | 65.5 | | | $ | 62.5 | |
| | | | | | | | |
In July 2008, the Company entered into sale-leaseback transactions for its Elgin and University Park, Illinois plant locations. Net proceeds received were $35.8 million resulting in a deferred gain of $29.0 million. The deferred gain is being amortized over the15-year life of the respective leases.
The Company leases certain facilities and equipment under operating leases, some of which contain options to renew. Total rental expense on all operating leases was $10.5 million in 2009, $9.3 million in 2008 and $7.8 million in 2007. Sublease income and contingent rentals relating to operating leases were insignificant. At December 31, 2009, minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $70.9 million payable as follows: $10.4 million in 2010, $7.2 million in 2011, $6.4 million in 2012, $5.4 million in 2013, $5.2 million in 2014 and $36.3 million thereafter.
NOTE 5 — DEBT
Short-term borrowings at December 31 consisted of the following:following ($ in millions):
| | | | | | | | |
| | 2008 | | | 2007 | |
|
6.79% Unsecured Private Placement note with annual installments of $10.0 million due2008-2011 | | $ | 30.0 | | | $ | 40.0 | |
6.37% Unsecured Private Placement note with annual installments of $10.0 million due2005-2008 | | | — | | | | 10.0 | |
6.60% Unsecured Private Placement note with annual installments of $7.1 million due2008-2011 | | | 21.4 | | | | 28.6 | |
4.93% Unsecured Private Placement note with annual installments of $8.0 million due2008-2012 | | | 32.0 | | | | 40.0 | |
5.24% Unsecured Private Placement note due 2012 | | | 60.0 | | | | 60.0 | |
Unsecured Private Placement note, floating rate (4.83% and 5.87% at December 31, 2008 and 2007, respectively) due2010-2013 | | | 30.0 | | | | 50.0 | |
Amended Loan Agreement (described below) | | | — | | | | 96.6 | |
Alternative Currency Facility (within Revolving Credit Facility) | | | 10.1 | | | | 32.6 | |
Revolving Credit Facility | | | 86.9 | | | | 66.0 | |
| | | | | | | | |
| | | 270.4 | | | | 423.8 | |
Fair value of interest rate swaps | | | 1.1 | | | | (1.0 | ) |
Unamortized balance of terminated fair value interest rate swaps | | | 0.6 | | | | 0.7 | |
| | | | | | | | |
| | | 272.1 | | | | 423.5 | |
Less current maturities, excluding financial services activities | | | (25.1 | ) | | | (45.4 | ) |
Less financial services activities — borrowings (included in discontinued operations) | | | (5.8 | ) | | | (137.4 | ) |
| | | | | | | | |
Total long-term borrowings, net | | $ | 241.2 | | | $ | 240.7 | |
| | | | | | | | |
| | | | | | | | |
| | 2009 | | | 2008 | |
|
China Joint Venture debt guarantee (Note 1) | | $ | — | | | $ | 9.4 | |
Other foreign lines of credit | | | — | | | | 3.2 | |
| | | | | | | | |
Total short-term borrowings | | $ | — | | | $ | 12.6 | |
| | | | | | | | |
37
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Long-term borrowings at December 31 consisted of the following ($ in millions):
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Revolving Credit Facility | | $ | 85.0 | | | $ | 86.9 | |
Alternative Currency Facility (within Revolving Credit Facility) | | | 16.2 | | | | 10.1 | |
7.79% Unsecured Private Placement note with annual installments of $10.0 million due2009-2011 | | | 11.4 | | | | 30.0 | |
7.60% Unsecured Private Placement note with annual installments of $7.1 million due2009-2011 | | | 8.1 | | | | 21.4 | |
5.93% Unsecured Private Placement note with annual installments of $8.0 million due2009-2012 | | | 14.8 | | | | 32.0 | |
6.24% Unsecured Private Placement note due 2012 | | | 42.7 | | | | 60.0 | |
Unsecured Private Placement note, floating rate (2.35% and 4.837% at December 31, 2009 and 2008, respectively) due2010-2013 | | | 21.3 | | | | 30.0 | |
Subsidiary Loan Agreement | | | 3.2 | | | | — | |
| | | | | | | | |
| | | 202.7 | | | | 270.4 | |
Fair value of interest rate swaps | | | 1.0 | | | | 1.1 | |
Unamortized balance of terminated fair value interest rate swaps | | | 0.4 | | | | 0.6 | |
| | | | | | | | |
| | | 204.1 | | | | 272.1 | |
Less current maturities, excluding financial services activities | | | (41.9 | ) | | | (25.1 | ) |
Less financial services activities — borrowings (included in discontinued operations) | | | (2.5 | ) | | | (5.8 | ) |
| | | | | | | | |
Total long-term borrowings, net | | $ | 159.7 | | | $ | 241.2 | |
| | | | | | | | |
The Company has a $250.0 million line that expires April 25, 2012 under its Revolving Credit Facility. Borrowings under the facility bear interest, at the Company’s option, at the Base Rate or LIBOR, plus an applicable margin. The applicable margin ranges from 0.00% to 0.75% for Base Rate borrowings and 1.00% to 2.00% for LIBOR borrowings depending on the Company’s total indebtedness to capital ratio. At December 31, 2009 and 2008, the Company’s applicable margin over LIBOR and Base Rate borrowings was 1.50% and 0.25%, respectively.
In March 2008, the Company executed an amendment (the “Second Credit Amendment”) to the Revolving Credit Facility. The Second Credit Amendment modified the definitions of Consolidated Net Worth and EBIT, reduced the Total Indebtedness to Capital ratio maximum to 0.50, reduced the minimum Interest Coverage Ratio requirement and reduced the required minimum percentage of consolidated assets directly owned by the Credit Agreement’s borrower and guarantors to 50%. The amendment also allowed for the unencumbered sale of theE-One business.
On September 6, 2007 Federal Signal of Europe B.V. y CIA , SC, a restricted subsidiary of the Company, entered into a Supplemental Agreement to the Company’s Second Amended and Restated Credit Agreement (“Alternative Currency Facility”) whereby Federal Signal of Europe B.V. y CIA , SC, became a Designated Alternative Currency Borrower for the purpose of making swing loans denominated in Euros.
In March 2008, the Company requested and was granted an amendment (the “Second Credit Amendment”) to the Revolving Credit Facility. Affected items in the Second Credit Amendment included the definitions of Consolidated Net Worth and EBIT, reducing the Total Indebtedness to Capital ratio maximum to .50, reducing the minimum Interest Coverage Ratio requirement which ranged from 2:1 to 2.75:1 for the four quarters ending in 2008, reducing the required minimum percentage of consolidated assets directly owned by the Credit Agreement’s borrower and guarantors to 50%. The amendment allowed for the unencumbered sale of theE-One business.
As of December 31, 2008, €7.22009, $16.2 million (or $10.1 million), was drawn on the Alternative Currency Facility and $86.9$85.0 million was drawn on the Second Amended Credit AgreementAmendment for a total of $97.0$101.2 million drawn under the Second Amended and Restated Credit Agreement leaving available borrowings of $153.0$148.8 million.
3638
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Weighted averageOn April 27, 2009, the Company executed the Global Amendment to Note Purchase Agreements (the “Global Amendment”) with the holders of its private placement debt notes (the “Notes”). The Global Amendment included a provision allowing the Company to prepay $50.0 million of principal of the $173.4 million Notes outstanding at par with no prepayment penalty. The prepayment was executed on April 28, 2009, and included principal, related accrued interest and a fee of $0.2 million totaling $51.1 million. The prepayment was funded by the Company’s available capacity under its revolving credit facility.
The Global Amendment included changes to the Notes’ coupon interest rates. The coupon interest rates on short-termthe Notes were increased by 100 basis points upon execution of the Global Amendment. On January 1, 2010, the outstanding Notes’ coupon interest rates will increase by an additional 100 basis points. On April 1, 2010, the outstanding Notes’ coupon interest rates will increase an additional 200 basis points if the Company’s private placement debt rating does not improve by one rating level on or before this date.
The Global Amendment also included changes and additions to various covenants within the Notes Agreements. Financial covenants were modified to more closely align with those included in the Company’s revolving credit facility, which allows for the exclusion of various charges when computing covenants for minimum net worth and maximum debt to capitalization.
Aggregate maturities of total borrowings were 5.94%amount to approximately $41.9 million in 2010, $10.5 million in 2011, $144.6 million in 2012 and 6.95%$7.1 million in 2013. The fair values of these borrowings aggregated $204.9 million and $286.3 million at December 31, 2009 and 2008, respectively. Included in 2010 maturities is $2.5 million of other foreign lines of credit and 2007, respectively.$39.4 million of private placement debt.
On February 10, 2009 Bronto Skylift OY AB, a wholly-owned subsidiary of the Company, entered into a loan in which principal and interest is paid semi-annually and the loan expires two years after the loan date. At the end of December 31, 2009 the balance outstanding was $3.2 million.
On March 24, 2005,E-ONE, Inc.(“E-ONE”), formerly a wholly-owned subsidiary of the Company, entered into a loan agreement with Banc of America Leasing & Capital, LLC (the “Loan Agreement”) under a nonrecourse loan facility.E-One’s indebtedness and other obligations under the Loan Agreement were payable out of certain customer leases of emergency equipment and other collateral as described in the Loan Agreement. In December 2007, the Loan Agreement was amended to include customer leases ofE-One Inc.,E-One New York, Inc., Elgin Sweeper Company and Vactor Manufacturing, Inc. (“Amended Loan Agreement”). In August 2008, the outstanding debt of the Amended Loan Agreement was paid in full, prior to the sale ofE-ONE.
Aggregate maturities of total borrowings amount to approximately $37.7 million in 2009, $45.2 million in 2010, $25.1 million in 2011, $165.0 million in 2012 and $10.0 million in 2013. The fair values of these borrowings aggregated $286.3 million and $430.1 million at December 31, 2008 and 2007, respectively. Included in 2009 maturities of $37.7 million are $9.4 million associated with the Company’s guaranty of the China Joint Venture debt, $3.2 million on other foreign lines of credit and $25.1 million private placement debt amortization.
For each of the above Private Placement notes, covenants include a maximum debt-to-capitalization ratio of 60% and minimum net worth of $275.0 million. At December 31, 2008, all of the Company’s retained earnings were free of any restrictions and the Company was in compliance with the financial covenants throughout 2009 and agreements.2008.
At December 31, 20082009 and 2007,2008, deferred financing fees, which are amortized over the remaining life of the debt, totaled $1.3$0.9 million and $1.5$1.3 million, respectively, and are included in other deferred charges and assets on the balance sheet.
The Company paid interest of $11.3 million in 2009, $21.4 million in 2008 and $26.2 million in 2007 and $24.4 million in 2006.2007. See Note 78 regarding the Company’s utilization of derivative financial instruments relating to outstanding debt.
NOTE 5 — INCOME TAXES
The provision/(benefit) for income taxes for each of the three years in the period endedWeighted average interest rates on short-term borrowings was 5.94% at December 31, 2008 consisted of the following:
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
|
Current: | | | | | | | | | | | | |
Federal | | $ | 3.3 | | | $ | 2.6 | | | $ | 6.1 | |
Foreign | | | 5.8 | | | | 6.0 | | | | 4.6 | |
State and local | | | 0.5 | | | | (0.1 | ) | | | 0.1 | |
| | | | | | | | | | | | |
| | | 9.6 | | | | 8.5 | | | | 10.8 | |
Deferred: | | | | | | | | | | | | |
Federal | | | (14.9 | ) | | | 4.9 | | | | (2.8 | ) |
Foreign | | | 0.4 | | | | (0.1 | ) | | | 0.2 | |
State and local | | | (0.1 | ) | | | 0.6 | | | | 0.6 | |
| | | | | | | | | | | | |
| | | (14.6 | ) | | | 5.4 | | | | (2.0 | ) |
| | | | | | | | | | | | |
Total income tax (benefit) provision | | $ | (5.0 | ) | | $ | 13.9 | | | $ | 8.8 | |
| | | | | | | | | | | | |
2008.
3739
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The provision/(benefit) for income taxes for each of the three years in the period ended December 31 consisted of the following ($ in millions):
| | | | | | | | | | | | |
| | 2009 | | | 2008 | | | 2007 | |
|
Current: | | | | | | | | | | | | |
Federal | | $ | (4.5 | ) | | $ | 1.6 | | | $ | (0.1 | ) |
Foreign | | | 5.7 | | | | 5.8 | | | | 6.0 | |
State and local | | | (0.2 | ) | | | 0.5 | | | | (0.1 | ) |
| | | | | | | | | | | | |
| | | 1.0 | | | | 7.9 | | | | 5.8 | |
Deferred: | | | | | | | | | | | | |
Federal | | $ | 2.6 | | | | (14.7 | ) | | | 5.7 | |
Foreign | | | 0.5 | | | | 0.4 | | | | (0.1 | ) |
State and local | | | 0.5 | | | | (0.1 | ) | | | 0.6 | |
| | | | | | | | | | | | |
| | | 3.6 | | | | (14.4 | ) | | | 6.2 | |
| | | | | | | | | | | | |
Total income tax (benefit) provision | | $ | 4.6 | | | $ | (6.5 | ) | | $ | 12.0 | |
| | | | | | | | | | | | |
Differences between the statutory federal income tax rate and the effective income tax rate for each of the three years in the period ended December 31 2008 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
|
Statutory federal income tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
State income taxes, net of federal tax benefit | | | 2.1 | | | | 2.5 | | | | 1.5 | | | | 0.9 | | | | 2.1 | | | | 2.5 | |
Losses on China Joint Venture and legal entity restructuring | | | (12.2 | ) | | | — | | | | | | | | — | | | | (14.3 | ) | | | — | |
Non-deductible acquisition costs | | | | 1.3 | | | | — | | | | — | |
Dividend repatriation | | | — | | | | (2.8 | ) | | | — | | | | — | | | | — | | | | (3.2 | ) |
Capital loss utilization via sale/leaseback | | | (31.5 | ) | | | — | | | | — | | | | — | | | | (40.0 | ) | | | — | |
Exports benefit | | | — | | | | — | | | | (2.6 | ) | |
Tax reserves | | | 0.4 | | | | 1.5 | | | | (4.4 | ) | | | (2.8 | ) | | | 1.4 | | | | 4.0 | |
R&D tax credits | | | (2.2 | ) | | | (1.0 | ) | | | (1.1 | ) | | | (2.1 | ) | | | (2.7 | ) | | | (1.1 | ) |
Foreign tax rate effects | | | (9.8 | ) | | | (4.3 | ) | | | (3.9 | ) | | | (11.3 | ) | | | (11.0 | ) | | | (4.8 | ) |
Foreign financing strategies | | | — | | | | (1.2 | ) | | | (0.9 | ) | | | — | | | | — | | | | (2.3 | ) |
Capital loss — Canadian legal entity restructuring | | | — | | | | (2.7 | ) | | | — | | | | — | | | | — | | | | (3.0 | ) |
Other, net | | | (0.8 | ) | | | (1.1 | ) | | | (1.5 | ) | | | (0.4 | ) | | | (1.9 | ) | | | (1.7 | ) |
| | | | | | | | | | | | | | |
Effective income tax rate | | | (19.0 | )% | | | 25.9 | % | | | 22.1 | % | | | 20.6 | % | | | (31.4 | )% | | | 25.4 | % |
| | | | | | | | | | | | | | |
The Company’s 2009 effective rate of 20.6% reflects a benefit for the reduction in FIN 48 reserves primarily due to the completion of an audit of the Company’s 2006 U.S. tax return in accordance with ASC Topic 740, “Income Taxes” (FIN 48). The Company’s effective rate also reflects benefits for the R&D tax credit and foreign tax rate effects.
The Company’s 2008 effective tax rate of (19.0)(31.4)% reflects a benefit of $8.2 million for the utilization of capital loss carryforwards resulting from the sale-leaseback transaction for two U.S. based manufacturing facilities and a benefit of $3.1 million for losses in the China Joint Venture previously not recognized.
Deferred income tax assets and liabilities at December 31 are summarized as follows:
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Deferred tax assets: | | | | | | | | |
Accrued expenses | | $ | 19.5 | | | $ | 12.8 | |
Net operating loss, capital loss, alternative minimum tax, research and development, and foreign tax credit carryforwards | | | 61.8 | | | | 40.8 | |
Tax effect of items in other comprehensive income | | | 31.2 | | | | 6.4 | |
Other | | | 3.0 | | | | 0.1 | |
| | | | | | | | |
Gross deferred tax assets | | | 115.5 | | | | 60.1 | |
Valuation allowance | | | (33.9 | ) | | | (15.9 | ) |
| | | | | | | | |
Total deferred tax assets | | | 81.6 | | | | 44.2 | |
Deferred tax liabilities: | | | | | | | | |
Depreciation and amortization | | | (38.0 | ) | | | (51.8 | ) |
Revenue recognition | | | (0.6 | ) | | | (0.8 | ) |
Pension liabilities | | | (9.9 | ) | | | (6.4 | ) |
Undistributed earnings ofnon-U.S. subsidiary | | | (1.0 | ) | | | (0.7 | ) |
| | | | | | | | |
Gross deferred tax liabilities | | | (49.5 | ) | | | (59.7 | ) |
| | | | | | | | |
Net deferred tax asset (liability) | | $ | 32.1 | | | $ | (15.5 | ) |
| | | | | | | | |
Federal and state income taxes have not been provided on accumulated undistributed earnings of certain foreign subsidiaries aggregating approximately $79.6 million at December 31, 2008, as such earnings have been
3840
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Deferred income tax assets and liabilities at December 31 are summarized as follows ($ in millions):
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Deferred tax assets: | | | | | | | | |
Accrued expenses | | $ | 17.3 | | | $ | 17.6 | |
Net operating loss, capital loss, alternative minimum tax, research and development, and foreign tax credit carryforwards | | | 53.2 | | | | 60.4 | |
Tax effect of items in other comprehensive income | | | 25.9 | | | | 31.2 | |
Other | | | — | | | | 3.0 | |
| | | | | | | | |
Gross deferred tax assets | | | 96.4 | | | | 112.2 | |
Valuation allowance | | | (25.2 | ) | | | (32.5 | ) |
| | | | | | | | |
Total deferred tax assets | | | 71.2 | | | | 79.7 | |
Deferred tax liabilities: | | | | | | | | |
Depreciation and amortization | | | (37.1 | ) | | | (35.4 | ) |
Revenue recognition | | | (0.7 | ) | | | (0.6 | ) |
Other | | | (1.3 | ) | | | — | |
Pension liabilities | | | (11.4 | ) | | | (9.9 | ) |
Undistributed earnings ofnon-U.S. subsidiary | | | — | | | | (1.0 | ) |
| | | | | | | | |
Gross deferred tax liabilities | | | (50.5 | ) | | | (46.9 | ) |
| | | | | | | | |
Net deferred tax asset | | $ | 20.7 | | | $ | 32.8 | |
| | | | | | | | |
Federal and state income taxes have not been provided on accumulated undistributed earnings of certain foreign subsidiaries aggregating approximately $97.2 million at December 31, 2009, as such earnings have been reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.
The deferred tax asset for tax loss carryforwards at December 31, 2009, includes Federal net operating loss carryforwards of $4.8$1.9 million, which begin to expire in 2029, state net operating loss carryforwards of $1.5$1.0 million, which will begin to expire in 2019; foreign net operating loss carryforwards of $2.7$0.9 million of which $1.4$0.9 million has an indefinite life; $29.8$23.4 million for capital loss carryforwards that will expire in 2012 and 2013. The deferred tax asset for tax credit carryforwards includes U.S. research tax credit carryforwards of $5.0 million, which will begin to expire in 2022, U.S. foreign tax credits of $14.2$15.5 million, which will begin to expire in 2015 and U.S. alternative minimum tax credit carryforwards of $3.8$3.4 million with no expiration.
Valuation allowances totaling $33.9$25.2 million have been established at December 31, 2009 and include $1.4$0.9 million related to state net operating loss carryforwards and $2.7$0.9 million related to the foreign net operating loss carryforwards and $29.8$23.4 million related to capital loss carryforwards.
The net deferred tax asset at December 31 is classified in the balance sheet as follows:follows ($ in millions):
| | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2009 | | 2008 | |
|
Current net deferred tax assets (included in Other current assets in the Consolidated Balance Sheets) | | $ | 1.8 | | | $ | 9.8 | | | $ | 3.2 | | | $ | 1.6 | |
Long-term net deferred tax asset (liability) | | | 30.3 | | | | (25.3 | ) | |
Long-term net deferred tax asset | | | | 17.5 | | | | 31.2 | |
| | | | | | | | | | |
| | $ | 32.1 | | | $ | (15.5 | ) | | $ | 20.7 | | | $ | 32.8 | |
| | | | | | | | | | |
41
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
As of December 31, 2008,2009, the Company is in a net U.S. deferred tax asset position of $42.3$34.4 million. Additionally, the Company has incurred cumulative domestic losses for the last three years. Under the provisions of FAS 109,ASC Topic 740, “Income Taxes” (SFAS No. 109), the Company may be required to establish a valuation allowance for its U.S. deferred tax assets. However, FAS 109ASC Topic 740, (SFAS No. 109) provides that a valuation allowance may not be needed if the Company can demonstrate a strong earnings history exclusive of the losses that created the deferred tax assets coupled with evidence indicating that loss is due to an unusual, infrequent, or extraordinary item and not a continuing condition. The Company considers that the cumulative three year domestic loss was primarily due to losses recorded on discontinued operations and disposal during the three year period and accordingly, no valuation allowance has been established for the net U.S. deferred tax asset position as of December 31, 2008.2009.
The Company paid income taxes of $5.1 million in 2009, $6.1 million in 2008 and $7.0 million in 2007 and $6.9 million in 2006.2007.
Income from continuing operations before taxes for each of the three years in the period ended December 31 2008 consisted of the following:following ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | 2009 | | 2008 | | 2007 | |
|
United States | | $ | 1.4 | | | $ | 31.4 | | | $ | 23.0 | | | $ | 1.9 | | | $ | (3.0 | ) | | $ | 26.2 | |
Non-U.S | | | 24.9 | | | | 22.2 | | | | 17.1 | | |
Non-U.S. | | | | 20.4 | | | | 23.7 | | | | 20.9 | |
| | | | | | | | | | | | | | |
| | $ | 26.3 | | | $ | 53.6 | | | $ | 40.1 | | | $ | 22.3 | | | $ | 20.7 | | | $ | 47.1 | |
| | | | | | | | | | | | | | |
On January 1, 2007, the Company adopted the provisions of FIN 48.ASC Topic 740, (FIN 48). As a result, an increase of $0.7 million in the liability for unrecognized tax benefits and a $0.7 million reduction in retained earnings were recorded in 2007.
The following table summarizes the activity related to the Company’s unrecognized tax benefits ($ in millions):
| | | | |
Balance at January 1, 2008 | | $ | 8.3 | |
Increases related to current year tax positions | | | 0.8 | |
Increases from prior period positions | | | (0.9 | ) |
Decreases due to lapse of statute of limitations | | | (0.7 | ) |
Decreases from prior periods | | | (2.5 | ) |
| | | | |
Balance at December 31, 2008 | | $ | 5.0 | |
Increases related to current year tax | | | 1.4 | |
Decreases due to settlements with tax authorities | | | (1.0 | ) |
Decreases due to lapse of statute of limitations | | | (0.5 | ) |
| | | | |
Balance at December 31, 2009 | | $ | 4.9 | |
| | | | |
Included in the unrecognized tax benefits of $4.9 million at December 31, 2009 was $4.7 million of tax benefits that if recognized, would impact our annual effective tax rate. The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. Interest and penalties amounting to $0.7 million and $0.1 million, respectively, are included in the consolidated balance sheet but are not included in the table above. We expect our unrecognized tax benefits to decrease by $0.8 million over the next 12 months.
We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2006 through 2009 tax years generally remain subject to examination by federal and most state tax authorities. In significant foreign jurisdictions, the 2004 through 2009 tax years generally remain subject to examination by their respective tax authorities.
3942
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
| | | | |
Balance at January 1, 2007 | | $ | 6.2 | |
Increases related to current year tax positions | | | 1.8 | |
Increases from prior period positions | | | 0.6 | |
Decreases due to lapse of statute of limitations | | | (0.2 | ) |
Decreases from prior periods | | | (0.1 | ) |
| | | | |
Balance at December 31, 2007 | | $ | 8.3 | |
Increases related to current year tax positions | | | 0.8 | |
Decreases due to settlements with tax authorities | | | (0.9 | ) |
Decreases due to lapse of statute of limitations | | | (0.7 | ) |
Decreases from prior periods | | | (2.5 | ) |
| | | | |
Balance at December��31, 2008 | | $ | 5.0 | |
| | | | |
Included in the unrecognized tax benefits of $5.0 million at December 31, 2008 was $4.4 million of tax benefits that if recognized, would impact our annual effective tax rate. The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. Interest and penalties amounting to $0.8 million and $0.1 million, respectively, are included in the consolidated balance sheet but are not included in the table above. We expect our unrecognized tax benefits to decrease by $0.4 million over the next 12 months.
We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2005 through 2008 tax years generally remain subject to examination by federal and most state tax authorities. In significant foreign jurisdictions, the 2003 through 2008 tax years generally remain subject to examination by their respective tax authorities.
NOTE 6 — POSTRETIREMENT BENEFITS
| |
NOTE 7 — | POSTRETIREMENT BENEFITS |
The Company and its subsidiaries sponsor a number of defined benefit retirement plans covering certain of its salaried and hourly employees. Benefits under these plans are primarily based on final average compensation and years of service as defined within the provisions of the individual plans. The Company also participates in a retirement plan that provides defined benefits to employees under certain collective bargaining agreements.
The Company uses a December 31 measurement date for its U.S. andnon-U.S. benefit plans in accordance with SFAS 158.
40
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data)ASC Topic 715, “Compensation — (Continued)Retirement Benefits” (SFAS No. 158).
The components of net periodic pension expense for each of the three years in the period ended December 31, 2008 are summarized as follows:follows ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | Non-U.S. Benefit Plan | | | U.S. Benefit Plans | | Non-U.S. Benefit Plan | |
| | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | | 2009 | | 2008 | | 2007 | |
|
Company-sponsored plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 0.9 | | | $ | 1.8 | | | $ | 4.3 | | | $ | 0.2 | | | $ | 0.2 | | | $ | 0.2 | | | $ | — | | | $ | 0.9 | | | $ | 1.8 | | | $ | 0.2 | | | $ | 0.2 | | | $ | 0.2 | |
Interest cost | | | 8.7 | | | | 8.8 | | | | 8.6 | | | | 3.3 | | | | 3.1 | | | | 2.7 | | | | 8.0 | | | | 8.7 | | | | 8.8 | | | | 2.6 | | | | 3.3 | | | | 3.1 | |
Expected return on plan assets | | | (10.8 | ) | | | (10.9 | ) | | | (9.9 | ) | | | (4.0 | ) | | | (4.2 | ) | | | (3.8 | ) | | | (9.5 | ) | | | (10.8 | ) | | | (10.9 | ) | | | (2.7 | ) | | | (4.0 | ) | | | (4.2 | ) |
Amortization of actuarial loss | | | 0.6 | | | | 1.6 | | | | 1.4 | | | | 0.5 | | | | 0.6 | | | | 0.6 | | | | 2.0 | | | | 0.6 | | | | 1.6 | | | | 1.1 | | | | 0.5 | | | | 0.6 | |
Amortization of prior service cost | | | — | | | | — | | | | 0.1 | | | | — | | | | — | | | | — | | |
Curtailment charge | | | 0.4 | | | | — | | | | 1.3 | | | | — | | | | — | | | | — | | | | — | | | | 0.4 | | | | — | | | | — | | | | — | | | | — | |
Settlement charge | | | 5.9 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5.9 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 5.7 | | | | 1.3 | | | | 5.8 | | | | — | | | | (0.3 | ) | | | (0.3 | ) | | | 0.5 | | | | 5.7 | | | | 1.3 | | | | 1.2 | | | | — | | | | (0.3 | ) |
Multiemployer plans | | | 0.2 | | | | 0.2 | | | | 0.3 | | | | — | | | | — | | | | — | | | | 0.2 | | | | 0.2 | | | | 0.2 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic pension expense (income) | | $ | 5.9 | | | $ | 1.5 | | | $ | 6.1 | | | $ | — | | | $ | (0.3 | ) | | $ | (0.3 | ) | | $ | 0.7 | | | $ | 5.9 | | | $ | 1.5 | | | $ | 1.2 | | | $ | — | | | $ | (0.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
On April 21, 2008, the Company sold its Die and Mold Operations. The operations were included in discontinued operations for all periods presented through the sale date. As a result of an amendment related to this sale, the Company was required to recognize a curtailment adjustment of $0.4 million and subsequently, a settlement charge of $5.9 million under SFASASC Topic 715, “Compensation — Retirement Benefits” (SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits”88). Pension expense relating to the Tool segment employees, excluding the previously mentioned charges, was $0.3 million and $1.3 million and $1.9 million for each of the three years ended December 31, 2008 2007 and 2006,2007, respectively.
The remeasurement of these defined benefit plans as a result of the sale of the Die and Mold Operations also included a change in the weighted average discount rate to determine pension costs from 6.45% used at January 1, 2008 to 6.6% at the May 1, 2008 remeasurement date, and to 6.8% at the July 1, 2008 remeasurement date.
On April 28, 2008, an amendment to the Company’s U.S. defined benefit plans for University Park, Illinois IBEW employees within the Safety and Security Systems Group was approved. The amendment froze service accruals for these employees as of December 31, 2008. On July 17, 2006, a similar amendment to the Company’s defined benefit plans for all U.S. employees, except for Tool segment employees and University Park, Illinois IBEW employees within the Safety and Security Systems Group was approved by the Company’s Board of Directors. The amendment froze service accruals for these employees as of December 31, 2006. The participants do, however, continue to accrue benefits resulting from future salary increases through 2016. As a result
The following table summarizes the weighted-average assumptions used in determining pension costs in each of the amendment, the Company was required to recognize a curtailment charge under SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits” due to the recognition of prior service costs. The Company recognized a curtailment charge of $1.3 million measured at July 1, 2006, which was recorded during the quarter ended September 30, 2006 and is recognizedthree years in the table above, reflecting the unamortized portion of prior benefit changes.period ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | | Non-U.S. Benefit Plan | |
| | 2009 | | | 2008 | | | 2007 | | | 2009 | | | 2008 | | | 2007 | |
|
Discount rate | | | 6.5 | % | | | 6.8 | % | | | 6.0 | % | | | 5.7 | % | | | 5.9 | % | | | 5.8 | % |
Rate of increase in compensation levels | | | 3.5 | % | | | 3.5 | % | | | 3.5 | % | | | N/A | * | | | N/A | * | | | NA | * |
Expected long term rate of return on plan assets | | | 8.5 | % | | | 8.5 | % | | | 8.5 | % | | | 6.8 | % | | | 6.6 | % | | | 6.9 | % |
| | |
* | | Non-U.S. plan benefits are not adjusted for compensation level changes |
4143
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The following table summarizes the weighted-average assumptions used in determining pension costs in each of the three years in the period ended December 31, 2008:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | | Non-U.S. Benefit Plan | |
| | 2008 | | | 2007 | | | 2006 | | | 2008 | | | 2007 | | | 2006 | |
|
Discount rate | | | 6.8 | % | | | 6.0 | % | | | 6.1 | % | | | 5.9 | % | | | 5.8 | % | | | 5.2 | % |
Rate of increase in compensation levels | | | 3.5 | % | | | 3.5 | % | | | 3.5 | % | | | N/A | * | | | N/A | * | | | NA | * |
Expected long term rate of return on plan assets | | | 8.5 | % | | | 8.5 | % | | | 8.5 | % | | | 6.6 | % | | | 6.9 | % | | | 7.0 | % |
| | |
* | | Non-U.S. plan benefits are not adjusted for compensation level changes |
The following summarizes the changes in the projected benefit obligation and plan assets, the funded status of the Company-sponsored plans and the major assumptions used to determine these amounts at December 31:31 ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | Non-U.S. Benefit Plan | | | U.S. Benefit Plans | | Non-U.S. Benefit Plan | |
| | 2008 | | 2007 | | 2008 | | 2007 | | | 2009 | | 2008 | | 2009 | | 2008 | |
|
Change in Benefit Obligation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Benefit obligation, beginning of year | | $ | 142.5 | | | $ | 143.2 | | | $ | 61.3 | | | $ | 59.0 | | | $ | 129.7 | | | $ | 142.5 | | | $ | 42.6 | | | $ | 61.3 | |
Service cost | | | 0.9 | | | | 1.8 | | | | 0.2 | | | | 0.2 | | | | — | | | | 0.9 | | | | 0.2 | | | | 0.2 | |
Interest cost | | | 8.7 | | | | 8.8 | | | | 3.3 | | | | 3.1 | | | | 8.0 | | | | 8.7 | | | | 2.6 | | | | 3.3 | |
Actuarial (gain)/loss | | | (1.9 | ) | | | (6.4 | ) | | | (3.4 | ) | | | 2.1 | | | | 3.1 | | | | (1.9 | ) | | | 3.2 | | | | (3.4 | ) |
Benefits paid | | | (21.2 | ) | | | (4.9 | ) | | | (3.0 | ) | | | (3.9 | ) | | | (7.3 | ) | | | (21.2 | ) | | | (2.8 | ) | | | (3.0 | ) |
Curtailments | | | (2.0 | ) | | | — | | | | — | | | | — | | | | — | | | | (2.0 | ) | | | — | | | | — | |
Settlements | | | 2.7 | | | | — | | | | — | | | | — | | | | — | | | | 2.7 | | | | — | | | | — | |
Translation and other | | | — | | | | — | | | | (15.8 | ) | | | 0.8 | | | | — | | | | — | | | | 4.2 | | | | (15.8 | ) |
| | | | | | | | | | | | | | | | | | |
Benefit obligation, end of year | | $ | 129.7 | | | $ | 142.5 | | | $ | 42.6 | | | $ | 61.3 | | | $ | 133.5 | | | $ | 129.7 | | | $ | 50.0 | | | $ | 42.6 | |
| | | | | | | | | | | | | | | | | | |
Accumulated benefit obligation, end of year | | $ | 125.2 | | | $ | 129.8 | | | $ | 42.6 | | | $ | 61.3 | | | $ | 132.0 | | | $ | 125.2 | | | $ | 50.0 | | | $ | 42.6 | |
| | | | | | | | | | | | | | | | | | |
The following table summarizes the weighted-average assumptions used in determining benefit obligations as of December 31, 2008 and 2007:31:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | Non-U.S. Benefit Plan | | U.S. Benefit Plans | | Non-U.S. Benefit Plan |
| | 2008 | | 2007 | | 2008 | | 2007 | | 2009 | | 2008 | | 2009 | | 2008 |
|
Discount rate | | | 6.5 | % | | | 6.45 | % | | | 5.9 | % | | | 5.8 | % | | | 6.0 | % | | | 6.5 | % | | | 5.7 | % | | | 5.9 | % |
Rate of increase in compensation levels | | | 3.5 | % | | | 3.5 | % | | | N/A | | | | N/A | | | | 3.5 | % | | | 3.5 | % | | | N/A | | | | N/A | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | Non-U.S. Benefit Plan | | | U.S. Benefit Plans | | Non-U.S. Benefit Plan | |
Change in Plan Assets ($ in millions) | | | 2009 | | 2008 | | 2009 | | 2008 | |
| | 2008 | | 2007 | | 2008 | | 2007 | |
| |
Change in Plan Assets | | | | | | | | | | | | | | | | | |
Fair value of plan assets, beginning of year | | $ | 132.9 | | | $ | 125.0 | | | $ | 63.3 | | | $ | 58.7 | | | $ | 79.1 | | | $ | 132.9 | | | $ | 38.9 | | | $ | 63.3 | |
Actual return on plan assets | | | (42.6 | ) | | | 7.8 | | | | (8.2 | ) | | | 5.7 | | | | 24.8 | | | | (42.6 | ) | | | 7.2 | | | | (8.2 | ) |
Company contribution | | | 10.0 | | | | 5.0 | | | | 1.6 | | | | 1.7 | | | | 4.4 | | | | 10.0 | | | | 1.0 | | | | 1.6 | |
Benefits and expenses paid | | | (21.2 | ) | | | (4.9 | ) | | | (2.9 | ) | | | (3.9 | ) | | | (7.3 | ) | | | (21.2 | ) | | | (2.8 | ) | | | (2.9 | ) |
Translation and other | | | — | | | | — | | | | (14.9 | ) | | | 1.1 | | | | — | | | | — | | | | 3.9 | | | | (14.9 | ) |
| | | | | | | | | | | | | | | | | | |
Fair value of plan assets, end of year | | $ | 79.1 | | | $ | 132.9 | | | $ | 38.9 | | | $ | 63.3 | | | $ | 101.0 | | | $ | 79.1 | | | $ | 48.2 | | | $ | 38.9 | |
| | | | | | | | | | | | | | | | | | |
The amounts included in Translation and other in the preceding tables reflect the impact of the foreign exchange translation for thenon-U.S. benefit plan.
The plan asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Following is a description of the valuation methodologies used for assets measured at fair value for U.S. plan:
Mutual funds — Valued at the net asset value, based on quoted market prices in active markets, of shares held by the Plan at year end.
Common stock — Valued at the closing price reported on the active market on which the security is traded.
4244
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The amounts included in TranslationCollective/Common trust — Valued at the net asset value, based on quoted market value of the underlying assets, of shares held by the Plan at year end.
Partnership — A hedge fund of funds investments consisting of equity and debt security and other instruments. The exchange traded assets are valued through the use of independent trading feeds (Bloomberg, Reuters. Etc.). Grosvenor Institutional Partners, LP records the fund’s investment in an underlying portfolio on the preceding tables reflecttrade date as determined by the impactgoverning documents of the changerelevant portfolio and values the investment in measurement date from September 30 to December 31 fora portfolio at the year ended December 31, 2007net asset value of such investment as well as foreign exchange translationreported by the manager of such portfolio.
Plan assets for thenon-U.S. benefit plan.plans are based on quoted prices in active markets for identical assets.
The following table summarizes the Company’s asset allocationspension assets in a three-tier fair value hierarchy for its benefits plansbenefit plan as of December 31 2008 and 2007 and the target allocation for 2009 by asset category:($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | | Non-U.S. Benefit Plan | |
| | | | | Percentage of
| | | | | | Percentage of
| |
| | Target
| | | Plan Assets as of
| | | Target
| | | Plan Assets as of
| |
| | Percent
| | | December 31 | | | Percent
| | | December 31, | |
| | 2009 | | | 2008 | | | 2007 | | | 2009 | | | 2008 | | | 2007 | |
|
Equity securities | | | 60-85 | % | | | 72 | % | | | 74 | % | | | 50-70 | % | | | 52 | % | | | 60 | % |
Fixed income securities | | | 10-30 | % | | | 14 | % | | | 16 | % | | | 30-50 | % | | | 36 | % | | | 30 | % |
Alternative investments | | | 0-15 | % | | | 14 | % | | | 10 | % | | | — | | | | — | | | | — | |
Cash | | | — | | | | — | | | | — | | | | — | | | | 12 | % | | | 10 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | 100 | % | | | 100 | % | | | | | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U. S. Benefit Plans | |
| | 2009 | | | 2008 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
|
Mutual funds | | $ | 45.9 | | | $ | — | | | $ | — | | | $ | 45.9 | | | $ | 19.9 | | | $ | — | | | $ | — | | | $ | 19.9 | |
Common stock | | | 11.3 | | | | — | | | | — | | | | 11.3 | | | | 9.3 | | | | — | | | | — | | | | 9.3 | |
Collective fund | | | — | | | | 31.8 | | | | — | | | | 31.8 | | | | — | | | | 37.6 | | | | — | | | | 37.6 | |
Unallocated insurance policy | | | — | | | | 0.9 | | | | — | | | | 0.9 | | | | — | | | | 0.9 | | | | — | | | | 0.9 | |
Partnership | | | — | | | | — | | | | 10.3 | | | | 10.3 | | | | — | | | | — | | | | 11.0 | | | | 11.0 | |
Cash | | | 0.8 | | | | — | | | | — | | | | 0.8 | | | | 0.4 | | | | — | | | | — | | | | 0.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 58.0 | | | $ | 32.7 | | | $ | 10.3 | | | $ | 101.0 | | | $ | 29.6 | | | $ | 38.5 | | | $ | 11.0 | | | $ | 79.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Non-U. S. Benefit Plan | |
| | 2009 | | | 2008 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
|
Equity securities | | $ | 28.7 | | | $ | — | | | $ | — | | | $ | 28.7 | | | $ | 20.1 | | | $ | — | | | $ | — | | | $ | 20.1 | |
Bonds holding | | | 12.3 | | | | — | | | | — | | | | 12.3 | | | | 13.8 | | | | — | | | | — | | | | 13.8 | |
Insurance policy | | | 0.3 | | | | — | | | | — | | | | 0.3 | | | | 0.2 | | | | — | | | | — | | | | 0.2 | |
Cash | | | 6.9 | | | | — | | | | — | | | | 6.9 | | | | 4.8 | | | | — | | | | — | | | | 4.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 48.2 | | | $ | — | | | $ | — | | | $ | 48.2 | | | $ | 38.9 | | | $ | — | | | $ | — | | | $ | 38.9 | |
The following table summarizes the changes in the fair value of the Plan’s level 3 assets as of December 31:
| | | | | | | | |
Change in Level 3 plan Assets ($ in millions): | | 2009 | | | 2008 | |
|
Fair value of the assets, beginning of year | | $ | 11.0 | | | $ | 13.9 | |
Unrealized Gain (loss) | | | 1.3 | | | | (2.9 | ) |
Purchases (sales) | | | (2.0 | ) | | | — | |
| | | | | | | | |
Fair value of the assets, end of year | | $ | 10.3 | | | $ | 11.0 | |
| | | | | | | | |
The investment strategy for the U.S. benefit plans is to 1) maintain a diversified portfolio that can provide a weighted-average target return of 8.5% or more, 2) maintain liquidity to meet obligations and 3) prudently manage administrative and management costs. The plan invests in equity, alternative and fixed income instruments. The U.S. plan investment strategy and target asset allocation are under review and the Company expects to implement changes once the review is reviewed regularly and portfolio investments are rebalanced periodically when considered appropriate.finalized. The use of derivatives is allowed in limited circumstances. The plan held no derivatives during the years ended December 31, 20082009 and 2007.
Plan assets for thenon-U.S. benefit plan consist principally of a diversified portfolio of equity securities, U.K. government obligations and fixed interest securities.
As of December 31, 2008 and 2007, equity securities included 0.2 million shares of the Company’s common stock valued at $1.9 million and $2.7 million, respectively. Dividends paid on the Company’s common stock to the pension trusts aggregated $0.1 million in each of the years ended December 31, 2008 and 2007.
| | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | | Non-U.S. Benefit Plan | |
| | 2008 | | | 2007 | | | 2008 | | | 2007 | |
|
Funded status, end of year | | | | | | | | | | | | | | | | |
Fair value of plan assets | | $ | 79.1 | | | $ | 132.9 | | | $ | 38.9 | | | $ | 63.3 | |
Benefit obligations | | | 129.7 | | | | 142.5 | | | | 42.6 | | | | 61.3 | |
| | | | | | | | | | | | | | | | |
Funded status | | $ | (50.6 | ) | | $ | (9.6 | ) | | $ | (3.7 | ) | | $ | 2.0 | |
| | | | | | | | | | | | | | | | |
Amounts recognized in the Balance Sheet consist of:
| | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | | Non-U.S. Benefit Plan | |
| | 2008 | | | 2007 | | | 2008 | | | 2007 | |
|
Long term pension liabilities | | $ | (50.6 | ) | | $ | (9.6 | ) | | $ | (3.7 | ) | | $ | N/A | |
Other current assets | | | N/A | | | | N/A | | | | — | | | | 2.0 | |
Accumulated other comprehensive loss, pre-tax | | | 71.4 | | | | 26.1 | | | | 16.0 | | | | 13.2 | |
| | | | | | | | | | | | | | | | |
Net amount recognized | | $ | 20.8 | | | $ | 16.5 | | | $ | 12.3 | | | $ | 15.2 | |
| | | | | | | | | | | | | | | | |
2008.
4345
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Amounts recognized in Accumulated Other Comprehensive IncomePlan assets for thenon-U.S. benefit plan consist of:principally of a diversified portfolio of equity securities, U.K. government obligations and fixed interest securities.
| | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | | Non-U.S. Benefit Plan | |
| | 2008 | | | 2007 | | | 2008 | | | 2007 | |
|
Net actuarial loss | | $ | 71.4 | | | $ | 25.7 | | | $ | 16.0 | | | $ | 13.2 | |
Prior service cost | | | — | | | | 0.4 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net amount recognized, pre-tax | | $ | 71.4 | | | $ | 26.1 | | | $ | 16.0 | | | $ | 13.2 | |
| | | | | | | | | | | | | | | | |
As of December 31, 2009 and 2008, equity securities included 0.9 million and 0.2 million shares of the Company’s common stock valued at $5.6 million and $1.9 million, respectively. Dividends paid on the Company’s common stock to the pension trusts aggregated $0.3 million and $0.1 million in each of the years ended December 31, 2009 and 2008.
| | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | | Non-U.S. Benefit Plan | |
Funded status, end of year ($ in millions) | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Fair value of plan assets | | $ | 101.0 | | | $ | 79.1 | | | $ | 48.2 | | | $ | 38.9 | |
Benefit obligations | | | 133.5 | | | | 129.7 | | | | 50.0 | | | | 42.6 | |
| | | | | | | | | | | | | | | | |
Funded status | | $ | (32.5 | ) | | $ | (50.6 | ) | | $ | (1.8 | ) | | $ | (3.7 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | U.S. Benefit Plans | | | Non-U.S. Benefit Plan | |
Amounts recognized in the Balance Sheet consist of ($ in millions): | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Long term pension liabilities | | $ | (32.5 | ) | | $ | (50.6 | ) | | $ | (1.8 | ) | | $ | (3.7 | ) |
Accumulated other comprehensive loss, pre-tax | | | 57.2 | | | | 71.4 | | | | 15.1 | | | | 16.0 | |
| | | | | | | | | | | | | | | | |
Net amount recognized | | $ | 24.7 | | | $ | 20.8 | | | $ | 13.3 | | | $ | 12.3 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Amounts recognized in Accumulated Other Comprehensive Income
| | U.S. Benefit Plans | | | Non-U.S. Benefit Plan | |
consist of ($ in millions): | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Net actuarial loss | | $ | 57.2 | | | $ | 71.4 | | | $ | 15.1 | | | $ | 16.0 | |
Prior service cost | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net amount recognized, pre-tax | | $ | 57.2 | | | $ | 71.4 | | | $ | 15.1 | | | $ | 16.0 | |
| | | | | | | | | | | | | | | | |
The Company expects $3.1$4.1 million relating to amortization of the actuarial loss to be amortized from Accumulated Other Comprehensive Income into Net Periodic Benefit Cost in 2009.2010.
The Company expects to contribute up to $10.0$3.0 million to the U.S. benefit plans in 20092010 and up to $1.0 million to thenon-U.S. plan. Future contributions to the plans will be based on such factors as annual service cost as well as return on plan asset values, interest rate movements and benefit payments.
46
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The following table presents the benefits expected to be paid under the Company’s defined benefit plans in each of the next five years, and in aggregate for the five years thereafter:thereafter ($ in millions):
| | | | | | | | | | | | | | | | |
| | U.S. Benefit
| | Non-U.S.
| | | U.S. Benefit
| | Non-U.S.
|
| | Plans | | Benefit Plan | | | Plans | | Benefit Plan |
|
2009 | | $ | 6.1 | | | $ | 2.1 | | |
2010 | | | 6.6 | | | | 2.2 | | | $ | 6.5 | | | $ | 2.4 | |
2011 | | | 7.0 | | | | 2.3 | | | | 6.5 | | | | 2.5 | |
2012 | | | 7.3 | | | | 2.4 | | | | 6.9 | | | | 2.7 | |
2013 | | | 7.9 | | | | 2.5 | | | | 7.6 | | | | 2.8 | |
2014-2018 | | | 46.2 | | | | 13.9 | | |
2014 | | | | 8.3 | | | | 2.9 | |
2015-2019 | | | | 46.7 | | | | 15.3 | |
The Company also sponsors a number of defined contribution pension plans covering a majority of its employees. Through 2006 participation in the plans was at each employee’s election and Company contributions to these plans were based on a percentage of employee contributions. Effective January 1, 2007, participation is via automatic enrollment; employees may elect to opt out of the plan. Company contributions to the plan are now based on employees’ age and service as well as a percentage of employee contributions. Effective January 1, 2009, the Company froze the Company match of Federal Signal employee’s 401k contribution to the plans.
The cost of these plans during each of the three years in the period ended December 31, 2008,2009, was $4.8 million in 2009, $8.2 million in 2008 and $9.9 million in 2007 and $5.6 million in 2006.2007.
Prior to September 30, 2003, the Company also provided medical benefits to certain eligible retired employees. These benefits were funded when the claims were incurred. Participants generally became eligible for these benefits at age 60 after completing at least fifteen years of service. The plan provided for the payment of specified percentages of medical expenses reduced by any deductible and payments made by other primary group coverage and government programs. Effective September 30, 2003, the Company amended the retiree medical plan and effectively canceled coverage for all eligible active employees except for retirees and a limited group that qualified under a formula based on age and years of service. Accumulated postretirement benefit liabilities of $1.7$1.4 million and $2.3$1.7 million at December 31, 20082009 and 2007,2008, respectively, were fully accrued. The net periodic postretirement benefit costs have not been significant during the three-year period ended December 31, 2008.
44
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)2009.
NOTE 78 — DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Derivative financial instruments are reported on the balance sheet at their respective fair values. Changes in fair value are recognized either in earnings or equity, depending on the nature of the underlying exposure being hedged and how effective a derivative is at offsetting price movements in the underlying exposure. The Company’s derivative positions existing at December 31, 2008 qualified for hedge accounting under SFAS No. 133, except as described below.
To manage interest costs, the Company utilizes interest rate swaps in combination with its funded debt. Interest rate swaps executed in conjunction with long-term private placements effectively convert fixed rate debt to variable rate debt. At December 31,In March 2008, the Company’s receive fixed, pay variable swap agreements with aFASB amended and revised existing financial institution terminatesstatement disclosure requirements related to derivative instruments and hedging activities. The requirements enhance disclosures for derivative instruments, including those used in 2012. These agreementshedging activities. The Company adopted the requirements on January 1, 2009 and the required disclosures are designated as fair value hedges. In the second quarter of 2005, the Company de-designated a fair value hedge. The derivative does not qualify for hedge accounting under SFAS No. 133 and is marked-to-market with the offsetting adjustment recorded to income.included herein.
At December 31, 2008,2009, the Company was also party to interest rate swap agreements with financial institutions in which the Company pays interest at a fixed rate and receives interest at variable LIBOR rates. These derivative instruments terminate in 2010. These interest rate swap agreements are designated as cash flow hedges. In the second quarter of 2005, the Company entered into an interest rate swap which was not designated as a hedge and is marked-to-market with the offsetting adjustment recorded to income.
The fair values of interest rate swaps are based on quotes from financial institutions. The following table summarizes the Company’s interest rate swaps at December 31, 2008 and 2007:
| | | | | | | | | | | | | | | | |
| | Fair Value Swaps | | | Cash Flow Swaps | |
| | 2008 | | | 2007 | | | 2008 | | | 2007 | |
|
Notional amount | | $ | 50.0 | | | $ | 138.7 | | | $ | 60.0 | | | $ | 135.0 | |
Fair value | | | 1.7 | | | | (1.3 | ) | | | (2.7 | ) | | | (0.9 | ) |
Average pay rate | | | 4.9 | % | | | 7.7 | % | | | 6.5 | % | | | 6.0 | % |
Average receive rate | | | 6.2 | % | | | 6.8 | % | | | 3.6 | % | | | 6.1 | % |
In 2008 and 2007, the Company cancelled various interest rate swaps associated with its debt portfolio in response to movements in the interest rate market. These transactions resulted in net cash payments of $0.0 million and $0.3 million in 2008 and 2007, respectively. The associated losses on the interest rate swaps are being amortized to interest expense over the life of the underlying debt. As of December 31, 2008 and 2007, the Company had unamortized gains of $0.6 million and $0.8 million, respectively.
The Company manages the volatility of cash flows caused by fluctuations in currency rates by entering into foreign exchange forward contracts and options. These derivative instruments may be designated as cash flow hedges that hedge portions of the Company’s anticipated third-party purchases and forecast sales denominated in foreign currencies. The Company also enters into foreign exchange contracts that are not intended to qualify for hedge accounting, in accordance with SFAS 133, but are intended to offset the effect on earnings of foreign currency movements on short and long term intercompany transactions. Gains and losses on these derivative instruments are recorded through earnings.
For assets and liabilities measured at fair value on a recurring basis, the Company uses an income approach to value the assets and liabilities for outstanding derivative contracts which include interest rate swap and foreign
4547
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The following table summarizes the Company’s foreign exchange contracts at December 31, 2008 and 2007:
| | | | | | | | | | | | | | | | |
| | 2008 | | | 2007 | |
| | Notional
| | | Fair
| | | Notional
| | | Fair
| |
| | Amount | | | Value | | | Amount | | | Value | |
|
Foreign exchange forwards | | $ | 48.6 | | | $ | (1.3 | ) | | $ | 55.9 | | | $ | (3.2 | ) |
Options | | | 10.6 | | | | 1.6 | | | | 10.3 | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 59.2 | | | $ | 0.3 | | | $ | 66.2 | | | $ | (3.2 | ) |
| | | | | | | | | | | | | | | | |
The Company expects $1.2 million of pre-tax net losses on cash flow hedges that are reported in accumulated other comprehensive income as of December 31, 2008 to be reclassified into earnings in 2009 as the respective hedged transactions affect earnings.
For assets and liabilities measured at fair value on a recurring basis during the period under the provisions of FAS 157, the Company uses an income approach to value the assets and liabilities for outstanding derivative contracts which include interest rate swap and foreign currency forward contracts. ThisThe income approach consists of a discounted cash flow model that takes into account the present value of future cash flows under the terms of the contracts using current market information as of the reporting date, such as prevailing interest rates and foreign currency spot and forward rates. As noted in Note 2, the Company adopted the provisions of FAS 157 with respect to its financial assets and liabilities that are measured at fair value within the consolidated financial statements. The Company has deferred the application of the provisions of this statement to its non-financial assets and liabilities in accordance with FSP 157-b. The following table provides a summary of the fair values of assets and liabilities under FAS 157:($ in millions):
| | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at December 31, 2008 | |
| | | | | Quoted Prices in Active
| | | Significant Other
| | | Significant
| |
| | | | | Markets for Identical
| | | Observable Inputs
| | | Unobservable Inputs
| |
| | Total | | | Assets (Level 1) | | | (Level 2) | | | (Level 3) | |
|
Assets | | | | | | | | | | | | | | | | |
Derivatives | | $ | 4.4 | | | $ | — | | | $ | 4.4 | | | $ | — | |
Short-term investments | | | 10.0 | | | | | | | | 10.0 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at December 31, 2009 |
| | | | Quoted Prices in Active
| | Significant Other
| | Significant
|
| | | | Markets for Identical
| | Observable Inputs
| | Unobservable Inputs
|
| | Total | | Assets (Level 1) | | (Level 2) | | (Level 3) |
|
Assets | | | | | | | | | | | | | | | | |
Derivatives | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at December 31, 2008 | | | | | Fair Value Measurements at December 31, 2009 |
| | | | Quoted Prices in Active
| | Significant Other
| | Significant
| | | | | Quoted Prices in Active
| | Significant Other
| | Significant
|
| | | | Markets for Identical
| | Observable Inputs
| | Unobservable Inputs
| | | | | Markets for Identical
| | Observable Inputs
| | Unobservable Inputs
|
| | Total | | Assets (Level 1) | | (Level 2) | | (Level 3) | | | Total | | Assets (Level 1) | | (Level 2) | | (Level 3) |
|
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives | | $ | (5.1 | ) | | $ | — | | | $ | (5.1 | ) | | $ | — | | | $ | 1.0 | | | $ | | | | $ | 1.0 | | | $ | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at December 31, 2008 |
| | | | Quoted Prices in Active
| | Significant Other
| | Significant
|
| | | | Markets for Identical
| | Observable Inputs
| | Unobservable Inputs
|
| | Total | | Assets (Level 1) | | (Level 2) | | (Level 3) |
|
Assets | | | | | | | | | | | | | | | | |
Derivatives | | $ | 4.4 | | | $ | | | | $ | 4.4 | | | $ | | |
| | | | | | | | | | | | | | | | |
Short-term investments | | $ | 10.0 | | | $ | | | | $ | 10.0 | | | $ | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at December 31, 2008 |
| | | | Quoted Prices in Active
| | Significant Other
| | Significant
|
| | | | Markets for Identical
| | Observable Inputs
| | Unobservable Inputs
|
| | Total | | Assets (Level 1) | | (Level 2) | | (Level 3) |
|
Liabilities | | | | | | | | | | | | | | | | |
Derivatives | | $ | 5.1 | | | $ | | | | $ | 5.1 | | | $ | | |
| | | | | | | | | | | | | | | | |
48
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The fair value of the Company’s derivative instruments was recorded as follows at December 31, 2009. ($ in millions):
| | | | | | | | | | | | |
| | Asset Derivatives | | | Liability Derivatives | |
| | December 31, 2009 | | | December 31, 2009 | |
| | Balance Sheet
| | Fair
| | | Balance Sheet
| | Fair
| |
| | Location | | Value | | | Location | | Value | |
|
Derivatives designated as hedging instruments: | | | | | | | | | | | | |
Interest rate contracts | | | | | | | | Other current liabilities | | $ | 0.5 | |
Foreign exchange | | Other current assets | | | — | | | Other current liabilities | | | 0.1 | |
| | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | | | — | | | | | | 0.6 | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | |
Foreign exchange | | Accounts receivable, net | | | — | | | Other current liabilities | | | 0.4 | |
| | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | | | — | | | | | | 0.4 | |
| | | | | | | | | | | | |
Total derivatives | | | | $ | — | | | | | $ | 1.0 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Asset Derivatives | | | Liability Derivatives | |
| | December 31, 2008 | | | December 31, 2008 | |
| | Balance Sheet
| | Fair
| | | Balance Sheet
| | Fair
| |
| | Location | | Value | | | Location | | Value | |
|
Interest rate contracts | | Deferred charges and other assets | | $ | 1.1 | | | Other long-term liabilities | | $ | 1.4 | |
Foreign exchange | | Other current assets | | | 1.6 | | | Other current liabilities | | | 0.5 | |
| | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | | | 2.7 | | | | | | 1.9 | |
Derivatives not designated as hedging instruments; | | | | | | | | | | | | |
Interest rate contracts | | Deferred charges and other assets | | | — | | | Other long-term liabilities | | | 0.7 | |
Foreign exchange | | Accounts receivable, net | | | 1.7 | | | Other current liabilities | | | 2.5 | |
| | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | | | 1.7 | | | | | | 3.2 | |
| | | | | | | | | | | | |
Total derivatives | | | | $ | 4.4 | | | | | $ | 5.1 | |
| | | | | | | | | | | | |
49
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The effect of derivative instruments on the condensed consolidated statement of operations for the year ended December 31, 2009, was as follows ($ in millions):
| | | | | | | | | | |
| | | | | | | Amount of Gain/(Loss)
| |
| | Amount of Gain/(Loss)
| | | Location of Gain/(Loss)
| | Reclassified from
| |
Derivatives in
| | Recognized in OCI
| | | Reclassified from
| | Accumulated OCI
| |
Cash Flow Hedging
| | on Derivative
| | | Accumulated OCI into
| | into Income
| |
Relationships | | (Effective Portion) | | | Income (Effective Portion) | | (Effective Portion) | |
|
Interest rate contracts | | $ | (0.4 | ) | | Interest expense | | $ | 0.2 | |
Foreign exchange | | | — | | | Net sales | | | 0.5 | |
Foreign exchange | | | 0.1 | | | Other income (expense), net | | | (0.7 | ) |
| | | | | | | | | | |
Total | | $ | (0.3 | ) | | | | $ | — | |
| | | | | | | | | | |
The location and amount of gain (loss) recognized in income on derivatives not designated as hedging instruments are as follows for the year ended December 31, 2009 ($ in millions):
| | | | | | |
| | Location in Consolidated
| | Amount of Gain
| |
| | Statement of Operations | | (Loss) Recognized | |
|
Interest rate swaps | | Interest expense | | $ | 0.2 | |
| | | | | | |
Foreign currency contracts | | Other (income) expense, net | | | 1.5 | |
| | | | | | |
Total gain (loss) | | | | $ | 1.7 | |
| | | | | | |
At December 31, 2009 and 2008, accumulated other comprehensive loss associated with interest rate swaps and foreign exchange contracts qualifying for hedge accounting treatment was $0.7 million and $0.9 million, respectively, net of income tax effects. The Company expects $0.9 million of pre-tax net loss on cash flow hedges that are reported in accumulated other comprehensive loss as of December 31, 2009, to be reclassified into earnings within the next 12 months as the respective hedged transactions affect earnings.
The following table summarizes the carrying amounts and fair values of the Company’s financial instruments at December 31 ($ in millions):
| | | | | | | | | | | | | | | | |
| | 2009 | | | 2008 | |
| | Notional
| | | Fair
| | | Notional
| | | Fair
| |
| | Amount | | | Value | | | Amount | | | Value | |
|
Short-term debt | | $ | — | | | $ | — | | | $ | 12.6 | | | $ | 12.6 | |
Long-term debt* | | | 204.1 | | | | 205.0 | | | | 270.4 | | | | 273.7 | |
Fair value swaps | | | — | | | | — | | | | 50.0 | | | | 1.7 | |
Cash flow swaps | | | 70.0 | | | | (0.5 | ) | | | 60.0 | | | | (2.7 | ) |
Foreign exchange contracts | | | 24.1 | | | | (0.5 | ) | | | 59.2 | | | | 0.3 | |
| | |
* | | Long term debt includes financial service borrowings for all periods presented, which is included in discontinued operations. |
The carrying value of short-term debt approximates fair value due to its short maturity. The fair value of long-term debt is based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities.
50
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The following table summarizes the Company’s money market accounts in a three-tier fair value hierarchy as of December 31 ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
|
Cash equivalents | | $ | 4.5 | | | $ | — | | | $ | — | | | $ | 4.5 | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 0.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 4.5 | | | $ | — | | | $ | — | | | $ | 4.5 | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 0.1 | |
NOTE 89 — STOCK-BASED COMPENSATION
The Company’s stock benefit plans, approved by the Company’s shareholders, and administered by the Compensation and Benefits Committee of the Board of Directors of the Company, provides for the grant of incentive and non-incentive stock options, restricted stock and other stock-based awards or units to key employees and directors. The plans, as amended, authorize the grant of up to 4.0 million benefit shares or units through April 2015. These share or unit amounts exclude amounts that were issued under predecessor plans.
Stock options are granted atgrade vest equally over the three years from the date of the grant. The cost of stock options, based on the fair market value of the shares on the date of grant.grant, is being charged to expense over the respective vesting periods. Stock options normally become exercisable at a rate of one-third annually and in full on the third anniversary date. All options and rights must be exercised within ten years from date of grant. At the Company’s discretion, vested stock option holders are permitted to elect an alternative settlement method in lieu of purchasing common stock at the option price. The
46
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
alternative settlement method permits the employee to receive, without payment to the Company, cash, shares of common stock or a combination thereof equal to the excess of market value of common stock over the option purchase price. The Company intends to settle all such options in common stock.
The weighted average fair value of options granted during 2009, 2008 and 2007 was $2.00, $3.60, and 2006 was $3.60, $5.68, and $6.21, respectively. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following assumptions:
| | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
|
Dividend yield | | | 1.7 | % | | | 1.7 | % | | | 1.3 | % | | | 3.7 | % | | | 1.7 | % | | | 1.7 | % |
Expected volatility | | | 33 | % | | | 31 | % | | | 30 | % | | | 40 | % | | | 33 | % | | | 31 | % |
Risk free interest rate | | | 3.2 | % | | | 4.4 | % | | | 4.6 | % | | | 2.2 | % | | | 3.2 | % | | | 4.4 | % |
Weighted average expected option life in years | | | 6.4 | | | | 7 | | | | 7 | | | | 6.5 | | | | 6.4 | | | | 7.0 | |
The expected life of options represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected life of the options. Expected volatility is based on historical volatilities of the Company’s common stock. Dividend yields are based on historical dividend payments.
Stock option activity for the three years ended December 31, 2008 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Shares | | | Weighted Average Exercise Price | |
| | 2008 | | | 2007 | | | 2006 | | | 2008 | | | 2007 | | | 2006 | |
| | (In millions) | | | | | | | | | | |
|
Outstanding at beginning of year | | | 2.4 | | | | 2.6 | | | | 2.7 | | | $ | 17.47 | | | $ | 18.15 | | | $ | 19.15 | |
Granted | | | 0.6 | | | | 0.5 | | | | 0.6 | | | | 11.13 | | | | 15.69 | | | | 16.93 | |
Cancelled or expired | | | (0.7 | ) | | | (0.6 | ) | | | (0.7 | ) | | | 16.00 | | | | 19.67 | | | | 21.26 | |
Exercised | | | — | | | | (0.1 | ) | | | — | | | | — | | | | 15.06 | | | | 16.23 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding at end of year | | | 2.3 | | | | 2.4 | | | | 2.6 | | | $ | 16.20 | | | $ | 17.47 | | | $ | 18.15 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Exercisable at end of year | | | 1.6 | | | | 1.5 | | | | 1.7 | | | $ | 17.68 | | | $ | 18.28 | | | $ | 18.84 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table summarizes information concerning stock options outstanding as of December 31, 2008 under all plans:
| | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | | Options Exercisable | |
| | | | | | | | Weighted
| | | | | | Weighted
| |
| | | | | Weighted
| | | Average
| | | | | | Average
| |
| | | | | Average
| | | Exercise
| | | | | | Exercise
| |
Range of Exercise Prices | | Shares | | | Remaining Life | | | Price | | | Shares | | | Price | |
| | (in millions) | | | (in years) | | | | | | (in millions) | | | | |
|
$ 7.61 - $11.00 | | | 0.4 | | | | 9.2 | | | $ | 10.56 | | | | — | | | $ | — | |
11.01 - 15.00 | | | 0.2 | | | | 7.5 | | | | 13.86 | | | | 0.1 | | | | 13.26 | |
15.01 - 17.00 | | | 1.0 | | | | 4.2 | | | | 16.15 | | | | 0.8 | | | | 16.12 | |
17.01 - 21.00 | | | 0.5 | | | | 2.2 | | | | 19.31 | | | | 0.5 | | | | 19.33 | |
21.01 - 26.13 | | | 0.2 | | | | 1.4 | | | | 22.63 | | | | 0.2 | | | | 22.63 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2.3 | | | | 4.7 | | | $ | 16.20 | | | | 1.6 | | | $ | 17.68 | |
| | | | | | | | | | | | | | | | | | | | |
The exercise price of stock options outstanding and exercisable at December 31, 2008 exceeded the market value and therefore, the aggregate intrinsic value was near zero. The closing price on December 31, 2008 was $8.21.
4751
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Stock option activity for the three years ended December 31, 2009 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Shares | | | Weighted Average Exercise Price | |
| | 2009 | | | 2008 | | | 2007 | | | 2009 | | | 2008 | | | 2007 | |
| | | | | (in millions) | | | | | | | | | | |
|
Outstanding at beginning of year | | | 2.3 | | | | 2.4 | | | | 2.6 | | | $ | 16.20 | | | $ | 17.47 | | | $ | 18.15 | |
Granted | | | 0.5 | | | | 0.6 | | | | 0.5 | | | | 6.74 | | | | 11.13 | | | | 15.69 | |
Cancelled or expired | | | (0.7 | ) | | | (0.7 | ) | | | (0.6 | ) | | | 17.00 | | | | 16.00 | | | | 19.67 | |
Exercised | | | — | | | | — | | | | (0.1 | ) | | | — | | | | — | | | | 15.06 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding at end of year | | | 2.1 | | | | 2.3 | | | | 2.4 | | | $ | 13.60 | | | $ | 16.20 | | | $ | 17.47 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Exercisable at end of year | | | 1.3 | | | | 1.6 | | | | 1.5 | | | $ | 16.35 | | | $ | 17.68 | | | $ | 18.28 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table summarizes information concerning stock options outstanding as of December 31, 2009 under all plans:
| | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | | Options Exercisable | |
| | | | | | | | Weighted
| | | | | | Weighted
| |
| | | | | Weighted
| | | Average
| | | | | | Average
| |
| | | | | Average
| | | Exercise
| | | | | | Exercise
| |
Range of Exercise Prices | | Shares | | | Remaining Life | | | Price | | | Shares | | | Price | |
| | (in millions) | | | (in years) | | | | | | (in millions) | | | | |
|
$ 5.00 - $ 7.59 | | | 0.4 | | | | 9.1 | | | $ | 6.69 | | | | — | | | $ | — | |
7.60 - 11.00 | | | 0.4 | | | | 7.9 | | | | 10.47 | | | | 0.1 | | | | 10.56 | |
11.01 - 15.00 | | | 0.2 | | | | 7.6 | | | | 13.76 | | | | 0.1 | | | | 13.30 | |
15.01 - 17.00 | | | 0.8 | | | | 3.7 | | | | 16.15 | | | | 0.8 | | | | 16.15 | |
17.01 - 21.00 | | | 0.2 | | | | 2.7 | | | | 18.92 | | | | 0.2 | | | | 18.92 | |
21.01 - 26.13 | | | 0.1 | | | | 1.5 | | | | 22.42 | | | | 0.1 | | | | 22.42 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2.1 | | | | 5.7 | | | $ | 13.60 | | | | 1.3 | | | $ | 16.35 | |
| | | | | | | | | | | | | | | | | | | | |
The exercise price of stock options outstanding and exercisable at December 31, 2009 exceeded the market value and therefore, the aggregate intrinsic value was near zero. The closing price on December 31, 2009 was $6.02.
Restricted stock awards are granted to employees at no cost. Through 2004, these awards primarily vested at the rate of 25% annually commencing one year from the date of award, provided the recipient was still employed by the Company on the vesting date. Beginning in 2005, awards primarily cliff vest at the third anniversary from the date of award, provided the recipient is still employed by the Company on the vesting date. The cost of restricted stock awards, based on the fair market value at the date of grant, is being charged to expense over the respective vesting periods. The following table summarizes restricted stock grants for the twelve month period ended December 31, 2008:2009:
| | | | | | | | | | | | | | | | |
| | Number of
| | Weighted Average
| | | Number of
| | Weighted Average
| |
(shares in millions) | | Restricted Shares | | Price per Share | | | Restricted Shares | | Price per Share | |
|
Outstanding and non-vested at December 31, 2007 | | | 0.8 | | | $ | 16.28 | | |
Outstanding and non-vested at December 31, 2008 | | | | 0.6 | | | $ | 13.87 | |
Granted | | | 0.4 | | | | 10.95 | | | | 0.3 | | | | 6.70 | |
Vested | | | (0.2 | ) | | | 15.23 | | | | (0.2 | ) | | | 17.07 | |
Cancelled | | | (0.4 | ) | | | 15.55 | | | | (0.1 | ) | | | 11.17 | |
| | | | | | | | | | |
Outstanding and non-vested at December 31, 2008 | | | 0.6 | | | $ | 13.86 | | |
Outstanding and non-vested at December 31, 2009 | | | | 0.6 | | | $ | 10.09 | |
| | | | | | | | | | |
52
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The total compensation expense related to all share-based compensation plans was $3.1 million, $2.9 million, $3.5 million, and $5.8$3.5 million for the years ended December 31, 2009, 2008 2007 and 2006,2007, respectively. Also, as of December 31, 2008,2009, the total remaining unrecognized compensation cost related to awards of stock options amounted to $2.2$1.1 million, which will be amortized over the weighted-average period of approximately 1.5 years.18 months.
Beginning in 2008, the Company established a long term incentive plan for Executive Officersexecutive officers under which awards thereunder are classified as equity in accordance with SFAS 123R.ASC Topic 718, “Compensation — Stock Compensation” (SFAS 123(R)). The ultimate payment of the performance shares units will be based on the Company’s stock performance as compared to the stock performance of a peer group. Compensation expense for the stock performance portion of the plan is based on the fair value of the plan that is determined on the day the plan is established. The fair value is calculated using a Monte Carlo simulation model. The total compensation expense for these awards is being amortized over a three-year service period. Compensation expense relating to these awards included in the Consolidated Statement of Operations for 20082009 was $0.1$0.4 million. As of December 31, 2008,2009, the unrecognized compensation cost relating to these plans was $0.6$0.7 million, which will be amortized over the remaining requisite service period of 2 years.period.
NOTE 910 — SHAREHOLDERS’ EQUITY
The Company’s board of directors has the authority to issue 90.0 million shares of common stock at a par value of $1 per share. The holders of common stock (i) may receive dividends subject to all of the rights of the holders of preference stock, (ii) shall be entitled to share ratably upon any liquidation of the Company in the assets of the Company, if any, remaining after payment in full to the holders of preference stock and (iii) receive one vote for each common share held and shall vote together share for share with the holders of voting shares of preference stock as one class for the election of directors and for all other purposes. The Company has 49.349.6 million and 49.449.3 million common shares issued as of December 31, 20082009 and 2007,2008, respectively. Of those amounts 47.748.8 million and 47.947.4 million common shares were outstanding as of December 31, 20082009 and 2007,2008, respectively.
The Company’s board of directors is also authorized to provide for the issuance of 0.8 million shares of preference stock at a par value of $1 per share. The authority of the board of directors includes, but is not limited to, the determination of the dividend rate, voting rights, conversion and redemption features and liquidation preferences. The Company has not issued any preference stock as of December 31, 2008.2009.
NOTE 11 — ACQUISITION
On December 9, 2009, the Company acquired all voting equity interests of Diamond Consulting Services Ltd. (DCS) for total consideration of approximately $13.5 million in cash and deferred payments in future years of up to $3.2 million. DCS specializes in vehicle classification systems for tolling and other Intelligent Transportation Systems (ITS). The acquisition supports the Company’s long-term strategy by creating growth opportunities and revenue synergies. The December 31, 2009 balance sheet and statement of operations are included in the Safety and Security Systems Segment. Pro forma financial information for the acquisition has not been presented as the results are immaterial to the consolidated and segment financial statements for all periods presented.
The preliminary fair values assigned to the net assets acquired resulted in approximately $9.5 million of goodwill and approximately $7.0 million of other intangible assets. None of the goodwill is deductible for tax purposes. The Company believes that the information used in the determination of the preliminary fair values is reasonable, however, the Company is waiting on additional information necessary to finalize those fair values. The Company expects to finalize the valuation and complete the purchase price allocation by the end of the first quarter of 2010.
4853
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
NOTE 1012 — ACQUISITIONSGOODWILL AND OTHER INTANGIBLE ASSETS
On January 15, 2007, the Company acquired the netGoodwill and other intangible assets of Codespear LLC, a Birmingham, Michigan based, privately held developer of specialized software used in emergency management situations, for $16.6 million in cash plus an additional $0.8 million payment based on working capital and contingent consideration adjustments which were finalizeddeemed to have indefinite lives are not amortized, but are subject to annual impairment tests. Other intangible assets are amortized over their useful lives.
Changes in the third quartercarrying amount of 2007. In addition, there are potential additional earnout paymentsgoodwill for up to threethe years following the transaction, if specific performance targets are met. Any additional payments related to this contingency will be accounted for as additional goodwill, however, as ofended December 31, 2009 and 2008, by operating segment, were as follows ($ in millions):
| | | | | | | | | | | | | | | | |
| | Environmental
| | | Fire
| | | Safety
| | | | |
| | Solutions | | | Rescue | | | Security | | | Total | |
|
December 31, 2007 | | $ | 120.5 | | | $ | 35.5 | | | $ | 164.2 | | | $ | 320.2 | |
Adjustments | | | — | | | | — | | | | 0.3 | | | | 0.3 | |
Translation | | | (0.2 | ) | | | (2.5 | ) | | | (14.2 | ) | | | (16.9 | ) |
| | | | | | | | | | | | | | | | |
December 31, 2008 | | | 120.3 | | | | 33.0 | | | | 150.3 | | | | 303.6 | |
Acquisitions | | | — | | | | — | | | | 9.5 | | | | 9.5 | |
Translation | | | 0.1 | | | | 1.7 | | | | 4.7 | | | | 6.5 | |
| | | | | | | | | | | | | | | | |
December 31, 2009 | | $ | 120.4 | | | $ | 34.7 | | | $ | 164.5 | | | $ | 319.6 | |
| | | | | | | | | | | | | | | | |
The Company tests its goodwill annually for impairment in the performance targets have not been metfourth quarter or earlier if impairment indicators exist in accordance with ASC Topic 350 “Intangibles — Goodwill and Other.” The Company performed this test in 2009 and determined that there was no additional payments are due. Asimpairment. The Company determined the fair value of each reporting unit In accordance with ASC Topic 820 “Fair Value Measurements and Disclosures.” See Note 11 for a discussion of goodwill additions as a result of the acquisition the Company recorded the addition of $12.2 million of goodwill in 2007, which was deductible for tax purposes, and $5.2 million of acquired developed software. The results since the date of acquisition are includedmade in the Safety and Security Systems segment.
On July 25, 2007, the Company acquired the net assets of Riverchase Technologies, a software development firm that specializes in serving the municipal safety market and includes a suite of products for small to medium size municipalities that includes CAD, RMS, mobile data, mobile video and mobile handheld solutions which enable emergency response agencies to manage and communicate remotely with their fleets. The purchase price was $6.7 million in cash plus an additional payment of $0.2 million for a working capital adjustment which was paid in the first quarter of 2008, as well as potential earnout payments for up to two years following the transaction, if specific performance targets are met. As ofyear ended December 31, 2008, these performance targets have not been met and no additional payments are due. As a result of the acquisition, the Company recorded the addition of $2.9 million of goodwill in 2007, which was deductible for tax purposes, $3.6 million of acquired developed software and $0.2 million of net assets. The results since the date of acquisition are included in the Safety and Security Systems segment.
On August 6, 2007, the Company acquired 100% of the voting interests in PIPS Technology Limited, a private company limited by shares incorporated in England and Wales, (the UK Company), and PIPS Technology, Inc., a Tennessee corporation (the U.S. Company), together referred to as the PIPS Technology companies (“PIPS Technologies”). PIPS Technologies is a global leader in the design and manufacture of automated license plate recognition (“ALPR”) technology and optical character recognition software. ALPR solutions are used in control and surveillance applications in markets such as traffic and tolling, law enforcement, public safety and access control. ALPR-enabled cameras are used on emergency vehicles and mounted on stationary support structures at access entry and tolling points to capture license plate details for tolling, congestion zone charging and law enforcement purposes. The results since the date of acquisition are included in the Safety and Security Systems segment.
PIPS Technologies was acquired for approximately $123.4 million in cash plus acquisition related costs of approximately $3.0 million. The purchase price is subject to potential additional earnout payments through 2010, if specific performance targets are met. Additional payments related to this contingency, if any, will be accounted for as goodwill, however, as of December 31, 2008, the performance targets have not been met and no additional payments are due. The acquisition was funded through available cash balances and borrowings under the Company’s credit facility.2009.
4954
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The allocation of the purchase price is shown in the table below.
| | | | |
($ in million) | | | |
|
Goodwill | | $ | 75.5 | |
Intangible assets: | | | | |
Customer relationships | | | 20.5 | |
Technology | | | 6.0 | |
Trade name | | | 26.1 | |
Plant, property & equipment | | | 0.8 | |
Deferred tax asset | | | 5.7 | |
Deferred tax liability | | | (15.1 | ) |
Other assets acquired and liabilities assumed | | | 6.9 | |
| | | | |
Total acquisition cost | | $ | 126.4 | |
| | | | |
The acquisition gave rise to goodwill of $75.5 million as the Company paid a premium over the fair value of the net tangible and identifiable intangible assets acquired in the PIPS Technologies acquisition, largely due to the growth prospects of the business, its strategic fit and revenue synergies. ALPR technology is experiencing tremendous demand throughout the world as governments and municipalities seek the dual purpose of providing security and increased revenues through such applications as tolling congestion. The acquisition adds a core building block of video analytics to the Company’s safety and security systems from which other operating businesses could build. The Safety and Security Systems Group was already integrating ALPR cameras from PIPS Technologies in its largest parking systems, and the camera technology and systems can be integrated into other core offerings.
Goodwill and trade name intangible assets have indefinite lives and therefore will not be subject to amortization, but will instead be subject to an annual impairment test. Approximately €29 million of the goodwill is deductible by a European subsidiary of the Company. Technology will be amortized over a10-year life and customer relationships will be amortized over a10-year life in the U.K and a5-year life in the U.S.
The unaudited financial information in the table below summarizes the combined results of operations of the Company and PIPS Technologies, on a pro forma basis, as though PIPS Technologies had been acquired as of January 1, 2006. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the period or of results that may occur in the future. Proforma financial information for the acquisition of Codespear and Riverchase has not been presented due to immateriality.
| | | | | | | | |
| | Year Ended December 31 | |
| | 2007 | | | 2006 | |
($ in millions) | | | | |
|
Proforma net sales | | $ | 948.2 | | | $ | 819.1 | |
Proforma income from continuing operations | | | 39.4 | | | | 32.9 | |
Proforma net income | | | 54.6 | | | | 24.4 | |
Proforma earnings per share from continuing operations — basic and diluted | | $ | 0.82 | | | $ | 0.68 | |
50
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
NOTE 11 — GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill and other intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. Other intangible assets continue to be amortized over their useful lives.
Changes in the carrying amount of goodwill for the years ended December 31, 2008 and 2007, by operating segment, were as follows:
| | | | | | | | | | | | | | | | |
| | Environmental
| | | Fire
| | | Safety
| | | | |
| | Solutions | | | Rescue | | | Security | | | Total | |
|
December 31, 2006 | | $ | 126.2 | | | $ | 32.4 | | | $ | 90.0 | | | $ | 248.6 | |
Acquisitions | | | — | | | | — | | | | 90.5 | | | | 90.5 | |
Translation | | | 0.5 | | | | 3.1 | | | | 2.0 | | | | 5.6 | |
| | | | | | | | | | | | | | | | |
December 31, 2007 | | | 126.7 | | | | 35.5 | | | | 182.5 | | | | 344.7 | |
Adjustments | | | — | | | | — | | | | 0.3 | | | | 0.3 | |
Translation | | | (0.2 | ) | | | (2.5 | ) | | | (14.2 | ) | | | (16.9 | ) |
| | | | | | | | | | | | | | | | |
December 31, 2008 | | $ | 126.5 | | | $ | 33.0 | | | $ | 168.6 | | | $ | 328.1 | |
| | | | | | | | | | | | | | | | |
Under SFAS No. 142, the Company is required to test its goodwill annually for impairment; the Company performs this test in the fourth quarter. The Company performed this test in 2008 and determined that there was no impairment. The Company determined the fair value of each reporting unit by calculating the present value of expected future cash flows. See Note 10 for a discussion of goodwill additions as a result of acquisitions made in the year ended December 31, 2007.
OTHER INTANGIBLE ASSETS
In 2008, theThe carrying value of other intangible assets wasis impacted by changes in foreign currency exchange rates. In 2007,2009, the Company acquired intangible assets through acquisition.the acquisition of DCS. See Note 1011 for a discussion of intangible additions as a result of acquisitionsthe acquisition made in the year ended December 31, 2007.2009. Following are the carrying amount and accumulated amortization of these assets as of December 31:31 ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2008 | | 2007 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Weighted-
| | | | | | | | | | | | | | | Weighted-
| | 2009 | | 2008 | |
| | Average
| | Gross
| | | | Net
| | Gross
| | | | Net
| | | Average
| | Gross
| | | | Net
| | Gross
| | | | Net
| |
| | Useful Life
| | Carrying
| | Accumulated
| | Carrying
| | Carrying
| | Accumulated
| | Carrying
| | | Useful Life
| | Carrying
| | Accumulated
| | Carrying
| | Carrying
| | Accumulated
| | Carrying
| |
| | (Years) | | Value | | Amortization | | Value | | Value | | Amortization | | Value | | | (Years) | | Value | | Amortization | | Value | | Value | | Amortization | | Value | |
|
Definite lived (amortizable): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Developed software | | | 6 | | | $ | 24.6 | | | $ | (14.1 | ) | | $ | 10.5 | | | $ | 24.2 | | | $ | (10.9 | ) | | $ | 13.3 | | | | 6 | | | $ | 25.2 | | | $ | (17.0 | ) | | $ | 8.2 | | | $ | 24.6 | | | $ | (14.1 | ) | | $ | 10.5 | |
Patents | | | 5-10 | | | | 0.6 | | | | (0.4 | ) | | | 0.2 | | | | 0.6 | | | | (0.4 | ) | | | 0.2 | | | | 5-10 | | | | 0.7 | | | | (0.5 | ) | | | 0.2 | | | | 0.6 | | | | (0.4 | ) | | | 0.2 | |
Customer relationships | | | 5-10 | | | | 15.0 | | | | (2.3 | ) | | | 12.7 | | | | 20.1 | | | | (0.9 | ) | | | 19.2 | | | | 5-10 | | | | 19.0 | | | | (4.2 | ) | | | 14.8 | | | | 15.0 | | | | (2.3 | ) | | | 12.7 | |
Technology | | | 10 | | | | 4.5 | | | | (0.6 | ) | | | 3.9 | | | | 5.9 | | | | (0.3 | ) | | | 5.6 | | | | 10 | | | | 5.6 | | | | (1.2 | ) | | | 4.4 | | | | 4.5 | | | | (0.6 | ) | | | 3.9 | |
Other | | | 3 | | | | 1.8 | | | | (0.8 | ) | | | 1.0 | | | | 1.8 | | | | (0.5 | ) | | | 1.3 | | | | 3 | | | | 1.8 | | | | (1.1 | ) | | | 0.7 | | | | 1.8 | | | | (0.8 | ) | | | 1.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 46.5 | | | | (18.2 | ) | | | 28.3 | | | | 52.6 | | | | (13.0 | ) | | | 39.6 | | | | | | | | 52.3 | | | | (24.0 | ) | | | 28.3 | | | | 46.5 | | | | (18.2 | ) | | | 28.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Indefinite lived: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Indefinite lived : | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade name | | | | | | | 19.5 | | | | | | | | 19.5 | | | | 25.6 | | | | | | | | 25.6 | | | | | | | | 24.4 | | | | | | | | 24.4 | | | | 19.5 | | | | | | | | 19.5 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | $ | 66.0 | | | $ | (18.2 | ) | | $ | 47.8 | | | $ | 78.2 | | | $ | (13.0 | ) | | $ | 65.2 | | | | | | | $ | 76.7 | | | $ | (24.0 | ) | | $ | 52.7 | | | $ | 66.0 | | | $ | (18.2 | ) | | $ | 47.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
51
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Amortization expense for the years ended December 31, 2009, 2008 and 2007 and 2006 totaled $5.8 million, $5.2 million $4.2 million and $2.0$4.2 million, respectively. The Company estimates that the aggregate amortization expense will be $5.4 million in 2009, $5.1$5.2 million in 2010, $5.0$5.3 million in 2011, $3.9$4.2 million in 2012, $2.7 million in 2013, $2.3 million in 20132014 and $6.6$8.6 million thereafter. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, changes in foreign currency exchange rates, impairment of intangible assets, accelerated amortization of intangible assets and other events.
NOTE 1213 — DISCONTINUED OPERATIONS
The following table presents the operating results of the Company’s discontinued operations for the three-year period ended December 31 2008:($ in millions):
| | | | | | | | | | | | |
E-ONE (Fire Rescue Segment) | | 2008 | | | 2007 | | | 2006 | |
|
Net sales | | $ | 157.1 | | | $ | 201.3 | | | $ | 278.5 | |
Costs and expenses | | | (168.2 | ) | | | (226.9 | ) | | | (283.6 | ) |
| | | | | | | | | | | | |
Loss before income taxes | | | (11.1 | ) | | | (25.6 | ) | | | (5.1 | ) |
Income tax benefit | | | 4.9 | | | | 10.4 | | | | 1.1 | |
| | | | | | | | | | | | |
Loss from discontinued operations | | $ | (6.2 | ) | | $ | (15.2 | ) | | $ | (4.0 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Pauluhn (SSG Segment) | | 2009 | | | 2008 | | | 2007 | |
|
Net sales | | $ | 17.3 | | | $ | 25.9 | | | $ | 26.7 | |
Costs and expenses | | | (13.9 | ) | | | (20.6 | ) | | | (21.2 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 3.4 | | | | 5.3 | | | | 5.5 | |
Income tax (expense) | | | (1.2 | ) | | | (1.8 | ) | | | (1.8 | ) |
| | | | | | | | | | | | |
Income from discontinued operations | | $ | 2.2 | | | $ | 3.5 | | | $ | 3.7 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Die and Mold Operations (Tool Segment) | | 2008 | | | 2007 | | | 2006 | |
|
Net sales | | $ | 39.7 | | | $ | 119.3 | | | $ | 122.9 | |
Costs and expenses | | | (39.2 | ) | | | (112.5 | ) | | | (114.6 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 0.5 | | | | 6.8 | | | | 8.3 | |
Income tax expense | | | (0.7 | ) | | | (3.0 | ) | | | (2.9 | ) |
| | | | | | | | | | | | |
(Loss) income from discontinued operations | | $ | (0.2 | ) | | $ | 3.8 | | | $ | 5.4 | |
| | | | | | | | | | | | |
55
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
| | | | | | | | | | | | |
RAVO (ESG Segment) | | 2009 | | | 2008 | | | 2007 | |
|
Net sales | | $ | 28.2 | | | $ | 53.9 | | | $ | 52.7 | |
Costs and expenses | | | (27.4 | ) | | | (52.7 | ) | | | (52.0 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 0.8 | | | | 1.2 | | | | 0.7 | |
Income tax (expense) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Income from discontinued operations | | $ | 0.8 | | | $ | 1.2 | | | $ | 0.7 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
E-ONE (Fire Rescue Segment) | | 2009 | | | 2008 | | | 2007 | |
Net sales | | $ | — | | | $ | 157.1 | | | $ | 201.3 | |
Costs and expenses | | | — | | | | (168.2 | ) | | | (226.9 | ) |
| | | | | | | | | | | | |
Loss before income taxes | | | — | | | | (11.1 | ) | | | (25.6 | ) |
Income tax (expense) benefit | | | (0.7 | ) | | | 4.9 | | | | 10.4 | |
| | | | | | | | | | | | |
Loss from discontinued operations | | $ | (0.7 | ) | | $ | (6.2 | ) | | $ | (15.2 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Die and Mold Operations (Tool Segment) | | 2009 | | | 2008 | | | 2007 | |
|
Net sales | | $ | — | | | $ | 39.7 | | | $ | 119.3 | |
Costs and expenses | | | — | | | | (39.2 | ) | | | (112.5 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | — | | | | 0.5 | | | | 6.8 | |
Income tax (expense) | | | — | | | | (0.7 | ) | | | (3.0 | ) |
| | | | | | | | | | | | |
(Loss) income from discontinued operations | | $ | — | | | $ | (0.2 | ) | | $ | 3.8 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Financial Services | | 2009 | | | 2008 | | | 2007 | |
|
Net sales | | $ | 0.2 | | | $ | 4.3 | | | $ | 7.4 | |
Costs and expenses | | | (0.4 | ) | | | (5.7 | ) | | | (8.2 | ) |
| | | | | | | | | | | | |
Loss before income taxes | | | (0.2 | ) | | | (1.4 | ) | | | (0.8 | ) |
Income tax benefit | | | 0.1 | | | | 1.7 | | | | 2.2 | |
| | | | | | | | | | | | |
(Loss) income from discontinued operations | | $ | (0.1 | ) | | $ | 0.3 | | | $ | 1.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Refuse and Cutting Tool Operations (ESG and Tool Segments) | | 2009 | | | 2008 | | | 2007 | |
|
Net sales | | $ | — | | | $ | — | | | $ | 3.0 | |
Costs and expenses | | | — | | | | — | | | | (2.8 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | — | | | | — | | | | 0.2 | |
Income tax benefit (expense) | | | — | | | | 1.9 | | | | (0.1 | ) |
| | | | | | | | | | | | |
Income from discontinued operations | | $ | — | | | $ | 1.9 | | | $ | 0.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Refuse and Cutting Tool Operations (ESG and Tool Segments) | | 2008 | | | 2007 | | | 2006 | |
|
Net sales | | $ | — | | | $ | 3.0 | | | $ | 83.9 | |
Costs and expenses | | | — | | | | (2.8 | ) | | | (86.0 | ) |
| | | | | | | | | | | | |
Income (loss) before income taxes | | | — | | | | 0.2 | | | | (2.1 | ) |
Income tax benefit (expense) | | | 1.9 | | | | (0.1 | ) | | | 0.1 | |
| | | | | | | | | | | | |
Income (loss) from discontinued operations | | $ | 1.9 | | | $ | 0.1 | | | $ | (2.0 | ) |
| | | | | | | | | | | | |
On November 30, 2009, the Company sold 100% of the shares of Pauluhn, located in Pearland, Texas, for $35.0 million of which $4.2 million is expected to be received in 2010, subject to an initial working capital adjustment. The results of Pauluhn’s operations were previously included within the Safety and Security Systems Group. Pauluhn provided marine, offshore and industrial lighting products with innovative solutions for hazardous locations and corrosive environments. In association with the sale, the Company recognized a gain on disposal of
56
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | |
Financial Services | | 2008 | | | 2007 | | | 2006 | |
|
Net sales | | $ | 4.3 | | | $ | 7.4 | | | $ | 8.2 | |
Costs and expenses | | | (5.7 | ) | | | (8.2 | ) | | | (8.7 | ) |
| | | | | | | | | | | | |
Loss before income taxes | | | (1.4 | ) | | | (0.8 | ) | | | (0.5 | ) |
Income tax benefit | | | 1.7 | | | | 2.2 | | | | 2.3 | |
| | | | | | | | | | | | |
Income from discontinued operations | | $ | 0.3 | | | $ | 1.4 | | | $ | 1.8 | |
| | | | | | | | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
discontinued operations of Pauluhn of $14.3 million at December 31, 2009, which included a gain of $1.8 million transferred from cumulative translation adjustments. The gain included costs associated with the sale of $1.1 million and the write-off of $18.3 million of goodwill of the Safety and Security Systems Group attributable to Pauluhn. Proceeds from the sale were used to pay down debt and fund core operations.
In accordance with GAAP, the goodwill attributable to Pauluhn was determined based on its fair value in comparison to the fair value of the remaining businesses with the Safety and Security Systems Group excluding Federal APD, a business that represents its own reporting unit. The sale price of $35.0 million represented the fair value of Pauluhn, which was 10.4% of the fair value of the entire Safety and Security Systems Group excluding Federal APD, based on a discounted cash flow of the Safety and Security Systems Group’s remaining businesses. This 10.4% was then applied to the Group’s goodwill balance of $175.1 million to derive the goodwill attributable to Pauluhn of $18.2 million.
On July 16, 2009, the Company sold 100% of the shares of its European sweeper business, Ravo Holdings B.V., (“Ravo”) located in the Netherlands for €8.5 million, or approximately $12.1 million. The Ravo businesses were classified as discontinued operations as of the second quarter of 2009. The results of Ravo’s operations were previously included within the Environmental Solutions Group. In association with this sale, the Company recognized a loss on disposal of discontinued operations of Ravo of $11.3 million at December 31, 2009. The loss includes a write-down of $4.9 million to reflect the fair value of the net assets sold, costs associated with the sale of $0.2 million, a gain of $0.3 million transferred from cumulative translation adjustments, and the write-off of $6.2 million of goodwill of the Environmental Solutions Group attributable to Ravo. Proceeds from the sale were used to pay down debt and fund core operations.
In accordance with GAAP, the goodwill attributable to Ravo was determined based on its fair value in comparison to the fair value of the remaining businesses within the Environmental Solutions Group. The sale price of $12.1 million represented the fair value of Ravo, which was 5% of the fair value of the entire Environmental Solutions Group, as the remaining businesses are more profitable and have greater earnings potential than Ravo. This 5% was then applied to the Group’s goodwill balance of $126.4 million to derive the goodwill attributable to Ravo of $6.2 million.
All of the Company’sE-ONE businesses were discontinued in 2008 leaving just the Company’s Bronto businesses within its Fire Rescue segment. On August 5, 2008, the Company sold 100% of the shares ofE-ONE, Inc. located in Ocala, Florida for approximately $20.0 million subject to an initial working capital adjustment that
52
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
resulted in cash proceeds of $0.5 million at closing. The final working capital adjustment was concluded in December 2008, resulting in additional cash proceeds of $2.9 million received January 2009.Florida. The after-tax loss on the sale for the year ended December 31, 2008 totaled $85.0 million, which related primarily to after-tax impairment charges that reflect the fair value of the net assets and the impairment of $6.2 million of goodwill attributable to theE-ONE business. The goodwill impairment computationofE-ONE was based on its fair value in comparison to the relative fair valuesvalue of the Bronto businesses. The sale price ofE-ONE, and Bronto, the two reporting units withinwhich was representative of its fair value, was approximately 14% of the Fire Rescue Group. AtGroup’s fair value. Applying the time14% to the Fire Rescue Group’s goodwill yielded goodwill attributable toE-ONE of the impairment,$6.2 million. The Bronto businesses’ fair value was significantly greater thanE-ONE’s fair value since Bronto was profitable and growing, whileE-ONE was available for sale, so the best determination of its value was the contractual sales price the Company had negotiated with a buyer for the business. Bronto’s value was based on a discounted cash flow analysis using its projected cash flows over a five year period. The $6.2 million attributed toE-ONE represented 14% of the total goodwill of the group.unprofitable and losing market share.
The Company provided its domestic municipal customers with the opportunity to finance purchases through leasing arrangements with the Company. Following the sale of theE-ONE business, the Company elected to discontinue its financial services activities through divestiture of this leasing portfolio. During the year,In 2008, the Company sold its municipal leasing portfolio to Banc of America Public Capital Corp. in several tranches for a gain of $0.3 million. Proceeds from the sale of the portfolio were used to repay debt associated with these assets. In October, 2008, the Company discontinued entirely its practice of providing lease financing to its customers and all other financial service activities, principally its dealer floor planning.
On April 21, 2008, the Company completed the sale of Dayton Progress Corporation (excluding Dayton Hong Kong) and its subsidiary, PCS Company, referred to collectively as “Die and Mold Operations,” for $65.5 million.
57
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The after-tax loss on disposal for the year ended December 31, 2008 was $35.3 million primarily due to asset impairments; includedimpairments. Included in the loss on disposal is the remaining goodwill of the Tool Group of $55.8 million. The Company also decided to close the Dayton Hong Kong operation incurring a $4.6 million pre-tax impairment charge related to this business for the year ended December 31, 2008. The Die and Mold operations produced special precision perforating components for metal stamping applications and tooling components for the plastic injection mold and the die cast industries. Sale proceeds were used to repay debt.
On January 31, 2007, the Company completed the sale of Manchester Tool Company, On Time Machining Company and Clapp Dico, referred to collectively as the “Cutting Tool Operations” which were part of the Tool Group for $65.4 million. There was a net gain on disposal of discontinued operations of $24.6 million for the year ended December 31, 2007. These operations produced industrial cutting tools, engineered components and advanced materials consumed in production processes. No asset impairment charges were recorded in conjunction with the disposal.
In December 2005, the Company determined that its investment in the Refuse business operating under the Leach brand name was no longer strategic. The majority of the assets of the business have been sold since that time and the operation has been shut down. For the years ended December 31, 2008 and 2007, the Company recorded an after-tax gain of $2.2 million and $0.5 million, respectively, primarily related to a revision in the estimate of product liability reserves. For the year ended December 31, 2006, the loss from disposal
The following table shows an analysis of assets and liabilities of discontinued operations included $9.7as of December 31:
| | | | | | | | |
($ in millions) | | 2009 | | | 2008 | |
|
Current assets | | $ | 1.4 | | | $ | 28.5 | |
Properties and equipment | | | — | | | | 3.1 | |
Long-term assets | | | 4.5 | | | | 30.1 | |
Financial service assets, net | | | 2.6 | | | | 5.6 | |
| | | | | | | | |
Total assets of discontinued operations | | $ | 8.5 | | | $ | 67.3 | |
| | | | | | | | |
Current liabilities | | $ | 0.8 | | | $ | 18.3 | |
Long-term liabilities | | | 10.8 | | | | 15.6 | |
Financial service liabilities | | | 2.5 | | | | 5.2 | |
| | | | | | | | |
Total liabilities of discontinued operations | | $ | 14.1 | | | $ | 39.1 | |
| | | | | | | | |
Included in long-term liabilities at December 31, 2009 and 2008 is $7.0 million and $7.7 million, respectively, relating to estimated product liability obligations of after tax impairment charges relatedthe North American refuse truck body business.
NOTE 14 — RESTRUCTURING
In July 2009, the Company began an initiative to consolidate a number of manufacturing and distribution operations into the disposalCompany’s University Park, IL plant. The restructuring actions known collectively as the Footprint restructuring plan (“Footprint”) include termination and benefit costs for employees that will be voluntarily or involuntarily terminated in the fourth quarter of refuse assets.2009 and the first quarter of 2010, as well as costs associated with closing facilities and relocating operations and personnel. The Company expects all of these actions will be completed by July 31, 2010.
5358
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
The following table showssummarizes the 2009 Footprint restructuring charges by segment and the total charges estimated to be incurred ($ in millions):
| | | | | | | | |
| | Pre-Tax
| | | | |
| | Restructuring
| | | | |
| | Charges at
| | | | |
| | December 31,
| | | Estimate of
| |
Group | | 2009 | | | Total Charges | |
|
Safety and Security | | $ | 1.4 | | | $ | 2.1 | |
Environmental Solutions | | | 0.1 | | | | 0.8 | |
| | | | | | | | |
| | $ | 1.5 | | | $ | 2.9 | |
| | | | | | | | |
The following presents an analysis of assets andthe Footprint restructuring reserves included in other accrued liabilities of discontinued operations as of December 31:31, 2009 ($ in millions):
| | | | | | | | |
| | 2008 | | | 2007 | |
($ in millions) | | | | |
|
Current assets | | $ | 6.9 | | | $ | 133.0 | |
Properties and equipment | | | 0.2 | | | | 38.1 | |
Long-term assets | | | — | | | | 64.4 | |
Financial service assets, net | | | 5.6 | | | | 146.8 | |
| | | | | | | | |
Total assets of discontinued operations | | $ | 12.7 | | | $ | 382.3 | |
| | | | | | | | |
Current liabilities | | | 6.1 | | | | 46.5 | |
Long-term liabilities | | | 13.1 | | | | 26.9 | |
Financial service liabilities | | | 5.2 | | | | 137.4 | |
| | | | | | | | |
Total liabilities of discontinued operations | | $ | 24.4 | | | $ | 210.8 | |
| | | | | | | | |
| | | | | | | | | | | | |
| | Severance | | | Other | | | Total | |
|
Balance as of December 31, 2008 | | $ | — | | | $ | — | | | $ | — | |
Charges to selling, general and administrative expenses | | | 1.1 | | | | 0.4 | | | | 1.5 | |
Cash payments | | | (0.4 | ) | | | — | | | | (0.4 | ) |
| | | | | | | | | | | | |
Balance as of December 31, 2009 | | $ | 0.7 | | | $ | 0.4 | | | $ | 1.1 | |
| | | | | | | | | | | | |
Included in long-term liabilities is $7.7 million relating to estimated product liability obligations of the North American refuse truck body business.
NOTE 13 — RESTRUCTURING
In December 2008, the Company announced an objective to reduce salaried personnel costs by 13% in 2009 when compared to 2008 levels. This cost reduction was to affect not only salaries, benefits and equity compensation, but also contracted services and travel expenses. A process was created to review every organizational chart and employee reporting relationship within the companyCompany with the purpose of increasing spans of control of each manager and to better improve management oversight. In addition, certain contracted services were reviewed for termination. A charge of $2.7 million was recorded in the fourth quarter of 2008 to reflect severance and other costs associated with a salaried employee reduction in force and contract terminations. The Company expects allThere were no meaningful changes to the estimate of these actions will be completed by Marchcharges at December 31, 2009.
The following table summarizes the 2008 restructuring charges by segment and the total charges estimated to be incurred:
| | | | | | | | |
| | Pre-Tax
| | | | |
| | Restructuring
| | | Estimate of
| |
Group | | Charges in 2008 | | | Total Charges | |
|
Safety and Security | | $ | 1.8 | | | $ | 1.8 | |
Environmental Solutions | | | 0.3 | | | | 0.3 | |
Corporate | | | 0.6 | | | | 0.6 | |
| | | | | | | | |
| | $ | 2.7 | | | $ | 2.7 | |
| | | | | | | | |
The following presents an analysis of the restructuring reserves for therelating to prior year endedinitiatives as of December 31, 2008:2009 and 2008 ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Severance | | Other | | Total | | | Severance | | Other | | Total | |
|
Balance as of January 1, 2008 | | $ | — | | | $ | — | | | $ | — | | |
Charges to expense | | | 2.1 | | | | 0.6 | | | | 2.7 | | |
Balance as of December 31, 2008 | | | $ | 2.0 | | | $ | 0.6 | | | $ | 2.6 | |
Charges to selling, general and administrative expenses | | | | — | | | | — | | | | — | |
Cash payments | | | (0.1 | ) | | | — | | | | (0.1 | ) | | | (1.9 | ) | | | (0.5 | ) | | | (2.4 | ) |
| | | | | | | | | | | | | | |
Balance as of December 31, 2008 | | $ | 2.0 | | | $ | 0.6 | | | $ | 2.6 | | |
Balance as of December 31, 2009 | | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.2 | |
| | | | | | | | | | | | | | |
54
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Severance charges in 2008 consisted of termination and benefit costs for salaried manufacturing, engineering, sales, general and administrative employees that will be involuntarily terminated in the first quarter of 2009. There were no asset impairment charges associated with this restructuring in 2008. The Company incurred no restructuring charges in the years ended December 31, 2007 and 2006.
NOTE 1415 — LEGAL PROCEEDINGS
The Company is subject to various claims, other pending and possible legal actions for product liability and other damages and other matters arising out of the conduct of the Company’s business. The Company believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not have a materialan adverse effect on the Company’s consolidated financial position or the results of operations. However, in the event of unexpected future developments, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material adverse effect on the Company’s results of operations.
The Company has been sued in Chicago, Illinois by firefighters seeking damages claiming that exposure to the Company’s sirens has impaired their hearing and that the sirens are therefore defective. There are presentlywere 33 cases filed during the period
59
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
1999-2004, involving a total of 2,443 plaintiffs pending in the Circuit Court of Cook County, Illinois. The trial of the first 27 of these plaintiffs’ claims began on March 18, 2008 and ended on April 25, 2008, when a Cook County jury returned a unanimous verdict in favor of the Company and absolved the Company of any liability for all 27 of these claims, which had been consolidated for trial. SinceCompany. After the first trial concluded, another 63 cases were dismissed, all during 2008. An additional 40 Chicago firefighter plaintiffs were selected for trial to begin on January 5, 2009. Plaintiffs’ counsel later moved to reduce the number of plaintiffs from 3640 to 9. Trial of these nine plaintiffs began on FebFebruary 6, 2009 and concluded on February 20, 2009 with a verdict returned against the Company and for the plaintiffs in varying amounts totaling $0.4 million. Additional trial dates of Chicago plaintiff firefighters areThe Company is appealing this verdict. All trials previously scheduled during 2009 and 2010.2010 are stayed pending the result of this appeal. Since February 20, 2009, the Company is aware of six additional cases have been filed in Cook County, involving 299 plaintiffs.
Federal SignalThe Company has also been sued on this issue outside of the Cook County venue. With the exception of matters on appeal, Federal Signal is currently a defendant in 6 such57 hearing loss lawsuitssuits in Pennsylvania, involving a total of 657 plaintiffs. TwoFifty-four of these lawsuits have been set forfiled since February 20, 2009. Trial of one of these cases is currently scheduled to begin on February 16, 2010 while a consolidated trial of two cases is scheduled to begin on March 15, 2010. Another four trials, involving 10 plaintiffs each, are scheduled during the 4th Quartersecond and third quarters of 2009. All of the plaintiffs have stipulated to or claimed less than $75,000 in damages.2010. Four cases in the Supreme Court of Kings County, New York were dismissed on January 25, 2008 after the court granted Federal Signal’sthe Company’s motion to dismiss which eliminated all claims pending in New York. The Courtcourt subsequently denied reconsideration of its ruling. These cases are on appeal.On appeal, the Court affirmed the trial court’s dismissal of the cases. All plaintiffs who have filed hearing loss cases against Federal Signalthe Company in other jurisdictions have dismissed their claims. Plaintiffs’ attorneys have threatened to file additional lawsuits. The Company intends to vigorously defend all of these lawsuits. The Company successfully defended approximately 41 similar cases in Philadelphia, Pennsylvania in 1999 resulting in a series of unanimous jury verdicts in favor of the Company.
Federal Signal’s ongoing negotiations with CNA over insurance coverage on these claims have resulted in an agreement under which CNA reimbursed $3.7 million toreimbursements of a portion of the Company duringCompany’s defense costs. In the year ended December 31, 2009, the Company recorded $0.7 million of reimbursements from CNA as a reduction of corporate operating expenses of which $0.6 million has been received as of December 31, 2009. In the years ended December 31, 2008 and 2007, for past defense costs. CNA agreed to cover a percentage of defense costs amounting to approximatelythe Company recorded $1.7 million and $3.7 million respectively of which $1.4 million had been received through December 31, 2008.CNA reimbursements.
NOTE 1516 — SEGMENT AND RELATED INFORMATION
The Company has three continuing operating segments as defined under SFASASC Topic 280, “Segment Reporting” (SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.”131). Business units are organized under each segment because they share certain characteristics, such as technology, marketing, distribution and product application, which create long-term synergies. The principal activities of the Company’s operating segments are as follows:
Information regarding the Company’s discontinued operations is included in Note 1213 — Discontinued Operations. The segment information included herein has been reclassified to reflect such discontinued operations.
55
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Safety and Security Systems — Safety and Security Systems Group companies produce a variety of systems for automated license plate recognition, campus and community alerting, emergency vehicles, first responder interoperable communications, industrial communications and command, municipal networked security, andvehicle classification, parking revenue and access control for municipal, governmental and industrial applications. Specific products include access control devices, lightbars and sirens, public warning sirens, public safety software and automated license plate recognition cameras. The group’s products are sold primarily to municipal, industrial municipal and governmental customers.
Fire Rescue — Fire Rescue manufactures articulated and telescopic aerial platforms for rescue and fire fighting and for maintenance purposes. This group sells to municipal and industrial fire services, civil defense authorities, rental companies, electric utilities and industrial customers.
Environmental Solutions — Environmental Solutions manufactures a variety of self-propelled street cleaning vehicles, vacuum loader vehicles, municipal catch basin/sewer cleaning vacuum trucks and water blasting equipment. Environmental Solutions sells primarily to municipal and government customers and industrial contractors.
60
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
Net sales by operating segment reflect sales of products and services and financial revenues to external customers, as reported in the Company’s consolidated statements of operations. Intersegment sales are insignificant. The Company evaluates performance based on operating income of the respective segment. Operating income includes all revenues, costs and expenses directly related to the segment involved. In determining operating segment income, neither corporate nor interest expenses are included. Operating segment depreciation expense, identifiable assets and capital expenditures relate to those assets that are utilized by the respective operating segment. Corporate assets consist principally of cash and cash equivalents, short-term investments, notes and other receivables and fixed assets. The accounting policies of each operating segment are the same as those described in the summary of significant accounting policies.
Revenues attributed to customers located outside of the U.S. aggregated $412.8$333.7 million in 2009, $352.9 million in 2008 $376.7and $318.9 million in 2007 and $310.8 million in 2006. Of that,of which sales exported from the U.S. aggregated $113.8 million, $110.8 million in 2008,and $116.4 million, in 2007 and $101.6 million in 2006.respectively.
The Company invests in research to support development of new products and the enhancement of existing products and services. The Company believes this investment is important to maintainand/or enhance its leadership position in key markets. Expenditures for research and development by the Company were approximately $23.4$19.0 million in 2009, $20.9 million in 2008 $23.5and $21.0 million in 20072007.
A summary of the Company’s continuing operations by segment for each of the three years in the period ended December 31 is as follows ($ in millions):
| | | | | | | | | | | | |
| | 2009 | | | 2008 | | | 2007 | |
|
Net sales | | | | | | | | | | | | |
Safety and Security Systems | | $ | 292.7 | | | $ | 345.9 | | | $ | 340.4 | |
Fire Rescue | | | 160.0 | | | | 145.5 | | | | 117.9 | |
Environmental Solutions | | | 299.8 | | | | 387.6 | | | | 396.5 | |
| | | | | | | | | | | | |
Total net sales | | $ | 752.5 | | | $ | 879.0 | | | $ | 854.8 | |
| | | | | | | | | | | | |
Operating income (loss) | | | | | | | | | | | | |
Safety and Security Systems | | $ | 27.5 | | | $ | 35.2 | | | $ | 44.0 | |
Fire Rescue | | | 19.2 | | | | 10.4 | | | | 7.9 | |
Environmental Solutions | | | 14.9 | | | | 34.9 | | | | 37.9 | |
Corporate expense | | | (28.6 | ) | | | (30.7 | ) | | | (21.1 | ) |
| | | | | | | | | | | | |
Total operating income | | | 33.0 | | | | 49.8 | | | | 68.7 | |
Interest expense | | | (11.4 | ) | | | (15.3 | ) | | | (18.5 | ) |
Gain (loss) on investment in joint venture (Environmental Solutions Segment) | | | 1.2 | | | | (13.0 | ) | | | (3.3 | ) |
Other (expense) income | | | (0.5 | ) | | | (0.8 | ) | | | 0.2 | |
| | | | | | | | | | | | |
Income before income taxes | | $ | 22.3 | | | $ | 20.7 | | | $ | 47.1 | |
| | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | |
Safety and Security Systems | | $ | 8.1 | | | $ | 9.0 | | | $ | 8.0 | |
Fire Rescue | | | 1.9 | | | | 1.4 | | | | 1.3 | |
Environmental Solutions | | | 4.5 | | | | 3.9 | | | | 3.4 | |
Corporate | | | 0.8 | | | | 0.6 | | | | 0.6 | |
| | | | | | | | | | | | |
Total depreciation and amortization | | $ | 15.3 | | | $ | 14.9 | | | $ | 13.3 | |
| | | | | | | | | | | | |
61
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Identifiable assets | | | | | | | | |
Safety and Security Systems | | $ | 324.4 | | | $ | 312.5 | |
Fire Rescue | | | 140.5 | | | | 141.0 | |
Environmental Solutions | | | 235.9 | | | | 249.6 | |
Corporate | | | 35.6 | | | | 68.6 | |
| | | | | | | | |
Total assets of continuing operations | | | 736.4 | | | | 771.7 | |
Assets of discontinued operations | | | 8.5 | | | | 67.3 | |
| | | | | | | | |
Total identifiable assets | | $ | 744.9 | | | $ | 839.0 | |
| | | | | | | | |
| | | | | | | | | | | | |
| | 2009 | | | 2008 | | | 2007 | |
|
Capital expenditures | | | | | | | | | | | | |
Safety and Security Systems | | $ | 2.7 | | | $ | 4.5 | | | $ | 4.4 | |
Fire Rescue | | | 2.2 | | | | 8.5 | | | | 4.6 | |
Environmental Solutions | | | 9.4 | | | | 14.2 | | | | 9.8 | |
Corporate | | | 0.3 | | | | 0.8 | | | | 0.7 | |
| | | | | | | | | | | | |
Total capital expenditures | | $ | 14.6 | | | $ | 28.0 | | | $ | 19.5 | |
| | | | | | | | | | | | |
The segment information provided below is classified based on geographic location of the Company’s subsidiaries ($ in millions):
| | | | | | | | | | | | |
| | 2009 | | | 2008 | | | 2007 | |
|
Net sales | | | | | | | | | | | | |
United States | | $ | 418.8 | | | $ | 526.1 | | | $ | 535.9 | |
Europe | | | 299.5 | | | | 323.1 | | | | 282.2 | |
Canada | | | 34.2 | | | | 29.8 | | | | 36.7 | |
| | | | | | | | | | | | |
| | $ | 752.5 | | | $ | 879.0 | | | $ | 854.8 | |
| | | | | | | | | | | | |
Long-lived assets | | | | | | | | | | | | |
United States | | $ | 207.2 | | | $ | 257.8 | | | | | |
Europe | | | 239.3 | | | | 172.4 | | | | | |
Canada | | | 9.2 | | | | 13.5 | | | | | |
Other | | | 1.3 | | | | 5.9 | | | | | |
| | | | | | | | | | | | |
| | $ | 457.0 | | | $ | 449.6 | | | | | |
| | | | | | | | | | | | |
NOTE 17 — COMMITMENTS, GUARANTEES AND FAIR VALUES OF FINANCIAL INSTRUMENTS
At December 31, 2009 and $15.72008, the Company had outstanding standby letters of credit aggregating $33.3 million and $33.8 million, respectively, principally to act as security for retention levels related to casualty insurance policies and to guarantee the performance of subsidiaries that engage in 2006.export transactions to foreign governments and municipalities.
The Company issues product performance warranties to customers with the sale of its products. The specific terms and conditions of these warranties vary depending upon the product sold and country in which the Company
5662
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
A summary of the Company’s continuing operations by segment for each of the three years in the period ended December 31, 2008 is as follows:
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
|
Net sales | | | | | | | | | | | | |
Safety and Security Systems | | $ | 371.8 | | | $ | 367.2 | | | $ | 304.5 | |
Fire Rescue | | | 145.5 | | | | 117.9 | | | | 90.7 | |
Environmental Solutions | | | 441.5 | | | | 449.2 | | | | 397.5 | |
| | | | | | | | | | | | |
Total net sales | | $ | 958.8 | | | $ | 934.3 | | | $ | 792.7 | |
| | | | | | | | | | | | |
Operating income (loss) | | | | | | | | | | | | |
Safety and Security Systems | | $ | 40.3 | | | $ | 49.6 | | | $ | 41.2 | |
Fire Rescue | | | 10.4 | | | | 7.9 | | | | 5.6 | |
Environmental Solutions | | | 35.5 | | | | 38.8 | | | | 35.3 | |
Corporate expense | | | (30.7 | ) | | | (21.1 | ) | | | (23.0 | ) |
| | | | | | | | | | | | |
Total operating income | | | 55.5 | | | | 75.2 | | | | 59.1 | |
Interest expense | | | (15.3 | ) | | | (18.5 | ) | | | (17.0 | ) |
Loss on investment in joint venture (Environmental Solutions Segment) | | | (13.0 | ) | | | (3.3 | ) | | | (1.9 | ) |
Other (expense) income | | | (0.9 | ) | | | 0.2 | | | | (0.2 | ) |
| | | | | | | | | | | | |
Income before income taxes | | $ | 26.3 | | | $ | 53.6 | | | $ | 40.0 | |
| | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | |
Safety and Security Systems | | $ | 9.3 | | | $ | 8.3 | | | $ | 4.9 | |
Fire Rescue | | | 1.4 | | | | 1.3 | | | | 1.1 | |
Environmental Solutions | | | 4.2 | | | | 3.9 | | | | 3.1 | |
Corporate | | | 0.6 | | | | 0.6 | | | | 0.4 | |
| | | | | | | | | | | | |
Total depreciation and amortization | | $ | 15.5 | | | $ | 14.1 | | | $ | 9.5 | |
| | | | | | | | | | | | |
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Identifiable assets | | | | | | | | |
Safety and Security Systems | | $ | 334.7 | | | $ | 387.3 | |
Fire Rescue | | | 141.0 | | | | 118.3 | |
Environmental Solutions | | | 277.8 | | | | 251.7 | |
Corporate | | | 67.8 | | | | 30.0 | |
| | | | | | | | |
Total assets of continuing operations | | | 821.3 | | | | 787.3 | |
Assets of discontinued operations | | | 12.7 | | | | 382.3 | |
| | | | | | | | |
Total identifiable assets | | $ | 834.0 | | | $ | 1,169.6 | |
| | | | | | | | |
57
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
|
Capital expenditures | | | | | | | | | | | | |
Safety and Security Systems | | $ | 4.7 | | | $ | 4.6 | | | $ | 4.2 | |
Fire Rescue | | | 8.5 | | | | 4.6 | | | | 1.4 | |
Environmental Solutions | | | 14.5 | | | | 10.2 | | | | 5.4 | |
Corporate | | | 0.8 | | | | 0.7 | | | | 1.2 | |
| | | | | | | | | | | | |
Total capital expenditures | | $ | 28.5 | | | $ | 20.1 | | | $ | 12.2 | |
| | | | | | | | | | | | |
The segment information provided below is classified based on geographic location of the Company’s subsidiaries:
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
|
Net sales | | | | | | | | | | | | |
United States | | $ | 545.9 | | | $ | 557.6 | | | $ | 481.9 | |
Europe | | | 379.8 | | | | 337.0 | | | | 271.0 | |
Canada | | | 33.1 | | | | 39.7 | | | | 39.8 | |
| | | | | | | | | | | | |
| | $ | 958.8 | | | $ | 934.3 | | | $ | 792.7 | |
| | | | | | | | | | | | |
Long-lived assets | | | | | | | | | | | | |
United States | | $ | 276.1 | | | $ | 226.8 | | | | | |
Europe | | | 180.5 | | | | 228.8 | | | | | |
Canada | | | 13.5 | | | | 16.7 | | | | | |
Other | | | 5.9 | | | | 4.3 | | | | | |
| | | | | | | | | | | | |
| | $ | 476.0 | | | $ | 476.6 | | | | | |
| | | | | | | | | | | | |
NOTE 16 — COMMITMENTS, GUARANTEES AND FAIR VALUES OF FINANCIAL INSTRUMENTS
At December 31, 2008 and 2007, the Company had outstanding standby letters of credit aggregating $34.0 million and $34.4 million, respectively, principally to act as security for retention levels related to casualty insurance policies and to guarantee the performance of subsidiaries that engage in export transactions to foreign governments and municipalities.
The Company guarantees the bank debt of the China Joint Venture up to a maximum of $12.5 million. The outstanding amount of the guaranteed debt at December 31, 2008 was $9.4 million. Prior to December 31, 2008, no charges associated with this guarantee had been incurred. In connection with the Company’s annual review of the market conditions and long range forecasts of the joint venture’s cash flows, the Company determined it was probable that it would be obligated to repay the bank debt of the joint venture. The Company recognized a $9.4 million liability for this debt guarantee recorded in short-term borrowings in the Consolidated Balance Sheet at December 31, 2008.
The Company issues product performance warranties to customers with the sale of its products. The specific terms and conditions of these warranties vary depending upon the product sold and country in which the Company does business with warranty periods generally ranging from six months to five years. The Company estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time the sale of the related product is recognized. Factors that affect the Company’s warranty liability include the number of units under warranty from time to time, historical and anticipated rates of warranty claims and costs per
58
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company’s warranty liabilities for the years ended December 31, 20082009 and 20072008 were as follows:follows ($ in millions):
| | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | | 2009 | | 2008 | |
|
Balance at January 1 | | $ | 5.9 | | | $ | 5.2 | | | $ | 5.8 | | | $ | 5.1 | |
Provisions to expense | | | 9.2 | | | | 8.2 | | | | 9.4 | | | | 8.7 | |
Actual costs incurred | | | (8.7 | ) | | | (7.5 | ) | | | (9.0 | ) | | | (8.0 | ) |
| | | | | | | | | | |
Balance at December 31 | | $ | 6.4 | | | $ | 5.9 | | | $ | 6.2 | | | $ | 5.8 | |
| | | | | | | | | | |
The Company also provides residual value guarantees on vehicles sold to certain customers. Proceeds received in excess of the fair value of the guarantee are deferred and amortized into income ratably over the life of the guarantee. These transactions have been recorded as operating leases and liabilities equal to the fair value of the guarantees were recognized. The notional amounts of the residual value guarantees were $1.6$0 million and $2.1$1.6 million as of December 31, 20082009 and 2007,2008, respectively. No losses have been incurred as of December 31, 2008.2009. The guarantees expireexpired in 2009.
The following table summarizesCompany has retained an environmental consultant to conduct an environmental risk assessment at its Pearland, Texas facility. The facility manufactured marine, offshore and industrial lighting products operating within the carrying amountsSafety and fair valuesSecurities Systems Group. While the Company has not completed the risk assessment analysis, it appears probable the site will require remediation. An undiscounted estimate of the Company’s financial instruments atrange of costs to remediate the site is $0.7 million to $2.4 million, depending upon the remediation approach and other factors. As of December 31, 2008:
| | | | | | | | | | | | | | | | |
| | 2008 | | | 2007 | |
| | Notional
| | | Fair
| | | Notional
| | | Fair
| |
| | Amount | | | Value | | | Amount | | | Value | |
|
Short-term debt — Note 4 | | $ | 12.6 | | | $ | 12.6 | | | $ | 2.6 | | | $ | 2.6 | |
Long-term debt — Note 4* | | | 270.4 | | | | 273.7 | | | | 423.8 | | | | 427.5 | |
Fair value swaps — Note 7 | | | 50.0 | | | | 1.7 | | | | 138.7 | | | | (1.3 | ) |
Cash flow swaps — Note 7 | | | 60.0 | | | | (2.7 | ) | | | 135.0 | | | | (0.9 | ) |
Foreign exchange contracts — Note 7 | | | 59.2 | | | | 0.3 | | | | 66.2 | | | | (3.2 | ) |
2009, $0.7 million has been recorded and is included in other accrued liabilities. The Company’s estimate may change in the near term as more information becomes available; however the costs are not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.
NOTE 18 — NEW ACCOUNTING PRONOUNCEMENTS
| | |
* | | Long term debt includes financial service borrowings for all periods presented, which is included in discontinued operations. |
In October, 2009, the FASB amended guidance relating to multiple-deliverable revenue arrangements and certain arrangements that include software elements. The revised guidance requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. Tangible products are removed from the scope of software revenue guidance and guidance is provided on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. The amended guidance must be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect the adoption of the revised guidance to have a material impact on the Company’s consolidated results of operations or financial condition.
The Dallas Fort Worth (“DFW”) airport gave Federal APD certain notices of non-performance and default, most recently in March 2008, regardingNo other new accounting pronouncements issued or effective during 2009 has had or is expected to have a material impact on the $18.0 million contract for installation of a new parking and revenue control system at the airport, and DFW demanded that Federal APD cure its alleged non-performance. DFW also provided a copy of the non-performance and default letters to the Company’s surety carrier. The most recent non-performance and default claim relates principally to certain disagreements as to the timeliness of certain work under the contract and whether certain of Federal APD’s work has complied with contract specifications. Federal APD disputed that there was any basis under the contract for the non-performance or default as alleged by DFW. DFW terminated the contract effective July 29, 2008. Federal APD disputed that DFW was entitled to terminate the contract for cause and asserted that it was entitled to damages as a result of DFW’s conduct. DFW and Federal APD each filed a lawsuit against the other which were pending in the United States District Court for the Northern District of Texas, Dallas Division, asserting claims for breach of contract and other damages arising from the contract and its termination. In December 2008, the parties executed a settlement agreement resolving all disputes between them, including all claims asserted in the pending litigation, and all payment terms have been satisfied. The Company established reserves totaling $8.2 million in relation to this contract and settlement.Consolidated Financial Statements.
5963
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
NOTE 17 — NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued FAS No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”), which expands the definition of a business and a business combination, requires the fair value of the purchase price of an acquisition including the issuance of equity securities to be determined on the acquisition date, requires that all assets, liabilities, contingent consideration, contingencies and in-process research and development costs of an acquired business be recorded at fair value at the acquisition date, requires that acquisition costs generally be expensed as incurred, requires that restructuring costs generally be expensed in periods subsequent to the acquisition date, and requires changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period to impact income tax expense. The Company will be required to adopt FAS 141(R) on January 1, 2009. The Company expects FAS 141(R) may have a material impact on its results of operations or consolidated financial statements in periods subsequent to or concurrent with future acquisitions.
In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“FAS 160”), which changes the accounting and reporting for minority interests such that minority interests will be recharacterized as noncontrolling interests and will be required to be reported as a component of equity, and requires that purchases or sales of equity interests that do not result in a change in control be accounted for as equity transactions and, upon a loss of control, requires the interest sold, as well as any interest retained, to be recorded at fair value with any gain or loss recognized in earnings. The Company will be required to adopt FAS 160 on January 1, 2009. The adoption of FAS 160 did not have a material impact on the Company’s operations or consolidated financial statements.
In March 2008, the FASB issued Statement of FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FAS 133” (“FAS 161”). This new standard requires enhanced disclosures for derivative instruments, including those used in hedging activities. It is effective for fiscal years and interim periods beginning after November 15, 2008, and will be applicable to the Company in the first quarter of fiscal 2009. The principal impact to the Company will be to require the Company to expand its disclosure regarding its derivative instruments.
60
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
NOTE 1819 — SELECTED QUARTERLY DATA (UNAUDITED)
Effective January 1, 2004, the Company began reporting its interim quarterly periods on a 13-week basis ending on a Saturday with the fiscal year ending on December 31. For convenience purposes, the Company uses “March 31”, “June 30”, “September 30” and “December 31” to refer to its results of operations for the quarterly periods ended. In 2009, the Company’s interim quarterly periods ended March 28, June 27, September 26 and December 31 and in 2008, the Company’s interim quarterly periods ended March 29, June 28, September 27 and December 31 and in 2007, the Company’s interim quarterly periods ended March 31, June 30, September 29 and December 31, respectively.
The following is a summary of the quarterly results of operations, including income per share, for the Company for the quarterly periods of fiscal 20082009 and 2007.2008. Restatements of previously reported amounts represent discontinued operations as described in Note 12.13 and a change in accounting method as discussed in Notes 1 and 3 ($ in millions, except per share amount).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarterly Period Ended | | | For the Quarterly Period Ended |
| | 2008 | | 2007 | | | 2009 | | 2008 |
| | March 29 | | June 28 | | September 27 | | December 31 | | March 31 | | June 30 | | September 29 | | December 31 | | | March 28 | | June 27 | | September 26 | | December 31 | | March 29 | | June 28 | | September 27 | | December 31 |
|
Net sales | | $ | 226.4 | | | $ | 252.9 | | | $ | 225.6 | | | $ | 253.8 | | | $ | 211.1 | | | $ | 241.3 | | | $ | 226.8 | | | $ | 255.1 | | | $ | 184.7 | | | $ | 198.8 | | | $ | 162.7 | | | $ | 206.3 | | | $ | 207.9 | | | $ | 232.9 | | | $ | 206.3 | | | $ | 231.9 | |
Gross margin | | | 58.2 | | | | 66.4 | | | | 58.0 | | | | 69.2 | | | | 53.7 | | | | 65.1 | | | | 62.4 | | | | 67.2 | | | | 46.6 | | | | 52.0 | | | | 40.6 | | | | 54.4 | | | | 54.4 | | | | 62.0 | | | | 54.4 | | | | 64.6 | |
Income from continuing operations | | | 4.1 | | | | 7.7 | | | | 14.6 | | | | 4.9 | | | | 7.2 | | | | 11.7 | | | | 9.8 | | | | 11.0 | | | | 0.2 | | | | 4.2 | | | | 4.3 | | | | 9.0 | | | | 3.6 | | | | 6.7 | | | | 13.9 | | | | 3.0 | |
(Loss) gain from discontinued operations | | | (2.6 | ) | | | 0.6 | | | | (1.5 | ) | | | (0.7 | ) | | | (1.0 | ) | | | (0.8 | ) | | | (5.0 | ) | | | (3.2 | ) | |
(Loss) gain on disposition | | | (86.4 | ) | | | (21.7 | ) | | | 1.1 | | | | (15.7 | ) | | | 24.5 | | | | 0.2 | | | | (0.2 | ) | | | 0.7 | | |
Net (loss) income | | | (84.9 | ) | | | (13.4 | ) | | | 14.2 | | | | (11.5 | ) | | | 30.7 | | | | 11.1 | | | | 4.6 | | | | 8.5 | | |
Gain (loss) from discontinued operations and disposal | | | | 0.8 | | | | (9.2 | ) | | | 0.1 | | | | 13.7 | | | | (88.3 | ) | | | (20.1 | ) | | | 0.4 | | | | (14.2 | ) |
Net income (loss) | | | | 1.0 | | | | (5.0 | ) | | | 4.4 | | | | 22.7 | | | | (84.7 | ) | | | (13.4 | ) | | | 14.3 | | | | (11.2 | ) |
Per share data — diluted: Income from continuing operations | | $ | 0.09 | | | $ | 0.16 | | | $ | 0.31 | | | $ | 0.10 | | | $ | 0.15 | | | $ | 0.25 | | | $ | 0.21 | | | $ | 0.23 | | | $ | — | | | $ | 0.09 | | | $ | 0.09 | | | $ | 0.18 | | | $ | 0.08 | | | $ | 0.14 | | | $ | 0.29 | | | $ | 0.06 | |
(Loss) income from discontinued operations | | | (1.86 | ) | | | (0.44 | ) | | | (0.01 | ) | | | (0.34 | ) | | | 0.49 | | | | (0.02 | ) | | | (0.12 | ) | | | (0.05 | ) | |
Net (loss) income | | | (1.77 | ) | | | (0.28 | ) | | | 0.30 | | | | (0.24 | ) | | | 0.64 | | | | 0.23 | | | | 0.09 | | | | 0.18 | | |
Income (loss) from discontinued operations | | | | 0.02 | | | | (0.19 | ) | | | — | | | | 0.28 | | | | (1.86 | ) | | | (0.42 | ) | | | 0.01 | | | | (0.29 | ) |
Net income (loss) | | | | 0.02 | | | | (0.10 | ) | | | 0.09 | | | | 0.46 | | | | (1.78 | ) | | | (0.28 | ) | | | 0.30 | | | | (0.23 | ) |
Dividends paid per share | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | 0.06 | |
Market price range per share High | | | 14.37 | | | | 14.70 | | | | 17.50 | | | | 13.48 | | | | 17.00 | | | | 16.78 | | | | 16.48 | | | | 17.00 | | |
Market price range per share | | | | | | | | | | | | | | | | | | | | | | | | | |
High | | | | 9.28 | | | | 9.17 | | | | 9.30 | | | | 7.55 | | | | 14.37 | | | | 14.70 | | | | 17.50 | | | | 13.48 | |
Low | | | 9.10 | | | | 11.53 | | | | 10.91 | | | | 5.10 | | | | 14.29 | | | | 15.19 | | | | 12.71 | | | | 10.82 | | | | 3.73 | | | | 4.93 | | | | 6.76 | | | | 5.43 | | | | 9.10 | | | | 11.53 | | | | 10.91 | | | | 5.10 | |
The Company recorded $3.9 million of after-tax charges to income from continuing operations in the quarter ended December 31, 2008 associated with its investment in a joint venture in China.
NOTE 20 — SUBSEQUENT EVENT
On January 13, 2010, the Company entered into a definitive arrangement agreement (the “Arrangement Agreement”) pursuant to which the Company will acquire all of the issued and outstanding common shares of Sirit Inc., a corporation existing under the laws of the Territory of Yukon, Canada (“Sirit”), by way of a court approved plan of arrangement under theBusiness Corporations Act (Ontario) (the “Arrangement”) for cash consideration of CDN $0.30 per share. In response to Sirit’s subsequent receipt of an unsolicited and non-binding acquisition proposal, the Company amended the Arrangement Agreement, most recently on February 23, 2010 to increase the purchase price to CDN $0.46 per share.
Under the amended Arrangement Agreement, at the effective time of the Arrangement (i) Sirit’s shareholders (other than those Sirit shareholders who properly exercise dissent rights and are entitled to receive fair value for their Sirit common shares) will receive CDN $0.46 per Sirit common share; and (ii) holders of outstanding Sirit
6164
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data) — (Continued)
stock options having an exercise price less than CDN $0.46 per share will be entitled to receive an amount per Sirit stock option equal to the difference between the CDN $0.46 and the exercise price in respect of such Sirit stock option. The transaction has a total equity value of approximately CDN $81.0 million (US $78.0 million).
Certain executive officers, directors and shareholders of Sirit owning approximately 28% of the outstanding common shares of Sirit have entered into a voting andlock-up agreement with the Company under which they have agreed to vote their shares in favor of the Arrangement.
The Arrangement Agreement, as amended, contains customary terms and conditions for a transaction of this nature, including a prohibition upon Sirit from soliciting or initiating any discussion concerning any other business combination or similar transaction, the right of the Company to match any unsolicited superior proposal received by Sirit and a termination fee of CDN $4.0 million payable to the Company by Sirit in certain circumstances.
The closing of the Arrangement is subject to the satisfaction of certain closing conditions, including, among others, obtaining certain court approvals as well as the approval of Sirit’s shareholders. For the Arrangement to proceed, a special resolution approving the Arrangement must be approved by not less than two-thirds of the votes cast by Sirit’s shareholders. The transaction is not subject to financing. The Company intends to finance the transaction through cash on hand and existing bank lines of credit. The transaction is expected to close during the first quarter of calendar year 2010. Management has evaluated and disclosed, as required, any subsequent events up to February 26, 2010, the date of the filing of this report with the Securities and Exchange Commission.
65
| |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
| |
Item 9A. | Controls and Procedures. |
| |
(a) | Evaluation of Disclosure Controls and Procedures |
The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange ActRule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.
| |
(b) | Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Registered Public Accounting Firm |
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in the Exchange ActRule 13a-15(f). Management conducted an assessment of the Company’s internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on the assessment, management concluded that, as of December 31, 2008,2009, the Company’s internal control over financial reporting is effective.
Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report onForm 10-K and, as part of their audit, has issued its report, included herein, on the effectiveness of the Company’s internal control over financial reporting. See “Report of Independent Registered Public Accounting Firm” on page 23.
| |
(c) | Changes in Internal Control over Financial Reporting |
There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| |
Item 9B. | Other Information. |
None.
PART III
| |
Item 10. | Directors, Executive Officers and Corporate Governance. |
Information regarding directors and nominees for directors is set forth in the Company’s Proxy Statement for its 20092010 Annual Meeting of Stockholders and is incorporated herein by reference. For information concerning the Company’s executive officers, see “Executive Officers of the Registrant” set forth in Part I hereof. Information regarding Compliance with Section 16(a) of the Exchange Act is set forth in the Company’s 20092010 Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference. Information regarding the Company’s Audit Committee, Corporate Governance Committee, Nominating Committee and Compensation and Benefits Committee are set forth in the Company’s 20092010 Proxy Statement under the caption “Information Concerning the Board of Directors” and is incorporated herein by reference.
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. This code of ethics and the Company’s corporate governance policies are posted on the Company’s website athttp://www.federalsignal.com. The Company intends to satisfy its disclosure requirements regarding amendments to or waivers from its code of ethics by posting such information on this website. The charters of the Audit Committee, Corporate Governance Committee, Nominating Committee and
6266
Compensation and Benefits Committee of the Company’s Board of Directors are available on the Company’s website and are also available in print free of charge.
| |
Item 11. | Executive Compensation. |
The information contained under the captions “Information Concerning the Board of Directors”, “Compensation Committee Interlocks and Insider Participation”, “Compensation Discussion and Analysis”, “Compensation and Benefits Committee Report” and “Executive Compensation in the Last Fiscal Year” of the Company’s 20092010 Proxy Statement is incorporated herein by reference.
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Information regarding security ownership of certain beneficial owners, of all directors and nominees, of the named executive officers, and of directors and executive officers as a group, is set forth in the Company’s 20092010 Proxy Statement under the caption “Ownership of Our Common Stock” and is incorporated herein by reference. Information regarding our equity compensation plans is set forth in the Company’s 20092010 Proxy Statement under the caption “Equity Compensation Plan Information” and is incorporated herein by reference.
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Information regarding certain relationships is hereby incorporated by reference from the Company’s 20092010 Proxy Statement under the heading “Information Concerning the Board of Directors” and under the heading “Certain Relationships and Related Party Transactions”.
| |
Item 14. | Principal Accountant Fees and Services. |
Information regarding principal accountant fees and services is incorporated by reference from the Company’s 20092010 Proxy Statement under the heading “Accounting Information”.
PART IV
| |
Item 15. | Exhibits and Financial Statement Schedules. |
(a) 1. Financial Statements
The following consolidated financial statements of Federal Signal Corporation and Subsidiaries and the report of the Independent Registered Public Accounting Firm contained under Item 8 of thisForm 10-K are incorporated herein by reference:
Consolidated Balance Sheets as of December 31, 20082009 and 20072008
Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 2007 and 20062007
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2008 2007 and 20062007
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 2007 and 20062007
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial statement schedule of Federal Signal Corporation and Subsidiaries, for the three years ended December 31, 20082009 is filed as a part of this report in response to Item 15(a)(2):
Schedule II — Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.
3. Exhibits
See Exhibit Index.
6367
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FEDERAL SIGNAL CORPORATION
| | |
| By: | /s/ William H. Osborne |
William H. Osborne
President and Chief Executive Officer
(Principal Executive Officer)
February 27, 200926, 2010
6468
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below, as of February 27, 2009,26, 2010, by the following persons on behalf of the Company and in the capacities indicated.
| | | | |
| | |
/s/ William H. Osborne William H. Osborne | | President and Chief Executive Officer Board of Director (Principal Executive Officer) |
| | |
/s/ William G. Barker William G. Barker | | Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
| | |
/s/ David E. Janek David E. Janek | | Vice President and Controller (Principal Accounting Officer) |
| | |
/s/ James C. JanningE. Goodwin James C. JanningE. Goodwin | | Chairman and Director |
| | |
/s/ Charles R. Campbell Charles R. Campbell | | Director |
| | |
/s/ Robert M. Gerrity Robert M. Gerrity | | Director |
| | |
/s/ Robert S. Hamada Robert S. Hamada | | Director |
| | |
/s/ Paul W. Jones Paul W. Jones | | Director |
| | |
/s/ John F. McCartney John F. McCartney | | Director |
| | |
/s/ Brenda L. Reichelderfer Brenda L. Reichelderfer | | Director |
| | |
/s/ James E. Goodwin
James E. Goodwin | | Director |
| | |
/s/ Dennis J. Martin
Dennis J. Martin | | Director |
| | |
/s/ Joseph R. Wright Joseph R. Wright | | Director |
6569
SCHEDULE II
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the Years Ended December 31, 2009, 2008 2007 and 20062007
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Deductions | | | | | | | | | Deductions | | | |
| | | | Additions | | Accounts
| | | | | | | Additions | | Accounts
| | | |
| | Balance at
| | Charged to
| | Written off
| | Balance
| | | Balance at
| | Charged to
| | Written off
| | Balance
| |
| | Beginning
| | Costs and
| | Net of
| | at End
| | | Beginning
| | Costs and
| | Net of
| | at End
| |
Description | | of Year | | Expenses | | Recoveries | | of Year | | | of Year | | Expenses | | Recoveries | | of Year | |
| | ($ in millions) | | | ($ in millions) | |
|
Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2009: | | | $ | 2.0 | | | $ | 0.9 | | | $ | (0.4 | ) | | $ | 2.5 | |
| | | | | | |
Year ended December 31, 2008: | | $ | 3.8 | | | $ | 7.2 | | | $ | (9.0 | ) | | $ | 2.0 | | | $ | 3.6 | | | $ | 7.2 | | | $ | (8.8 | ) | | $ | 2.0 | |
| | | | | | | | | | |
Year ended December 31, 2007: | | $ | 2.0 | | | $ | 1.9 | | | $ | (0.1 | ) | | $ | 3.8 | | | $ | 1.9 | | | $ | 1.8 | | | $ | (0.1 | ) | | $ | 3.6 | |
| | | | | | | | | | |
Year ended December 31, 2006: | | $ | 1.6 | | | $ | 0.8 | | | $ | (0.3 | ) | | $ | 2.0 | | |
Inventory obsolescence: | | | | | | | | | | | | | | | | | |
Year ended December 31, 2009: | | | $ | 5.9 | | | $ | 4.6 | | | $ | (2.9 | ) | | $ | 7.6 | |
| | | | | | | | | | |
Inventory obsolescence: | | | | | | | | | | | | | | | | | |
Year ended December 31, 2008: | | $ | 6.9 | | | $ | 2.4 | | | $ | (3.2 | ) | | $ | 6.1 | | | $ | 6.8 | | | $ | 2.2 | | | $ | (3.1 | ) | | $ | 5.9 | |
| | | | | | | | | | |
Year ended December 31, 2007: | | $ | 4.8 | | | $ | 2.8 | | | $ | (0.7 | ) | | $ | 6.9 | | | $ | 4.7 | | | $ | 2.7 | | | $ | (0.6 | ) | | $ | 6.8 | |
| | | | | | | | | | |
Year ended December 31, 2006: | | $ | 4.4 | | | $ | 2.0 | | | $ | (1.6 | ) | | $ | 4.8 | | |
Product liability and workers’ compensation: | | | | | | | | | | | | | | | | | |
Year ended December 31, 2009: | | | $ | 5.8 | | | $ | 3.5 | | | $ | (3.4 | ) | | $ | 5.9 | |
| | | | | | | | | | |
Product liability and workers’ compensation: | | | | | | | | | | | | | | | | | |
Year ended December 31, 2008: | | $ | 6.7 | | | $ | 2.9 | | | $ | (3.8 | ) | | $ | 5.8 | | | $ | 6.7 | | | $ | 2.9 | | | $ | (3.8 | ) | | $ | 5.8 | |
| | | | | | | | | | |
Year ended December 31, 2007: | | $ | 7.7 | | | $ | 3.2 | | | $ | (4.2 | ) | | $ | 6.7 | | | $ | 7.7 | | | $ | 3.2 | | | $ | (4.2 | ) | | $ | 6.7 | |
| | | | | | | | | | |
Year ended December 31, 2006: | | $ | 7.6 | | | $ | 4.3 | | | $ | (4.2 | ) | | $ | 7.7 | | |
Income tax valuation allowances: | | | | | | | | | | | | | | | | | |
Year ended December 31, 2009: | | | $ | 32.5 | | | $ | 0.1 | | | $ | (7.4 | ) | | $ | 25.2 | |
| | | | | | | | | | |
Income tax valuation allowances: | | | | | | | | | | | | | | | | | |
Year ended December 31, 2008: | | $ | 15.9 | | | $ | 26.7 | | | $ | (8.7 | ) | | $ | 33.9 | | | $ | 14.1 | | | $ | 26.7 | | | $ | (8.3 | ) | | $ | 32.5 | |
| | | | | | | | | | |
Year ended December 31, 2007: | | $ | 3.9 | | | $ | 14.2 | | | $ | (2.2 | ) | | $ | 15.9 | | | $ | 2.2 | | | $ | 14.0 | | | $ | (2.1 | ) | | $ | 14.1 | |
| | | | | | | | | | |
Year ended December 31, 2006: | | $ | 3.1 | | | $ | 1.1 | | | $ | (0.3 | ) | | $ | 3.9 | | |
| | | | | | |
Warranty liability: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The changes in the Company’s warranty liabilities are analyzed in Note 1617 — Commitments, Guarantees and Fair Values of Financial Instruments.
6670
EXHIBIT INDEX
The following exhibits, other than those incorporated by reference, have been included in the Company’sForm 10-K filed with the Securities and Exchange Commission. The Company shall furnish copies of these exhibits upon written request to the Corporate Secretary at the address given on the cover page. (* denotes exhibit filed in thisForm 10-K)
| | | | | | |
| 3 | . | | a. | | Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit (3)Exhibit(3)(a) to the Company’sForm 10-K for the year ended December 31, 1991. |
| | | | b. | | Amended and Restated By-laws of the Company, as further amended December 5, 2008.dated February 16, 2009. Incorporated by reference to Exhibit 3.b3.2 to the Company’sForm 8-K for December 5, 2008.filed February 16, 2009. |
| 4 | . | | a. | | Second Amended and Restated Credit Agreement dated April 25, 2007 among the Company, Bank of Montreal and other third party lenders named therein.therein, dated April 25, 2007. Incorporated by reference to Exhibit 10.3 to the Company’sForm 10-Q for the quarter ended September 30, 2007. |
| | | | b. | | Supplemental Agreement to the Second Amended and Restated Credit Agreement among Federal Signal Corporation,the Company, Federal Signal of Europe B.V. y CIA, SC, and Bank of Montreal, Ireland and other third party lenders named therein, dated September 6, 2007. Incorporated by reference to Exhibit (4)(c)4.C to the Company’sForm 10-K for the year ended December 31, 20072007. |
| | | | c. | | Second Amendment and Waiver to the Second Amended and Restated Credit Agreement, dated March 27, 2008. Incorporated by reference to Exhibit 10.2 to the Company’sForm 10-Q for the quarter ended March 31, 2008. |
| | | | d. | | Global Amendment to Note Purchase Agreements between the Company and the holders of senior notes named therein, dated April 27, 2009. Incorporated by reference to Exhibit 10.1 to the Company’sForm 10-Q for the quarter ended March 31, 2009. |
| 10 | . | | a. | | The 1996 Stock Benefit Plan, as amended. Incorporated by reference to Exhibit 10.A10.(A) to the Company’sForm 10-K for the year ended December 31, 2006.2003.(1) |
| | | | b. | | Supplemental Pension Plan. Incorporated by reference to Exhibit 10.C to the Company’sForm 10-K for the year ended December 31, 1995.(1) |
| | | | c. | | Executive Disability, Survivor and Retirement Plan. Incorporated by reference to Exhibit 10.D to the Company’sForm 10-K for the year ended December 31, 1995.(1) |
| | | | d. | | Director Deferred Compensation Plan. Incorporated by reference to Exhibit 10.H to the Company’sForm 10-K for the year ended December 31, 1997.(1) |
| | | | e. | | 2005 Executive Incentive Compensation Plan. Incorporated by reference to Appendix B to the Company’s Proxy Statement dated March 22, 2005 filed on Schedule 14A.(1) |
| | | | f. | | Pension Agreement with Stephanie K. Kushner. Incorporated by reference to Exhibit 10.G to the Company’sForm 10-K for the year ended December 31, 2002.(1) |
| | | | f. | | 2005 Executive Incentive Compensation Plan. Incorporated by reference to Appendix B to the Company’s Proxy Statement dated March 22, 2005 filed on Schedule 14A.(1) |
| | | | g. | | Executive Incentive Performance Plan. Incorporated by reference to Appendix C to the Company’s Proxy Statement dated March 22, 2005 filed on Schedule 14A.(1) |
| | | | h. | | Release and Severance Agreement between the Company and Marc F. Gustafson, effective July 17, 2007. Incorporated by reference to Exhibit 10.4 to the Company’sForm 10-Q for the quarter ended September 30, 2007.(1) |
| | | | i. | | Consulting Letter Agreement between the Company and Marc F. Gustafson, effective July 17, 2007. Incorporated by reference to Exhibit 10.4 to the Company’sForm 10-Q for the quarter ended September 30, 2007.(1) |
| | | | j. | | Stock Purchase Agreement between the Company and Alan K. Sefton dated August 6, 2007. Incorporated by reference to Exhibit 10.1 to the Company’sForm 10-Q for the quarter ended September 30, 2007. |
| | | | k. | | Purchase Agreement between Alan Keith Sefton and Federal Signal of Europe B.V. y CIA, SC and the other parties named therein. Incorporated by reference to Exhibit 10.2 to the Company’sForm 10-Q for the quarter ended September 30, 2007. |
| | | | l. | | Release and Severance Agreement between the Company and Robert D. Welding, dated January 21, 2008. Incorporated by reference to Exhibit (10)(l) to the Company’sForm 10-K for the year ended December 31, 2007.(1) |
| | | | m. | | Employment Agreement between the Company and William H. Osborne, dated September 15, 2008. Incorporated by reference to Exhibit 10.110.V to the Company’s8-K filed September 18, 2008.(1) |
67
| | | | | | |
| | | | n.i. | | Settlement Agreement between the Company and the Ramius Group, dated March 12, 2008. Incorporated by reference to Exhibit 10 to the Company’sForm 8-K filed March 13, 2008. |
| | | | o.j. | | Release and Severance Agreement between the Company and Kimberly L. Dickens, dated March 19, 2008. Incorporated by reference to Exhibit 10.1 to the Company’sForm 10-Q for the quarter ended March 31, 2008.(1) |
| | | | p.k. | | Stock Purchase Agreement among Connell Limited Partnership, Federal Signal Corporation,the Company, and Federal Signal of Europe B.V., dated April 3, 2008. Incorporated by reference to Exhibit 10.3 to the Company’sForm 10-Q for the quarter ended March 31, 2008. |
| | | | q.l. | | Tax-Exempt Lease Purchase Agreement (Elgin Sweeper Company) between Elgin Sweeper Company and Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.1 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
71
| | | | r. | | |
| | | | m. | | Guaranty and Payment Agreement (Elgin Sweeper Company) Federal Signal Corporationby the Company in favor of Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.2 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | s.n. | | Tax-Exempt Lease Purchase Agreement(E-One New York, Inc.) betweenE-One New York, Inc. and Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.3 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | t.o. | | Guaranty and Payment Agreement(E-One New York, Inc.) by Federal Signal Corporationthe Company in favor of Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.4 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | u.p. | | Tax-Exempt Lease Purchase Agreement(E-One, Inc.) amongE-One, Inc., Federal Signal Corporationthe Company and Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.5 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | v.q. | | Guaranty and Payment Agreement(E-One, Inc.) by Federal Signal Corporationthe Company in favor of Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.6 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | w.r. | | Tax-Exempt Lease Purchase Agreement (Federal Signal Corporation) between Federal Signal Corporationthe Company and Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.7 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | x.s. | | Tax-Exempt Lease Purchase Agreement (FS Depot, Inc.) between FS Depot, Inc. and Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.8 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | y.t. | | Guaranty and Payment Agreement (FS Depot, Inc.) by Federal Signal Corporationthe Company in favor of Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.9 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | z.u. | | Tax-Exempt Lease Purchase Agreement (Vactor Manufacturing, Inc.) between Vactor Manufacturing, Inc. and Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.10 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | aa.v. | | Guaranty and Payment Agreement (Vactor Manufacturing, Inc.) by Federal Signal Corporationthe Company in favor of Banc of America Public Capital Corp, dated June 27, 2008. Incorporated by reference to Exhibit 10.11 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | bb.w. | | Agreement of Purchase and Sale between Federal Signal Corporationthe Company and Centerpoint Properties Trust, dated July 2, 2008. Incorporated by reference to Exhibit 10.12 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | cc.x. | | Lease (Elgin) between Centerpoint Properties Trust and Elgin Sweeper Company, dated July 2, 2008. Incorporated by reference to Exhibit 10.13 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | dd.y. | | Lease (University Park) between Centerpoint Properties Trust and Federal Signal Corporationthe Company, dated July 2, 2008. Incorporated by reference to Exhibit 10.14 to the Company’sForm 10-Q for the quarter ended June 30, 2008. |
| | | | ee.z. | | Management Incentive Plan.* Incorporated by reference to Exhibit 10.EE to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
| | | | ff.aa. | | Savings Restoration Plan, as amended and Restatedrestated January 1, 2007.* Incorporated by reference to Exhibit 10.FF to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
| | | | bb. | | First Amendment of the Federal Signal Corporation Savings Restoration Plan. Incorporated by reference to Exhibit 10.MM to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
| | | | cc. | | Second Amendment to Federal Signal Corporation Savings Restoration Plan. Incorporated by reference to Exhibit 10.NN to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
| | | | dd. | | Third Amendment to Federal Signal Corporation Savings Restoration Plan. Incorporated by reference to Exhibit 10.OO to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
| | | | ee. | | Severance Policy for Executive Employees, as amended January 1, 2008. Incorporated by reference to Exhibit 10.GG to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
6872
| | | | | | |
| | | | gg. | | Severance Policy for Executive Employees, as amended January, 2008.*(1) |
| | | | hh. | | Form of ExecutiveChange-In-Control Severance Agreement (Tier 1) with William G. Barker, III and certain other executive officers.*(1) |
| | | | ii. | | Form of ExecutiveChange-In-Control Severance Agreement (Tier 2) with John A. DeLeonardis and certain other executive officers.*(1) |
| | | | jj. | | Employment Letter Agreement between the Company and William G. Barker, III dated November 10, 2008.*(1) |
| | | | kk. | | Release and Severance Agreement between the Company and Stephanie K. Kushner, dated December 30, 2008.*(1) |
| | | | ll. | | Forms of Equity Award Agreements*(1) |
| | | | mm. | | First Amendment of the Federal Signal Corporation Savings Restoration Plan.*(1) |
| | | | nn. | | Second Amendment to Federal Signal Corporation Savings Restoration Plan.*(1) |
| | | | oo. | | Third Amendment to Federal Signal Corporation Savings Restoration Plan.*(1) |
| 14 | . | | | | Code of Ethics for Chief Executive Officer and Senior Financial Officers, as amended. Incorporated by reference to Exhibit 14 to the Company’sForm 10-K for the year ended December 31, 2003. |
| 21 | . | | | | Subsidiaries of the Company.* |
| 23 | . | | | | Consent of Independent Registered Public Accounting Firm.* |
| 31 | .1 | | | | CEO Certification under Section 302 of the Sarbanes-Oxley Act.* |
| 31 | .2 | | | | CFO Certification under Section 302 of the Sarbanes-Oxley Act.* |
| 32 | .1 | | | | CEO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act.* |
| 32 | .2 | | | | CFO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act.* |
| | | | | | |
| | | | ff. | | Form of ExecutiveChange-In-Control Severance Agreement (Tier 1) with William G. Barker, III and certain other executive officers. Incorporated by reference to Exhibit 10.HH to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
| | | | gg. | | Form of ExecutiveChange-In-Control Severance Agreement (Tier 2) with John A. DeLeonardis and certain other executive officers. Incorporated by reference to Exhibit 10.II to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
| | | | hh. | | Employment Letter Agreement between the Company and William G. Barker, III dated November 10, 2008. Incorporated by reference to Exhibit 10.JJ to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
| | | | ii. | | Release and Severance Agreement between the Company and Stephanie K. Kushner, dated December 30, 2008. Incorporated by reference to Exhibit 10.KK to the Company’sForm 10-K for the year ended December 31, 2008.(1) |
| | | | jj. | | Forms of Equity Award Agreements. Incorporated by reference to Exhibit 10.LL to the Company’sForm 10-K for the year ended December 31, 2008 and Exhibit 10.2 to the Company’sForm 10-Q for the quarter ended March 31, 2009.(1) |
| | | | kk. | | Short Term Incentive Bonus Plan. Incorporated by reference to Exhibit 10.1 to the Company’sForm 8-K filed on February 26, 2009.(1) |
| | | | ll. | | Share Purchase Agreement among Fayat, Federal Signal of Europe B.V. and the Company, dated July 16, 2009. Incorporated by reference to Exhibit 10.2 to the Company’sForm 10-Q for the quarter ended June 30, 2009. |
| | | | mm. | | Form of ExecutiveChange-In-Control Severance Agreement with certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’sForm 10-Q for the quarter ended September 30, 2009.(1) |
| | | | nn. | | Arrangement Agreement between the Company and 1815315 Ontario Limited and Sirit Inc., dated January 13, 2010. Incorporated by reference to Exhibit 10.1 to the Company’sForm 8-K filed January 15, 2010. |
| | | | oo. | | Release and Severance Agreement between the Company and David R. McConnaughey, dated January 20, 2010.*(1) |
| 14 | . | | | | Code of Ethics for Chief Executive Officer and Senior Financial Officers, as amended. Incorporated by reference to Exhibit 14 to the Company’sForm 10-K for the year ended December 31, 2003. |
| 21 | . | | | | Subsidiaries of the Company.* |
| 23 | . | | | | Consent of Independent Registered Public Accounting Firm.* |
| 31 | .1 | | | | CEO Certification under Section 302 of the Sarbanes-Oxley Act.* |
| 31 | .2 | | | | CFO Certification under Section 302 of the Sarbanes-Oxley Act.* |
| 32 | .1 | | | | CEO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act.* |
| 32 | .2 | | | | CFO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act.* |
| 99 | .1 | | | | Press Release.* |
| 99 | .2 | | | | Q4 Earnings call presentation slides.* |
| | |
* | | Filed herewith. |
|
(1) | | Management contract or compensatory plan or arrangement. |
6973
Federal Signal Corporation
Corporate and Stockholder Information
| | |
Management | | Board of Directors |
|
William G. Barker, III
Senior Vice President and Chief Financial Officer
John A. DeLeonardis
Vice President, Taxes
David E. Janek
Vice President and Controller
Fred H. Lietz
Vice President and Chief Procurement Officer
David R. McConnaughey
President, Safety and Security Systems Group
William H. Osborne
President and Chief Executive Officer
Esa Peltola
President, Bronto Skylift Oy Ab
Jennifer L. Sherman
Senior Vice President Human Resources, General Counsel and Secretary
Mark D. Weber
President, Environmental Solutions Group
| | James C. Janning, 61
Chairman of the Board
Group President Harbour Group, Ltd.
Charles R. Campbell, 69
Retired, Consultant
The Everest Group
Robert M. Gerrity, 71
Director and Principal Gerrity Partners
James E. Goodwin, 64
Former Chairman and Chief Executive Officer of United Airlines
Robert S. Hamada, 71
Edward Eagle Brown Distinguished Service
Professor of Finance, Emeritus Graduate
School of Business, University of Chicago
Paul W. Jones, 60
Chairman and Chief Executive Officer
A. O. Smith Corporation
Dennis J. Martin,58
Former Chairman, President and Chief Executive Officer
General Binding Corporation
John F. McCartney, 56
Chairman, Westcon Group, Inc. and
A. M. Castle & Co.
Brenda L. Reichelderfer, 50
Retired Senior Vice President and Chief Technology
Officer, ITT Corporation
Joseph R. Wright,70
Chief Executive Officer Scientific Games Corporation |
| | |
Corporate Information | | |
| | |
Form 10-K and Other Reports and Information
Our Annual Report andForm 10-K, Quarterly Reports onForm 10-Q, Proxy Statement and other reports that we file with the SEC are available on our website at federalsignal.com. In addition, copies of these reports may be obtained without charge by contacting:
Investor Relations
Federal Signal Corporation
1415 W. 22nd St., Suite 1100
Oak Brook, IL 60523
630-954-2000
http://www.federalsignal.com
Stock Trading Information
New York Stock Exchange
Symbol: FSS | | Transfer Agent and Registrar
National City Bank
Shareholder Services Operations
Locator 5352
P.O. Box 92301
Cleveland, OH 44101-4301
800-622-6757
2009 Annual Meeting of Stockholders
Tuesday, April 21, 2009, 3:30 pm
Regency Towers Conference Center
1515 W. 22nd Street
Oak Brook, IL 60523
Independent Registered Public Accounting Firm
Ernst & Young, LLP |