UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

(Mark One)



x☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2019



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-6003

_____________________________________________

FEDERAL SIGNAL CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		36-1063330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1415 West 22nd Street, Oak Brook, Illinois

(Address of principal executive offices)

60523

(Zip code)

(630) 954-2000

(Registrant’s telephone number, including area code)

_____________________________________________

Securities registered pursuant to Section 12(b) of the Act:



~~1415 West 22nd Street,~~ ~~Oak Brook, Illinois~~ Title of each class	Trading Symbol(s)	~~60523~~Name of each exchange on which registered
~~(Address of principal executive offices)~~Common Stock, par value $1.00 per share	FSS	~~(Zip code)~~New York Stock Exchange

~~Registrant’s telephone number including area code: (630) 954-2000~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ☑ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yesþ☑ No ¨☐

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

Large accelerated filer

þ☑

Accelerated filer

¨☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

~~Non-accelerated filer~~

~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~

~~Emerging growth company~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑

As of ~~October 31, 2017~~,June 30, 2019, the number of shares outstanding of the registrant’s common stock was ~~59,983,833.~~60,354,662.

Table of Contents

FEDERAL SIGNAL CORPORATION

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION		Page
Item 1.	Financial Statements (Unaudited)	2
Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018		2
Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018		3
Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018		4
Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018		5
Condensed Consolidated Statements of Stockholders’ Equity for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018		6
Notes to Condensed Consolidated Financial Statements		78
Note 1 – Summary of Significant Accounting Policies		78
Note 2 – ~~Acquisitions~~Revenue Recognition		9
Note 3 – Leases		10
Note 4 – Inventories		11
~~Note 4 – Goodwill and Other Intangible Assets~~		11
Note 5 – Debt		12
Note 6 – Income Taxes		1413
Note 7 – Pensions		1513
Note 8 – Commitments and Contingencies		1513
Note 9 – Earnings Per Share		2119
Note 10 – Stockholders’ Equity		2119
Note 11 – Segment Information		22
Note 12 – Fair Value Measurements		22
Note 13 – Subsequent Events		24
~~Note 12 – Restructuring~~	25
~~Note 13 – Fair Value Measurements~~		26
~~Note 14 – Discontinued Operations~~		27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2926
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4035
Item 4.	Controls and Procedures	4035
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4136
Item 1A.	Risk Factors	4136
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4136
Item 3.	Defaults Upon Senior Securities	4136
Item 4.	Mine Safety Disclosures	4136
Item 5.	Other Information	4136
Item 6.	Exhibits	4337
Signatures		4438

Table of Contents

FORWARD-LOOKING STATEMENTS

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

These risks and uncertainties, some of which are beyond the Company’s control, include the risk factors described under Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, which was filed with the SEC on February 28, ~~2017.~~2019, and as updated in Part II, Item 1A, Risk Factors of this Form 10-Q. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time. The Company cannot predict such factors, nor can it assess the impact, if any, of such factors on its results of operations, financial condition or cash flow. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results. The Company disclaims any responsibility to update any forward-looking statement provided in this Form 10-Q.

ADDITIONAL INFORMATION

The Company is subject to the reporting and information requirements of the Exchange Act and, as a result, is obligated to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and information with the SEC, as well as amendments to those reports. The Company makes these filings available free of charge through our website at www.federalsignal.com as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC. Information on our website does not constitute part of this Form 10-Q. ~~In addition, the SEC maintains a website at~~ ~~www.sec.gov~~ that contains reports, proxy and information statements and other information regarding issuers that file electronically. All materials that we file with, or furnish to, the SEC may also be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

Table of Contents

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements (Unaudited).

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
(in millions, except per share data)	2017			2016			2017			2016			2019			2018		2019		2018
Net sales	$	248.7		$	186.7		$	650.9		$	531.8		$	324.3		$	291.0	$	598.1	$	540.7
Cost of sales	187.4			141.4			491.3			394.1			235.3			211.8		438.8		399.6
Gross profit	61.3			45.3			159.6			137.7			89.0			79.2		159.3		141.1
Selling, engineering, general and administrative expenses	38.3			31.1			104.7			91.0			41.8			40.7		85.7		82.5
Acquisition and integration-related expenses	0.7			0.3			2.2			1.2			0.9			0.4		1.5		0.9
Restructuring	0.1			0.4			0.5			1.6
Operating income	22.2			13.5			52.2			43.9			46.3			38.1		72.1		57.7
Interest expense	2.7			0.6			4.6			1.4			2.0			2.5		4.0		5.0
Debt settlement charges	—			—			—			0.3
Other income, net	(0.5		)	(0.3		)	(1.0		)	(1.3		)
Other (income) expense, net													(0.1		)	0.4		0.3		0.5
Income before income taxes	20.0			13.2			48.6			43.5			44.4			35.2		67.8		52.2
Income tax expense	7.5			5.7			17.4			16.2			11.6			8.3		17.5		12.4
Income from continuing operations	12.5			7.5			31.2			27.3
Gain from discontinued operations and disposal, net of income tax (benefit) expense of $(0.0), $(1.0), $(0.0) and $3.1, respectively	—			1.0			—			3.9
Net income	$	12.5		$	8.5		$	31.2		$	31.2		$	32.8		$	26.9	$	50.3	$	39.8
Basic earnings per share:
Earnings from continuing operations	$	0.21		$	0.12		$	0.52		$	0.45
Earnings from discontinued operations and disposal, net of tax	—			0.02			—			0.06
Net earnings per share	$	0.21		$	0.14		$	0.52		$	0.51
Diluted earnings per share:
Earnings from continuing operations	$	0.21		$	0.12		$	0.52		$	0.45
Earnings from discontinued operations and disposal, net of tax	—			0.02			—			0.06
Net earnings per share	$	0.21		$	0.14		$	0.52		$	0.51
Earnings per share:
Basic													$	0.55		$	0.45	$	0.84	$	0.67
Diluted													0.54			0.44		0.82		0.65
Weighted average common shares outstanding:
Basic	59.8			59.8			59.7			60.7			60.1			59.9		60.1		59.9
Diluted	60.6			60.6			60.4			61.5			61.3			61.0		61.2		60.9
Cash dividends declared per common share	$	0.07		$	0.07		$	0.21		$	0.21

See notes to condensed consolidated financial statements.

Table of Contents

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2017			2016			2017		2016			2019			2018			2019			2018
Net income	$	12.5		$	8.5		$	31.2	$	31.2		$	32.8		$	26.9		$	50.3		$	39.8
Other comprehensive income (loss):
Change in foreign currency translation adjustment	3.3			(0.9		)	9.5		5.1			0.8			(5.2		)	0.8			(3.2		)
Change in unrecognized net actuarial losses related to pension benefit plans, net of income tax expense of $0.2, $0.7, $0.7 and $2.2, respectively	(0.1		)	1.3			—		5.1
Change in unrealized net gain on derivatives, net of income tax expense (benefit) of $0.0, $0.0, $0.2 and $(0.1), respectively	0.2			—			0.4		(0.1		)
Total other comprehensive income	3.4			0.4			9.9		10.1
Change in unrecognized net actuarial loss and prior service cost related to pension benefit plans, net of income tax expense of $0.1, $0.2, $0.3 and $0.4, respectively												1.3			1.7			1.5			1.8
Change in unrealized gain on derivatives, net of income tax (benefit) expense of ($0.2), $0.1, ($0.4) and $0.3, respectively												(0.7		)	0.2			(1.2		)	1.0
Total other comprehensive income (loss)												1.4			(3.3		)	1.1			(0.4		)
Comprehensive income	$	15.9		$	8.9		$	41.1	$	41.3		$	34.2		$	23.6		$	51.4		$	39.4

See notes to condensed consolidated financial statements.

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2017			December 31, 2016			June 30, 2019			December 31, 2018
(in millions, except per share data)	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	28.2		$	50.7		$	38.6		$	37.4
Accounts receivable, net of allowances for doubtful accounts of $1.5 and $0.8, respectively	118.9			81.3
Accounts receivable, net of allowances for doubtful accounts of $1.8 and $1.6, respectively							145.9			124.4
Inventories	143.9			120.1			173.5			157.3
Prepaid expenses and other current assets	9.6			7.5			9.6			9.4
Total current assets	300.6			259.6			367.6			328.5
Properties and equipment, net of accumulated depreciation of $108.2 and $101.3, respectively	63.2			42.9
Rental equipment, net of accumulated depreciation of $17.6 and $9.7, respectively	88.8			80.8
Properties and equipment, net of accumulated depreciation of $121.0 and $116.0, respectively							67.2			62.0
Rental equipment, net of accumulated depreciation of $38.5 and $30.0, respectively							106.5			96.6
Operating lease right-of-use assets							24.9			—
Goodwill	371.4			236.5			375.0			375.1
Intangible assets, net of accumulated amortization of $3.6 and $0.5, respectively	161.1			10.2
Intangible assets, net of accumulated amortization of $17.5 and $13.4, respectively							139.5			143.1
Deferred tax assets	6.8			8.2			11.3			12.5
Deferred charges and other assets	4.3			3.9
Deferred charges and other long-term assets							3.3			5.6
Long-term assets of discontinued operations	1.0			1.1			0.4			0.4
Total assets	$	997.2		$	643.2		$	1,095.7		$	1,023.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term borrowings and capital lease obligations	$	0.2		$	0.5
Current portion of long-term borrowings and finance lease obligations							$	0.2		$	0.2
Accounts payable	63.0			35.3			71.3			66.1
Customer deposits	7.3			4.5			10.0			10.1
Accrued liabilities:
Compensation and withholding taxes	20.5			13.8			22.8			29.5
Other current liabilities	35.2			28.7			61.5			52.7
Current liabilities of discontinued operations	0.8			2.1			0.2			0.2
Total current liabilities	127.0			84.9			166.0			158.8
Long-term borrowings and capital lease obligations	282.9			63.5
Long-term borrowings and finance lease obligations							209.2			209.9
Long-term operating lease liabilities							19.4			—
Long-term pension and other postretirement benefit liabilities	55.6			61.1			54.7			54.6
Deferred gain	9.2			10.7			—			6.8
Deferred tax liabilities	67.7			—			51.0			46.3
Other long-term liabilities	27.8			26.9			14.1			15.9
Long-term liabilities of discontinued operations	1.8			2.0			1.2			1.4
Total liabilities	572.0			249.1			515.6			493.7
Stockholders’ equity:
Common stock, $1 par value per share, 90.0 shares authorized, 66.0 and 65.4 shares issued, respectively	66.0			65.4
Common stock, $1 par value per share, 90.0 shares authorized, 66.7 and 66.4 shares issued, respectively							66.7			66.4
Capital in excess of par value	205.7			200.3			221.3			217.0
Retained earnings	320.4			301.8			479.7			432.5
Treasury stock, at cost, 6.0 and 5.8 shares, respectively	(84.8		)	(81.4		)
Treasury stock, at cost, 6.3 and 6.2 shares, respectively							(91.4		)	(88.5		)
Accumulated other comprehensive loss	(82.1		)	(92.0		)	(96.2		)	(97.3		)
Total stockholders’ equity	425.2			394.1			580.1			530.1
Total liabilities and stockholders’ equity	$	997.2		$	643.2		$	1,095.7		$	1,023.8

See notes to condensed consolidated financial statements.

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
(in millions)	2017			2016			2019			2018
Operating activities:
Net income	$	31.2		$	31.2		$	50.3		$	39.8
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from discontinued operations and disposal	—			(3.9		)
Depreciation and amortization	21.3			13.0			19.3			17.6
Deferred financing costs	0.2			0.5			0.2			0.2
Deferred gain	(1.5		)	(1.4		)	—			(0.9		)
Stock-based compensation expense	3.5			3.4			4.2			4.0
Pension expense, net of funding	(4.2		)	(4.2		)	(0.1		)	(3.2		)
Provision for doubtful accounts	0.5			0.3
Changes in fair value of contingent consideration and deferred payment							0.8			0.6
Deferred income taxes	3.3			9.6			4.0			2.0
Changes in operating assets and liabilities, net of effects of acquisitions and discontinued operations	(2.2		)	(31.4		)
Net cash provided by continuing operating activities	52.1			17.1
Net cash (used for) provided by discontinued operating activities	(0.5		)	0.8
Changes in operating assets and liabilities							(52.9		)	(22.3		)
Net cash provided by operating activities	51.6			17.9			25.8			37.8
Investing activities:
Purchases of properties and equipment	(5.3		)	(4.8		)	(9.4		)	(7.0		)
Payments for acquisitions, net of cash acquired	(269.2		)	(102.6		)
Proceeds from acquisition-related activity							—			3.0
Other, net	0.2			(0.5		)	—			0.1
Collection of cash provided to customer	—			6.0
Net cash used for continuing investing activities	(274.3		)	(101.9		)
Net cash (used for) provided by discontinued investing activities	(1.1		)	88.0
Net cash used for investing activities	(275.4		)	(13.9		)	(9.4		)	(3.9		)
Financing activities:
Increase in revolving lines of credit, net	214.1			64.8
Payments on long-term borrowings	—			(43.4		)
Payments of debt financing fees	(0.2		)	(1.1		)
Decrease in revolving lines of credit, net							(3.1		)	(26.6		)
Purchases of treasury stock	—			(33.8		)	(1.0		)	—
Redemptions of common stock to satisfy withholding taxes related to stock-based compensation	(2.5		)	(2.6		)	(1.6		)	(0.3		)
Cash dividends paid to stockholders	(12.6		)	(12.8		)	(9.6		)	(9.0		)
Proceeds from stock-based compensation activity	1.5			0.4			—			0.9
Other, net	(0.3		)	(0.4		)	(0.1		)	0.1
Net cash provided by (used for) continuing financing activities	200.0			(28.9		)
Net cash provided by discontinued financing activities	—			0.7
Net cash provided by (used for) financing activities	200.0			(28.2		)
Net cash used for financing activities							(15.4		)	(34.9		)
Effects of foreign exchange rate changes on cash and cash equivalents	1.3			(1.0		)	0.2			(0.5		)
Decrease in cash and cash equivalents	(22.5		)	(25.2		)
Increase (decrease) in cash and cash equivalents							1.2			(1.5		)
Cash and cash equivalents at beginning of year	50.7			76.0			37.4			37.5
Cash and cash equivalents at end of period	$	28.2		$	50.8		$	38.6		$	36.0

See notes to condensed consolidated financial statements.

Table of Contents

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(in millions)
Common
Stock

Capital in
Excess of
Par
Value

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss
Total
Balance at January 1, 2017 $ 65.4
$ 200.3
$ 301.8
$ (81.4 ) $ (92.0 ) $ 394.1
Net income 31.2
31.2
Total other comprehensive income 9.9
9.9
Cash dividends declared (12.6 ) (12.6 )
Stock-based payments:
Stock-based compensation 2.9
2.9
Stock option exercises and other 0.4
2.7
(1.5 ) 1.6
Performance share unit transactions 0.2
(0.2 ) (1.9 ) (1.9 )
Balance at September 30, 2017 $ 66.0
$ 205.7
$ 320.4
$ (84.8 ) $ (82.1 ) $ 425.2


																		Three Months Ended June 30, 2019
(in millions)	Common Stock		Capital in Excess of Par Value			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total			Common Stock		Capital in Excess of Par Value		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balance at January 1, 2016	$	64.8	$	195.6		$	274.9		$	(40.9	)	$	(88.8	)	$	405.6
Balance at April 1, 2019																		$	66.5	$	218.4	$	451.7		$	(90.6	)	$	(97.6	)	$	548.4
Net income						31.2									31.2							32.8									32.8
Total other comprehensive income												10.1			10.1													1.4			1.4
Cash dividends declared						(12.8		)							(12.8		)
Cash dividends declared ($0.08 per share)																						(4.8		)							(4.8		)
Stock-based payments:
Stock-based compensation			2.9												2.9					2.1											2.1
Stock option exercises and other	0.2		0.7						(0.2		)				0.7			0.2		0.8					(0.8		)				0.2
Performance share unit transactions	0.4		(0.4		)				(2.4		)				(2.4		)
Stock repurchase program									(33.8		)				(33.8		)
Balance at September 30, 2016	$	65.4	$	198.8		$	293.3		$	(77.3	)	$	(78.7	)	$	401.5
Balance at June 30, 2019																		$	66.7	$	221.3	$	479.7		$	(91.4	)	$	(96.2	)	$	580.1



	Three Months Ended June 30, 2018
(in millions)	Common Stock		Capital in Excess of Par Value		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balance at April 1, 2018	$	66.1	$	208.8	$	355.3		$	(86.3	)	$	(74.0	)	$	469.9
Net income					26.9									26.9
Total other comprehensive loss											(3.3		)	(3.3		)
Cash dividends declared ($0.08 per share)					(4.8		)							(4.8		)
Stock-based payments:
Stock-based compensation			2.4											2.4
Stock option exercises and other	0.2		1.5					(0.4		)				1.3
Balance at June 30, 2018	$	66.3	$	212.7	$	377.4		$	(86.7	)	$	(77.3	)	$	492.4



	Six Months Ended June 30, 2019
(in millions)	Common Stock		Capital in Excess of Par Value			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balance at January 1, 2019	$	66.4	$	217.0		$	432.5		$	(88.5	)	$	(97.3	)	$	530.1
Net income						50.3									50.3
Total other comprehensive income												1.1			1.1
Cash dividends declared ($0.16 per share)						(9.6		)							(9.6		)
Impact of adoption of ASU 2016-02						6.5									6.5
Stock-based payments:
Stock-based compensation			3.5												3.5
Stock option exercises and other	0.2		0.9						(1.0		)				0.1
Performance share unit transactions	0.1		(0.1		)				(0.9		)				(0.9		)
Stock repurchase program									(1.0		)				(1.0		)
Balance at June 30, 2019	$	66.7	$	221.3		$	479.7		$	(91.4	)	$	(96.2	)	$	580.1

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	Six Months Ended June 30, 2018
(in millions)	Common Stock		Capital in Excess of Par Value		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balance at January 1, 2018	$	66.1	$	207.7	$	346.6		$	(86.1	)	$	(76.9	)	$	457.4
Net income					39.8									39.8
Total other comprehensive loss											(0.4		)	(0.4		)
Cash dividends declared ($0.15 per share)					(9.0		)							(9.0		)
Stock-based payments:
Stock-based compensation			3.3											3.3
Stock option exercises and other	0.2		1.7					(0.6		)				1.3
Balance at June 30, 2018	$	66.3	$	212.7	$	377.4		$	(86.7	)	$	(77.3	)	$	492.4

See notes to condensed consolidated financial statements.

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Description of the Business

Federal Signal Corporation was founded in 1901 and was reincorporated as a Delaware corporation in 1969. References herein to the “Company,” “we,” “our” or “us” refer collectively to Federal Signal Corporation and its subsidiaries.

Products manufactured and ~~supplied, and~~ services rendered by the Company are divided into two ~~major operating~~reportable segments: ~~the~~ Environmental Solutions Group and ~~the~~ Safety and Security Systems Group. The individual operating businesses are organized as such because they share certain characteristics, including technology, marketing, distribution and product application, which create long-term synergies. ~~The Company’s reportable segments are consistent with its operating segments.~~ These segments are discussed in Note 11 – Segment Information.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements represent the consolidation of Federal Signal Corporation and its subsidiaries included herein and have been prepared by the Company pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures presented herein are adequate to ensure the information presented is not misleading. ~~These~~Except as otherwise noted, these condensed consolidated financial statements have been prepared in accordance with the Company’s accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, and should be read in conjunction with those consolidated financial statements and the notes thereto.

As discussed in Note 2 – Acquisitions, on June 2, 2017, the Company completed the acquisition of all of the outstanding shares of capital stock of GenNx/TBEI Intermediate Co., a Delaware corporation (“TBEI”). TBEI is a leading U.S. manufacturer of dump truck bodies and trailers serving maintenance and infrastructure end-markets. The Condensed Consolidated Balance Sheet as of September 30, 2017 includes preliminary fair values assigned to the assets acquired and liabilities assumed in connection with the acquisition, whereas the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 include the post-acquisition operating results of TBEI.

These condensed consolidated financial statements include all normal and recurring adjustments that we considered necessary to present a fair statement of our results of operations, financial condition and cash flow. Intercompany balances and transactions have been eliminated in consolidation.

The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. While we label our quarterly information using a calendar convention whereby our first, second and third quarters are labeled as ending on March 31, June 30 and September 30, respectively, it is our longstanding practice to establish interim quarterly closing dates based on a 13-week period ending on a Saturday, with our fiscal year ending on December 31. The effects of this practice are not material and exist only within a reporting year.

Recent Accounting Pronouncements and Accounting Changes

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. ~~2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~2016-02, Leases (“Topic 842”), which supersedes the ~~revenue recognition~~lease accounting requirements in Accounting Standards Codification (“ASC”) ~~605,~~ ~~Revenue Recognition~~840, Leases (“Topic 840”). This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU alsoTopic 842 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The ASU allows either a “full retrospective” adoption, in which the standard is applied to all periods presented in the financial statements, or a “modified retrospective” adoption, in which the guidance is applied retrospectively only to the most current period presented in the financial statements, with the cumulative effect of initially applying the new standard being recognized as an adjustment to the opening balance of retained earnings at the date of initial application. As originally proposed, this guidance was effective for annual reporting periods beginning on or after December 15, 2016, including interim periods within that reporting period, and

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~~FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)~~

~~(Unaudited)~~

~~early adoption was not permitted. In August 2015, the FASB issued ASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date~~, which deferred the effective date of the new revenue recognition requirements to annual reporting periods beginning on or after December 15, 2017, including interim periods within that reporting period. Under ASU 2015-14, companies are permitted to adopt the guidance early, but no earlier than the original effective date outlined in ASU 2014-09. The FASB has issued a number of amendments to ASU 2014-09 that are intended to address implementation issues that were raised by stakeholders and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments have the same effective date as ASU 2014-09.

The new revenue standard will be effective for the Company beginning January 1, 2018, and we expect to apply the “modified retrospective” method of adoption. In preparation for the adoption of the new standard, the Company has established a project management team responsible for analyzing the impact of ASU 2014-09, and the related amendments, across all revenue streams. The project management team is currently reviewing current accounting policies and practices, including a representative sample of contracts with customers, to identify potential differences that would result from applying the requirements under the new standard. In addition, the Company is in the process of designing and implementing the appropriate controls over gathering and reporting the information required to support the expanded disclosure requirements. The Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks and benefits transfer. The timing of revenue recognition for these transactions is not expected to be significantly impacted by the new standard. While the Company has not yet finalized its assessment of the impact of the new standard and is in the process of analyzing accounting policies and contracts for its recent acquisition, based on the analysis completed to date, the Company does not expect that the adoption of the revised guidance will have a material impact on its financial position, results of operations, or cash flows. We anticipate the primary impact to be the additional required disclosures around revenue recognition in the notes to the consolidated financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842), which requires~~organizations that are lessees in operating ~~leases~~lease arrangements to recognize right-of-use assets and lease liabilities on the balance sheet and requires disclosure of key qualitative and quantitative information about leasing ~~agreements~~arrangements by both lessors and lessees. ~~For a lease to meet the requirements for accounting under a sale-leaseback transaction, it must meet the criteria for a sale in ASC 606,~~ ~~Revenue from Contracts with Customers~~. Entities are required to recognize and measure operating leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company ~~is currently evaluating~~adopted Topic 842 effective January 1, 2019, using the ~~impact that the adoption of this guidance will have on its consolidated financial statements.~~

~~In August 2016, the FASB issued~~alternative transition method outlined in ASU No. ~~2016-15,~~ ~~Statement of Cash Flows~~2018-11, Leases (Topic ~~230), Classification of Certain Cash Receipts and Payments~~842): Targeted Improvements, which provides additional guidance on the financial statement presentation of certain activities in the statement of cash flows. The activities addressed by this guidance that may be relevant to the Company include cash payments for debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims and proceeds from the settlement of corporate-owned life insurance policies, and thepermits application of the predominance principle. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The amendments in this ASU should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company currently expects to adopt thisnew guidance ~~effective January 1, 2018 and does not expect that its adoption will have a material impact on its historical cash flow presentation.~~

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes (Topic 740)~~, ~~Intra-Entity Transfers of Assets Other Than Inventory~~. This guidance requires the income tax consequences of an intra-entity transfer of an asset other than inventory to be recognized when the transfer occurs, instead of when the asset is sold to an outside party. The pronouncement is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. The amendments in this ASU should be applied on a modified retrospective basis, with an adjustment reflecting the cumulative effect of adoption being recorded directly to retained earnings as ofat the beginning of the period of ~~adoption. The Company currently expects~~adoption, with comparative periods continuing to ~~adopt this guidance effective January 1, 2018 and does~~be reported under Topic 840. See Note 3 – Leases for further discussion.

No other new accounting pronouncements issued, but not ~~expect that its adoption will have a material impact on its consolidated financial statements.~~

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles~~ – ~~Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment~~, which eliminates Step 2 from the goodwill impairment test. An entity will therefore perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the

~~Table of Contents~~

~~FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)~~

~~(Unaudited)~~

reporting unit. An entity still has the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 on a prospective basis, with early adoption permitted. The Company currently expects to adopt this guidance effective in the fourth quarter of 2017 and does not expect adoption of this guidanceyet adopted, are expected to have a material impact on ~~its consolidated~~the Company’s results of operations, financial ~~statements.~~

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Compensation~~ – ~~Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~. This guidance requires that only the service cost component be included on the same line as other compensation costs on the statements of operations. All other components of net periodic pension cost should be reported separately from the service cost component and outside a subtotal of operating income. The guidance also specifies that only the service cost component of net periodic pension cost is eligible for capitalization. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The amendments related to the presentation of the service cost and other components of net periodic pension cost included in this ASU should be applied retrospectively, whereas the amendments relating to the capitalization of the service cost component of net periodic pension cost should be applied prospectively. The Company currently expects to adopt this guidance effective January 1, 2018 and does not expect that its adoption will have a material impact on its consolidated financial statements.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities~~, which intends to better align risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The amendments also make certain targeted improvements to simplify the application of the hedge accounting guidance by easing certain documentation and assessment requirements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU should be applied on a modified retrospectiveposition or prospective basis, depending on the area covered by the update. The Company currently expects to adopt this guidance effective in the fourth quarter of 2017 and does not expect that its adoption will have a material impact on its consolidated financial statements.cash flow.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (iii) the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but are not limited to, revenue recognition, workers’ compensation and product liability reserves, asset impairment, pension and other post-retirement benefit obligations, income tax contingency accruals and valuation allowances, and litigation-related accruals. Actual results could differ from those estimates.

~~As described in Note 2 – Acquisitions, amounts allocated to certain assets acquired and liabilities assumed in connection with current-year acquisitions are considered preliminary as~~

Table of ~~September 30, 2017 and are subject to change during the measurement period.~~Contents

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

Significant Accounting Policies

Following the adoption of Topic 842, the Company’s lease accounting policy is and will be disclosed as a significant accounting policy. See Note 3 – Leases for further discussion. There have been no other changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

NOTE 2 – ~~ACQUISITIONS~~REVENUE RECOGNITION

~~Acquisition of TBEI~~

~~On June 2, 2017,~~The following table presents the ~~Company completed~~Company’s Net sales disaggregated by geographic region, based on the ~~acquisition of all~~location of the ~~outstanding shares of capital stock of TBEI. TBEI is a leading U.S. manufacturer of dump truck bodies~~end customer, and ~~trailers serving maintenance and infrastructure end markets.~~ by major product line:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2019		2018		2019		2018
Geographic Region:
U.S.	$	248.2	$	220.7	$	453.0	$	417.3
Canada	51.2		45.8		95.6		78.2
Europe/Other	24.9		24.5		49.5		45.2
Total net sales	$	324.3	$	291.0	$	598.1	$	540.7
Major Product Line:
Environmental Solutions
Vehicles and equipment ^(a)	$	213.7	$	185.2	$	387.4	$	340.8
Parts	35.5		32.4		66.6		62.2
Rental income ^(b)	13.4		11.6		23.0		19.4
Other ^(c)	4.6		4.1		9.7		7.5
Total	267.2		233.3		486.7		429.9
Safety and Security Systems
Public safety and security equipment	34.6		36.7		67.0		67.3
Industrial signaling equipment	16.2		13.5		30.0		26.7
Warning systems	6.3		7.5		14.4		16.8
Total	57.1		57.7		111.4		110.8
Total net sales	$	324.3	$	291.0	$	598.1	$	540.7


(a)	Includes net sales from the sale of new and used vehicles and equipment, including sales of rental equipment.


(b)	Represents income from vehicle and equipment lease arrangements with customers.


(c)	Primarily includes revenues from services such as maintenance and repair work and the sale of extended warranty contracts.

Contract Balances

The Company ~~expects that~~recognizes contract liabilities when cash payments, such as customer deposits, are received in advance of the ~~acquisition~~Company’s satisfaction of ~~TBEI will enable it~~the related performance obligations. Contract liabilities are recognized as Net sales when the related performance obligations are satisfied, which generally occurs within three to ~~strengthen its market position as a specialty vehicle manufacturer in maintenance and infrastructure markets, leverage its expertise in building chassis-based vehicles and balance~~six months of the ~~mix of revenues it generates from municipal and industrial markets. As the acquisition closed on June 2, 2017, the assets and~~cash receipt. Contract liability balances are not materially impacted by any other factors. The Company’s contract liabilities ~~of TBEI have been consolidated into the Condensed Consolidated Balance Sheet~~were $12.1 million as of ~~September~~both June 30, ~~2017, while~~2019 and December 31, 2018. Contract assets, such as unbilled receivables, were not material as of any of the ~~post-acquisition results of operations have been included in the Condensed Consolidated Statements of Operations, within the Environmental Solutions Group.~~periods presented herein.

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

~~The initial cash consideration paid by~~NOTE 3 – LEASES

Impact of the Adoption of Topic 842

On January 1, 2019, the Company ~~to acquire TBEI was approximately $271.8 million, inclusive~~adopted Topic 842, using the alternative transition method under ASU 2018-11, which permits application of ~~cash acquired and a preliminary working capital adjustment. Any additional working capital adjustment is expected~~the new guidance at the beginning of the period of adoption, with comparative periods continuing to be ~~finalized before~~reported under Topic 840. The Company elected to apply the ~~end~~practical expedient package outlined in the transition guidance which, among other things, allows for the carryforward of historical lease classifications. In addition, the Company elected to separately account for non-lease and associated lease components and apply the short-term lease exception, whereby the Company does not recognize a right-of-use asset or lease liability for leases with an initial term of twelve months or less.

Upon adoption, the Company recognized operating lease right-of-use assets and liabilities on its Condensed Consolidated Balance Sheet of $27.1 million and $29.5 million, respectively. In addition, the Company recognized the remaining deferred gain of $8.7 million associated with the sale-leaseback transactions that the Company entered into in July 2008 for its Elgin, Illinois and University Park, Illinois plant locations, net of the ~~fourth quarter~~related deferred tax asset of ~~2017.~~

~~The acquisition is being accounted for in accordance with ASC 805,~~ ~~Business Combinations. Accordingly, the total purchase price has been allocated on~~$2.2 million, as a ~~preliminary basis~~cumulative effect adjustment to ~~assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values~~opening retained earnings as of the ~~completion~~January 1, 2019 adoption date. Prior to the adoption of Topic 842, the deferred gain, which initially totaled $29.0 million, had been amortized through the Company’s Condensed Consolidated Statements of Operations on a straight-line basis over the 15-year life of the ~~acquisition. A single estimate~~respective leases. Effective in 2019, approximately $1.9 million of ~~fair value results from~~the deferred gain, which had been recognized each year since 2008, will no longer be recognized through the Condensed Consolidated Statements of Operations.

Other than the aforementioned elimination of the deferred gain recognition, the adoption of Topic 842 did not have a ~~complex series of judgments about future events and uncertainties and relies heavily~~material impact on estimates and assumptions. The Company’s judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of ~~operations.~~operations or cash flows. Further, the adoption of Topic 842 did not have an impact on the Company’s liquidity or debt-covenant compliance under its current arrangements.

Description of Leases

The Company leases certain facilities within the U.S., Europe and Canada from which the Company provides sales, service and/or equipment rentals, some of which contain options to renew. In addition, eight of the Company’s 14 principal manufacturing plants are leased. The Company also leases vehicles and various other equipment. The Company’s ~~purchase price allocation~~lease agreements may contain lease and non-lease components, which are accounted for separately.

In connection with the 2016 acquisition of substantially all of the assets and operations of Joe Johnson Equipment, Inc. and Joe Johnson Equipment (USA), Inc. (collectively, “JJE”), the Company entered into lease agreements for two facilities owned by affiliates of the sellers of JJE. Both agreements include an annual rent that is considered market-based, and were for an initial lease term of five years, with options to renew. The total lease liability under these agreements to the former shareholders of JJE, some of whom are now employees of the Company, was $0.6 million as of ~~September~~June 30, ~~2017 reflects various provisional estimates that were~~2019.

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that ~~was available as of~~ the ~~acquisition date and~~Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the subsequent filing date of this Form 10-Q. The Company believes that this information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, however the determination of those fair values is not yet finalized. Thus, the preliminary measurements of fair value set forth in the table below are subject to change during the measurement period as valuations are finalized, including those performed by a third-party valuation specialist related to certain of the acquired tangible and intangible assets. The Company expects to finalize the valuations and complete the purchase price allocation as soon as practicable.respective lease term.

The following table summarizes the ~~preliminary fair value of assets acquired~~Company’s total lease costs and ~~liabilities assumed as of the acquisition date:~~supplemental cash flow information arising from operating lease transactions:

(in millions)
Purchase price, inclusive of working capital adjustment ^(a)
$ 269.7
Total consideration 269.7

Cash 2.6
Accounts receivable 23.4
Inventories 24.7
Prepaid expenses and other current assets 0.8
Rental equipment 0.8
Properties and equipment 23.4
Customer relationships ^(b)
90.0
Trade names ^(c)
60.0
Other intangible assets 3.0
Accounts payable (18.7 )
Accrued liabilities (5.6 )
Deferred tax liabilities (65.4 )
Net assets acquired $ 139.0

Goodwill ^(d)
$ 130.7



(in millions)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Total operating lease costs ^(a)	$	3.3	$	6.1

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2.0	$	4.0


(a)	$243.0 million of the purchase price was funded through borrowings under the Company’s revolving credit facility, with the remainder being funded with existing cash on hand. The purchase price is subject to a final working capital adjustment that is expected to be finalized before the end of the fourth quarter of 2017.


~~(b)~~	~~Represents the preliminary fair value assigned to customer relationships,~~Includes short-term leases and variable lease costs, which are ~~considered to be definite-lived intangible assets, with a preliminary estimated useful life of approximately 12 years.~~


~~(c)~~	~~Represents the preliminary fair value assigned to trade names, which are considered to be indefinite-lived intangible assets.~~


~~(d)~~	~~Goodwill, which is not deductible for tax purposes, has been allocated to the Environmental Solutions Group on the basis that the synergies identified will primarily benefit this segment.~~immaterial.

In the period between the June 2, 2017 closing date and September 30, 2017, TBEI generated $65.3 million of net sales and $3.9 million of operating income. The Company has included the operating results of TBEI within the Environmental Solutions Group in its condensed consolidated financial statements since the closing date.

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

Under ASC 805-10, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component of consideration transferred, but are accounted for as expenses in the periods in which the costs are incurred. Primarily due to the TBEI acquisition, the Company incurred $0.5 million and $1.5 million of acquisition-related costs in the three and nine months ended September 30, 2017, which have been recorded in Acquisition and integration-related expenses on the Condensed Consolidated Statement of Operations. The Company expects to incur additional integration expenses during the remainder of 2017.

~~In the nine months ended September 30, 2016, the Company incurred $0.9 million of acquisition and integration-related costs in connection with acquisitions completed in the prior-year.~~

~~Unaudited pro forma financial information~~

The following table ~~presents~~summarizes the ~~unaudited pro forma combined results~~components of ~~operations~~lease right-of-use assets and liabilities:



(in millions)	June 30, 2019		Affected Line Item in Condensed Consolidated Balance Sheets
Assets
Operating lease right-of-use assets	$	24.9	Operating lease right-of-use assets
Finance lease right-of-use assets	0.9		Properties and equipment, net of accumulated depreciation
Total lease right-of-use assets	$	25.8

Liabilities
Current:
Operating leases	$	7.8	Other current liabilities
Finance leases	0.2		Current portion of long-term borrowings and finance lease obligations
Noncurrent:
Operating leases	19.4		Long-term operating lease liabilities
Finance leases	0.4		Long-term borrowings and finance lease obligations
Total lease liabilities	$	27.8

As of June 30, 2019, the Company and TBEI for the three and nine months ended September 30, 2017 and 2016, after giving effect to certain pro forma adjustments including: (i) elimination of the costs recognized related to the step-up in fair value of TBEI’s inventory that will notCompany’s operating leases have a ~~continuing impact, (ii) amortization~~weighted-average remaining lease term of ~~acquired intangible assets, (iii) the impact~~4.0 years and a weighted-average discount rate of ~~certain fair value adjustments such~~4.0%.

Maturities of operating lease liabilities as ~~depreciation on the acquired property, plant and equipment, (iv) interest expense for historical long-term debt~~ of TBEI that was repaid and interest expense on additional borrowings by the Company to fund the acquisition and (v) elimination of non-recurring acquisition and integration-related expenses. The unaudited pro forma statement of operations of the Company assuming this transaction occurred at January 1, 2016 isJune 30, 2019 were as follows:



(in millions)
2019 (excluding the six months ended June 30, 2019)	$	4.1
2020	7.7
2021	7.0
2022	6.1
2023	3.4
Thereafter	1.2
Total lease payments	29.5
Less: Imputed interest	2.3
Present value of operating lease liabilities	$	27.2

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions, except per share data) 2017 2016 2017 2016
Net sales $ 248.7
$ 239.1
$ 740.0
$ 695.4
Income from continuing operations 13.1
9.8
38.3
36.2
Diluted earnings from continuing operations (per share) $ 0.22
$ 0.16
$ 0.63
$ 0.59

~~The unaudited pro forma financial information is presented for informational purposes only~~At December 31, 2018, minimum future rental commitments under operating leases having non-cancelable lease terms in excess of one year, as previously determined in accordance with Topic 840, aggregated $34.3 million and ~~is not intended to represent or be indicative of the consolidated results of operations of the Company that would have been reported had the acquisition been completed~~were payable as ~~of the beginning of the periods presented,~~follows: $8.9 million in 2019, $8.0 million in 2020, $6.9 million in 2021, $5.9 million in 2022, $3.4 million in 2023 and ~~should not be taken as being representative of the future consolidated results of operations of the Company.~~$1.2 million thereafter.

NOTE 34 – INVENTORIES

The following table summarizes the components of Inventories:



(in millions)	June 30, 2019		December 31, 2018
Finished goods	$	87.3	$	78.3
Raw materials	71.8		66.3
Work in process	14.4		12.7
Total inventories	$	173.5	$	157.3

(in millions) September 30,
2017 December 31,
2016
Finished goods $ 80.0
$ 77.6
Raw materials 54.3
35.3
Work in process 9.6
7.2
Total inventories^(a)
$ 143.9
$ 120.1


~~(a)~~	~~Amounts at September 30, 2017 include inventories acquired in the TBEI acquisition - see Note 2 – Acquisitions.~~

~~NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~The following table summarizes the carrying amount of goodwill, and the changes in the carrying amount of goodwill in the nine months ended September 30, 2017, by segment:~~

(in millions)
Environmental
Solutions

Safety & Security
Systems
Total
Balance at January 1, 2017 $ 127.2
$ 109.3
$ 236.5
Translation adjustments 0.4
3.8
4.2
Acquisitions 130.7
—
130.7
Balance at September 30, 2017 $ 258.3
$ 113.1
$ 371.4

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(Unaudited)

~~The following table summarizes the gross carrying amount and accumulated amortization of intangible assets for each major class of intangible assets:~~

September 30, 2017 December 31, 2016
(in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value
Definite-lived intangible assets:
Customer relationships^(a)
$ 90.9
$ (2.7 ) $ 88.2
$ 0.8
$ (0.1 ) $ 0.7
Other^(a)
4.3
(0.9 ) 3.4
1.1
(0.4 ) 0.7
Total definite-lived intangible assets 95.2
(3.6 ) 91.6
1.9
(0.5 ) 1.4
Indefinite-lived intangible assets:
Trade names 69.5
—
69.5
8.8
—
8.8
Total indefinite-lived intangible assets 69.5
—
69.5
8.8
—
8.8
Total intangible assets $ 164.7
$ (3.6 ) $ 161.1
$ 10.7
$ (0.5 ) $ 10.2


~~(a)~~	Average useful life of customer relationships and other definite-lived intangible assets are estimated to be approximately 12 years and 5 years, respectively. The average useful life across all definite-lived intangible assets is estimated to be approximately 12 years.

The table above includes preliminary estimates of the fair value and useful lives of certain definite and indefinite-lived intangible assets related to the TBEI acquisition completed during 2017. As further described in Note 2 – Acquisitions, the preliminary measurements of fair value included in the table above are subject to change during the measurement period as valuations are finalized.

Amortization expense for the three and nine months ended September 30, 2017 was $2.2 million and $3.0 million, respectively. Amortization expense for the three and nine months ended September 30, 2016 was immaterial.

The Company currently estimates that aggregate amortization expense will be approximately $2.2 million for the remainder of 2017, $8.7 million in 2018, $8.7 million in 2019, $8.1 million in 2020, $7.7 million in 2021, and $56.2 million thereafter. Actual amounts of amortization may differ from estimated amounts due to additional intangible asset acquisitions, changes in foreign currency rates, measurement period adjustments for the TBEI acquisition, impairment of intangible assets and other events.

NOTE 5 – DEBT

The following table summarizes the components of Long-term borrowings and ~~capital~~finance lease obligations:



(in millions)	June 30, 2019		December 31, 2018
Amended 2016 Credit Agreement ^(a)	$	208.8	$	209.4
Finance lease obligations	0.6		0.7
Total long-term borrowings and finance lease obligations, including current portion	209.4		210.1
Less: Current finance lease obligations	0.2		0.2
Total long-term borrowings and finance lease obligations	$	209.2	$	209.9

(in millions) September 30,
2017 December 31, 2016
2016 Credit Agreement:
Revolving credit facility $ 282.6
$ 63.2
Capital lease obligations 0.5
0.8
Total long-term borrowings and capital lease obligations, including current portion 283.1
64.0
Less: Current capital lease obligations 0.2
0.5
Total long-term borrowings and capital lease obligations $ 282.9
$ 63.5


(a)	Defined as the Amended and Restated Credit Agreement, dated January 27, 2016, as amended on June 2, 2017.

As more fully described within Note 1312 – Fair Value Measurements, the Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value of long-term debt is based on interest rates that we believe are currently available to us for issuance of debt with similar terms and remaining maturities (Level 2 input).

The following table summarizes the carrying amounts and estimated fair values of the Company’s long-term borrowings:

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~~(Unaudited)~~


	September 30, 2017				December 31, 2016				June 30, 2019				December 31, 2018
(in millions)	Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value
Long-term borrowings^(a)	$	283.1	$	283.1	$	64.0	$	64.0	$	209.4	$	209.4	$	210.1	$	210.1


(a)	Long-term borrowings includes current portions of long-term debt and current portions of ~~capital~~finance lease obligations of $0.2 million and ~~$0.5~~$0.2 million as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.

On January 27, 2016, the Company entered into an Amended and Restated Credit Agreement (the “2016 Credit Agreement”), by and among the Company and certain of its foreign subsidiaries (collectively, the “Borrowers”), Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender, JPMorgan Chase Bank, N.A. as syndication agent, KeyBank National Association, as documentation agent, Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint bookrunners, and the other lenders and parties signatory thereto.

The 2016 Credit Agreement is a $325.0 million revolving credit facility, maturing on January 27, 2021, that provides for borrowings in the form of loans or letters of credit up to the aggregate availability under the facility, with a sub-limit of $50.0 million for letters of credit. In addition, the 2016 Credit Agreement includes an accordion feature, whereby the Company may cause the commitments to increase by up to an additional $75.0 million, subject to the approval of the applicable lenders providing such additional financing.

On June 2, 2017, the Company executed an amendment to the 2016 Credit Agreement (the “Amended 2016 Credit Agreement”), which included provisions to exercise this accordion feature, thereby increasing the borrowing capacity under the Amended 2016 Credit Agreement to $400.0 million.

The Amended 2016 Credit Agreement allows for the Borrowers to borrow in denominations of U.S. Dollars, Canadian Dollars (up to a maximum of C$100.0 million) or Euros (up to a maximum of €20.0 million). Borrowings under the Amended 2016 Credit Agreement may be used for working capital and general corporate purposes, including permitted acquisitions.

The Company’s domestic subsidiaries provide guarantees for all obligations of the Borrowers under the Amended 2016 Credit Agreement, which is secured by a first priority security interest in all now or hereafter acquired domestic property and assets and the stock or other equity interests in each of the domestic subsidiaries and 65% of the outstanding voting capital stock of certain first-tier foreign subsidiaries, subject to certain exclusions.

Borrowings under the Amended 2016 Credit Agreement bear interest, at the Company’s option, at a base rate or a LIBOR rate, plus, in each case, an applicable margin. The applicable margin ranges from 0.00% to 1.25% for base rate borrowings and 1.00% to 2.25% for LIBOR borrowings. The Company must also pay a commitment fee to the lenders ranging between 0.15% to 0.30% per annum on the unused portion of the ~~$400.0~~$400 million revolving credit facility along with other standard fees. Letter of credit fees are payable on outstanding letters of credit in an amount equal to the applicable LIBOR margin plus other customary fees.

The Company is subject to certain leverage ratio and interest coverage ratio financial covenants under the Amended 2016 Credit Agreement that are to be measured at each fiscal quarter-end. The Company was in compliance with all such covenants as of ~~September~~June 30, ~~2017. The Amended 2016 Credit Agreement also includes a “covenant holiday” period, which allows for the temporary increase~~2019.

As of ~~the minimum leverage ratio following the completion~~June 30, 2019, there was $208.8 million of ~~a permitted acquisition, or a series~~cash drawn and $11.3 million of ~~permitted acquisitions, when the total consideration exceeds a specified threshold. In addition,~~undrawn letters of credit under the Amended 2016 Credit Agreement, ~~includes customary negative covenants, subject to certain exceptions, restricting or limiting the Company’s~~with $179.9 million of net availability for borrowings. As of December 31, 2018, there was $209.4 million cash drawn and ~~its subsidiaries’ ability to, among other things: (i) make non-ordinary course dispositions~~$11.3 million of assets, (ii) make certain fundamental business changes, such as merge, consolidate or enter into any similar combination, (iii) make restricted payments, including dividends and stock repurchases, (iv) incur indebtedness, (v) make certain loans and investments, (vi) create liens, (vii) transact with affiliates, (viii) enter into sale/leaseback transactions, (ix) make negative pledges and (x) modify subordinated debt documents.

~~Under~~undrawn letters of credit under the Amended 2016 Credit Agreement, ~~restricted payments, including dividends and stock repurchases, shall be permitted if (i)~~with $179.3 million of net availability for borrowings.

For the ~~Company’s leverage ratio is less than or equal to 2.50, (ii) the Company is in compliance with all other financial covenants and (iii) there are no existing defaults~~six months ended June 30, 2019, gross borrowings under the Amended 2016 Credit ~~Agreement. If its leverage ratio is more than 2.50,~~Agreement were $10.7 million and there were $13.8 million of gross payments. For the six months ended June 30, 2018, gross borrowings and gross payments were $8.0 million and $34.6 million, respectively.

On July 30, 2019, the Company ~~is still permitted to fund (i) up to $30.0 million~~entered into the Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”), by and among the Company (the “U.S. Borrower”) and certain of ~~dividend payments, (ii) stock repurchases sufficient to offset dilution created by~~its foreign subsidiaries (collectively, the ~~issuance of equity~~“Borrowers”), Wells Fargo Bank, National Association, as ~~compensation to its officer, directors, employees~~administrative agent, swingline lender and ~~consultants~~issuing lender, JPMorgan Chase Bank, N.A. as syndication agent, and ~~(iii) an incremental $30.0 million of~~the other ~~cash payments.~~lenders and parties signatory thereto. The 2019 Credit Agreement amends and restates the Company’s Amended 2016 Credit Agreement. See Note 13 – Subsequent Events for additional information.

1312

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(Unaudited)

The Amended 2016 Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the Amended 2016 Credit Agreement and the commitments from the lenders may be terminated.

In connection with its debt refinancing in the nine months ended September 30, 2016, the Company repaid the remaining $43.4 million of principal outstanding under the Company’s March 13, 2013 Credit Agreement (the “2013 Credit Agreement”) and wrote off approximately $0.3 million of unamortized deferred financing fees associated with the 2013 Credit Agreement. The Company incurred $1.1 million of debt issuance costs in connection with the execution of the 2016 Credit Agreement. Such fees have been deferred and are being amortized over the five-year term.

As of September 30, 2017, there was $282.6 million of cash drawn and $18.1 million of undrawn letters of credit under the Amended 2016 Credit Agreement, with $99.3 million of net availability for borrowings. As of December 31, 2016, there was $63.2 million cash drawn and $18.0 million ~~of undrawn letters of credit under the 2016 Credit Agreement, with $243.8 million of net availability for borrowings.~~

~~As of September 30, 2017 and December 31, 2016, there were no borrowings against the Company’s non-U.S. lines of credit which provide for borrowings of up to $0.1 million.~~

For the nine months ended September 30, 2017, gross borrowings under the Amended 2016 Credit Agreement were $250.7 million, while there were $36.6 million of gross payments. For the nine months ended September 30, 2016, gross borrowings and gross payments under the 2016 Credit Agreement were $69.8 million and $5.0 million, respectively.

Interest Rate Swap

On June 2, 2017, the Company entered into an interest rate swap (the “Swap”) with a notional amount of $150.0 million, as a means of fixing the floating interest rate component on $150.0 million of its variable-rate debt. The Swap is designated as a cash flow hedge, with a termination date of June 2, 2020. As a result of the application of hedge accounting treatment, all unrealized gains and losses related to the derivative instrument are recorded in Accumulated other comprehensive loss and are reclassified into operations in the same period in which the hedged transaction affects earnings. Hedge effectiveness is ~~tested~~assessed quarterly. We do not use derivative instruments for trading or speculative purposes.

As more fully described within Note 1312 – Fair Value Measurements, the Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value of the Swap is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve (Level 2 inputs) and measured on a recurring basis in our Condensed Consolidated Balance ~~Sheet.~~Sheets. At ~~September~~June 30, ~~2017,~~2019 and December 31, 2018, the fair value of the Swap, included in ~~Deferred charges~~Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets, was ~~$0.6~~$0.4 million and ~~no ineffectiveness was recorded.~~$2.0 million, respectively. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, unrealized pre-tax ~~gains~~losses of ~~$0.2~~$1.0 million and ~~$0.6~~$1.6 million, respectively, were recorded in Accumulated other comprehensive ~~income.~~loss. During the three and six months ended June 30, 2018, unrealized pre-tax gains of $0.3 million and $1.3 million, respectively, were recorded in Accumulated other comprehensive loss.

NOTE 6 – INCOME TAXES

The Company recognized income tax expense of ~~$7.5~~$11.6 million and ~~$5.7~~$8.3 million for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The increase in tax expense in the current-year quarter iswas largely due to higher pre-tax income ~~levels, as well as the recognition of $0.6 million of additional tax expense associated with a change in the state tax rate in Illinois.~~levels. The Company’s effective tax rate for the three months ended ~~September~~June 30, ~~2017~~2019 was ~~37.5%~~26.1%, compared to ~~43.2%~~23.6% in the prior-year quarter, ~~when additional valuation allowance was recorded in Canada.~~which included the recognition of a $0.5 million excess tax benefit from stock compensation activity.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, the Company recognized income tax expense of ~~$17.4~~$17.5 million and ~~$16.2~~$12.4 million, respectively. The increase in tax expense in the ~~nine months ended September 30, 2017 is~~current year was largely due to higher pre-tax income ~~levels, as well as~~levels. The Company’s effective tax rate for the six months ended June 30, 2019 was 25.8%, compared to 23.8% in the prior-year period, which included the recognition of ~~$0.6~~a $0.5 million ~~of additional~~excess tax ~~expense associated with a change in the state tax rate in Illinois. The effective tax rate was 35.8% and 37.2% for the nine months ended September 30, 2017 and 2016, respectively.~~benefit from stock compensation activity.

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~~(Unaudited)~~

NOTE 7 – PENSIONS

The following table summarizes the components of net ~~postretirement~~periodic pension ~~expense:~~expense (benefit):



	U.S. Benefit Plan												Non-U.S. Benefit Plan
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2019			2018			2019			2018			2019			2018			2019			2018
Service cost	$	—		$	—		$	—		$	—		$	—		$	—		$	0.1		$	0.1
Interest cost	1.7			1.6			3.4			3.2			0.4			0.4			0.7			0.7
Amortization of actuarial loss	0.6			0.7			1.2			1.5			0.1			0.1			0.3			0.3
Amortization of prior service cost	—			—			—			—			0.1			—			0.1			—
Expected return on plan assets	(2.2		)	(2.2		)	(4.4		)	(4.4		)	(0.5		)	(0.6		)	(1.0		)	(1.2		)
Net periodic pension expense (benefit)	$	0.1		$	0.1		$	0.2		$	0.3		$	0.1		$	(0.1	)	$	0.2		$	(0.1	)

U.S. Benefit Plan Non-U.S. Benefit Plan
Three Months Ended
September 30, Nine Months Ended
September 30, Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016 2017 2016 2017 2016
Service cost $ —
$ —
$ —
$ —
$ —
$ —
$ 0.1
$ 0.1
Interest cost 1.8
1.9
5.6
5.8
0.3
0.4
1.0
1.4
Amortization of actuarial loss 0.7
1.4
1.9
4.2
0.2
0.2
0.5
0.5
Expected return on plan assets (2.4 ) (2.6 ) (7.2 ) (7.8 ) (0.5 ) (0.5 ) (1.5 ) (1.8 )
Net postretirement pension expense $ 0.1
$ 0.7
$ 0.3
$ 2.2
$ —
$ 0.1
$ 0.1
$ 0.2

~~In the~~ ~~nine months ended September 30, 2017~~ ~~and~~ ~~2016, the Company contributed $3.9 million and~~ ~~$5.6 million~~ ~~to its U.S. defined benefit plan, respectively, and $0.7 million and~~ ~~$1.0 million~~ ~~to its non-U.S. defined benefit plan, respectively.~~

~~During the remainder of 2017, the Company expects to make additional contributions of up to $1.1 million to the U.S. benefit plan and up to $0.2 million to the non-U.S. benefit plan.~~

In September 2017, the Company executed an amendment to the Federal Signal Corporation Retirement Plan (“the Plan”), which enabled the Company to announce a limited-time voluntary lump-sum pension offering to eligible, terminated, vested plan participants. The lump-sum settlement payments will be made during the fourth quarter of 2017, using assets from the Plan. In connection with the lump-sum offering, the Company expects to incur a pre-tax, non-cash settlement charge of up to $7 million in the fourth quarter of 2017, when the lump sum settlements are expected to be paid. The Company also anticipates that the lump-sum offering will result in a decrease in the Company’s Long-term pension and other postretirement benefit liabilities, as presented on the Condensed Consolidated Balance Sheet.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Financial Commitments

The Company provides indemnifications and other guarantees in the ordinary course of business, the terms of which range in duration and often are not explicitly defined. Specifically, the Company is occasionally required to provide letters of credit and bid and performance bonds to various customers, principally to act as security for retention levels related to casualty insurance policies and to guarantee the performance of subsidiaries that engage in export and domestic transactions. At ~~September~~June 30, ~~2017,~~2019, the Company had outstanding performance and financial standby letters of credit, as well as outstanding bid and performance bonds, aggregating ~~$21.6~~to $18.6 million. If any such letters of credit or bonds are called, the Company would be obligated to reimburse the issuer of the letter of credit or bond. The Company believes the likelihood of any currently outstanding letter of

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(Unaudited)

credit or bond being called is remote.

~~Following the June 3, 2016 acquisition of substantially all of the assets and operations of Joe Johnson Equipment, Inc. and Joe Johnson Equipment (USA), Inc. (collectively, “JJE”), the~~The Company has transactions involving the sale of equipment to certain of its customers which include (i) guarantees to repurchase the equipment for a fixed price at a future date and (ii) guarantees to repurchase the equipment from the third-party lender in the event of default by the customer. As of ~~September~~June 30, ~~2017,~~2019, the single year and maximum potential cash payments the Company could be required to make to repurchase equipment under these agreements were ~~$4.3~~$3.6 million and ~~$4.7~~$4.2 million, respectively. The Company’s risk under these repurchase arrangements would be partially mitigated by the value of the products repurchased as part of the transaction. In addition, the former owners of JJE have agreed to reimburse the Company for certain losses incurred resulting from the requirement to repurchase equipment that was sold prior to the acquisition date. Any such reimbursement would be withheld from the C$8.0 million deferred payment to be made to the former owners of JJE on the third anniversary of the acquisition date. The Company has recorded an immaterial accrual for potential losses related to the repurchase exposures, which represents the expected losses that could result from obligations to repurchase products, after giving effect to proceeds anticipated to be received from the resale of those products to alternative customers, as well as to the reimbursement of any losses incurred. The Company has recorded its estimated net liability associated with losses from these guarantee and repurchase obligations on its Consolidated Balance Sheet based on historical experience and current facts and circumstances. Historical cash requirements and losses associated with these obligations have not been significant, but could increase if customer defaults exceed current expectations.

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~~(Unaudited)~~

Product Warranties

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 one 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 (i) the number of units under warranty, (ii) historical and anticipated rates of warranty claims and (iii) costs per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

The following table summarizes the changes in the Company’s warranty ~~liabilities:~~liabilities during the six months ended June 30, 2019 and 2018:



(in millions)	2019			2018
Balance at January 1	$	9.8		$	8.4
Provisions to expense	2.9			3.5
Payments	(3.1		)	(3.2		)
Balance at June 30	$	9.6		$	8.7

(in millions) 2017 2016
Balance at January 1 $ 6.4
$ 7.4
Provisions to expense 4.3
4.0
Acquisitions 1.4
—
Payments (4.7 ) (4.7 )
Balance at September 30 $ 7.4
$ 6.7

~~Environmental Liabilities~~

In May 2012, the Company sold a facility in Pearland, Texas. The facility was previously used by the Company’s discontinued Pauluhn business, which manufactured marine, offshore and industrial lighting products. The site is in the processAs of ~~remediation, and it is probable that the site will incur future costs. As such, as of September~~June 30, ~~2017~~2019 and December 31, ~~2016, environmental remediation reserves of $0.3 million and~~ ~~$0.6 million, respectively, have been included~~2018, an estimated liability was recorded within the Environmental Solutions Group in ~~liabilities of discontinued operations on~~connection with a specific warranty matter. It is reasonably possible that the Condensed Consolidated Balance Sheets. The recorded reserves are based on an undiscounted estimate of the range of costs to remediate the site, depending upon the remediation approach and other factors. The Company’s estimate may change in the ~~near-term~~future as more information becomes available; however, the ~~costs are~~ultimate resolution of this matter is not expected to have a material adverse effect on the Company’s results of operations, financial position or ~~cash flow.~~liquidity.

Liabilities of Discontinued Operations

The Company retains certain liabilities for operations discontinued in prior periods, primarily for environmental remediation and product liability. Included in liabilities of discontinued operations on the Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018, were reserves of $0.3 million and $0.4 million, respectively, related to environmental remediation at the Pearland, Texas facility previously used by the Company’s discontinued Pauluhn business, and $1.1 million and $1.1 million, respectively, related to estimated product liability obligations of the discontinued North American refuse truck body business.

Legal Proceedings

The Company is subject to various claims, including pending and possible legal actions for product liability and other damages, and other matters arising in the ordinary course of the Company’s business. On a quarterly basis, the Company reviews uninsured material legal claims against the Company and accrues for the costs of such claims as appropriate in the exercise of management’s best judgment and experience. However, due to a lack of factual information available to the Company about a claim, or the procedural stage of a claim, it may not be possible for the Company to reasonably assess either the probability of a favorable or unfavorable outcome of the claim or to reasonably estimate the amount of loss should there be an unfavorable outcome. Therefore, for many claims, the Company cannot reasonably estimate a range of loss.

The Company believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not have a material adverse effect on the Company’s results of operations or financial condition. 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, financial condition or cash flow.

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(Unaudited)

Hearing Loss Litigation

The Company has been sued for monetary damages by firefighters who claim that exposure to the Company’s sirens has impaired their hearing and that the sirens are therefore defective. There were 33 cases filed during the period of 1999 through 2004, involving a total of 2,443 plaintiffs, in the Circuit Court of Cook County, Illinois. These cases involved more than 1,800 firefighter plaintiffs from locations outside of Chicago. In 2009, six additional cases were filed in Cook County, involving 299 Pennsylvania firefighter plaintiffs. During 2013, another case was filed in Cook County involving 74 Pennsylvania firefighter plaintiffs.

The trial of the first 27 of these plaintiffs’ claims occurred in 2008, whereby a Cook County jury returned a unanimous verdict in favor of the Company.

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~~(Unaudited)~~

An additional 40 Chicago firefighter plaintiffs were selected for trial in 2009. Plaintiffs’ counsel later moved to reduce the number of plaintiffs from 40 to nine. The trial for these nine plaintiffs concluded with a verdict against the Company and for the plaintiffs in varying amounts totaling $0.4 million. The Company appealed this verdict. On September 13, 2012, the Illinois Appellate Court rejected this appeal. The Company thereafter filed a petition for rehearing with the Illinois Appellate Court, which was denied on February 7, 2013. The Company sought further review by filing a petition for leave to appeal with the Illinois Supreme Court on March 14, 2013. On May 29, 2013, the Illinois Supreme Court issued a summary order declining to accept review of this case. On July 1, 2013, the Company satisfied the judgments entered for these plaintiffs, which ~~has~~ resulted in final dismissal of these cases.

A third consolidated trial involving eight Chicago firefighter plaintiffs occurred during November 2011. The jury returned a unanimous verdict in favor of the Company at the conclusion of this trial.

Following this trial, on March 12, 2012 the trial court entered an order certifying a class of the remaining Chicago Fire Department firefighter plaintiffs for trial on the sole issue of whether the Company’s sirens were defective and unreasonably dangerous. The Company petitioned the Illinois Appellate Court for interlocutory appeal of this ruling. On May 17, 2012, the Illinois Appellate Court accepted the Company’s petition. On June 8, 2012, plaintiffs moved to dismiss the appeal, agreeing with the Company that the trial court had erred in certifying a class action trial in this matter. Pursuant to plaintiffs’ motion, the Illinois Appellate Court reversed the trial court’s certification order.

Thereafter, the trial court scheduled a fourth consolidated trial involving three firefighter plaintiffs, which began in December 2012. Prior to the start of this trial, the claims of two of the three firefighter plaintiffs were dismissed. On December 17, 2012, the jury entered a complete defense verdict for the Company.

Following this defense verdict, plaintiffs again moved to certify a class of Chicago Fire Department plaintiffs for trial on the sole issue of whether the Company’s sirens were defective and unreasonably dangerous. Over the Company’s objection, the trial court granted plaintiffs’ motion for class certification on March 11, 2013 and scheduled a class action trial to begin on June 10, 2013. The Company filed a petition for review with the Illinois Appellate Court on March 29, 2013 seeking reversal of the class certification order.

On June 25, 2014, a unanimous three-judge panel of the First District Illinois Appellate Court issued its opinion reversing the class certification order of the trial court. Specifically, the Appellate Court determined that the trial court’s ruling failed to satisfy the class-action requirements that the common issues of the firefighters’ claims predominate over the individual issues and that there is an adequate representative for the class. During a status hearing on October 8, 2014, plaintiffs represented to the Court that they would again seek to certify a class of firefighters on the issue of whether the Company’s sirens were defective and unreasonably dangerous. On January 12, 2015, plaintiffs filed motions to amend their complaints to add class action allegations with respect to Chicago firefighter plaintiffs, as well as the approximately 1,800 firefighter plaintiffs from locations outside of Chicago. On March 11, 2015, the trial court granted plaintiff’s motions to amend their complaints. ~~Plaintiffs have indicated that they will now file motions to certify classes in these cases.~~ On April 24, 2015, the cases were transferred to Cook County chancery court, which will decide all class certification issues. On March 23, 2018, plaintiffs filed a motion to certify as a class all firefighters from the Chicago Fire Department who have filed lawsuits in this matter. The Company has served discovery upon plaintiffs related to this motion and intends to continue its objections to any attempt at certification. The court has ordered plaintiffs to respond to the Company’s discovery.

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The Company has also filed motions to dismiss cases involving firefighters who worked for fire departments located outside of the ~~state~~State of Illinois based on improper venue. On February 24, 2017, the Circuit Court of Cook County entered orders dismissing the cases of 1,770 such firefighter plaintiffs from the jurisdiction of the ~~state~~State of Illinois. Pursuant to these orders, these plaintiffs had six months thereafter to refile their cases in jurisdictions where these firefighters are located. Prior to this six-month deadline, attorneys representing some of ~~the attorneys representing~~ these plaintiffs contacted the Company regarding possible settlement of ~~these~~their cases. ~~The~~During the year ended December 31, 2017, the Company ~~has~~ entered into a global settlement agreement with two attorneys ~~representing~~who represented approximately 1,090 of these plaintiffs. Under the terms of the settlement agreement, the Company ~~has~~ offered $700 per plaintiff to settle these cases and ~~has agreed to toll any filing deadlines for~~717 plaintiffs ~~who accept the settlement offer.~~accepted this offer as a final settlement. The attorneys representing these plaintiffs ~~initially advised that 799 plaintiffs will accept this settlement amount and they will~~agreed to withdraw from representing plaintiffs who ~~have~~did not ~~responded~~respond to the settlement offer. It is the Company’s position that the non-settling plaintiffs who failed to timely refile their cases following the February 2017 dismissal by the Circuit Court of Cook County are now barred from doing so by the statute of limitations. The Company ~~expects this settlement to be finalized during November 2017. The Company also has~~ filed a venue motion seeking to transfer to DuPage County cases involving 10 plaintiffs who reside and work in Illinois but outside of Cook County. The Court granted this motion on June 28, 2017.

The Company has also been sued on this issue outside of the Cook County, Illinois venue. ~~Many~~Between 2007 and 2009, a total of ~~these cases have involved~~71 lawsuits involving 71 plaintiffs were filed ~~by a single attorney~~ in the Court of Common Pleas, Philadelphia County, Pennsylvania. ~~During 2007 and through 2009, this attorney filed a total of 71 lawsuits involving 71 plaintiffs in this jurisdiction.~~ Three of these cases were dismissed

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pursuant to pretrial motions filed by the Company. Another case was voluntarily dismissed. Prior to trial in four cases, the Company paid nominal sums to obtain dismissals.

Three trials occurred in Philadelphia involving these cases filed in 2007 through 2009. The first trial involving one of these plaintiffs occurred in 2010, when the jury returned a verdict for the plaintiff. In particular, the jury found that the Company’s siren was not defectively designed, but that the Company negligently constructed the siren. The jury awarded damages in the amount of $0.1 million, which was subsequently reduced to $0.08 million. The Company appealed this verdict. Another trial, involving nine Philadelphia firefighter plaintiffs, also occurred in 2010 when the jury returned a defense verdict for the Company as to all claims and all plaintiffs involved in that trial. The third trial, also involving nine Philadelphia firefighter plaintiffs, was completed during 2010 when the jury returned a defense verdict for the Company as to all claims and all plaintiffs involved in that trial.

Following defense verdicts in the last two Philadelphia trials, the Company negotiated settlements with respect to all remaining filed cases in Philadelphia at that time, as well as other firefighter claimants represented by the attorney who filed the Philadelphia cases. On January 4, 2011, the Company entered into a Global Settlement Agreement (the “Settlement Agreement”) with the law firm of the attorney representing the Philadelphia claimants, on behalf of 1,125 claimants the firm represented (the “Claimants”) and who had asserted product claims against the Company (the “Claims”). Three hundred eight of the Claimants had lawsuits pending against the Company in Cook County, Illinois.

The Settlement Agreement ~~as amended,~~ provided that the Company pay a total amount of $3.8 million (the “Settlement Payment”) to settle the Claims (including the costs, fees and other expenses of the law firm in connection with its representation of the Claimants), subject to certain terms, conditions and procedures set forth in the Settlement Agreement. In order for the Company to be required to make the Settlement Payment: (i) each Claimant who agreed to settle his or her claims had to sign a release acceptable to the Company (a “Release”), (ii) each Claimant who agreed to the settlement and who was a plaintiff in a lawsuit, had to dismiss his or her lawsuit with prejudice, (iii) by April 29, 2011, at least 93% of the Claimants identified in the Settlement Agreement must have agreed to settle their claims and provide a signed Release to the Company and (iv) the law firm had to withdraw from representing any Claimants who did not agree to the settlement, including those who filed lawsuits. If the conditions to the settlement were met, but less than 100% of the Claimants agreed to settle their Claims and sign a Release, the Settlement Payment would be reduced by the percentage of Claimants who did not agree to the settlement.

On April 22, 2011, the Company confirmed that the terms and conditions of the Settlement Agreement had been met and made a payment of $3.6 million to conclude the settlement. The amount was based upon the Company’s receipt of 1,069 signed releases provided by Claimants, which was ~~95.02%~~95% of all Claimants identified in the Settlement Agreement.

The Company generally denies the allegations made in the claims and lawsuits by the Claimants and denies that its products caused any injuries to the Claimants. Nonetheless, the Company entered into the Settlement Agreement for the purpose of minimizing its expenses, including legal fees, and avoiding the inconvenience, uncertainty and distraction of the claims and lawsuits.

During April through October 2012, 20 new cases were filed in the Court of Common Pleas, Philadelphia County, Pennsylvania. These cases were filed on behalf of 20 Philadelphia firefighters and involve various defendants in addition to the Company. Five of these cases were subsequently dismissed. The first trial involving these 2012 Philadelphia cases occurred

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during December 2014 and involved three firefighter plaintiffs. The jury returned a verdict in favor of the Company. Following this trial, all of the parties agreed to settle cases involving seven firefighter plaintiffs set for trial during January 2015 for nominal amounts per plaintiff.

In January 2015, plaintiffs’ attorneys filed two new complaints in the Court of Common Pleas, Philadelphia, Pennsylvania on behalf of approximately 70 additional firefighter plaintiffs. The vast majority of the firefighters identified in these complaints are located outside of Pennsylvania. One of the complaints in these cases, which involves 11 firefighter plaintiffs from the District of Columbia, was removed to federal court in the Eastern District of Pennsylvania. Plaintiffs voluntarily dismissed all claims in this case on May 31, 2016. The Company thereafter moved to recover various fees and costs in this case, asserting that plaintiffs’ counsel failed to properly investigate these claims prior to filing suit. The Court granted this motion on April 25, 2017, awarding $0.1 million to the Company. ~~Plaintiffs’ counsel has~~After plaintiffs appealed this ~~Order.~~ Order, the United States Court of Appeals for the Third Circuit affirmed the lower court decision awarding fees and costs to the Company.

With respect to claims of other out-of-state firefighters involved in these two cases, the Company moved to dismiss these claims as improperly filed in Pennsylvania. The Court granted this motion and dismissed these claims on November 5, 2015. During August through December 2015, another nine new cases were filed in the Court of Common Pleas, Philadelphia County, Pennsylvania. These cases involve a total of 193 firefighters, most of whom are located outside of Pennsylvania. The Company again moved to dismiss all claims filed by out-of-state firefighters in these cases as improperly filed in Pennsylvania. On May 24, 2016, the Court granted this motion and dismissed these claims. Plaintiffs ~~have~~appealed this decision and, on September 25, 2018, the appellate court reversed this dismissal. The Company has filed a ~~notice~~petition with the appellate court requesting that the court reconsider its ruling. On December 7, 2018, the appellate court granted the Company’s petition and withdrew its prior decision. The Court has ordered that the parties file additional briefs and a new panel of ~~appeal regarding this~~appellate judges issue a decision.

On May 13, 2016, four new cases were filed in Philadelphia state court, involving a total of 55 Philadelphia

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firefighters who live in Pennsylvania. During August 2016, the Company settled a case involving four Philadelphia firefighters that had been set for trial in Philadelphia state court during September 2016. During 2017, plaintiffs filed additional cases in the Court of Common Pleas, Philadelphia County, involving over 100 Philadelphia firefighter plaintiffs. ~~As of October 1, 2017, there are 11 cases involving 162 firefighters pending in this jurisdiction.~~ During January 2017, plaintiffs filed a motion to consolidate and bifurcate, similar to a motion filed in the Pittsburgh hearing loss cases, as described below. The Company has filed an opposition to this motion. These cases ~~also have been~~were then transferred to the mass tort program in Philadelphia for pretrial purposes. ~~Currently, there is one case~~Plaintiffs’ counsel thereafter dismissed several plaintiffs. During November 2017, a trial involving one ~~plaintiff scheduled for trial during November 2017~~Philadelphia firefighter occurred. The jury returned a verdict in favor of the Company in this ~~jurisdiction.~~trial. Prior to a dismissal of these cases pursuant to the Tolling Agreement, discussed below, there was a total of 75 firefighters involved in cases pending in the Philadelphia mass tort program.

During April through July 2013, additional cases were filed in Allegheny County, ~~Pennsylvania. These cases involve~~Pennsylvania on behalf of 247 plaintiff firefighters from Pittsburgh and against various defendants, including the Company. During May 2016, two additional cases were filed against the Company in Allegheny County involving 19 Pittsburgh firefighters. After the Company filed pretrial motions, the Court dismissed claims of 55 Pittsburgh firefighter plaintiffs. The Court scheduled ~~the first~~ trials ~~of these Pittsburgh firefighters to occur in~~for May, September and November ~~2016. Each trial will involve~~2016, for eight ~~firefighters.~~firefighters per trial. Prior to the first scheduled trial in Pittsburgh, the Court granted the Company’s motion for summary judgment and dismissed all claims asserted by plaintiff firefighters involved in this trial. ~~Plaintiffs have appealed~~Following an appeal by the plaintiff firefighters, the appellate court affirmed this dismissal. The next trial ~~involving~~for six Pittsburgh firefighters started on November 7, 2016. Shortly after this trial began, plaintiffs’ counsel moved for a mistrial because a key witness suddenly became unavailable. The Court granted this motion and rescheduled this trial for March 6, 2017. During January 2017, plaintiffs also moved to consolidate and bifurcate trials involving Pittsburgh firefighters. In particular, plaintiffs sought one trial involving liability issues which will apply to all Pittsburgh firefighters who ~~have~~ filed suit against the Company. The Company filed an opposition to this motion. On April 18, 2017, the trial court granted plaintiffs’ motion to bifurcate the next Pittsburgh trial. Pursuant to a motion for clarification filed by the Company, the Court ruled that the bifurcation order ~~will~~would only apply to six plaintiffs who ~~are~~were part of the next trial group in Pittsburgh. The Company thereafter sought an interlocutory appeal of the Court’s bifurcation order. The appellate court declined to accept the appeal at ~~this~~that time. A bifurcated trial began on September 27, 2017 in Allegheny County, Pennsylvania. Prior to and during trial, two plaintiffs were dismissed, resulting in four plaintiffs remaining for trial. After approximately two weeks of trial, the jury found that the Company’s siren product was not defective or unreasonably dangerous and rendered a verdict in favor of the Company. ~~The next~~

A second trial ininvolving Pittsburgh ~~is scheduled for~~firefighters began during January 2018. At the outset of this trial, plaintiffs’ attorneys requested that the Company consider settlement of various cases. This trial was continued to allow the parties to further discuss possible settlement. During March 2018, the parties agreed in principle on a framework to resolve hearing loss claims and cases in all jurisdictions involved in the hearing loss litigation except in Cook County and Lackawanna County, and excluding one case involving one firefighter in New York City. The firefighters excluded from this settlement framework are represented by

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different attorneys. Pursuant to this settlement framework, the Company would pay $700 to each firefighter who has filed a lawsuit and is eligible to be part of the settlement. The Company would pay $300 to each firefighter who has not yet filed a case and is eligible to be part of the settlement. To be eligible for settlement, among other things, firefighters must provide proof that they have high frequency noise-induced hearing loss. There are approximately 3,700 firefighters whose claims may be considered as part of this settlement, including approximately 1,320 firefighters who have ongoing filed lawsuits. The parties are in the process of determining how many of these firefighters will be eligible to participate in the settlement. In order to minimize the parties’ respective legal costs and expenses during this settlement process, on July 5, 2018, the parties entered into a tolling agreement (the “Tolling Agreement”). Pursuant to the Tolling Agreement, counsel for the settling firefighters agreed to dismiss the pending lawsuits in all jurisdictions except for the Allegheny County (Pittsburgh), Pennsylvania cases, and the Company agreed to a tolling of any statute of limitations applicable to the dismissed cases until July 31, 2019. The settlement framework will require plaintiffs’ attorneys to withdraw from representing firefighters who elect not to participate in this settlement. As of June 30, 2019, the Company has recognized an estimated liability for the potential settlement amount. While it is reasonably possible that the ultimate resolution of this matter may result in a loss in excess of the amount accrued, the incremental loss is not expected to be material.

During March 2014, an action also was brought in the Court of Common Pleas of Erie County, Pennsylvania on behalf of 61 firefighters. This case likewise involves various defendants in addition to the Company. After the Company filed pretrial motions, 33 Erie County firefighter plaintiffs voluntarily dismissed their claims. During August 2017, five cases involving 70 firefighter plaintiffs were filed in Lackawanna County, Pennsylvania. These cases involve firefighter plaintiffs who originally filed in Cook County and were dismissed pursuant to the Company’s forum nonconveniens motion.

As of June 30, 2019, a total of 263 firefighters are involved in cases filed in Allegheny and Lackawanna counties in Pennsylvania.

On September 17, 2014, 20 lawsuits, involving a total of 193 Buffalo Fire Department firefighters, were filed in the Supreme Court of the State of New York, Erie County. All of the cases filed in Erie County, New York have been removed to federal court in the Western District of New York. Plaintiffs have filed a motion to consolidate and bifurcate these cases, similar to the motion filed in the Pittsburgh hearing loss cases, as described above. The Company has filed an opposition to the motion. During February 2015, a lawsuit involving one New York City firefighter plaintiff was filed in the Supreme Court of the State of New York, New York County. The plaintiff named the Company as well as several other parties as defendants. That case subsequently was transferred to federal court in the Northern District of New York and ~~therefore~~thereafter dismissed. During April 2015 through January 2016, 29 new cases involving a total of 235 firefighters were filed in various counties in the New York City area. During December 2016 through October 2017, additional cases were filed in these jurisdictions. AsOn February 5, 2018, the Company was served with a complaint in an additional case filed in Kings County, New York. This case involves one plaintiff. Prior to a dismissal of ~~October 1,~~these cases pursuant to the Tolling Agreement, there was a total of ~~462~~536 firefighters ~~are currently~~ involved in cases filed in the ~~state~~State of New York.

During November 2015, the Company was served with a complaint filed in Union County, New Jersey state court, involving 34 New Jersey firefighters. This case has been transferred to federal court in the District of New Jersey. During the period from January through May 2016, eight additional cases were filed in various New Jersey state courts. Most of the firefighters in these cases reside in New Jersey and work or worked at New Jersey fire departments. During December 2016, a case involving one New Jersey firefighter was filed in the United States District Court of New Jersey. ~~As of October 1, 2017, a total of 89 firefighters are currently involved in cases filed in New Jersey.~~ On May 2, 2017, plaintiffs filed a motion to consolidate and bifurcate in the pending federal court case in New Jersey. This motion iswas similar to bifurcation motions filed by plaintiffs in Pittsburgh, Buffalo and Philadelphia. The Court has denied this motion as premature. ~~The parties have filed~~Pursuant to a petition ~~to consolidate~~filed by both parties, all New Jersey state court cases were consolidated for pretrial purposes. Prior to a dismissal of these cases pursuant to the Tolling Agreement, there was a total of 61 firefighters involved in cases filed in New Jersey.

During May through October 2016, nine cases were filed in Suffolk County, Massachusetts state court, naming the Company as a defendant. These cases involve 194 firefighters who lived and worked in the Boston area. During August 2017, plaintiffs

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filed additional cases in Suffolk County court. ~~Currently,~~The Company moved to transfer various cases filed in Suffolk County to other counties in Massachusetts where plaintiffs reside and work. Prior to a dismissal of these cases pursuant to the Tolling Agreement, there ~~are 18~~was a total of 218 firefighters involved in cases ~~pending~~filed in ~~this jurisdiction involving 307 firefighter plaintiffs.~~Massachusetts.

During August and September 2017, plaintiffs’ attorneys filed additional hearing loss cases in Florida. ~~Federal Signal~~The Company is the only named defendant. ~~As of October 1, we have received notice of 12~~These cases ~~involving 103 firefighter plaintiffs, which have been~~were filed in ~~nine~~several different counties in ~~Florida. These counties include~~Florida, including Tampa, Miami and Orlando municipalities. Plaintiffs have agreed to stipulate that they will not seek more than $75,000 in damages in any individual plaintiff case. Prior to a dismissal of these cases pursuant to the Tolling Agreement, there was a total of 166 firefighters involved in cases filed in Florida.

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From 2007 through 2009, firefighters also brought hearing loss claims against the Company in New Jersey, Missouri, Maryland and Kings County, New York. All of those cases, however, were dismissed prior to trial, including four cases in the Supreme Court of Kings County, New York that were dismissed upon the Company’s motion in 2008. On appeal, the New York appellate court affirmed the trial court’s dismissal of these cases. Plaintiffs’ attorneys have threatened to file additional lawsuits. The Company intends to vigorously defend all of these lawsuits, if filed.

The Company’s ongoing negotiations with its insurer, CNA, over insurance coverage on these claims have resulted in reimbursements of a portion of the Company’s defense costs. These reimbursements are recorded as a reduction of corporate operating expenses. For the nine months ended September 30, 2017 and 2016, the Company recorded $0.4 million and $0.2 million of reimbursements from CNA related to legal costs, respectively.

~~Latvian Commercial Dispute~~

On June 12, 2014, a Latvian trial court issued a summary ruling against the Company’s former Bronto subsidiary in a lawsuit relating to a commercial dispute. The dispute involves a transaction for the 2008 sale of three Bronto units that were purchased by a financing company for lease to a Latvian fire department. The lessor and the Latvian fire department sought to rescind the contract after delivery, despite the fact that an independent third party, selected by the lessor, had certified that the vehicles satisfied the terms of the contract. The adverse judgment required Bronto to refund the purchase price and pay interest and attorneys’ fees. The trial court denied the lessor’s claim against Bronto for alleged damages relating to lost lease income.

Believing that the claims against Bronto were invalid and that Bronto fully satisfied the terms of the subject contract, on July 10, 2014, the Company filed an appeal with the Civil Chamber of the Supreme Court of Latvia seeking a reversal of the trial court’s ruling.

At December 31, 2015, the Company had not accrued any liability within its consolidated financial statements for this lawsuit. In evaluating whether a charge to record a reserve was previously necessary, the Company analyzed all of the available information, including the legal reasoning applied by the judge of the trial court in reaching its decision. Based on the Company’s analysis, and consultations with external counsel, the Company assessed the likelihood of a successful appeal to be more likely than not and therefore did not believe that a probable loss had been incurred.

In connection with the sale of Bronto to Morita Holdings Corporation (“Morita”), completed in January 2016, the Company and Morita agreed that the Company would remain in control of negotiations and proceedings relating to the appeal and fund the legal costs associated therewith. The Company also agreed to compensate Morita for 50% of any liability resulting from a final and non-appealable decision of a court of competent jurisdiction, net of any actual income tax benefit to Bronto as a result of the judgment, and less 50% of legal fees incurred by the Company, relating to the defense of this matter, subsequent to the January 29, 2016 closing date of the sale.

In April 2016, the Civil Chamber of the Supreme Court of Latvia heard the Company’s appeal and upheld the trial court’s ruling against Bronto. As the Company’s appeal of the trial judgment was unsuccessful, a charge of $1.5 million was recorded as a component of Gain from discontinued operations and disposal, net of tax in the nine months ended September 30, 2016, to reflect the Company’s share of the liability. The Company decided not to further appeal the Supreme Court’s ruling and, during the nine months ended September 30, 2017, settled the liability due to Morita.

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NOTE 9 – EARNINGS PER SHARE

The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share, which requires that non-vested restricted stock containing non-forfeitable dividend rights should be treated as participating securities pursuant to the two-class method. Under the two-class method, net income is reduced by the amount of dividends declared in the period for common stock and participating securities. The remaining undistributed earnings are then allocated to common stock and participating securities as if all of the net income for the period had been distributed. The amounts of distributed and undistributed earnings allocated to participating securities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 were insignificant and did not materially impact the calculation of basic or diluted EPS.

Basic EPS is computed by dividing income ~~or loss~~ available to common stockholders by the weighted average number of shares of common stock and non-vested restricted stock awards outstanding for the period.

Diluted EPS is computed using the weighted average number of shares of common stock and non-vested restricted stock awards outstanding for the year, plus the effect of dilutive potential common shares outstanding during the period. The dilutive effect of common stock equivalents is determined using the more dilutive of the two-class method or alternative methods. The Company uses the treasury stock method to determine the potentially dilutive impact of our employee stock options and restricted stock units, and the contingently issuable method for our performance-based restricted stock unit awards.

For both the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, options to purchase ~~0.4~~0.5 million ~~and 0.8 million~~ shares ~~respectively,~~ of the Company’s common stock, respectively, had an anti-dilutive effect on EPS, and accordingly, are excluded from the calculation of diluted EPS. For both the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, options to purchase ~~1.3~~0.3 million shares of the Company’s common stock had an anti-dilutive effect on EPS, and accordingly, are excluded from the calculation of diluted EPS.

The following table reconciles Net income to basic and diluted EPS:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share data)	2019		2018		2019		2018
Net income	$	32.8	$	26.9	$	50.3	$	39.8

Weighted average shares outstanding – Basic	60.1		59.9		60.1		59.9
Dilutive effect of common stock equivalents	1.2		1.1		1.1		1.0
Weighted average shares outstanding – Diluted	61.3		61.0		61.2		60.9
Earnings per share:
Basic	$	0.55	$	0.45	$	0.84	$	0.67
Diluted	0.54		0.44		0.82		0.65

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions, except per share data) 2017 2016 2017 2016
Income from continuing operations $ 12.5
$ 7.5
$ 31.2
$ 27.3
Gain from discontinued operations and disposal, net of tax —
1.0
—
3.9
Net income $ 12.5
$ 8.5
$ 31.2
$ 31.2
Weighted average shares outstanding – Basic 59.8
59.8
59.7
60.7
Dilutive effect of common stock equivalents 0.8
0.8
0.7
0.8
Weighted average shares outstanding – Diluted 60.6
60.6
60.4
61.5
Basic earnings per share:
Earnings from continuing operations $ 0.21
$ 0.12
$ 0.52
$ 0.45
Earnings from discontinued operations and disposal, net of tax —
0.02
—
0.06
Net earnings per share $ 0.21
$ 0.14
$ 0.52
$ 0.51
Diluted earnings per share:
Earnings from continuing operations $ 0.21
$ 0.12
$ 0.52
$ 0.45
Earnings from discontinued operations and disposal, net of tax —
0.02
—
0.06
Net earnings per share $ 0.21
$ 0.14
$ 0.52
$ 0.51

NOTE 10 – STOCKHOLDERS’ EQUITY

Dividends

On February ~~17, 2017,~~19, 2019, the Company’s Board of Directors (the “Board”) declared a quarterly cash dividend of ~~$0.07~~$0.08 per common share. The dividend totaled ~~$4.2~~$4.8 million and was distributed on March ~~31, 2017~~29, 2019 to holders of record at the close of business on March ~~10, 2017.~~18, 2019.

On April ~~21, 2017,~~30, 2019, the Board declared a quarterly cash dividend of ~~$0.07~~$0.08 per common share. The dividend totaled ~~$4.2~~$4.8 million and was distributed on ~~June 2, 2017~~May 30, 2019 to holders of record at the close of business on May ~~12, 2017.~~15, 2019.

During the three and six months ended June 30, 2018, dividends of $4.8 million and $9.0 million, respectively, were paid to stockholders.

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On July ~~25, 2017,~~30, 2019, the Board declared a quarterly cash dividend of ~~$0.07~~$0.08 per common ~~share. The dividend totaled $4.2 million and was distributed~~share payable on ~~September 6, 2017~~August 28, 2019 to holders of record at the close of business on August ~~15, 2017.~~

~~On October 24, 2017, the Board declared a quarterly cash dividend of $0.07 per common share payable on December 5, 2017 to holders of record at the close of business on November~~ 14, ~~2017.~~

~~During the three and nine months ended September 30, 2016, dividends of $4.2 million and $12.8 million, respectively, were paid to stockholders.~~2019.

Stock Repurchase Program

In November 2014, the Board authorized a stock repurchase program ~~(the “November 2014 program”)~~ of up to $75.0 million of the Company’s common stock. The ~~November 2014~~stock repurchase program is intended primarily to facilitate opportunistic purchases of Company stock as a means to provide cash returns to stockholders, enhance stockholder returns and manage the Company’s capital structure.

~~During~~ Under the three and nine months ended September 30, 2016, the Company repurchased 50,882 and 2,631,607 shares for a total of $0.7 million and $33.8 million, respectively, under the November 2014 program. No shares were repurchased in the three and nine months ended September 30, 2017.

~~Under its~~ stock repurchase ~~programs,~~program, the Company is authorized to repurchase, from time to time, shares of its outstanding common stock in the open market or through privately negotiated transactions. Stock repurchases by the Company are subject to market conditions and other factors and may be commenced, suspended or discontinued at any time.

During the six months ended June 30, 2019, the Company repurchased 48,409 shares for a total of $1.0 million under the stock repurchase program.

Accumulated Other Comprehensive Loss

The following tables summarize the changes in each component of Accumulated other comprehensive loss, net of tax:

(in millions) ^(a)
Actuarial Losses Foreign
Currency Translation Unrealized
Gain on
Derivatives Total
Balance at July 1, 2017 $ (78.9 ) $ (6.8 ) $ 0.2
$ (85.5 )
Other comprehensive (loss) income before reclassifications (0.7 ) 3.3
0.2
2.8
Amounts reclassified from accumulated other comprehensive loss 0.6
—
—
0.6
Net current-period other comprehensive (loss) income (0.1 ) 3.3
0.2
3.4
Balance at September 30, 2017 $ (79.0 ) $ (3.5 ) $ 0.4
$ (82.1 )

(in millions) ^(a)
Actuarial Losses Foreign
Currency Translation Unrealized
Gain on
Derivatives Total
Balance at July 1, 2016 $ (71.8 ) $ (7.3 ) $ —
$ (79.1 )
Other comprehensive income (loss) before reclassifications 0.3
(0.9 ) —
(0.6 )
Amounts reclassified from accumulated other comprehensive loss 1.0
—
—
1.0
Net current-period other comprehensive income (loss) 1.3
(0.9 ) —
0.4
Balance at September 30, 2016 $ (70.5 ) $ (8.2 ) $ —
$ (78.7 )

Three Months Ended June 30, 2019 and 2018

(in millions) ^(a)
Actuarial Losses Foreign
Currency Translation Unrealized
Gain on
Derivatives Total
Balance at January 1, 2017 $ (79.0 ) $ (13.0 ) $ —
$ (92.0 )
Other comprehensive (loss) income before reclassifications (1.6 ) 9.5
0.4
8.3
Amounts reclassified from accumulated other comprehensive loss 1.6
—
—
1.6
Net current-period other comprehensive income —
9.5
0.4
9.9
Balance at September 30, 2017 $ (79.0 ) $ (3.5 ) $ 0.4
$ (82.1 )



(in millions) ^(a)	Actuarial Losses			Prior Service Costs		Foreign Currency Translation			Unrealized Gain on Derivatives			Total
Balance at April 1, 2019	$	(87.2	)	(2.5	)	$	(8.9	)	$	1.0		$	(97.6	)
Other comprehensive income (loss) before reclassifications	0.6			—		0.8			(0.5		)	0.9
Amounts reclassified from accumulated other comprehensive loss	0.6			0.1		—			(0.2		)	0.5
Net current-period other comprehensive income (loss)	1.2			0.1		0.8			(0.7		)	1.4
Balance at June 30, 2019	$	(86.0	)	(2.4	)	$	(8.1	)	$	0.3		$	(96.2	)



(in millions) ^(a)	Actuarial Losses			Foreign Currency Translation			Unrealized Gain on Derivatives			Total
Balance at April 1, 2018	$	(75.3	)	$	(0.5	)	$	1.8		$	(74.0	)
Other comprehensive income (loss) before reclassifications	1.1			(5.2		)	0.3			(3.8		)
Amounts reclassified from accumulated other comprehensive loss	0.6			—			(0.1		)	0.5
Net current-period other comprehensive income (loss)	1.7			(5.2		)	0.2			(3.3		)
Balance at June 30, 2018	$	(73.6	)	$	(5.7	)	$	2.0		$	(77.3	)

Six months ended June 30, 2019 and 2018



(in millions) ^(a)	Actuarial Losses			Prior Service Costs		Foreign Currency Translation			Unrealized Gain on Derivatives			Total
Balance at January 1, 2019	$	(87.4	)	(2.5	)	$	(8.9	)	$	1.5		$	(97.3	)
Other comprehensive income (loss) before reclassifications	0.2			—		0.8			(0.7		)	0.3
Amounts reclassified from accumulated other comprehensive loss	1.2			0.1		—			(0.5		)	0.8
Net current-period other comprehensive income (loss)	1.4			0.1		0.8			(1.2		)	1.1
Balance at June 30, 2019	$	(86.0	)	(2.4	)	$	(8.1	)	$	0.3		$	(96.2	)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)


(in millions) ^(a)	Actuarial Losses^(b)			Foreign Currency Translation^(c)			Unrealized Gain on Derivatives			Total			Actuarial Losses			Foreign Currency Translation			Unrealized Gain on Derivatives			Total
Balance at January 1, 2016	$	(75.6	)	$	(13.3	)	$	0.1		$	(88.8	)
Balance at January 1, 2018													$	(75.4	)	$	(2.5	)	$	1.0		$	(76.9	)
Other comprehensive income (loss) before reclassifications	1.7			(2.3		)	—			(0.6		)	0.4			(3.2		)	1.1			(1.7		)
Amounts reclassified from accumulated other comprehensive loss	3.4			7.4			(0.1		)	10.7			1.4			—			(0.1		)	1.3
Net current-period other comprehensive income (loss)	5.1			5.1			(0.1		)	10.1			1.8			(3.2		)	1.0			(0.4		)
Balance at September 30, 2016	$	(70.5	)	$	(8.2	)	$	—		$	(78.7	)
Balance at June 30, 2018													$	(73.6	)	$	(5.7	)	$	2.0		$	(77.3	)


(a)	Amounts in parentheses indicate ~~debits.~~


~~(b)~~	In connection with the sale of Bronto, the Company recognized an actuarial loss of $0.4 million attributable to Bronto’s defined benefit plan and included it in the calculation of the associated gain on disposal in the nine months ended September 30, 2016.


~~(c)~~	The Company recognized a foreign currency translation loss of $7.1 million in the nine months ended September 30, 2016 in connection with the sale of Bronto. The recognition of the translation loss, which represented the cumulative translation effects attributable to the Fire Rescue Group, was included in Gain (loss) from discontinued operations and disposal for the applicable period.losses.

The following table summarizes the amounts reclassified from Accumulated other comprehensive loss, net of tax, in the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 and the affected line item in the Condensed Consolidated Statements of Operations:



Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in Condensed Consolidated Statements of Operations
	2019			2018
(in millions)^(a)
Amortization of actuarial losses of defined benefit pension plans	$	(0.7	)	$	(0.8	)	Other (income) expense, net
Amortization of prior service costs of defined benefit pension plans	(0.1		)	—			Other (income) expense, net
Interest rate swap	0.3			0.2			Interest expense
Total before tax	(0.5		)	(0.6		)
Income tax benefit	—			0.1			Income tax expense
Total reclassifications for the period, net of tax	$	(0.5	)	$	(0.5	)

Details about Accumulated Other Comprehensive Loss Components Amount Reclassified from Accumulated Other Comprehensive Loss
Affected Line Item in Condensed Consolidated Statements of Operations^(a)
2017 2016

(in millions)^(b)

Amortization of actuarial losses of defined benefit pension plans $ (0.9 ) $ (1.6 ) (c)
Total before tax (0.9 ) (1.6 )
Income tax benefit 0.3
0.6
Income tax expense
Total reclassifications for the period, net of tax $ (0.6 ) $ (1.0 )


(a)	~~Continuing operations only.~~


~~(b)~~	Amounts in parentheses indicate ~~debits to profit/loss.~~


~~(c)~~	The actuarial loss components of Accumulated other comprehensive loss are included in the computation of net periodic pension cost for the three months ended September 30, 2017 and 2016, as disclosed in Note 7 – Pensions.losses.

The following table summarizes the amounts reclassified from Accumulated other comprehensive loss, net of tax, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 and the affected line item in the Condensed Consolidated Statements of Operations:


Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in Condensed Consolidated Statements of Operations^(a)	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in Condensed Consolidated Statements of Operations
	2017			2016				2019			2018
	(in millions)^(b)
(in millions)^(a)
Amortization of actuarial losses of defined benefit pension plans	$	(2.4	)	$	(4.7	)	(c)	$	(1.5	)	$	(1.8	)	Other (income) expense, net
Recognition of deferred gain on interest rate swap	—			0.1			Other income, net
Amortization of prior service costs of defined benefit pension plans								(0.1		)	—			Other (income) expense, net
Interest rate swap								0.7			0.2			Interest expense
Total before tax	(2.4		)	(4.6		)		(0.9		)	(1.6		)
Income tax benefit	0.8			1.6			Income tax expense	0.1			0.3			Income tax expense
Total reclassifications for the period, net of tax	$	(1.6	)	$	(3.0	)		$	(0.8	)	$	(1.3	)


(a)	~~Continuing operations only.~~


~~(b)~~	Amounts in parentheses indicate ~~debits to profit/loss.~~


~~(c)~~	The actuarial loss components of Accumulated other comprehensive loss are included in the computation of net periodic pension cost for the nine months ended September 30, 2017 and 2016, as disclosed in Note 7 – Pensions.losses.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

NOTE 11 – SEGMENT INFORMATION

The Company has two ~~operating segments, and the Company’s~~ reportable ~~segments are consistent with those operating~~ segments. Business units are organized under each reportable 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:~~

~~Environmental Solutions~~ — Our Environmental Solutions Group is a leading manufacturer and supplier of a full range of street sweeper vehicles, sewer cleaner and vacuum loader trucks, hydro-excavation trucks and high-performance waterblasting equipment. The Group manufactures vehicles and equipment in the U.S. and Canada that are sold under the Elgin^®~~, Vactor~~^®~~, Guzzler~~^®~~, Westech~~^TM ~~and Jetstream~~^®brand names. Products are sold to both municipal and industrial customers either through a dealer network or direct sales to service customers generally depending on the type and geographic location of the customer. The acquisition of JJE extends the Environmental Solutions Group’s existing sales channel and increases the number of service centers through which its parts, service and rental offerings can be provided to current and potential customers. The acquisition also broadens the Environmental Solutions Group’s product offerings to include other products, such as refuse and recycling collection vehicles, camera systems, ice-making equipment and snow-removal equipment.

In addition, as discussed in Note 2 – Acquisitions, on June 2, 2017, the Company completed the acquisition of TBEI. TBEI is a leading U.S. manufacturer of dump truck bodies and trailers serving maintenance and infrastructure end-markets. The Company expects that the acquisition will enable it to strengthen the Environmental Solutions Group’s market position as a specialty vehicle manufacturer in maintenance and infrastructure end-markets, leveraging its expertise in building chassis-based vehicles.

As discussed in Note 2 – Acquisitions, the assets and liabilities of TBEI have been consolidated into the Condensed Consolidated Balance Sheet as of September 30, 2017, while the post-acquisition results of operations have been included in the Condensed Consolidated Statements of Operations, within the Environmental Solutions Group, subsequent to the June 2, 2017 closing date. We are in the process of determining the impact, if any, that the TBEI acquisition may have on our reportable segments.

~~Safety and Security Systems~~ — Our Safety and Security Systems Group is a leading manufacturer and supplier of comprehensive systems and products that law enforcement, fire rescue, emergency medical services, campuses, military facilities and industrial sites use to protect people and property. Offerings include systems for campus and community alerting, emergency vehicles, first responder interoperable communications and industrial communications, as well as command and municipal networked security. Specific products include vehicle lightbars and sirens, public warning sirens, general alarm systems, public address systems and public safety software. Products are sold under the Federal Signal^TM~~, Federal Signal VAMA~~^® ~~and Victor~~^® ~~brand names. The Group operates manufacturing facilities in the U.S., Europe and South Africa.~~

~~Corporate contains those items that are not included in our operating segments.~~

Net sales by operating segment reflect sales of products and services 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. The accounting policies of each operating segment are the same as those described in Note 1 – Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The results for the interim periods are not necessarily indicative of results for a full year.

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~~FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)~~

~~(Unaudited)~~

The following tables summarize the Company’s ~~continuing~~ operations by segment, including Net sales, Operating income (loss), and Total assets:



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2019			2018			2019			2018
Net sales:
Environmental Solutions	$	267.2		$	233.3		$	486.7		$	429.9
Safety and Security Systems	57.1			57.7			111.4			110.8
Total net sales	$	324.3		$	291.0		$	598.1		$	540.7
Operating income (loss):
Environmental Solutions	$	44.8		$	37.2		$	70.5		$	57.8
Safety and Security Systems	9.5			8.2			18.2			14.3
Corporate and eliminations	(8.0		)	(7.3		)	(16.6		)	(14.4		)
Total operating income	46.3			38.1			72.1			57.7
Interest expense	2.0			2.5			4.0			5.0
Other (income) expense, net	(0.1		)	0.4			0.3			0.5
Income before income taxes	$	44.4		$	35.2		$	67.8		$	52.2

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Net sales:
Environmental Solutions $ 198.5
$ 134.3
$ 500.6
$ 369.1
Safety and Security Systems 50.2
52.4
150.3
162.7
Total net sales $ 248.7
$ 186.7
$ 650.9
$ 531.8
Operating income (loss):
Environmental Solutions $ 21.2
$ 12.5
$ 52.5
$ 43.9
Safety and Security Systems 6.1
6.5
18.1
18.0
Corporate and eliminations (5.1 ) (5.5 ) (18.4 ) (18.0 )
Total operating income 22.2
13.5
52.2
43.9
Interest expense 2.7
0.6
4.6
1.4
Debt settlement charges —
—
—
0.3
Other income, net (0.5 ) (0.3 ) (1.0 ) (1.3 )
Income before income taxes $ 20.0
$ 13.2
$ 48.6
$ 43.5



(in millions)	As of June 30, 2019		As of December 31, 2018
Total assets:
Environmental Solutions	$	838.1	$	775.2
Safety and Security Systems	219.3		211.5
Corporate and eliminations	37.9		36.7
Total assets of continuing operations	1,095.3		1,023.4
Total assets of discontinued operations	0.4		0.4
Total assets	$	1,095.7	$	1,023.8

(in millions) As of
September 30, 2017 As of December 31, 2016
Total assets:
Environmental Solutions $ 761.6
$ 393.3
Safety and Security Systems 206.3
200.1
Corporate and eliminations 28.3
48.7
Total assets of continuing operations 996.2
642.1
Total assets of discontinued operations 1.0
1.1
Total assets $ 997.2
$ 643.2

~~NOTE 12 – RESTRUCTURING~~

~~The Company continues to review its businesses for opportunities to reduce operating expenses and focus on executing its strategy based on core competencies and cost efficiencies.~~

During the three and nine months ended September 30, 2017, the Company recorded expenses of $0.1 million and $0.5 million, respectively, primarily related to the closure of a manufacturing facility within the Safety and Security Systems Group. The Company anticipates that the closure of the facility will be completed during 2017 and does not expect any related future costs to be material. During the three and nine months ended September 30, 2016, the Company recorded expenses of $0.4 million and $1.6 million related to severance costs incurred in connection with a cost reduction plan within the Safety and Security Systems Group.

~~The following table summarizes the changes in the Company’s restructuring reserves, which are included within Other current liabilities on the Company’s Consolidated Balance Sheets:~~

2017 2016
Balance at January 1 $ 0.4
$ —
Charge to expense 0.5
1.6
Cash payments (0.7 ) (1.2 )
Balance at September 30 $ 0.2
$ 0.4

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~~FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)~~

~~(Unaudited)~~

NOTE 1312 – FAIR VALUE MEASUREMENTS

The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. The three levels of inputs are classified as follows:

Level 1 — quoted prices in active markets for identical assets or liabilities;

Level 2 — observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and

Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s assets and liabilities measured at fair value and their classification in the valuation hierarchy are summarized below:

Cash Equivalents

Cash equivalents primarily consist of time-based deposits and interest-bearing instruments with maturities of three months or less. The Company classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.

Interest Rate Swap

As described in Note 5 – Debt, the Company entered into an interest rate swap as a means of fixing the floating interest rate component on a portion of its floating-rate debt. The Company classified the interest rate swap as Level 2 due to the use of a discounted cash flow model based on the terms of the contract and the interest rate curve (Level 2 inputs) to calculate the fair value of the swap.

Contingent Consideration

The Company has a contingent obligation to transfer cash to the former owners of JJE if specified financial results are met over future reporting periods (i.e., an earn-out). Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred. Subsequent changes in fair value are recorded as a component of Acquisition and integration-related expenses on the Condensed Consolidated Statements of Operations.

The Company uses an income approach to value the contingent consideration obligation based on future financial performance, which is determined based on the present value of expected future cash flows. Due to the lack of relevant observable market data over fair value inputs, the Company has classified the contingent consideration liability within Level 3 of the fair value hierarchy outlined in ASC 820, Fair Value Measurements. Increases in the expected payout under a contingent consideration arrangement contribute to increases in the fair value of the related liability. Conversely, decreases in the expected payout under a contingent consideration arrangement contribute to decreases in the fair value of the related liability. Changes in assumptions could have an impact on the fair value of the contingent consideration, which has a maximum payout of C$10.0 million (approximately ~~$8.0~~$7.6 million). The Company expects to settle the contingent consideration liability during the third quarter of 2019.

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2019:



	Fair Value Measurement at Reporting Date Using
(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	13.8					$	13.8
Interest rate swap			$	0.4			0.4
Liabilities:
Contingent consideration					$	7.6	7.6

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

~~The following tables summarize the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2017:~~

Fair Value Measurement at Reporting Date Using
(in millions) Level 1 Level 2 Level 3 Total
Assets:
Cash equivalents $ 4.7
$ —
$ —
$ 4.7
Interest rate swap —
0.6
—
0.6
Liabilities:
Contingent consideration —
—
6.2
6.2

The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements in the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016:~~2018:

(in millions) 2017 2016
Contingent consideration liability, at July 1 $ 5.7
$ 5.0
Issuance of contingent consideration in connection with acquisitions —
—
Settlements of contingent consideration liabilities —
—
Foreign currency translation 0.4
(0.1 )
Total losses included in earnings ^(a)
0.1
0.2
Contingent consideration liability, at September 30 $ 6.2
$ 5.1



(in millions)	2019		2018
Contingent consideration liability, at April 1	$	7.1	$	6.4
Foreign currency translation	0.1		(0.1		)
Total losses included in earnings ^(a)	0.4		0.2
Contingent consideration liability, at June 30	$	7.6	$	6.5


(a)	Changes in the fair value of contingent consideration liabilities are included as a component of Acquisition and integration-related expenses within the Condensed Consolidated Statements of Operations.

The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016:~~2018:


(in millions)	2017		2016		2019		2018
Contingent consideration liability, at January 1	$	5.1	$	—	$	6.7	$	6.3
Issuance of contingent consideration in connection with acquisitions	—		4.9
Settlements of contingent consideration liabilities	—		—
Foreign currency translation	0.5		—		0.3		(0.2		)
Total losses included in earnings ^(a)	0.6		0.2		0.6		0.4
Contingent consideration liability, at September 30	$	6.2	$	5.1
Contingent consideration liability, at June 30					$	7.6	$	6.5


(a)	Changes in the fair value of contingent consideration liabilities are included as a component of Acquisition and integration-related expenses within the Condensed Consolidated Statements of Operations.

NOTE 1413 – ~~DISCONTINUED OPERATIONS~~SUBSEQUENT EVENTS

~~In the three months ended September 30, 2016,~~Acquisition of Mark Rite Lines Equipment Company, Inc.

On July 1, 2019, the Company ~~recorded~~completed the acquisition of substantially all of the assets and operations of Mark Rite Lines Equipment Company, Inc. (“MRL”), a ~~net gain from discontinued operations~~U.S. manufacturer of truck-mounted and ~~disposal~~ride-on road-marking equipment, including its wholly-owned subsidiary HighMark Traffic Services, Inc., for an initial purchase price of ~~$1.0~~$55.5 million, ~~primarily related~~subject to certain post-closing adjustments, which are expected to be finalized in the fourth quarter of ~~uncertain tax position reserves~~2019. The initial cash consideration was funded through borrowings under the Company’s revolving credit facility. The acquisition also includes contingent consideration of up to $15.5 million, based on the achievement of certain financial targets over the three-year period following the ~~expiration of statute of limitations.~~closing.

The preliminary purchase price allocation has not been completed at this time, due to the proximity of the date of acquisition to the date of issuance of the condensed consolidated financial statements. The Company ~~recorded~~expects that MRL will provide an efficient entry into a ~~net gain from discontinued operations~~new line of product offerings and ~~disposal~~access to new markets. The post-acquisition operating results of ~~$3.9~~MRL are expected to be included within the Environmental Solutions Group.

Debt Refinancing

On July 30, 2019, the Company entered into the 2019 Credit Agreement, which amends and restates the Amended 2016 Credit Agreement.

The 2019 Credit Agreement is a $500 million revolving credit facility, maturing on July 30, 2024, that provides for borrowings in the ~~nine months ended September 30, 2016, primarily driven by the $4.0 million net gain on disposal~~form of ~~the Fire Rescue Group, which was discontinued in 2015, partially offset by the $0.6 million net loss that the Fire Rescue Group realized in its 2016 operations~~loans or letters of credit up to the ~~January 29, 2016 sale completion date. The net gain on disposal includes a $1.5 million charge to recognize a liability in connection~~aggregate availability under the facility, with a ~~Latvian commercial dispute. Also contributing~~sub-limit of $75 million for letters of credit. The 2019 Credit Agreement allows for the Borrowers to borrow in denominations of U.S. Dollars, Canadian Dollars, Euros or British Pounds (with borrowings in non-U.S. currencies subject to a sublimit of $200 million). In addition, the Company may cause the commitments to increase by up to an additional $250 million, subject to the ~~net gain~~approval of the applicable lenders providing such additional financing. Borrowings under the 2019 Credit Agreement may be used for working capital and general corporate purposes, including acquisitions.

The Company’s material domestic subsidiaries provide guarantees for all obligations of the Borrowers under the 2019 Credit Agreement, which is secured by a first priority security interest in (i) all existing or hereafter acquired domestic property and assets of the ~~nine months ended September 30, 2016 was a reduction~~U.S. Borrower and material domestic subsidiaries, (ii) the stock or other equity interests in ~~uncertain tax position reserves~~each of ~~approximately $1.0 million.~~the material domestic subsidiaries and (iii) 65% of outstanding voting capital stock of certain first-tier foreign subsidiaries, subject to certain exclusions.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

Borrowings under the 2019 Credit Agreement bear interest, at the Company’s option, at a base rate or a LIBOR rate, plus, in each case, an applicable margin. The ~~following table presents~~applicable margin ranges from zero to 0.75% for base rate borrowings and 1.00% to 1.75% for LIBOR borrowings. The Company must also pay a commitment fee to the ~~operating results~~lenders ranging between 0.10% to 0.25% per annum on the unused portion of the ~~Company’s discontinued Fire Rescue Group for~~$500 million revolving credit facility along with other standard fees. Letter of credit fees are payable on outstanding letters of credit in an amount equal to the ~~nine months ended September 30, 2016:~~

Nine Months Ended
September 30, 2016 ^(a)
(in millions)
Net sales $ 4.2
Cost of sales 3.9
Gross profit 0.3
Selling, engineering, general and administrative expenses 1.1
Operating loss (0.8 )
Other (income) expense, net —
Loss before income taxes (0.8 )
Income tax benefit (0.2 )
Net loss from operations $ (0.6 )


~~(a)~~	~~Only includes activity in the period up to the completion of the sale on January 29, 2016.~~

~~Assets and liabilities of discontinued operations~~

~~The following table presents the assets and liabilities of the Company’s discontinued operations, which include the Fire Rescue Group, as well as~~applicable LIBOR margin plus other ~~operations discontinued in prior periods, as of September 30, 2017 and December 31, 2016:~~

September 30, 2017 December 31, 2016
(in millions) Fire Rescue Other Total Fire Rescue Other Total
Deferred tax assets $ —
$ 1.0
$ 1.0
$ —
$ 1.1
$ 1.1
Long-term assets of discontinued operations $ —
$ 1.0
$ 1.0
$ —
$ 1.1
$ 1.1

Accrued liabilities:

Other current liabilities $ —
$ 0.8
$ 0.8
$ 1.3
$ 0.8
$ 2.1
Current liabilities of discontinued operations $ —
$ 0.8
$ 0.8
$ 1.3
$ 0.8
$ 2.1

Other long-term liabilities $ —
$ 1.8
$ 1.8
$ —
$ 2.0
$ 2.0
Long-term liabilities of discontinued operations $ —
$ 1.8
$ 1.8
$ —
$ 2.0
$ 2.0
customary fees.

The Company ~~retains~~is subject to certain ~~liabilities~~net leverage ratio and interest coverage ratio financial covenants under the 2019 Credit Agreement that are to be measured at each fiscal quarter-end. The 2019 Credit Agreement also includes a series of “covenant holiday” periods, which allow for other operations discontinued in prior periods, primarily for environmental remediation and product liability. Included in liabilities of discontinued operations at September 30, 2017 and December 31, 2016 is $0.3 million and $0.6 million, respectively, related to environmental remediation at the ~~Pearland, Texas facility, and $1.8 million and $1.8 million, respectively, relating to estimated product liability obligations~~temporary increase of the ~~discontinued North American refuse truck body business.~~minimum net leverage ratio following the completion of a permitted acquisition, or a series of acquisitions, when the aggregate consideration over a period of twelve months exceeds $75 million. In addition, the 2019 Credit Agreement includes customary negative covenants, subject to certain exceptions, restricting or limiting the Company’s and its subsidiaries’ ability to, among other things: (i) make non-ordinary course dispositions of assets; (ii) make certain fundamental business changes, such as mergers, consolidations or any similar combination; (iii) make restricted payments, including dividends and stock repurchases; (iv) incur indebtedness; (v) make certain loans and investments; (vi) create liens; (vii) transact with affiliates; (viii) enter into sale/leaseback transactions; (ix) make negative pledges; and (x) modify subordinated debt documents.

Under the 2019 Credit Agreement, restricted payments, including dividends and stock repurchases, shall be permitted if (i) the Company’s leverage ratio is less than or equal to 3.25; (ii) the Company is in compliance with all other financial covenants; and (iii) there are no existing defaults under the 2019 Credit Agreement. If its leverage ratio is more than 3.25, the Company is still permitted to fund (i) up to $35 million of dividend payments and stock repurchases; and (ii) an incremental $50 million of other cash payments.

The 2019 Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the 2019 Credit Agreement and the commitments from the lenders may be terminated.

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~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide information that is supplemental to, and should be read together with, the condensed consolidated financial statements and the accompanying notes contained in this Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. Information in MD&A is intended to assist the reader in obtaining an understanding of (i) the condensed consolidated financial statements, (ii) the Company’s business segments and how the results of those segments impact the Company’s results of operations and financial condition as a whole and (iii) how certain accounting principles affect the Company’s condensed consolidated financial statements. The Company’s results for interim periods are not necessarily indicative of annual operating results.

Executive Summary

The Company is a leading global manufacturer and supplier of (i) vehicles and equipment for maintenance and infrastructure end-markets, including sewer cleaners, vacuum trucks, street sweepers, dump truck bodies and ~~other environmental vehicles and equipment~~trailers and (ii) safety, security and communication ~~equipment. We also are a designer~~equipment, such as lights, sirens and supplier of technology-based products and services for the public safety market. Following the June 2016 acquisition of JJE, the Company also distributes and re-sells products manufactured by other companies, which include refuse and recycling collection vehicles, camera systems, ice resurfacing equipment and snow-removal equipment.warning systems. In addition, we sell parts and provide service, repair, equipment rentals and training as part of a comprehensive aftermarket offering to our customer base.

On June 2, 2017, the Company completed the acquisition of all of the outstanding shares of capital stock of TBEI, a leading U.S. manufacturer of dump truck bodies and trailers serving maintenance and infrastructure end-markets. The Company expects that the acquisition of TBEI will enable it to strengthen its market position as a specialty vehicle manufacturer in maintenance and infrastructure markets, leverage its expertise in building chassis-based vehicles and balance the mix of revenues it generates from municipal and industrial markets.

We operate 14 manufacturing facilities in five countries ~~around the world~~ and provide products and integrated solutions to municipal, governmental, industrial and commercial customers in all regions of the world.

As described in Note 11 – Segment Information to the accompanying condensed consolidated financial statements, the Company’s business units are organized ~~and managed~~ in two ~~operating~~reportable segments: the Environmental Solutions Group and the Safety and Security Systems Group.

Net sales increased by ~~$62.0~~$33.3 million, or ~~33%~~11%, in the three months ended ~~September~~June 30, ~~2017~~2019 as compared to the prior-year quarter. Our Environmental Solutions Group reported a net sales increase of ~~$64.2~~$33.9 million, or ~~48%~~15%, largely due to ~~the addition of $47.2 million of net sales from TBEI, and an increase~~increases in shipments of vacuum trucks, sewer cleaners, ~~vacuum trucks~~ and ~~street sweepers~~dump truck bodies of $17.2 million, $8.7 million, and $3.3 million, respectively, as well as an $8.0 million increase in ~~the U.S.~~aftermarket revenues, represented by higher rental income and improved parts, service and used equipment sales. Within our Safety and Security Systems Group, net sales decreased by ~~$2.2~~$0.6 million, or 4%1%, primarily due to unfavorable foreign currency translation effects and lower global sales of public safety ~~products.~~products and warning systems, partially offset by higher sales of industrial signaling equipment.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, net sales increased by ~~$119.1~~$57.4 million, or ~~22%.~~11%, as compared to the corresponding period of the prior year. Within our Environmental Solutions Group, net sales ~~increased~~improved by ~~$131.5~~$56.8 million, or ~~36%~~13%, largely due to ~~approximately $56~~increases in shipments of vacuum trucks, sewer cleaners, dump truck bodies, and street sweepers of $25.6 million, ~~of incremental net sales resulting from the JJE acquisition, which was completed~~$9.5 million, $5.5 million and $5.1 million, respectively, as well as a $9.5 million increase in ~~June 2016, the addition of $65.3 million of net sales from the TBEI acquisition~~aftermarket revenues, represented by higher rental income and improved ~~sales of sewer cleaners~~parts and ~~vacuum trucks in the U.S., partially offset by lower domestic shipments of street sweepers.~~service sales. In our Safety and Security Systems Group, net sales ~~decreased~~increased by ~~$12.4~~$0.6 million, or 8%1%, primarily due to ~~lower sales into global public safety markets and fewer~~higher sales of industrial ~~products into international markets.~~signaling equipment, partially offset by unfavorable foreign currency translation effects and lower sales of warning systems.

Operating income increased by ~~$8.7~~$8.2 million, or ~~64%~~22%, to ~~$22.2~~$46.3 million in the three months ended ~~September~~June 30, ~~2017~~2019 as compared to the prior-year quarter, primarily driven by a ~~$8.7~~$7.6 million increase within our Environmental Solutions Group associated with increased sales volumes and ~~a $3.1 million~~improved operating income contribution from TBEI. TBEI’s operating income contribution in the third quarter included the effects of amortization expense on intangible assets acquired, which contributed to an increase in the Environmental Solutions Group’s depreciation and amortization expense of $3.2 million, and the recognition of purchase accounting expense effects. Overall, purchase accounting expense effects were approximately $1 million lower than the prior-year quarter.leverage. Operating income in the three months ended ~~September~~June 30, ~~2017~~2019 within our Safety and Security Systems Group ~~decreased~~increased by ~~$0.4~~$1.3 million, largely due to benefits from pricing actions, favorable sales mix, and lower operating expenses, while ~~corporate~~Corporate expenses ~~decreased~~increased by ~~$0.4~~$0.7 million. Consolidated operating margin for the three months ended ~~September~~June 30, ~~2017~~2019 was ~~8.9%~~14.3%, up from ~~7.2%~~13.1% in the prior-year quarter.

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coupled with the increased JJE activity, contributed to an increase in the Environmental Solutions Group’s depreciation and amortization expense of $8.5 million. In addition, there was a $1.5 million increase in purchase accounting expense effects and a $0.4 million increase in acquisition-related costs in the current-year period.leverage. Within our Safety and Security Systems Group, operating income in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 increased by ~~$0.1~~$3.9 million, ~~where reductions in selling, engineering, general~~or 27%, largely due to benefits from pricing actions, favorable sales mix, and ~~administrative (“SEG&A”)~~lower operating expenses, ~~and restructuring expenses of $0.2 million and $1.1 million, respectively, more than offset a $1.2 million decrease in gross profit.~~while Corporate expenses ~~in the nine months ended September 30, 2017~~ increased by ~~$0.4 million, primarily due to a $0.6 million increase in acquisition-related expenses.~~$2.2 million. Consolidated operating margin for the ~~nine~~six months ended ~~September~~June 30, ~~2017, inclusive of the incremental depreciation and amortization, purchase accounting expense effects and acquisition costs,~~2019 was ~~8.0%~~12.1%, compared to ~~8.3%~~10.7% in the prior-year period.

Income before income taxes increased by ~~$6.8~~$9.2 million, or ~~52%~~26%, to ~~$20.0~~$44.4 million for the three months ended ~~September~~June 30, ~~2017~~2019 as compared to the prior-year quarter. The increase resulted from the higher operating income, ~~and~~ a ~~$0.2~~$0.5 million ~~increase in other income, partially offset by a $2.1 million increase~~decrease in interest expense ~~associated with higher average debt levels following the acquisition of TBEI.~~and a $0.5 million decrease in other expense. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, income before income taxes increased by ~~$5.1~~$15.6 million, or 30%, as compared to the prior-year period, primarily due to ~~a $8.3 million improvement in~~the higher operating income, ~~partially offset by~~ a ~~$3.2~~$1.0 million ~~increase~~decrease in interest expense and a $0.2 million decrease in other expense.

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Net income from continuing operations for the three and nine months ended September 30, 2017 was impacted by increases in income tax expense of $1.8 million and $1.2 million, respectively, largely due to higher pre-tax income levels, as well as the recognition of $0.6 million of additional tax expense associated with a change in the state tax rate in Illinois. The effective tax rate for the three months ended ~~September~~June 30, ~~2017 was 37.5%,~~2019 increased by $5.9 million compared to ~~43.2% in~~ the prior-year ~~quarter, when additional valuation allowance~~period, largely due to the aforementioned increase in income before income taxes, partially offset by a $3.3 million increase in income tax expense. For the six months ended June 30, 2019, net income increased by $10.5 million compared to the corresponding period of the prior year, largely due to the aforementioned increase in income before income taxes, partially offset by a $5.1 million increase in income tax expense. The increase in income tax expense in both the three and six months ended June 30, 2019 was ~~recorded in Canada. The~~primarily due to higher income levels. For the first half of 2019, our effective tax rate ~~for~~was 25.8%. We currently expect our full-year effective tax rate to be within the ~~nine months ended September 30, 2017 was 35.8%, compared~~range of 25% to ~~37.2% in the prior-year period.~~26%.

Total orders for the three months ended ~~September~~June 30, ~~2017~~2019 were ~~$229.6~~$308.0 million, an increase of ~~$43.5~~$30.4 million, or ~~23%~~11%, as compared to the prior-year quarter. Our Environmental Solutions Group reported total orders of ~~$178.2~~$253.2 million in the ~~third~~second quarter of ~~2017, an increase of $42.2~~2019, up $35.9 million, or ~~31%, compared~~17% in comparison to the prior-year ~~quarter, primarily driven by the TBEI acquisition and organic order growth of approximately $11 million, or 9%.~~quarter. Orders in the three months ended ~~September~~June 30, ~~2017~~2019 within our Safety and Security Systems Group were ~~up $1.3~~$54.8 million, ~~primarily due~~compared to ~~improved international orders for industrial products.~~$60.3 million in the prior-year quarter.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, total orders were ~~$715.3~~$607.0 million, ~~an increase~~generally consistent with the order intake in the first half of ~~$206.2 million, or 41%, compared to the prior-year period.~~2018. Our Environmental Solutions Group reported total orders of ~~$559.5~~$496.9 million in the first ~~nine months~~half of ~~2017,~~2019, an increase of ~~$205.0~~$5.2 million, or ~~58%~~1%, compared to the ~~prior-year quarter. The improvement was driven by the TBEI acquisition, which added $99 million in orders, a net increase in orders~~first half of $36 million related to the inclusion of JJE orders for nine months in 2017 versus four months in 2016, and organic order growth of approximately $70 million, or 26%, primarily represented by improved orders for sewer cleaners, street sweepers and vacuum trucks.2018. Orders in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 within our Safety and Security Systems Group ~~were up $1.2~~decreased by $5.5 million, ~~compared to the same period of the prior year.~~or 5%.

Our consolidated backlog at ~~September~~June 30, ~~2017~~2019 was ~~$203.7~~$347.7 million, up ~~$55.0~~$25.4 million, or 8%, compared to ~~$148.7 million at September 30, 2016, largely as a result of~~ the ~~increase in orders for sewer cleaners, vacuum trucks and street sweepers received in the nine months ended September 30, 2017 as well as the addition of orders acquired in the TBEI acquisition.~~prior-year quarter.

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Results of Operations

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


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended June 30,									Six Months Ended June 30,
($ in millions, except per share data)	2017			2016			Change			2017			2016			Change			2019			2018			Change			2019			2018			Change
Net sales	$	248.7		$	186.7		$	62.0		$	650.9		$	531.8		$	119.1		$	324.3		$	291.0		$	33.3		$	598.1		$	540.7		$	57.4
Cost of sales	187.4			141.4			46.0			491.3			394.1			97.2			235.3			211.8			23.5			438.8			399.6			39.2
Gross profit	61.3			45.3			16.0			159.6			137.7			21.9			89.0			79.2			9.8			159.3			141.1			18.2
Selling, engineering, general and administrative expenses	38.3			31.1			7.2			104.7			91.0			13.7			41.8			40.7			1.1			85.7			82.5			3.2
Acquisition and integration-related expenses	0.7			0.3			0.4			2.2			1.2			1.0			0.9			0.4			0.5			1.5			0.9			0.6
Restructuring	0.1			0.4			(0.3		)	0.5			1.6			(1.1		)
Operating income	22.2			13.5			8.7			52.2			43.9			8.3			46.3			38.1			8.2			72.1			57.7			14.4
Interest expense	2.7			0.6			2.1			4.6			1.4			3.2			2.0			2.5			(0.5		)	4.0			5.0			(1.0		)
Debt settlement charges	—			—			—			—			0.3			(0.3		)
Other income, net	(0.5		)	(0.3		)	(0.2		)	(1.0		)	(1.3		)	0.3
Other (income) expense, net																			(0.1		)	0.4			(0.5		)	0.3			0.5			(0.2		)
Income before income taxes	20.0			13.2			6.8			48.6			43.5			5.1			44.4			35.2			9.2			67.8			52.2			15.6
Income tax expense	7.5			5.7			1.8			17.4			16.2			1.2			11.6			8.3			3.3			17.5			12.4			5.1
Income from continuing operations	12.5			7.5			5.0			31.2			27.3			3.9
Gain from discontinued operations and disposal, net of tax	—			1.0			(1.0		)	—			3.9			(3.9		)
Net income	$	12.5		$	8.5		$	4.0		$	31.2		$	31.2		$	—		$	32.8		$	26.9		$	5.9		$	50.3		$	39.8		$	10.5
Operating data:
Operating margin	8.9		%	7.2		%	1.7		%	8.0		%	8.3		%	(0.3		)%	14.3		%	13.1		%	1.2		%	12.1		%	10.7		%	1.4		%
Diluted earnings per share – Continuing operations	$	0.21		$	0.12		$	0.09		$	0.52		$	0.45		$	0.07
Diluted earnings per share																			$	0.54		$	0.44		$	0.10		$	0.82		$	0.65		$	0.17
Total orders	229.6			186.1			43.5			715.3			509.1			206.2			308.0			277.6			30.4			607.0			607.3			(0.3		)
Backlog	203.7			148.7			55.0			203.7			148.7			55.0			347.7			322.3			25.4			347.7			322.3			25.4
Depreciation and amortization	9.0			5.8			3.2			21.3			13.0			8.3			9.8			9.0			0.8			19.3			17.6			1.7

Net sales

Net sales increased by ~~$62.0~~$33.3 million, or ~~33%~~11%, in the three months ended ~~September~~June 30, ~~2017~~2019 as compared to the prior-year quarter. The Environmental Solutions Group reported a net sales increase of ~~$64.2~~$33.9 million, or ~~48%~~15%, largely due to ~~the addition of $47.2 million of net sales from the TBEI acquisition, and an increase~~increases in shipments of vacuum trucks, sewer cleaners, ~~vacuum trucks~~ and ~~street sweepers~~dump truck bodies of $17.2 million, $8.7 million, and $3.3 million, respectively, as well as a $8.0 million increase in ~~the U.S.~~aftermarket revenues, represented by higher rental income and improved parts, service and used equipment sales. Within the Safety and Security Systems Group, net sales decreased by ~~$2.2~~$0.6 million, or 4%1%, primarily due to unfavorable foreign currency translation effects and lower global sales of public safety ~~products.~~products and warning systems, partially offset by higher sales of industrial signaling equipment.

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For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, net sales increased by ~~$119.1~~$57.4 million, or ~~22%.~~11%, as compared to the corresponding period of the prior year. Within the Environmental Solutions Group, net sales ~~increased~~improved by ~~$131.5~~$56.8 million, or ~~36%~~13%, largely due to ~~approximately $56~~increases in shipments of vacuum trucks, sewer cleaners, dump truck bodies, and street sweepers of $25.6 million, ~~of incremental net sales resulting from the JJE acquisition, which was completed~~$9.5 million, $5.5 million and $5.1 million, respectively, as well as a $9.5 million increase in ~~June 2016, the addition of $65.3 million of net sales from the TBEI acquisition~~aftermarket revenues, represented by higher rental income and improved ~~sales of sewer cleaners~~parts and ~~vacuum trucks in the U.S., partially offset by lower domestic shipments of street sweepers.~~service sales. In the Safety and Security Systems Group, net sales ~~decreased~~increased by ~~$12.4~~$0.6 million, or 8%1%, primarily due to ~~lower sales into global public safety markets and fewer~~higher sales of industrial ~~products into international markets.~~signaling equipment, partially offset by unfavorable foreign currency translation effects and lower sales of warning systems.

Cost of sales

Cost of sales increased by ~~$46.0~~$23.5 million, or ~~33%~~11%, for the three months ended ~~September~~June 30, ~~2017~~2019 compared to the prior-year quarter, largely due to an increase of ~~$47.5~~$25.1 million, or ~~44%~~14%, within the Environmental Solutions Group, primarily ~~driven by~~attributable to increased sales volumes, ~~additional cost of sales from~~higher material costs in comparison to the ~~TBEI acquisition~~prior-year quarter, and a ~~$1.0~~$0.9 million increase in depreciation expense, partially offset by a ~~$1.0~~$0.2 million reduction in purchase accounting ~~effects.~~expenses. Within the Safety and Security Systems Group, cost of sales decreased by ~~$1.5~~$1.6 million, or 5%4%, ~~largely driven by~~primarily related to lower sales ~~volumes.~~

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volumes and favorable foreign currency translation effects.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, cost of sales increased by ~~$97.2~~$39.2 million, or ~~25%~~10%, largely due to an increase of ~~$108.4~~$41.8 million, or ~~38%~~13%, within the Environmental Solutions Group, primarily ~~driven by~~attributable to increased sales volumes, ~~additional cost~~higher material costs in comparison to the first half of sales from the TBEI acquisition and the effects of nine months of JJE activity in the current-year period compared with four months last year, recognition of approximately $1.5 million more expense associated with purchase accounting effects2018, and a ~~$5.6~~$2.0 million increase in depreciation expense, ~~largely resulting from depreciation on rental equipment acquired~~partially offset by a $0.7 million reduction in ~~the JJE transaction.~~purchase accounting expenses. This increase was partially offset by a decrease in cost of sales of ~~$11.2~~$2.6 million, or ~~11%~~4%, within the Safety and Security Systems Group, largely ~~driven by lower~~due to favorable sales ~~volumes~~mix and ~~the impact of material and labor cost reduction initiatives implemented in prior periods.~~favorable foreign currency translation effects.

Gross profit

Gross profit increased by ~~$16.0~~$9.8 million, or ~~35%~~12%, for the three months ended ~~September~~June 30, ~~2017,~~2019, compared to the prior-year quarter, primarily due to ~~a $16.7~~improvements of $8.8 million ~~improvement~~and $1.0 million within the Environmental Solutions Group and the Safety and Security Systems Group, respectively. Gross margin for the three months ended June 30, 2019 improved to 27.4%, from 27.2% in the prior-year quarter, primarily driven by improvements within the Safety and Security Group and Environmental Solutions Group of 220 basis points and 20 basis points, respectively. Margin improvements were primarily attributable to improved operating leverage, benefits from pricing actions and favorable sales mix.

For the six months ended June 30, 2019, gross profit increased by $18.2 million, or 13%, primarily due to improvements of $15.0 million and $3.2 million within the Environmental Solutions Group and the Safety and Security Systems Group, respectively. Gross margin for the six months ended June 30, 2019 was 26.6%, compared to 26.1% in the prior-year period, primarily driven by improvements within the Safety and Security Group and Environmental Solutions Group of 260 basis points and 40 basis points, respectively. Margin improvements were primarily attributable to improved operating leverage, benefits from pricing actions and favorable sales mix.

Selling, engineering, general and administrative expenses

Selling, engineering, general and administrative (“SEG&A”) expenses for the three months ended June 30, 2019 increased by $1.1 million, or 3%, primarily due to increases within the Environmental Solutions Group and Corporate of $0.9 million and $0.5 million, respectively, partially offset by a $0.3 million reduction within the Safety and Security Systems Group. As a percentage of net sales, SEG&A expenses decreased from 14.0% in the prior-year quarter, to 12.9% in the current-year quarter.

For the six months ended June 30, 2019, SEG&A expenses increased by $3.2 million, or 4%, primarily due to increases within the Environmental Solutions Group and Corporate of $1.9 million and $2.0 million, respectively, partially offset by a $0.7 million reduction within the Safety and Security Systems Group. ~~Gross margin for the three months ended September 30, 2017 improved to 24.6%,~~As a percentage of net sales, SEG&A expenses decreased from ~~24.3% in the prior-year quarter, largely due to lower purchase accounting expense effects.~~

For the nine months ended September 30, 2017, gross profit increased by $21.9 million, or 16%, compared to the prior-year period, primarily due to a $23.1 million improvement in the Environmental Solutions Group, partially offset by a $1.2 million reduction within the Safety and Security Systems Group. Gross margin for the nine months ended September 30, 2017 was 24.5%, compared to 25.9%15.3% in the prior-year period, ~~largely due~~ to incremental depreciation expense and purchase accounting expense effects, partially offset by gross margin improvement within the Safety and Security Systems Group related to the savings associated with material and labor cost reduction initiatives implemented in prior periods.

~~Selling, engineering, general and administrative expenses~~

SEG&A expenses for the three months ended September 30, 2017 increased by $7.2 million, or 23%, compared to the prior-year quarter, primarily due to an $8.0 million increase within the Environmental Solutions Group, largely the result of the addition of expenses of businesses acquired14.3% in the current year and a $2.2 million increase in amortization expense. Partially offsetting this increase was a $0.8 million reduction in corporate SEG&A expenses, primarily due to a net decrease in employee compensation expenses and lower pension costs. SEG&A expenses within the Safety and Security Systems Group were consistent with the prior-year quarter.

For the nine months ended September 30, 2017, SEG&A expenses increased by $13.7 million, or 15%, primarily represented by a $14.1 million increase within the Environmental Solutions Group, largely the result of the addition of expenses of businesses acquired in the current and prior year and a $2.9 million increase in amortization expense. SEG&A expenses with the Safety and Security Systems Group and Corporate each decreased by $0.2 million in comparison to the prior-yearcurrent-year period.

Operating income

Operating income increased by ~~$8.7~~$8.2 million, or ~~64%~~22%, to ~~$22.2~~$46.3 million in the three months ended ~~September~~June 30, ~~2017~~2019 as compared to the prior-year quarter, primarily driven by a ~~$8.7~~$7.6 million increase within the Environmental Solutions Group associated with increased sales volumes and ~~a $3.1 million~~improved operating income contribution from TBEI. TBEI’s operating income contribution in the third quarter included the effects of amortization expense on intangible assets acquired, which contributed to an increase in the Environmental Solutions Group’s depreciation and amortization expense of $3.2 million, and the recognition of purchase accounting expense effects. Overall, purchase accounting expense effects were approximately $1 million lower than the prior-year quarter.leverage. Operating income in the three months ended ~~September~~June 30, ~~2017~~2019 within the Safety and Security Systems Group ~~decreased~~increased by ~~$0.4~~$1.3 million, largely due to benefits from pricing actions, favorable sales mix, and lower operating expenses, while ~~corporate~~Corporate expenses ~~decreased~~increased by ~~$0.4~~$0.7 million. Consolidated operating margin for the three months ended ~~September~~June 30, ~~2017~~2019 was ~~8.9%~~14.3%, up from ~~7.2%~~13.1% in the prior-year quarter.

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For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, operating income increased by ~~$8.3~~$14.4 million ~~or 19%,~~as compared to ~~$52.2 million, primarily driven by a $8.6 million operating income improvement within~~the corresponding period of the prior year. Within the Environmental Solutions Group, ~~associated with~~operating income for the six months ended June 30, 2019 increased by $12.7 million, or 22%, largely due to higher sales volumes ~~a $3.9 million~~and improved operating income contribution from TBEI and the effects of including nine months of operating income from JJE in 2017, compared to only four months in the prior-year period. TBEI’s operating income contribution in the current-year period included the effects of amortization expense on intangible assets acquired, which, coupled with the increased JJE activity, contributed to an increase in the Environmental Solutions Group’s depreciation and amortization expense of $8.5 million. In addition, there was a $1.5 million increase in purchase accounting expense effects and a $0.4 million increase in acquisition-related costs in the current-year period.leverage. Within the Safety and Security Systems Group, operating income in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 increased by ~~$0.1~~$3.9 million, ~~where reductions in selling, engineering, general~~or 27%, largely due to benefits from pricing actions, favorable sales mix, and ~~administrative (“SEG&A”)~~lower operating expenses, ~~and restructuring expenses of $0.2 million and $1.1 million, respectively, more than offset a $1.2 million decrease in gross profit.~~while Corporate expenses ~~in the nine months ended September~~

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~~30, 2017~~ increased by ~~$0.4 million, primarily due to a $0.6 million increase in acquisition-related expenses.~~$2.2 million. Consolidated operating margin for the ~~nine~~six months ended ~~September~~June 30, ~~2017, inclusive of the incremental depreciation and amortization, purchase accounting expense effects and acquisition costs,~~2019 was ~~8.0%~~12.1%, compared to ~~8.3%~~10.7% in the prior-year period.

Interest expense

Interest expense for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017 increased~~2019 decreased by ~~$2.1~~$0.5 million, ~~and $3.2~~or 20%. For six months ended June 30, 2019 interest expense decreased by $1.0 million, ~~respectively,~~or 20%. The reductions in both periods were largely due to lower average debt levels when compared to ~~the corresponding periods~~same period of the prior ~~year, largely due to higher average debt levels following the acquisition of TBEI.~~year.

Other ~~income,~~(income) expense, net

For the three months ended ~~September~~June 30, ~~2017 and 2016,~~2019, other income ~~net,~~ totaled ~~$0.5~~$0.1 million and $0.3 million, respectively. For the nine months ended September 30, 2017 and 2016, other income, net, totaled $1.0 million and $1.3 million, respectively. The other income recognized in the current yearwas primarily ~~relates~~due to foreign currency transaction gains ~~while the other income recognized~~which were partially offset by pension expense, whereas in the ~~prior year~~prior-year period, other expense totaled $0.4 million and was ~~largely~~primarily related to ~~to a gain on settlement of a~~ foreign currency ~~forward contract~~transaction losses and ~~interest income on a loan provided~~pension expense.

For the six months ended June 30, 2019, other expense totaled $0.3 million and was primarily consisted of pension expense, whereas in the prior-year period, other expense totaled $0.5 million and was primarily related to ~~a customer.~~foreign currency transaction losses and pension expense.

Income tax expense

~~Income from continuing operations~~Net income

~~Income from continuing operations~~Net income for the three months ended ~~September~~June 30, ~~2017~~2019 increased by ~~$5.0~~$5.9 million compared to the prior-year period, largely due to the aforementioned ~~increases~~increase in operating income, ~~and other income, partially offset by~~ the ~~increase~~$0.5 million reduction in interest expense and the ~~$1.8~~$0.5 million in other expense, partially offset by the $3.3 million increase in income tax expense.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, net income ~~from continuing operations~~ increased by ~~$3.9~~$10.5 million compared to the corresponding period of the prior year, largely due to the ~~improvement~~aforementioned increase in operating income, the $1.0 million reduction in interest expense and the ~~absence of $0.3~~$0.2 million in ~~debt settlement charges incurred in connection with the Company’s debt refinancing completed in the prior-year quarter,~~other expense, partially offset by the ~~increase in interest expense, the $0.3 million decrease in other income and the $1.2~~$5.1 million increase in income tax expense.

~~Gain from discontinued operations and disposal, net of tax~~

In the three months ended September 30, 2016, the Company recorded a net gain from discontinued operations and disposal of $1.0 million, primarily related to adjustments of uncertain tax position reserves following the expiration of statute of limitations.

The Company recorded a net gain from discontinued operations and disposal of $3.9 million in the nine months ended September 30, 2016, primarily driven by the $4.0 million net gain on disposal of the Fire Rescue Group, which was discontinued in 2015, partially offset by the $0.6 million net loss that the Fire Rescue Group realized in its 2016 operations up to the January 29, 2016 sale completion date. The net gain on disposal includes a $1.5 million charge to recognize a liability in connection with a Latvian commercial dispute. Also contributing to the net gain in the nine months ended September 30, 2016 was a reduction in uncertain tax position reserves of approximately $1.0 million.

Orders

The Company’s historical order information presented herein includes orders received from JJE. Subsequent to the completion of the acquisition of JJE on June 3, 2016, orders from JJE are no longer included in the Company’s total orders. Instead, subsequent to the completion of the acquisition of JJE, total orders include orders that JJE receives from end customers. These

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~~orders may include orders for products manufactured or supplied by the Company’s Environmental Solutions Group, as well as for products manufactured or supplied by third-party vendors.~~

~~During the nine months ended September 30, 2016, orders that were received from JJE prior to the acquisition date, which were included in total orders, totaled $3.7 million.~~

On the date of acquisition, JJE had a backlog of orders from its end customers of $33.4 million. These acquired orders were included in total orders reported for the nine months ended September 30, 2016. In addition, on the acquisition date, the Company’s backlog included $6.9 million of orders from JJE. Such orders were presented as a reduction of total orders for the nine months ended September 30, 2016.

On the date of acquisition, TBEI had a backlog of orders from its end customers of $44.8 million. These acquired orders were included in total orders reported for the nine months ended September 30, 2017.

Three months ended ~~September~~June 30, ~~2017~~2019 vs. three months ended ~~September~~June 30, ~~2016~~2018

Total orders for the three months ended ~~September~~June 30, ~~2017~~2019 were ~~$229.6~~$308.0 million, an increase of ~~$43.5~~$30.4 million, or ~~23%~~11%, as compared to the prior-year quarter. ~~Our~~The Environmental Solutions Group reported total orders of ~~$178.2~~$253.2 million in the ~~third~~second quarter of ~~2017, an increase of $42.2~~2019, up $35.9 million, or ~~31%, compared~~17% in comparison to the prior-year quarter. The improvement was driven by the acquisition of TBEI, which contributed $40.7 million, and organic order growth of approximately $11 million, or 9%, primarily represented by improved orders for sewer cleaners, street sweepers and vacuum trucks. Orders in the three months ended ~~September~~June 30, ~~2017~~2019 within ~~our~~the Safety and Security Systems Group were ~~up $1.3~~$54.8 million, ~~primarily due~~compared to ~~improved international orders for industrial products.~~$60.3 million in the prior-year quarter.

U.S. municipal and governmental orders increased by ~~$5.7~~$5.6 million, or 7%6%, primarily due to an ~~$8.4~~$11.2 million increase within the Environmental Solutions Group, ~~due to the acquisition~~driven by increased orders for sewer cleaners, dump truck bodies and vacuum trucks of ~~TBEI~~$9.4 million, $2.6 million and $1.4 million, respectively. Aftermarket demand also increased ~~sewer cleaner~~by $1.8 million. Partially offsetting these increases was a $4.0 million reduction in orders ~~partially offset by lower vacuum truck orders.~~for street sweepers. Within the Safety and Security Systems Group, municipal and governmental orders decreased by ~~$2.7~~$5.6 million, ~~largely driven by lower~~due to reductions in orders for public safety ~~products.~~products and warning systems of $3.6 million and $2.0 million, respectively.

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U.S. industrial orders increased by ~~$47.2~~$15.3 million, or ~~97%~~13%, primarily due to a ~~$46.0~~$14.1 million increase within the Environmental Solutions Group, largely ~~driven~~represented by ~~the acquisition of TBEI, which added $37.0 million of orders. In addition,~~ increases in orders for dump truck bodies and vacuum trucks ~~street sweepers and sewer cleaners~~ of ~~$6.4 million, $2.7~~$5.5 million and ~~$2.4~~$5.0 million, ~~respectively,~~respectively. Aftermarket demand also increased by $5.9 million. These improvements were partially offset by a ~~$4.1~~$3.3 million decrease in orders for ~~refuse trucks.~~trailers. The Safety and Security Systems Group reported a $1.2 million ~~order~~ increase in industrial ~~orders.~~orders, primarily due to improvements in orders for public safety products and industrial signaling equipment of $0.9 million and $0.4 million, respectively.

Non-U.S. orders ~~decreased~~increased by ~~$9.4~~$9.5 million, or ~~16%. Within~~14%, primarily due to a $10.6 million increase within the Environmental Solutions Group, ~~reported~~primarily due to improvements in orders ~~decreased~~for refuse trucks, vacuum trucks and street sweepers of $7.5 million, $3.4 million and $2.6 million, respectively, which were partially offset by ~~$12.2~~a $2.1 million ~~compared to the prior-year quarter, which included an adjustment of $9.9 million to increase the backlog acquired~~decrease in ~~the JJE acquisition, initially reported in the second quarter of last year.~~orders for sewer cleaners. Within the Safety and Security ~~Systems~~Solutions Group, non-U.S. orders ~~were up $2.8~~decreased by $1.1 million, ~~primarily~~largely due to ~~higher~~a $0.9 million unfavorable foreign currency translation impact and reductions in orders for warning systems and public safety products of $0.6 million and $0.5 million, respectively, which were partially offset by a $0.9 million improvement in orders for industrial ~~products from customers in the Middle East.~~signaling equipment.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 vs. ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

Total orders for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 were ~~$715.3~~$607.0 million, ~~an increase~~a decrease of ~~$206.2~~$0.3 million, ~~or 41%,~~as compared to the prior-year period. The Environmental Solutions Group reported total orders of ~~$559.5~~$496.9 million in the first ~~nine months~~half of ~~2017, an increase of $205.0 million, or 58%,~~2019, compared to ~~the prior-year period. The improvement was driven by the TBEI acquisition, which added $99~~$491.7 million in ~~orders, a net increase in orders~~the first half of $36 million related to the inclusion of JJE orders for nine months in 2017 versus four months in 2016, and organic order growth of approximately $70 million, or 26%, primarily represented by improved orders for sewer cleaners, street sweepers and vacuum trucks.2018. Orders in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 within ~~our~~the Safety and Security Systems Group ~~increased~~decreased by ~~$1.2~~$5.5 million, ~~compared to the corresponding period of the prior year.~~or 5%.

U.S. municipal and governmental orders ~~increased~~decreased by ~~$16.6~~$5.0 million, or 7%3%, primarily due to a ~~$20.7~~$6.9 million improvement within the Environmental Solutions Group, largely represented by a $19.7 million increase in orders for sewer cleaners and $3.7 million related to the acquisition of TBEI, partially offset by lower municipal orders for vacuum trucks. This improvement was partially offset by a $4.1 million reduction in municipal ordersdecrease within the Safety and Security Systems Group, driven by ~~lower demand~~decreases in orders for ~~outdoor~~public safety products and warning systems of $4.5 million and ~~public safety products.~~$2.4 million, respectively. Within the Environmental Solutions Group, municipal and governmental orders increased by $1.9 million, primarily due to increases in orders for vacuum trucks, dump truck bodies and sewer cleaners of $4.1 million, $2.5 million and $1.3 million, respectively. Additionally, aftermarket demand increased by $2.2 million. These increases were partially offset by a decrease in orders for street sweepers of $8.6 million.

U.S. industrial orders decreased by $9.4 million, or 3%, primarily due to a $12.9 million decrease within the Environmental Solutions Group, largely represented by decreases in orders for sewer cleaners, trailers and dump truck bodies of $10.3 million, $7.4 million and $2.6 million, respectively. These decreases were partially offset by a $7.3 million increase in aftermarket demand. The Safety and Security Systems Group reported a $3.5 million increase in industrial orders, primarily due to improvements in orders for public safety products and industrial signaling equipment of $2.7 million and $1.1 million, respectively, partially offset by a decrease in orders for warnings systems of $0.3 million.

Non-U.S. orders increased by ~~$168.2~~$14.1 million, or ~~133%~~11%, ~~largely driven by~~primarily due to a ~~$165.2~~$16.2 million increase within the Environmental Solutions Group, ~~primarily related to the acquisition of TBEI which contributed $94.9 million, the effects of the inclusion of JJE orders for nine months in 2017 versus four months in 2016, and improvements~~driven by increases in orders for vacuum trucks, refuse trucks and

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$9.2 million, $7.0 million and $1.5 million, respectively. In addition, aftermarket demand increased by $3.4 million. Partially offsetting these improvements were reductions in orders for sewer cleaners, snow removal trucks and waterblasting equipment of ~~$29.7~~$1.5 million, $1.3 million and ~~$21.0~~$1.2 million, respectively. Within the Safety and Security ~~Systems~~Solutions Group, ~~industrial~~non-U.S. orders ~~were up $3.0~~decreased by $2.1 million, primarily due to ~~higher~~a $2.0 million unfavorable foreign currency translation impact, and reductions in orders of ~~industrial products.~~

Non-U.S. orders increased by $21.4 million, or 14%, largely due to a $19.1 million increase within the Environmental Solutions Group, reflecting increased Canadian orders following the acquisition of JJE in June of 2016. Orders within the Safety and Security Systems Group increased by $2.3 million, driven by improved orders in industrial and coal markets, partially offset by lower orders for public safety products and ~~outdoor~~ warning ~~systems.~~systems of $1.5 million and $1.1 million, respectively, which were partially offset by a $2.5 million improvement in orders for industrial signaling equipment.

Backlog

Backlog was ~~$203.7~~$347.7 million at ~~September~~June 30, ~~2017~~2019 compared to ~~$148.7~~$322.3 million at ~~September~~June 30, ~~2016.~~2018. The increase of ~~$55.0~~$25.4 million, or ~~37%~~8%, was primarily due to ~~an $59.5~~a $30.7 million increase in backlog within the Environmental Solutions Group, largely ~~due to the TBEI acquisition, whose backlog at September 30, 2017 was $33.5 million, and increased~~associated with strong demand for sewer cleaners and vacuum trucks and sewer cleaners. These increases were partially offset by a $4.5 million reduction in backlog within the Safety and Security Systems Group, primarily due to a reduction in orders for public safety products.trucks.

Backlogs vary by group due to the nature of the Company’s products and the buying patterns of its customers. TBEI’s product lines typically experience average lead times ranging from one to three months. Following the acquisition of TBEI, the Environmental Solutions Group’s weighted average backlog is expected to range from three to five months of shipments. The Safety and Security Systems Group typically experiences an average backlog of approximately two months of shipments. Production of the Company’s September

30 ~~2017 backlog is expected to be substantially completed during the remainder of 2017.~~

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Environmental Solutions

The following table summarizes the Environmental Solutions Group’s operating results as of and for the three and ~~nine~~six months ended~~September~~June 30, ~~2017~~2019 and ~~2016~~2018:


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended June 30,									Six Months Ended June 30,
($ in millions)	2017			2016			Change			2017			2016			Change			2019			2018			Change			2019			2018			Change
Net sales	$	198.5		$	134.3		$	64.2		$	500.6		$	369.1		$	131.5		$	267.2		$	233.3		$	33.9		$	486.7		$	429.9		$	56.8
Operating income	21.2			12.5			8.7			52.5			43.9			8.6			44.8			37.2			7.6			70.5			57.8			12.7
Operating data:
Operating margin	10.7		%	9.3		%	1.4		%	10.5		%	11.9		%	(1.4		)%	16.8		%	15.9		%	0.9		%	14.5		%	13.4		%	1.1		%
Total orders	$	178.2		$	136.0		$	42.2		$	559.5		$	354.5		$	205.0		$	253.2		$	217.3		$	35.9		$	496.9		$	491.7		$	5.2
Backlog	177.7			118.2			59.5			177.7			118.2			59.5			322.0			291.3			30.7			322.0			291.3			30.7
Depreciation and amortization	7.9			4.7			3.2			18.1			9.6			8.5			8.9			8.0			0.9			17.5			15.7			1.8

Three months ended ~~September~~June 30, ~~2017~~2019 vs. three months ended ~~September~~June 30, ~~2016~~2018

Total orders increased by ~~$42.2~~$35.9 million, or ~~31%~~17%, for the three months ended ~~September~~June 30, ~~2017.~~2019. U.S. orders increased by ~~$54.4~~$25.3 million, or ~~59%~~15%, primarily due to ~~the acquisition of TBEI which contributed $40.7 million of orders, as well as improvements~~increases in orders for sewer cleaners, ~~street sweepers~~dump truck bodies, and vacuum trucks, of ~~$8.9~~$10.8 million, ~~$3.9~~$8.1 million, and $6.4 million, respectively. Additionally, aftermarket demand increased by $7.7 million. Partially offsetting these improvements were reductions in orders for street sweepers and trailers of $3.4 million and $3.3 million, respectively. Non-U.S. orders increased by $10.6 million, or 24%, primarily due to improvements in orders for refuse trucks, vacuum trucks, and street sweepers of $7.5 million, $3.4 million, and $2.6 million, respectively, which were partially offset by a $2.1 million decrease in orders for sewer cleaners.

Net sales increased by $33.9 million, or 15%, for the three months ended June 30, 2019. U.S. sales increased by $25.6 million, primarily due to increases in sales of vacuum trucks, sewer cleaners, and dump truck bodies of $14.1 million, $5.1 million, and $3.2 million, respectively. In addition, aftermarket sales increased by $6.0 million. Partially offsetting these increases was a ~~$3.5~~$2.1 million ~~decrease~~reduction in ~~refuse truck orders.~~sales of trailers. Non-U.S. orders decreased by $12.2 million, or 28%, compared to the prior-year quarter, which included an adjustment of $9.9 million to increase the backlog acquired in the JJE acquisition, initially reported in the second quarter of last year.

Net sales increased by ~~$64.2~~$8.3 million, primarily due to increases in sales of sewer cleaners and vacuum trucks of $3.6 million and $3.1 million, respectively. In addition, aftermarket sales increased by $2.0 million.

Cost of sales increased by $25.1 million, or ~~48%~~14%, for the three months ended ~~September~~June 30, ~~2017. U.S.~~2019, primarily attributable to increased sales ~~increased by $63.9 million, primarily due~~volumes, higher material costs in comparison to the ~~acquisition of TBEI which contributed $46.9 million of sales, increases in shipments of sewer cleaners, vacuum trucks~~prior-year quarter, and ~~street sweepers of $6.5 million, $5.6 million and $1.7 million, respectively, as well as~~ a ~~$1.0~~$0.9 million increase in ~~rental income. Non-U.S. sales were up $0.3~~depreciation expense, partially offset by a $0.2 million ~~compared~~reduction in purchase accounting expenses. Gross margin improved to 25.0% from 24.8% in the prior-year quarter, primarily due to ~~a $1.7 million increase in rental income, which was partially offset by lower sales of used equipment.~~

~~Cost of sales increased by $47.5 million, or 44%, for the three months ended September 30, 2017, primarily attributable to increased sales volumes, additional cost of sales~~improved operating leverage, benefits from ~~the TBEI acquisition, a $1.0 million decrease in expense associated with purchase accounting effects~~pricing actions, and ~~a $1.0 million increase in depreciation expense in connection with current and prior-year acquisitions. Gross margin increased to 21.6% from 19.4% in the prior-year quarter, due to~~ favorable sales ~~mix, improved manufacturing leverage and the impact of the decrease in purchase accounting expense effects.~~

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mix.

SEG&A expenses increased by ~~$8.0~~$0.9 million for the three months ended ~~September~~June 30, ~~2017, largely~~2019, primarily due to ~~the addition~~higher employee related expenses. As a percentage of net sales, SEG&A expenses ~~of businesses acquired~~decreased from 8.7% in the ~~current year and a $2.2 million increase~~prior-year quarter, to 8.0% in ~~amortization expense.~~the current-year quarter.

Operating income for the three months ended ~~September~~June 30, ~~2017~~2019 increased by ~~$8.7~~$7.6 million, largely due to a ~~$16.7~~$8.8 million increase in gross profit, partially offset by the ~~$8.0~~$0.9 million increase in SEG&A expenses and a $0.3 million increase in acquisition-related expenses.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 vs. ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

Total orders increased by ~~$205.0~~$5.2 million, or ~~58%~~1%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019. U.S. orders ~~increased~~decreased by ~~$185.9~~$11.0 million, ~~largely~~or 3%, primarily due ~~the current year acquisition of TBEI which added $98.6 million in orders, as well as increases~~to decreases in orders for sewer cleaners, street sweepers, and trailers of $9.0 million, $8.5 million, and $7.4 million, respectively. Partially offsetting these decreases was a $9.5 million improvement in aftermarket demand and a $4.4 million increase in orders for vacuum trucks. Non-U.S. orders increased by $16.2 million, or 18%, primarily due to increases in orders for vacuum trucks, refuse trucks, and street sweepers of ~~$39.7~~$9.2 million, ~~$21.8~~$7.0 million, and ~~$9.8~~$1.5 million, respectively. ~~Non-U.S. orders~~In addition, aftermarket demand increased by ~~$19.1~~$3.4 million. Partially offsetting these improvements were reductions in orders for sewer cleaners, snow removal trucks, and waterblasting equipment of $1.5 million, ~~primarily attributed to the acquisition of JJE, completed in June last year.~~$1.3 million, and $1.2 million, respectively.

Net sales increased by ~~$131.5~~$56.8 million, or ~~36%~~13%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019. U.S. sales increased by ~~$100.2~~$35.7 million, ~~or 35%,~~ primarily due to ~~the current-year acquisition of TBEI which contributed $64.9 million of sales, and~~ increases in ~~shipments~~sales of vacuum trucks, ~~and~~dump truck bodies, street sweepers, sewer cleaners, and waterblasting equipment of ~~$9.6~~$18.0 million, $5.7 million, $2.8 million, $2.6 million, and ~~$6.9~~$2.3 million, respectively. In addition, ~~rental income and~~ aftermarket

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sales ~~of used equipment improved~~increased by ~~$4.9 million and $5.0 million, respectively, largely due to the current-year period including nine months of JJE activity compared with four months last year.~~$5.8 million. Partially offsetting these ~~improvements~~increases was a ~~$9.1~~$1.0 million ~~decrease~~reduction in ~~street sweeper sales.~~sales of trailers. Non-U.S. sales increased by ~~$31.3~~$21.1 million, ~~or 36%,~~ primarily due to ~~the effects of the additional JJE activity in the current-year period, including~~ increases in ~~rental income and~~ sales of ~~used equipment~~vacuum trucks, sewer cleaners, refuse trucks, and street sweepers of ~~$6.5~~$7.6 million, $6.9 million, $4.1 million, and ~~$3.5~~$2.3 million, respectively. In addition, aftermarket sales increased by $3.7 million. Partially offsetting these increases were reductions in sales of snow removal trucks of $2.8 million.

Cost of sales increased by ~~$108.4~~$41.8 million, or ~~38%~~13%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, primarily attributable to ~~higher~~increased sales volumes, ~~additional cost~~higher material costs in comparison to the first half of sales from the TBEI acquisition and the effects of nine months of JJE activity in the current-year period, recognition of approximately $1.5 million more expense associated with purchase accounting effects2018, and a ~~$5.6~~$2.0 million increase in depreciation expense, ~~largely resulting from depreciation on rental equipment acquired~~partially offset by a $0.7 million reduction in ~~the JJE transaction.~~purchase accounting expenses. Gross margin ~~decreased~~improved to ~~20.7%~~23.8% from ~~21.8%~~23.4% in the prior-year period, ~~largely~~primarily due to ~~the aforementioned incremental depreciation~~improved operating leverage, benefits from pricing actions, and ~~purchase accounting expense effects.~~favorable sales mix.

SEG&A expenses increased by ~~$14.1~~$1.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, largely~~2019, primarily due to ~~the addition~~higher employee-related expenses. As a percentage of net sales, SEG&A expenses ~~of businesses acquired~~decreased from 9.9% in the ~~current and prior year and a $2.9 million increase~~prior-year period, to 9.1% in ~~amortization expense.~~the current-year period.

Operating income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 increased by ~~$8.6~~$12.7 million, largely due to ~~the $23.1~~a $15.0 million increase in gross profit, partially offset by the ~~$14.1~~$1.9 million increase in SEG&A expenses and ~~an increase of~~a $0.4 million ~~of acquisition and integration-related expenses,~~increase in acquisition-related expenses.

Backlog was ~~$177.7~~$322.0 million at ~~September~~June 30, ~~2017,~~2019, up ~~50.3%~~11% compared to ~~$118.2~~$291.3 million at ~~September~~June 30, ~~2016.~~2018. The increase ~~is primarily~~was largely due to ~~the contribution of $33.5 million of backlog from TBEI, as well as the effects of improved~~continued strong demand for sewer cleaners and vacuum ~~trucks, and street sweepers in the US.~~trucks.

Safety and Security Systems

The following table summarizes the Safety and Security Systems Group’s operating results as of and for the three and ~~nine~~six months ended~~September~~June 30, ~~2017~~2019 and ~~2016~~2018:


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended June 30,									Six Months Ended June 30,
($ in millions)	2017			2016			Change			2017			2016			Change			2019			2018			Change			2019			2018			Change
Net sales	$	50.2		$	52.4		$	(2.2	)	$	150.3		$	162.7		$	(12.4	)	$	57.1		$	57.7		$	(0.6	)	$	111.4		$	110.8		$	0.6
Operating income	6.1			6.5			(0.4		)	18.1			18.0			0.1			9.5			8.2			1.3			18.2			14.3			3.9
Operating data:
Operating margin	12.2		%	12.4		%	(0.2		)%	12.0		%	11.1		%	0.9		%	16.6		%	14.2		%	2.4		%	16.3		%	12.9		%	3.4		%
Total orders	$	51.4		$	50.1		$	1.3		$	155.8		$	154.6		$	1.2		$	54.8		$	60.3		$	(5.5	)	$	110.1		$	115.6		$	(5.5	)
Backlog	26.0			30.5			(4.5		)	26.0			30.5			(4.5		)	25.7			31.0			(5.3		)	25.7			31.0			(5.3		)
Depreciation and amortization	1.1			1.1			—			3.1			3.3			(0.2		)	0.8			1.0			(0.2		)	1.7			1.9			(0.2		)

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Three months ended ~~September~~June 30, ~~2017~~2019 vs. three months ended ~~September~~June 30, ~~2016~~2018

Total orders ~~increased~~for the three months ended June 30, 2019 decreased by ~~$1.3~~$5.5 million, or 3%9%, compared with the prior-year quarter. U.S. orders decreased by $4.4 million, primarily driven by a $2.7 million decrease in orders for public safety products, largely due to delays of police vehicle production following a major manufacturer’s changeover to a new model, and a $2.1 million reduction in orders for warning systems. Partially offsetting these decreases was a $0.4 million improvement in orders for industrial signaling equipment. Non-U.S. orders decreased by $1.1 million, largely due to a $0.9 million unfavorable foreign currency translation impact, and reductions in orders for warning systems and public safety products of $0.6 million and $0.5 million, respectively, which were partially offset by a $0.9 million improvement in orders for industrial signaling equipment.

Net sales decreased by $0.6 million, or 1%, for the three months ended ~~September~~June 30, ~~2017.~~ 2019.In the aggregate,U.S. ~~orders decreased~~sales increased by ~~$1.5~~$0.1 million, primarily ~~driven~~due to a $1.4 million improvement in sales of industrial signaling equipment, partially offset by ~~a $1.3 million reduction~~decreases in ~~orders for~~sales of public safety ~~products.~~products and warning systems of $0.8 million and $0.5 million, respectively. Non-U.S. ~~orders increased by $2.8 million, largely due to higher orders for industrial products from customers in the Middle East.~~

~~Net~~ sales decreased by ~~$2.2~~$0.7 million, or 4%3%, primarily due an unfavorable foreign currency impact of $0.9 million and reductions in sales of warning systems and public safety products of $0.7 million and $0.6 million, respectively, partially offset by a $1.5 million improvement in sales of industrial signaling equipment.

Cost of sales for the three months ended ~~September~~June 30, ~~2017.~~ ~~U.S. sales increased~~2019 decreased by ~~$2.3~~$1.6 million, or 7%4%, primarily ~~due~~related to a $3.8 million improvement in sales into domestic industrial markets, partially offset by a $0.9 million reduction in sales into domestic public safety markets. Non-U.S. sales decreased by $4.5 million, or 26%, primarily due to reductions in sales into international industrial and public safety markets of $2.8 million and $1.4 million, respectively.

~~Cost of sales decreased by $1.5 million, or 5%, for the three months ended September 30, 2017, largely due to the effects of~~ lower sales ~~volumes.~~volumes and a favorable foreign currency translation impact of $0.7 million. Gross margin for the three months ended ~~September~~June 30, ~~2017 was 36.9%~~2019 improved to 39.1%, compared to ~~36.6%~~36.9% in the prior-year quarter, primarily due to benefits from pricing actions and improved sales mix in comparison to the prior-year quarter.

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SEG&A expenses for the three months ended ~~September~~June 30, ~~2017 were unchanged~~2019 remained relatively flat compared to the prior-year quarter, decreasing by $0.3 million, or 2%. As a percentage of net sales, SEG&A expenses decreased from 22.7% in the prior-year quarter, to 22.4% in the current-year quarter.

Operating income ~~decreased~~increased by ~~$0.4~~$1.3 million, or 16%, for the three months ended ~~September~~June 30, ~~2017, largely due~~2019. The increase was primarily attributable to the ~~$0.7~~$1.0 million improvement in gross profit and the $0.3 million reduction in ~~gross profit, partially offset by a $0.3 million decrease in restructuring charges.~~SEG&A expenses.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 vs. ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

Total orders ~~increased~~decreased by ~~$1.2~~$5.5 million, or 5%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019. U.S. orders decreased by ~~$1.1~~$3.4 million, primarily ~~driven by~~due to reductions in orders for ~~domestic outdoor~~ warning systems and public safety products of ~~$1.3~~$2.7 million and ~~$1.2~~$1.8 million, respectively, which were partially offset by a ~~$2.0~~$1.1 million increase in orders for industrial ~~products.~~signaling equipment. Non-U.S. orders ~~increased~~decreased by ~~$2.3~~$2.1 million, ~~driven by improvements~~primarily due to a $2.0 million unfavorable foreign currency translation impact, and reductions in orders ~~from international industrial~~for public safety products and ~~coal markets~~warning systems of ~~$5.0~~$1.5 million and ~~$1.9~~$1.1 million, ~~respectively. These improvements~~respectively, which were partially offset by ~~decreases~~a $2.5 million improvement in orders for ~~international public safety products and outdoor warning systems of $3.3 million and $1.3 million, respectively, compared to the prior year.~~industrial signaling equipment.

Net sales ~~decreased~~increased by ~~$12.4~~$0.6 million, or 8%1%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~ 2019.U.S. sales decreased by ~~approximately $2.3~~$0.1 million, primarily due to reductions in sales of warning systems and public safety products of $1.8 million and $0.2 million, respectively, which were partially offset by a $1.9 million improvement in sales of industrial signaling equipment. Non-U.S. sales increased by $0.7 million, or 2%, primarily due to ~~lower~~improvements in sales ~~into domestic~~of industrial signaling equipment and public safety ~~markets. Non-U.S. sales decreased~~products of $1.9 million and $1.3 million, respectively, partially offset by ~~$10.1~~an unfavorable foreign currency translation impact of $2.0 million ~~or 17%, primarily driven by~~and a ~~$6.4~~$0.5 million ~~decrease~~reduction in sales ~~into international public safety markets, and a $3.6 million decrease in sales into international industrial markets.~~of warning systems.

Cost of sales for the six months ended June 30, 2019 decreased by ~~$11.2~~$2.6 million, or ~~11%~~4%, ~~for the nine months ended September 30, 2017,~~ largely due to ~~the effects~~favorable sales mix and a favorable foreign currency translation impact of ~~lower sales volumes, as well as the effects of material cost reduction initiatives implemented in prior periods. These actions contributed to an improved gross~~$1.5 million. Gross margin for the ~~nine~~six months ended ~~September~~June 30, ~~2017 of 37.3%~~2019 improved to 39.0%, compared to ~~35.2%~~36.4% in the prior-year ~~quarter.~~period, primarily due to benefits from pricing actions and improved sales mix in comparison to the prior-year period.

SEG&A expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017 were $0.2~~2019 decreased by $0.7 million, ~~lower than~~or 3%. As a percentage of net sales, SEG&A expenses decreased from 23.5% in the prior-year ~~quarter, with savings realized from prior year restructuring activities being partially offset by strategic investments~~period, to 22.7% in ~~support of new product development initiatives.~~the current-year period.

Operating income increased by ~~$0.1~~$3.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, with reductions~~2019. The increase was primarily attributable to the $3.2 million improvement in gross profit and the $0.7 million reduction in SEG&A ~~expenses and restructuring expenses of $0.2 million and $1.1 million, respectively, more than offsetting the $1.2 million decrease in gross profit.~~expenses.

Backlog was ~~$26.0~~$25.7 million at ~~September~~June 30, ~~2017~~2019, compared to ~~$30.5~~$31.0 million at ~~September~~June 30, ~~2016. The decrease was largely driven by lower orders for public safety products.~~2018.

Corporate Expenses

Corporate operating expenses for the three months ended ~~September~~June 30, ~~2017~~2019 were ~~$5.1~~$8.0 million, compared to ~~$5.5~~$7.3 million in the prior-year quarter. The ~~decrease~~increase was primarily driven by ~~a net decrease~~increases in employee ~~compensation~~and post-employment expenses, ~~and lower pension costs, partially offset by~~as well as a ~~$0.4~~$0.2 million increase in ~~acquisition and integration-related~~acquisition-related expenses.

Corporate operating expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 were ~~$18.4~~$16.6 million, compared to ~~$18.0~~$14.4 million in the prior-year ~~period,~~period. The increase was primarily driven by higher employee-related costs, post-employment expenses, and a ~~$0.6~~$0.2 million increase in ~~acquisition and integration-related~~acquisition-related expenses, ~~associated with the TBEI acquisition and the recognition of $0.7 million in executive severance costs,~~which were partially offset by lower ~~pension costs.~~expenses associated with hearing loss litigation.

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Seasonality of Company’s Business

Certain of the Company’s businesses are susceptible to the influences of seasonal factors, including buying patterns, delivery patterns and productivity influences from holiday periods and weather. In general, the Company tends to have lower equipment sales in the first calendar quarter of each year compared to other quarters as a result of these factors. In addition, rental income and parts sales are generally higher in the second and third quarters of the year, because many of the Company’s products are used for maintenance activities in North America, where usage is typically lower during periods of harsher weather conditions.

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Financial Condition, Liquidity and Capital Resources

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

The Company’s cash and cash equivalents totaled ~~$28.2~~$38.6 million and ~~$50.7~~$37.4 million as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. As of ~~September~~June 30, ~~2017, $12.7~~2019, $18.5 million of cash and cash equivalents was held by foreign subsidiaries. Cash and cash equivalents held by subsidiaries outside the U.S. typically are held in the currency of the country in which it is located. This cash is used to fund the operating activities of our foreign subsidiaries and for further investment in foreign operations. ~~Generally,~~Historically, we ~~consider~~have considered such cash to be permanently reinvested in our foreign operations and our current plans do not demonstrate a need to repatriate such cash to fund U.S. operations. However, in the event that these funds ~~were~~are needed to fund U.S. operations or to satisfy U.S. obligations, they generally could be repatriated. The repatriation of these funds may ~~then~~ cause us to incur additional U.S. income tax expense, ~~which would be~~ dependent on income tax laws and other circumstances at the time any such amounts are repatriated. While the Company has no transition tax liability, the Company continues to assert that its undistributed earnings of certain foreign subsidiaries are indefinitely reinvested. The Company will continue to evaluate its U.S. and foreign cash needs and, as circumstances change, may change its assertion related to all or a portion of its undistributed foreign earnings.

In the six months ended June 30, 2019, net cash of $25.8 million was provided by operating activities, compared to $37.8 million in the prior-year period. Higher earnings were ~~repatriated.~~offset by increases in working capital requirements, higher incentive compensation and tax payments, and rental fleet investment.

Net cash of ~~$52.1~~$9.4 million was ~~generated by continuing operating~~used for investing activities in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to ~~$17.1~~$3.9 million in the prior-year ~~period, largely due to higher earnings~~period. Capital expenditures in the six months ended June 30, 2019 and ~~benefits from reductions in primary working capital in comparison to~~2018 were $9.4 million and $7.0 million, respectively. During the ~~same period~~six months ended June 30, 2018, the Company also received $3.0 million as part of the prior year. We began 2017 with higher total primary working capital levels (defined as accounts receivable and inventories, net, less accounts payable and customer deposits) than when entering the prior year, partly due to the acquisitionfinalization of JJE, whose inventory levels at any point in time can fluctuate based on demand given the distribution model, as well as the advanced purchase of inventory to meet anticipated production requirements. Partially offsetting this improvement was a $5 million year-over-year increase in income tax payments, with approximately $8 million more income tax payments being funded in the third quarter of this year, when compared to the prior-year quarter. The operating cash flow in the prior-year period was also lower by approximately $11 million as a result of the non-cash settlement,certain post-closing adjustments in connection with the 2017 acquisition of ~~accounts receivable due from JJE.~~Truck Bodies and Equipment International.

Net cash of ~~$274.3 million and $101.9~~$15.4 million was used for continuing investing activities in the nine months ended September 30, 2017 and 2016, respectively. In the nine months ended September 30, 2017, the Company paid an initial $269.2 million (net of cash acquired) to acquire TBEI. In the nine months ended September 30, 2016, the Company paid $102.6 million to acquire Westech Vac Systems, Ltd. and JJE. Capital expenditures in the nine months ended September 30, 2017 and 2016 were $5.3 million and $4.8 million, respectively. In addition, during the nine months ended September 30, 2016, the Company also received $6.0 million from a customer as full repayment of a loan that was originally provided in the fourth quarter of 2015. Net cash provided by discontinued investing activities totaled $88.0 million in the nine months ended September 30, 2016, which represented the net proceeds received from the sale of Bronto.

~~Net cash of $200.0 million was provided by continuing~~ financing activities in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared ~~with a net cash usage of $28.9~~to $34.9 million in the prior-year period. In the ~~nine~~six months ended ~~September~~June 30, ~~2017, in connection with the funding of the acquisition of TBEI,~~2019, the Company ~~borrowed $243.0 million against its revolving credit facility. Between the TBEI acquisition date and the end of the third quarter, approximately $29~~paid down $3.1 million of ~~net borrowings were repaid. In addition, the Company~~debt, funded cash dividends and share repurchases of ~~$12.6~~$9.6 million and $1.0 million, respectively, and redeemed ~~$2.5~~$1.6 million of stock in order to remit funds to tax authorities to satisfy employees’ tax withholdings following the vesting of stock-based compensation. In the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, the Company ~~borrowed $64.8~~paid down $26.6 million ~~against its revolving credit facility,~~of debt and funded cash dividends of $12.8 million, repurchased $33.8 million of treasury stock, and redeemed $2.6 million of stock in order to remit funds to tax authorities to satisfy employees’ tax withholdings following the vesting of stock-based compensation. The Company also paid the remaining $43.4 million of term loan debt outstanding under a prior debt agreement and spent $1.1 million on fees in connection with its debt refinancing.

As described in Note 5 – Debt to the accompanying condensed consolidated financial statements, on June 2, 2017, the Company executed an amendment to the 2016 Credit Agreement which increased the borrowing capacity under the Company’s

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~~credit facility to $400.0~~$9.0 million. The Amended 2016 Credit Agreement allows for the Borrowers to borrow in denominations of U.S. Dollars, Canadian Dollars (up to a maximum of C$100.0 million) or Euros (up to a maximum of €20.0 million).

As of ~~September~~June 30, ~~2017,~~2019, there was ~~$282.6~~$208.8 million of cash drawn and ~~$18.1~~$11.3 million of undrawn letters of credit under the Amended 2016 Credit Agreement, with ~~$99.3~~$179.9 million of net availability for borrowings. As

During the six months ended June 30, 2019, the Company announced plans to expand the primary production facility of ~~September 30, 2017, there were no borrowings against~~its Vactor Manufacturing, Inc. subsidiary. Over the ~~Company’s non-U.S. lines~~course of ~~credit which provide for borrowings of~~the expansion project, the Company is expecting to invest up to ~~$0.1~~$25 million.

The Company anticipates that capital expenditures for ~~2017~~2019, excluding investment associated with the Vactor plant expansion, will be ~~less than $10~~in the range of $15 million to $20 million.

On July 1, 2019, the Company completed the acquisition of Mark Rite Lines Equipment Company, Inc. for initial cash consideration of $49.8 million, inclusive of certain preliminary closing adjustments. In addition, during the third quarter of 2019, the Company is expecting to pay an aggregate sum of approximately C$17.6 million (approximately $13.4 million) to settle the contingent consideration liability and fund substantially all of the deferred payment associated with the acquisition of JJE.

On July 30, 2019, the Company entered into the 2019 Credit Agreement, which amends and restates the Amended 2016 Credit Agreement. The 2019 Credit Agreement increases the Company’s revolving credit facility from $400 million to $500 million. In addition, the Company may cause the revolving commitments to increase by and/or incur term loans up to an additional $250 million, subject to the approval of the applicable lenders providing such additional financing. In addition to increasing the Company’s net availability for borrowings, the 2019 Credit Agreement includes improved pricing and more favorable terms in comparison to the Amended 2016 Credit Agreement.

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Contractual Obligations and Off-Balance Sheet Arrangements

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, there have been no material changes in the Company’s contractual obligations and off-balance sheet arrangements as described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016, with the exception of increased long-term debt and related estimated interest payments and purchase obligations related to the TBEI acquisition, as described below.~~

The Company’s purchase obligations, which primarily relate to commercial chassis, vehicle bodies and other contracts in the ordinary course of business, have increased from the $71.9 million reported in the Company’s Annual Report on Form 10-K as of December 31, 2016 to $100.7 million as of September 30, 2017, with $93.4 million in payments due in less than one year and $7.3 million in payments due in one to three years.

In addition, the Company’s long-term debt increased from the $63.2 million reported in the Company’s Annual Report on Form 10-K as of December 31, 2016 to $282.6 million as of September 30, 2017, which is payable in three to five years. The corresponding estimated contractual interest payments on long-term debt have increased from $5.0 million as of December 31, 2016 to $28.9 million as of September 30, 2017, with $8.7 million due in less than a year, $17.4 million due in one to three years, and $2.8 million due in three to five years.2018.

~~Critical Accounting Policies and Estimates~~

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company has disclosed the policies it considers to be the most critical in understanding the judgments that are involved in the preparation of the Company’s consolidated financial statements and the uncertainties that could impact the Company’s financial condition, results of operations or cash flow in Item 7, ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.~~

As discussed in Note 2 – Acquisitions, on June 2, 2017, the Company completed the acquisition of TBEI. The Company has added a critical accounting policy related to intangible assets based on the significance of the intangible assets recognized as part of the preliminary purchase price allocation.

~~There were no other material changes in the Company’s critical accounting policies and estimates as described in Item 7,~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.~~

~~Indefinite-lived Intangible Assets~~

An intangible asset determined to have an indefinite useful life is not amortized. Indefinite-lived intangible assets are tested for impairment on an annual basis at year-end, or more frequently if an event occurs or circumstances change that indicate the fair value of an indefinite-lived intangible asset could be below its carrying amount.

The impairment test consists of comparing the fair value of the indefinite-lived intangible asset with its carrying amount. An impairment loss would be recognized for the carrying amount in excess of its fair value.

Significant judgment is applied when evaluating whether an intangible asset has an indefinite useful life. In addition, for indefinite-lived intangible assets, significant judgment is applied in testing for impairment. This judgment includes developing

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~~cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, and incorporating general economic and market conditions.~~

Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from estimated financial results due to the inherent uncertainty involved in making such estimates. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the assets and potentially result in different impacts to the company's results of operations. Actual results may differ from the Company's estimates.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk.

See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, there have been no significant changes in our exposure to market risk, with the exception of increased market risk associated with changes in interest rates based on the increase in fair value of the Company’s debt obligations as of September 30, 2017 as compared to December 31, 2016.

~~Interest Rate Risk~~

Our debt instruments subject us to market risk associated with movements in interest rates. The fair value of the Company’s total debt obligations held at September 30, 2017 was $283.1 million. On June 2, 2017, the Company entered into an interest rate swap with a notional amount of $150.0 million, as a means of fixing the floating interest rate component on $150.0 million of its variable-rate debt. See Note 5 – Debt to the accompanying condensed consolidated financial statements for a description of our debt agreements and related derivative financial instrument. A hypothetical 100 basis point increase or decrease in variable interest rates in 2017 would increase or decrease interest expense by approximately $0.3 million in the fourth quarter of 2017, based on current debt levels.risk.


Item 4.	Controls and Procedures.

As required by Rule 13a-15 under the Exchange Act, the Company’s management, with the participation of the Company’s Chief Executive Officer and ~~Interim~~ Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of ~~September~~June 30, ~~2017.~~2019. Based on that evaluation, the Company’s Chief Executive Officer and ~~Interim~~ Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~2019.

As a matter of practice, the Company’s management continues to review and document internal control and procedures for financial reporting. From time to time, the Company may make changes aimed at enhancing the effectiveness of the controls and ensuring that the systems evolve with the business. SEC guidance permits management to omit an assessment of internal control over financial reporting for an acquired business from management’s assessment of internal control over financial reporting for a period not to exceed one year from the date of the acquisition. During the nine months ended September 30, 2017, the Company completed the acquisition of TBEI. As of September 30, 2017, management has not yet fully assessed TBEI’s internal control over financial reporting. Management also expects to exclude TBEI’s internal controls over financial reporting from its assessment of the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2017. Excluding the acquisition of TBEI, thereThere were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting during the three months ended ~~September~~June 30, ~~2017.~~2019.

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PART II. OTHER INFORMATION


Item 1.	Legal Proceedings.

The information set forth under the heading “Legal Proceedings” in Note 8 – Commitments and Contingencies to the accompanying condensed consolidated financial statements as included in Part I of this Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors.

There have been no material changes in the Company’s risk factors as described in Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018, except that the Company entered into a new three-year collective bargaining agreement with the International Brotherhood of Electrical Workers, effective April 2019.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

~~Restrictions upon the Payment of Dividends~~

~~Under the terms~~The following table provides a summary of the ~~Amended 2016 Credit Agreement, restricted payments, including dividends and~~Company’s repurchase activity for its common stock ~~repurchases, shall be permitted if (i)~~during the Company’s leverage ratio is less than or equal to 2.50, (ii) the Company is in compliance with all other financial covenants and (iii) there are no existing defaults under the Amended 2016 Credit Agreement. If the leverage ratio is more than 2.50, the Company is still permitted to fund (i) up to $30.0 million of dividend payments, (ii) stock repurchases sufficient to offset dilution created by the issuance of equity as compensation to its officers, directors, employees and consultants and (iii) an incremental $30.0 million of other cash payments.

~~The Company is able to declare dividends at current levels under the restricted payment guidelines set forth above.~~

~~Purchases of Equity Securities~~three months ended June 30, 2019:

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ^(a)
July 2017 (7/2/17 – 8/5/17) —
$ —
—
$ 31,395,802
August 2017 (8/6/17 – 9/2/17) —
—
—
31,395,802
September 2017 (9/3/17 – 9/30/17) —
—
—
31,395,802



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ^(a)
April 2019 (3/31/19 – 5/4/19)	—	$	—	—	$	29,198,155
May 2019 (5/5/19 – 6/1/19)	—	—		—	29,198,155
June 2019 (6/2/19 – 6/29/19)	—	—		—	29,198,155


(a)	On November 4, 2014, the Board authorized a stock repurchase program of up to $75.0 million of the Company’s common stock.


Item 3.	Defaults upon Senior Securities.

None.


Item 4.	Mine Safety Disclosures.

Not applicable.


Item 5.	Other Information.

~~Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers~~

Other Events

On ~~October~~July 30, ~~2017,~~2019, the Company ~~accepted~~entered into the ~~resignation of David G. Martin, Chief Operating Officer, effective October 30, 2017.~~

~~In connection with his resignation,~~2019 Credit Agreement, by and among the Company and ~~Mr. Martin have entered into an~~certain of its foreign subsidiaries, Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender, JPMorgan Chase Bank, N.A. as syndication agent, KeyBank National Association, PNC Bank, National Association, and SunTrust Bank, as documentation agents, Wells Fargo Securities, LLC and JPMorgan Chase Bank, N.A., as joint lead arrangers and joint bookrunners, and the other lenders and parties signatory thereto. The 2019 Credit Agreement, which amends and ~~General Release dated as of October~~restates the Company’s Amended 2016 Credit Agreement, is a $500 million revolving credit facility, maturing on July 30, ~~2017 (the “Agreement”). The Agreement~~2024, that provides for borrowings in the ~~accelerated vesting~~form of ~~10,282 shares~~loans or letters of ~~restricted stock~~credit up to the aggregate availability under the facility, with a sub-limit of $75 million for letters of credit. In addition, the Company may cause the commitments to increase by up to an additional $250 million, subject to the approval of the ~~Company granted~~applicable lenders providing such additional financing. Refer to Mr. Martin upon his acceptance of employment. This award, initially valued at $175,000, was granted to Mr. Martin in May 2017 to compensate him for equity-based awards received from his prior employer that he forfeited upon joining the Company. All other equity awards held by Mr. Martin will be canceled or forfeited on his last day of employment. Additionally, in recognition of Mr. Martin’s servicesNote 13 – Subsequent Events to the ~~Company during~~accompanying condensed consolidated financial statements for a description of certain additional, material terms and conditions contained in the period of his employment, the Company will pay Mr. Martin: (i) the sum of $87,641, payable in a single installment, less taxes and withholdings, which is an amount approximately equivalent to a pro-rata portion of Mr. Martin’s 2017 annual cash incentive bonus based on target level of performance for the financial objectives; and (ii) the sum of $6,700, payable in a single installment, less taxes and

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~~withholdings, which is an amount approximately equivalent to the cost to Mr. Martin for active rate COBRA over a six-month period.~~

Pursuant to the Agreement, Mr. Martin agreed to a general release of the Company from any claims, damages, obligations or actions arising out of or related to his employment and the cessation of his employment with the Company and reaffirmed certain confidentiality, non-competition and non-solicitation provisions. The Agreement is subject to revocation on the part of Mr. Martin no later than November 6, 2017.

~~The forgoing~~2019 Credit Agreement. This summary of the ~~material terms of the~~2019 Credit Agreement ~~does~~is not ~~purport~~intended to be complete and is ~~subject to and~~ qualified in its entirety by reference to the ~~complete text of the agreement, a copy of~~2019 Credit Agreement, which is ~~filed~~attached hereto as Exhibit 10.1 to this Current Report on Form 10-Q and is incorporated herein by reference.

~~Other Events~~

On ~~November 2, 2017,~~July 31, 2019, the Company issued a press release announcing its financial results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019 and the execution of the aforementioned 2019 Credit Agreement. The presentation slides for the second quarter 2019 earnings call were also posted on the Company’s website at that time. The full text of the ~~third~~second quarter financial results press release isand earnings presentation are attached hereto as ~~Exhibit~~Exhibits 99.1 and 99.2, respectively, to this Form 10-Q.

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Item 6. Exhibits.



3.1		Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed April 30, 2010.

3.2		Amended and Restated By-laws of the Company. Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed February 9, 2016.

10.1^*		Second Amended and Restated Credit Agreement, dated as of July 30, 2019, by and ~~General Release, executed October 30, 2017, between~~among the Company, and ~~David G. Martin.~~certain of its foreign subsidiaries, as Borrowers, Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender, JPMorgan Chase Bank, as syndication agent, KeyBank National Association, PNC Bank, National Association and SunTrust Bank, as documentation agents, Wells Fargo Securities, LLC and JP Morgan Chase Bank, N.A., as joint lead arrangers and joint bookrunners, and the other parties thereto.

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		~~Third~~Second Quarter Financial Results Press Release, Dated ~~November 2, 2017.~~July 31, 2019.

99.2		Second Quarter Earnings Call Presentation Slides.

101.INS		XBRL Instance ~~Document.~~Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Label Linkbase Document.

101.PRE		XBRL Taxonomy Presentation Linkbase Document.


*	~~Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K.~~

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SIGNATURE

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

Date:	~~November 2, 2017~~July 31, 2019	/s/ Ian A. Hudson
		Ian A. Hudson
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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(in millions)
Purchase price, inclusive of working capital adjustment ^(a)	$	269.7
Total consideration	269.7

Cash	2.6
Accounts receivable	23.4
Inventories	24.7
Prepaid expenses and other current assets	0.8
Rental equipment	0.8
Properties and equipment	23.4
Customer relationships ^(b)	90.0
Trade names ^(c)	60.0
Other intangible assets	3.0
Accounts payable	(18.7		)
Accrued liabilities	(5.6		)
Deferred tax liabilities	(65.4		)
Net assets acquired	$	139.0

Goodwill ^(d)	$	130.7



(in millions)	Environmental Solutions		Safety & Security Systems		Total
Balance at January 1, 2017	$	127.2	$	109.3	$	236.5
Translation adjustments	0.4		3.8		4.2
Acquisitions	130.7		—		130.7
Balance at September 30, 2017	$	258.3	$	113.1	$	371.4



(in millions)	As of September 30, 2017		As of December 31, 2016
Total assets:
Environmental Solutions	$	761.6	$	393.3
Safety and Security Systems	206.3		200.1
Corporate and eliminations	28.3		48.7
Total assets of continuing operations	996.2		642.1
Total assets of discontinued operations	1.0		1.1
Total assets	$	997.2	$	643.2