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 June 30, ~~2018~~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 ~~July 31, 2018~~,June 30, 2019, the number of shares outstanding of the registrant’s common stock was ~~60,199,716.~~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 Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018		2
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018		3
Condensed Consolidated Balance Sheets as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018		4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018		5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018		6
Notes to Condensed Consolidated Financial Statements		78
Note 1 – Summary of Significant Accounting Policies		78
Note 2 – Revenue Recognition		9
Note 3 – Leases		10
Note 4 – Inventories		11
Note 5 – Debt		12
Note ~~4 – Debt~~		12
~~Note 5~~6 – Income Taxes		13
Note 67 – Pensions		1413
Note 78 – Commitments and Contingencies		1413
Note 89 – Earnings Per Share		19
Note 910 – Stockholders’ Equity		2019
Note 1011 – Segment Information		22
Note 1112 – Fair Value Measurements		2322
Note 13 – Subsequent Events		24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2526
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3435
Item 4.	Controls and Procedures	3435
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		38

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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, ~~2017,~~2018, which was filed with the SEC on February 28, ~~2018.~~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 June 30,					Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
(in millions, except per share data)	2018		2017			2018		2017			2019			2018		2019		2018
Net sales	$	291.0	$	224.4		$	540.7	$	402.2		$	324.3		$	291.0	$	598.1	$	540.7
Cost of sales	211.8		169.7			399.6		303.9			235.3			211.8		438.8		399.6
Gross profit	79.2		54.7			141.1		98.3			89.0			79.2		159.3		141.1
Selling, engineering, general and administrative expenses	40.7		34.8			82.5		66.2			41.8			40.7		85.7		82.5
Acquisition and integration-related expenses	0.4		1.0			0.9		1.5			0.9			0.4		1.5		0.9
Restructuring	—		0.1			—		0.4
Operating income	38.1		18.8			57.7		30.2			46.3			38.1		72.1		57.7
Interest expense	2.5		1.3			5.0		1.9			2.0			2.5		4.0		5.0
Other expense (income), net	0.4		(0.1		)	0.5		(0.3		)
Other (income) expense, net											(0.1		)	0.4		0.3		0.5
Income before income taxes	35.2		17.6			52.2		28.6			44.4			35.2		67.8		52.2
Income tax expense	8.3		6.1			12.4		9.9			11.6			8.3		17.5		12.4
Income from continuing operations	26.9		11.5			39.8		18.7
Loss from discontinued operations and disposal, net of income tax	—		(0.1		)	—		—
Net income	$	26.9	$	11.4		$	39.8	$	18.7		$	32.8		$	26.9	$	50.3	$	39.8
Basic earnings per share:
Earnings from continuing operations	$	0.45	$	0.19		$	0.67	$	0.31
Loss from discontinued operations and disposal, net of tax	—		—			—		—
Net earnings per share	$	0.45	$	0.19		$	0.67	$	0.31
Diluted earnings per share:
Earnings from continuing operations	$	0.44	$	0.19		$	0.65	$	0.31
Loss from discontinued operations and disposal, net of tax	—		—			—		—
Net earnings per share	$	0.44	$	0.19		$	0.65	$	0.31
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	59.9		59.7			59.9		59.7			60.1			59.9		60.1		59.9
Diluted	61.0		60.3			60.9		60.3			61.3			61.0		61.2		60.9
Cash dividends declared per common share	$	0.08	$	0.07		$	0.15	$	0.14

See notes to condensed consolidated financial statements.

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2018			2017			2018			2017		2019			2018			2019			2018
Net income	$	26.9		$	11.4		$	39.8		$	18.7	$	32.8		$	26.9		$	50.3		$	39.8
Other comprehensive (loss) income:
Other comprehensive income (loss):
Change in foreign currency translation adjustment	(5.2		)	5.0			(3.2		)	6.2		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, $0.3, $0.4 and $0.5, respectively	1.7			(0.1		)	1.8			0.1
Change in unrealized net gain on derivatives, net of income tax expense of $0.1, $0.2, $0.3 and $0.2, respectively	0.2			0.2			1.0			0.2
Total other comprehensive (loss) income	(3.3		)	5.1			(0.4		)	6.5
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	$	23.6		$	16.5		$	39.4		$	25.2	$	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


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
(in millions, except per share data)	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	36.0		$	37.5		$	38.6		$	37.4
Accounts receivable, net of allowances for doubtful accounts of $1.3 and $1.1, respectively	131.2			118.2
Accounts receivable, net of allowances for doubtful accounts of $1.8 and $1.6, respectively							145.9			124.4
Inventories	147.7			137.2			173.5			157.3
Prepaid expenses and other current assets	10.1			10.9			9.6			9.4
Total current assets	325.0			303.8			367.6			328.5
Properties and equipment, net of accumulated depreciation of $113.9 and $108.9, respectively	61.0			60.1
Rental equipment, net of accumulated depreciation of $22.3 and $20.0, respectively	94.2			87.2
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	376.0			377.3			375.0			375.1
Intangible assets, net of accumulated amortization of $9.5 and $5.5, respectively	147.4			151.8
Intangible assets, net of accumulated amortization of $17.5 and $13.4, respectively							139.5			143.1
Deferred tax assets	4.6			6.2			11.3			12.5
Deferred charges and other assets	7.5			5.4
Deferred charges and other long-term assets							3.3			5.6
Long-term assets of discontinued operations	0.5			0.5			0.4			0.4
Total assets	$	1,016.2		$	992.3		$	1,095.7		$	1,023.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term borrowings and capital lease obligations	$	0.3		$	0.3
Current portion of long-term borrowings and finance lease obligations							$	0.2		$	0.2
Accounts payable	66.3			51.5			71.3			66.1
Customer deposits	8.6			6.5			10.0			10.1
Accrued liabilities:
Compensation and withholding taxes	22.1			22.2			22.8			29.5
Other current liabilities	53.4			36.1			61.5			52.7
Current liabilities of discontinued operations	0.5			0.5			0.2			0.2
Total current liabilities	151.2			117.1			166.0			158.8
Long-term borrowings and capital lease obligations	247.8			277.4
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	53.3			56.6			54.7			54.6
Deferred gain	7.8			8.7			—			6.8
Deferred tax liabilities	46.8			45.4			51.0			46.3
Other long-term liabilities	15.4			28.2			14.1			15.9
Long-term liabilities of discontinued operations	1.5			1.5			1.2			1.4
Total liabilities	523.8			534.9			515.6			493.7
Stockholders’ equity:
Common stock, $1 par value per share, 90.0 shares authorized, 66.3 and 66.1 shares issued, respectively	66.3			66.1
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	212.7			207.7			221.3			217.0
Retained earnings	377.4			346.6			479.7			432.5
Treasury stock, at cost, 6.1 and 6.1 shares, respectively	(86.7		)	(86.1		)
Treasury stock, at cost, 6.3 and 6.2 shares, respectively							(91.4		)	(88.5		)
Accumulated other comprehensive loss	(77.3		)	(76.9		)	(96.2		)	(97.3		)
Total stockholders’ equity	492.4			457.4			580.1			530.1
Total liabilities and stockholders’ equity	$	1,016.2		$	992.3		$	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)


	Six Months Ended June 30,						Six Months Ended June 30,
(in millions)	2018			2017			2019			2018
Operating activities:
Net income	$	39.8		$	18.7		$	50.3		$	39.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17.6			12.3			19.3			17.6
Deferred financing costs	0.2			0.2			0.2			0.2
Deferred gain	(0.9		)	(1.0		)	—			(0.9		)
Stock-based compensation expense	4.0			2.7			4.2			4.0
Pension expense, net of funding	(3.2		)	(2.8		)	(0.1		)	(3.2		)
Changes in fair value of contingent consideration and deferred payment	0.6			0.5			0.8			0.6
Deferred income taxes	2.0			2.8			4.0			2.0
Changes in operating assets and liabilities	(22.3		)	12.4			(52.9		)	(22.3		)
Net cash provided by continuing operating activities	37.8			45.8
Net cash used for discontinued operating activities	—			(0.3		)
Net cash provided by operating activities	37.8			45.5			25.8			37.8
Investing activities:
Purchases of properties and equipment	(7.0		)	(2.7		)	(9.4		)	(7.0		)
Proceeds from (payments for) acquisition-related activity	3.0			(269.2		)
Proceeds from acquisition-related activity							—			3.0
Other, net	0.1			0.1			—			0.1
Net cash used for continuing investing activities	(3.9		)	(271.8		)
Net cash used for discontinued investing activities	—			(1.1		)
Net cash used for investing activities	(3.9		)	(272.9		)	(9.4		)	(3.9		)
Financing activities:
(Decrease) increase in revolving lines of credit, net	(26.6		)	223.0
Payments of debt financing fees	—			(0.2		)
Decrease in revolving lines of credit, net							(3.1		)	(26.6		)
Purchases of treasury stock							(1.0		)	—
Redemptions of common stock to satisfy withholding taxes related to stock-based compensation	(0.3		)	(2.4		)	(1.6		)	(0.3		)
Cash dividends paid to stockholders	(9.0		)	(8.4		)	(9.6		)	(9.0		)
Proceeds from stock-based compensation activity	0.9			1.2			—			0.9
Other, net	0.1			(0.2		)	(0.1		)	0.1
Net cash (used for) provided by continuing financing activities	(34.9		)	213.0
Net cash used for discontinued financing activities	—			—
Net cash (used for) provided by financing activities	(34.9		)	213.0
Net cash used for financing activities							(15.4		)	(34.9		)
Effects of foreign exchange rate changes on cash and cash equivalents	(0.5		)	0.7			0.2			(0.5		)
Decrease in cash and cash equivalents	(1.5		)	(13.7		)
Increase (decrease) in cash and cash equivalents							1.2			(1.5		)
Cash and cash equivalents at beginning of year	37.5			50.7			37.4			37.5
Cash and cash equivalents at end of period	$	36.0		$	37.0		$	38.6		$	36.0

See notes to condensed consolidated financial statements.

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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, 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 (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


																		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, 2017	$	65.4	$	200.3		$	301.8		$	(81.4	)	$	(92.0	)	$	394.1
Balance at April 1, 2019																		$	66.5	$	218.4	$	451.7		$	(90.6	)	$	(97.6	)	$	548.4
Net income						18.7									18.7							32.8									32.8
Total other comprehensive income												6.5			6.5													1.4			1.4
Cash dividends declared						(8.4		)							(8.4		)
Cash dividends declared ($0.08 per share)																						(4.8		)							(4.8		)
Stock-based payments:
Stock-based compensation			2.1												2.1					2.1											2.1
Stock option exercises and other	0.3		2.2						(1.2		)				1.3			0.2		0.8					(0.8		)				0.2
Performance share unit transactions	0.2		(0.2		)				(1.9		)				(1.9		)
Balance at June 30, 2017	$	65.9	$	204.4		$	312.1		$	(84.5	)	$	(85.5	)	$	412.4
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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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 ~~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 1011 – 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. 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, ~~2017,~~2018, and should be read in conjunction with those consolidated financial statements and the notes thereto.

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. ~~In addition, certain prior year amounts have been reclassified to conform to current year presentation.~~

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”), which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605,~~ ~~Revenue Recognition~~. Topic 606 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. Topic 606 also 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 Company adopted this guidance effective January 1, 2018 using the modified retrospective transition method. See Note 2 – Revenue Recognition for further details.

~~In February 2016, the FASB issued ASU No.~~ 2016-02, Leases (“(“Topic 842”), which supersedes the lease accounting requirements in ~~ASC~~Accounting Standards Codification (“ASC”) 840, Leases (“(“Topic 840”). Topic 842 requiresorganizations that are lessees in operating 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 arrangements by both lessors and lessees. The Company adopted Topic 842 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. As originally issued, entities would have been required to recognize and measure operating leases atJanuary 1, 2019, using the ~~beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued~~alternative transition method outlined in ASU No. 2018-11, Leases (Topic

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

~~(Unaudited)~~

842): Targeted Improvements, which ~~provides entities with an alternative transition method that~~ permits application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under Topic 840. See Note 3 – Leases for further discussion.

~~In preparation for the adoption of the~~No other new standard, the Company has established a project management team responsible for the implementation of Topic 842. The project management team is currently assessing the transition methods and impact that the adoption of this guidance will have on the Company’s consolidated financial statements. This assessment includes the evaluation of the Company’s current lease contracts and other contracts that may contain lease components. In addition, the Company is in the process of designing and implementing internal controls over gathering and reporting the information requiredaccounting pronouncements issued, but not yet adopted, are expected to support the expanded disclosure requirements. Based on the implementation procedures performed to date, in addition to the expanded disclosure requirements, the Company currently anticipates the most significant adoption impacts will include (i) the recognition of right-of-use assets and lease liabilities on its consolidated balance sheets, and (ii) the recognition of the remaining deferred gain associated with the sale-leaseback transactions that the Company entered into in July 2008 for its Elgin, Illinois and University Park, Illinois plant locations as a cumulative effect adjustment to opening retained earnings. As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, the deferred gain as of December 31, 2017 totaled $10.6 million and is currently being amortized over the 15-year life of the respective leases.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Payments~~, 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 the 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 adopted this guidance effective January 1, 2018 and concluded that it did not 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 of the beginning of the period of adoption. The Company adopted this guidance effective January 1, 2018 and concluded that it did not 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 the second step of the two-step quantitative approach for testing goodwill for potential impairment. 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 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 adopted this guidance effective January 1, 2018, and will be applying the revised guidance prospectively to future goodwill impairment tests.

~~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 entities present the service cost component of net periodic pension expense in the same income statement line items as other employee compensation costs. 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 Company adopted this guidance effective January 1, 2018 following the retrospective method of adoption. The Condensed Consolidated Statements of Operations have been recast to present components of net periodic pension cost other than service cost within Other expense (income), net.

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

~~(Unaudited)~~

~~The following table summarizes the impact of ASU 2017-07 on~~ the Company’s ~~previously reported Condensed Consolidated Statements~~results of ~~Operations:~~

Three Months Ended June 30, 2017 Six Months Ended June 30, 2017
(in millions) As Reported Impact of Adoption As Adjusted As Reported Impact of Adoption As Adjusted
Selling, engineering, general and administrative expenses $ 34.9
$ (0.1 ) $ 34.8
$ 66.4
$ (0.2 ) $ 66.2
Other expense (income), net (0.2 ) 0.1
(0.1 ) (0.5 ) 0.2
(0.3 )

~~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~~operations, 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 adopted this guidance effective January 1, 2018 and concluded that it did not have a material impact on its consolidated financial statements.

~~In February 2018, the FASB issued ASU No. 2018-02,~~ ~~Income Statement~~ – ~~Reporting Comprehensive Income (Topic 220):Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,~~ that permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the “2017 Tax Act”) to retained earnings. ASU 2018-12 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU may be applied retrospectively or in the period of adoption. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

~~In March 2018, the FASB issued ASU No. 2018-05,~~ ~~Income Taxes (Topic 740):Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118~~ (“SAB 118”), which provides guidance on the accounting for the tax impact of the 2017 Tax Act. Under SAB 118, a company that has not completed its accounting for the effects of the 2017 Tax Act by its financial reporting deadline may report provisional amounts based on reasonable estimates for items for which the accounting is incomplete. Those amounts will be subject to adjustment during a measurement period of up to one year. As discussed in Note 5 – Income Taxes, the condensed consolidated financial statements for the three and six months ended June 30, 2018 include the Company’s provisional estimates of the impact of the 2017 Tax Act, in accordance with SAB 118. The Company may adjust the provisional amounts throughout the measurement period as the Company’s calculations are refined and additional interpretive guidance becomes available.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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

Significant Accounting Policies

~~As described in Note 2 – Revenue Recognition, the Company’s revenue recognition accounting policy has been updated to reflect~~Following the adoption of Topic ~~606 on January 1, 2018.~~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, ~~2017.~~2018.

NOTE 2 – REVENUE RECOGNITION

~~Impact of the Adoption of Topic 606~~

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

~~(Unaudited)~~

On January 1, 2018, the Company adopted Topic 606 following the modified retrospective method of adoption applied to those contracts which were not completed as of the date of adoption. In accordance with the Topic 606 transition guidance, the financial information in the comparative periods presented herein has not been restated and continues to be reported under the accounting standards in effect for those periods.

The adoption of Topic 606 did not have a material impact on the Company’s financial position, results of operations or cash flows. While the impact of adoption was not material, the Company’s Condensed Consolidated Statements of Operations for both the three and six months ended June 30, 2018 include a reduction in Net sales of approximately 1% within the Environmental Solutions Group based on a revised “Principal vs. Agent” analysis resulting in a change from gross to net presentation, with a corresponding reduction in Cost of sales.

~~The following table summarizes the impact of the adoption of Topic 606 on the Company’s Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018:~~

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
(in millions) As Reported Balances Without Adoption of Topic 606 Effect of Change As Reported Balances Without Adoption of Topic 606 Effect of Change
Net sales $ 291.0
$ 295.3
$ (4.3 ) $ 540.7
$ 548.2
$ (7.5 )
Cost of sales 211.8
216.1
(4.3 ) 399.6
407.1
(7.5 )
Gross profit $ 79.2
$ 79.2
$ —
$ 141.1
$ 141.1
$ —

~~Revenue Recognition~~

Revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied; generally this occurs at a point in time, with the transfer of control of the Company’s products or services to customers. For most of the Company’s product sales, these criteria are met at the time the product is shipped; however, occasionally control passes later or earlier than shipment due to customer contract or letter of credit terms. In circumstances where credit is extended, payment terms generally range from 30 to 120 days and customer deposits may be required.

Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for transferring products or providing services. Expected returns and allowances are estimated and recognized based primarily on an analysis of historical experience, with Net sales presented net of such returns and allowances.

The Company enters into sales arrangements that may provide for multiple performance obligations to a customer. These arrangements may include software and non-software components that function together to deliver the products’ essential functionality. The Company identifies all performance obligations that are to be delivered separately under the sales arrangement and allocates revenue to each performance obligation based on its relative standalone selling price. The Company uses an observable price to determine the standalone selling price or a cost plus margin approach when one is not available. In general, performance obligations include hardware, integration and installation services. The allocated revenue for each performance obligation is recognized as such performance obligations are satisfied.

Net sales include sales of products and billed freight related to product sales. Freight has not historically comprised a material component of Net sales. The Company has elected to account for such shipping and handling activities as a fulfillment cost and not as a separate performance obligation. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis and are excluded from Net sales.

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

~~(Unaudited)~~

The following table presents the Company’s Net sales disaggregated by geographic region, based on the location of the end customer, and 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

(in millions) Three Months Ended
June 30, 2018 Six Months Ended
June 30, 2018
Geographic Region:
U.S. $ 220.7
$ 417.3
Canada 45.8
78.2
Europe/Other 24.5
45.2
Total net sales $ 291.0
$ 540.7

Major Product Line:
Environmental Solutions
Vehicles and equipment ^(a)
$ 185.2
$ 340.8
Parts 32.4
62.2
Rental income ^(b)
11.6
19.4
Other ^(c)
4.1
7.5
Total $ 233.3
$ 429.9

Safety and Security Systems
Public safety and security equipment $ 36.7
$ 67.3
Industrial signaling equipment 13.5
26.7
Warning systems 7.5
16.8
Total $ 57.7
$ 110.8

Total net sales $ 291.0
$ 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, recognized in accordance with Topic 840.~~customers.


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

Contract Balances

The Company recognizes contract liabilities when cash payments, such as customer deposits, are received in advance of the Company’s satisfaction of the related performance obligations. Contract liabilities are recognized as Net sales when the related performance obligations are satisfied, which generally occurs within three to six months of the cash receipt. Contract liability balances are not materially impacted by any other factors. The Company’s contract liabilities were ~~$10.9 million and $8.9~~$12.1 million as of both June 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018. Contract assets, such as unbilled receivables, were not material as of any of the periods presented herein.

~~Practical Expedients~~

As the Company’s standard payment terms are less than a year, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component.

The Company has also elected the practical expedient under ASC 340-40-25-4 and recognizes the incremental costs of obtaining a contract, such as sales commissions, as expense when incurred as the amortization period of the asset that otherwise would have been recognized is one year or less.

~~Further, as permitted by ASC 606-10-50-14, the Company does not disclose the value of its remaining performance obligations for contracts with an original expected duration of one year or less.~~

119

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

NOTE 3 – LEASES

Impact of the Adoption of Topic 842

On January 1, 2019, the Company adopted Topic 842, using the alternative transition method under ASU 2018-11, which permits application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under Topic 840. The Company elected to apply the 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 related deferred tax asset of $2.2 million, as a cumulative effect adjustment to opening retained earnings as of the 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 respective leases. Effective in 2019, approximately $1.9 million of 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 material impact on the Company’s results of 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 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 June 30, 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 the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term.

The following table summarizes the Company’s total lease costs and supplemental cash flow information arising from operating lease transactions:



(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)	Includes short-term leases and variable lease costs, which are immaterial.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

The following table summarizes the components of 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’s operating leases have a weighted-average remaining lease term of 4.0 years and a weighted-average discount rate of 4.0%.

Maturities of operating lease liabilities as of June 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

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 were payable as 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 $1.2 million thereafter.

NOTE 4 – 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) June 30,
2018 December 31,
2017
Finished goods $ 73.7
$ 74.3
Raw materials 61.7
52.6
Work in process 12.3
10.3
Total inventories $ 147.7
$ 137.2

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

NOTE 45 – 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) June 30,
2018 December 31, 2017
Amended 2016 Credit Agreement ^(a)
$ 247.3
$ 277.0
Capital lease obligations 0.8
0.7
Total long-term borrowings and capital lease obligations, including current portion 248.1
277.7
Less: Current capital lease obligations 0.3
0.3
Total long-term borrowings and capital lease obligations $ 247.8
$ 277.4


(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 1112 – 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:


	June 30, 2018				December 31, 2017				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)	$	248.1	$	248.1	$	277.7	$	277.7	$	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 ~~$0.3~~$0.2 million and ~~$0.3~~$0.2 million as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

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 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 June 30, ~~2018.~~2019.

As of June 30, ~~2018,~~2019, there was ~~$247.3~~$208.8 million of cash drawn and ~~$12.4~~$11.3 million of undrawn letters of credit under the Amended 2016 Credit Agreement, with ~~$140.3~~$179.9 million of net availability for borrowings. As of December 31, ~~2017,~~2018, there was ~~$277.0~~$209.4 million cash drawn and ~~$17.1~~$11.3 million of undrawn letters of credit under the Amended 2016 Credit Agreement, with ~~$105.9~~$179.3 million of net availability for borrowings.

~~As of June 30, 2018 and December 31, 2017, 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 six months ended June 30, ~~2018,~~2019, gross borrowings under the Amended 2016 Credit Agreement were ~~$8.0~~$10.7 million ~~while~~and there were ~~$34.6~~$13.8 million of gross payments. For the six months ended June 30, ~~2017,~~2018, gross borrowings and gross payments were ~~$243.0~~$8.0 million and ~~$20.0~~$34.6 million, respectively.

On July 30, 2019, the Company 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 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, and the other 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.

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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 assessed quarterly. We do not use derivative instruments for trading or speculative purposes.

As more fully described within Note 1112 – 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 June 30, 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 ~~$2.9 million.~~$0.4 million and $2.0 million, respectively. During the three and six months ended June 30, 2019, unrealized pre-tax losses of $1.0 million and $1.6 million, respectively, were recorded in Accumulated other comprehensive 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. ~~During the three and six months ended June 30, 2017, an unrealized pre-tax gain of $0.4 million was recorded in Accumulated other comprehensive loss.~~

NOTE 56 – INCOME TAXES

The Company recognized income tax expense of ~~$8.3~~$11.6 million and ~~$6.1~~$8.3 million for the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The increase in tax expense in the current-year quarter iswas largely due to higher pre-tax income ~~levels, offset by the impact of the lower U.S. federal corporate~~levels. The Company’s effective tax rate ~~following~~for the ~~enactment of~~three months ended June 30, 2019 was 26.1%, compared to 23.6% in the ~~2017 Tax Act and~~prior-year quarter, which included the recognition of a $0.5 million excess tax benefit from stock compensation activity. ~~The effective tax rate for the three months ended June 30, 2018 was 23.6%, compared to 34.7% in the prior-year quarter, reflecting the lower U.S. federal corporate tax rate and the excess tax benefit.~~

For the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recognized income tax expense of ~~$12.4~~$17.5 million and ~~$9.9~~$12.4 million, respectively. The increase in tax expense in the current year iswas largely due to higher pre-tax income ~~levels, offset by the impact of the lower U.S. federal corporate~~levels. The Company’s effective tax rate ~~following~~for the ~~enactment of~~six months ended June 30, 2019 was 25.8%, compared to 23.8% in the ~~2017 Tax Act and~~prior-year period, which included the recognition of a $0.5 million excess tax benefit from stock compensation activity. ~~The effective tax rate for the six months ended June 30, 2018 was 23.8%, compared to 34.6% in the prior-year period, reflecting the lower U.S. federal corporate tax rate and the excess tax benefit.~~

As discussed in Note 1 – Summary of Significant Accounting Policies, the condensed consolidated financial statements for the three and six months ended June 30, 2018 include the Company’s provisional estimates of the impact of the 2017 Tax Act, in accordance with SAB 118. The Company may adjust the provisional amounts throughout the measurement period as the Company’s calculations are refined and additional interpretive guidance becomes available. During the three and six months ended June 30, 2018, there have been no significant adjustments to the provisional amounts recorded at December 31, 2017.

Effective January 1, 2018, the 2017 Tax Act subjects a U.S. entity to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, the Company is continuing to evaluate the effects of the GILTI provisions and has not yet determined its related accounting policy. As of June 30, 2018, the Company has included a provisional estimate of the GILTI related to current-year operations in its estimated annual effective tax rate.

The 2017 Tax Act also provides a one-time “transition tax” on untaxed post-1986 accumulated earnings and profits (“E&P”) of a company’s controlled foreign corporations (“CFC”) determined as of November 2, 2017 or December 31, 2017 (whichever date on which there is more deferred E&P). Cash and cash equivalents are taxed at an effective rate of 15.5% and earnings in excess of the cash position are taxed at an effective rate of 8%. The 2017 Tax Act permits the netting of positive earnings of one CFC against deficits of others. At both November 2, 2017 and December 31, 2017, the accumulated undistributed earnings of the Company’s foreign subsidiaries aggregated to an overall E&P deficit. Therefore, the Company estimates that no transition tax will be payable under the provisions of the 2017 Tax Act. As with other tax calculations surrounding the 2017 Tax Act, the Company’s estimate of its transition tax liability as of June 30, 2018 is provisional due to complexities inherent in the computations that it expects to be addressed in whole, or in part, by regulations issued during 2018.

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~~(Unaudited)~~

NOTE 67 – PENSIONS

The following table summarizes the components of net ~~postretirement~~periodic pension 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
June 30, Six Months Ended
June 30, Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2018 2017 2018 2017 2018 2017 2018 2017
Service cost $ —
$ —
$ —
$ —
$ —
$ 0.1
$ 0.1
$ 0.1
Interest cost 1.6
1.9
3.2
3.8
0.4
0.4
0.7
0.7
Amortization of actuarial loss 0.7
0.6
1.5
1.2
0.1
0.1
0.3
0.3
Expected return on plan assets (2.2 ) (2.4 ) (4.4 ) (4.8 ) (0.6 ) (0.5 ) (1.2 ) (1.0 )
Net postretirement pension expense (benefit) $ 0.1
$ 0.1
$ 0.3
$ 0.2
$ (0.1 ) $ 0.1
$ (0.1 ) $ 0.1

In the six months ended June 30, 2018 and 2017, the Company contributed $2.7 million and $2.7 million to its U.S. defined benefit plan, respectively, and $0.7 million and $0.4 million to its non-U.S. defined benefit plan, respectively.

~~The Company expects to contribute up to $6.9 million to the U.S. benefit plan and up to $1.4 million to the non-U.S. benefit plan during 2018.~~

NOTE 78 – 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 June 30, ~~2018,~~2019, the Company had outstanding performance and financial standby letters of credit, as well as outstanding bid and performance bonds, aggregating to ~~$17.2~~$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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credit or bond being called is remote.

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 June 30, ~~2018,~~2019, the single year and maximum potential cash payments the Company could be required to make to repurchase equipment under these agreements were ~~$3.8~~$3.6 million and ~~$4.8~~$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. Further, pursuant to the terms of 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 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. Historical cash requirements and losses associated with these obligations have not been significant, but could increase if customer defaults exceed current expectations.

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 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

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~~During the year ended~~June 30, 2019 and December 31, ~~2017, the Company recognized~~2018, an estimated liability was recorded within the Environmental Solutions Group in connection with a specific warranty matter. ~~Although there were no significant changes to the liability during the three and six months ended June 30, 2018, it~~It is reasonably possible that the Company’s estimate may change in the ~~near term~~future as more information becomes available; however, the 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.~~

~~The following table summarizes the changes in the Company’s warranty liabilities during the six months ended June 30, 2018 and 2017:~~

(in millions) 2018 2017
Balance at January 1 $ 8.4
$ 6.4
Provisions to expense 3.5
2.3
Acquisitions —
1.5
Payments (3.2 ) (2.8 )
Balance at June 30 $ 8.7
$ 7.4
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, ~~2018~~2019 and December 31, ~~2017,~~2018, were reserves of ~~$0.4~~$0.3 million and ~~$0.5~~$0.4 million, respectively, related to environmental remediation at the Pearland, Texas facility previously used by the Company’s discontinued Pauluhn business, and ~~$1.4~~$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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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.

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

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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. 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. ~~A further status hearing on class certification issues~~The court has ~~been scheduled for September 18, 2018.~~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. During the year ended December 31, 2017, the Company entered into a global settlement agreement with two attorneys who represented approximately 1,090 of these plaintiffs. Under the terms of the settlement agreement, the Company offered $700 per plaintiff to settle these cases and 717 plaintiffs accepted this offer as a final settlement. The attorneys representing these plaintiffs agreed to withdraw from representing plaintiffs who did not 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 ~~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. InBetween 2007 and ~~through~~ 2009, a total of 71 lawsuits involving 71 plaintiffs were filed in the Court of Common Pleas, Philadelphia County, Pennsylvania. Three of these cases were dismissed 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

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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 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. After plaintiffs appealed this 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 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

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~~(Unaudited)~~

Court of Common Pleas, Philadelphia County, involving over 100 Philadelphia firefighter plaintiffs. 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 were then transferred to the mass tort program in Philadelphia for pretrial purposes. Plaintiffs’ counsel thereafter dismissed several plaintiffs. During November 2017, a trial involving one Philadelphia firefighter occurred. The jury returned a verdict in favor of the Company in this trial. AsPrior to a dismissal of ~~June 30, 2018,~~these cases pursuant to the Tolling Agreement, discussed below, there was a total of 75 firefighters ~~are~~ involved in cases pending in the Philadelphia mass tort program.

During April through July 2013, additional cases were filed in Allegheny County, 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 trials for May, September and November 2016, for eight 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 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 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 would only apply to six plaintiffs who 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 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.

A second trial involving Pittsburgh 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 ~~1,180~~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 ~~whereby~~(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 ~~Alleghany~~Allegheny County (Pittsburgh), Pennsylvania cases, and the Company agreed to a tolling of any statute of limitations applicable to the dismissed cases ~~through October~~until July 31, ~~2018.~~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, ~~2018,~~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, ~~2018,~~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

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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 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. On 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. AsPrior to a dismissal of ~~June 30, 2018,~~these cases pursuant to the Tolling Agreement, there was a total of 536 firefighters ~~are~~ 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 June 30, 2018, a total of 61 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. Pursuant to a petition filed by both parties, all New Jersey state court cases ~~have been~~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 filed additional cases in Suffolk County court. The Company ~~has~~ moved to transfer various cases filed in Suffolk ~~county~~County to other counties in Massachusetts where plaintiffs reside and work. AsPrior to a dismissal of ~~June 30, 2018,~~these cases pursuant to the Tolling Agreement, there was a total of 218 firefighters ~~are~~ involved in cases filed in Massachusetts.

During August and September 2017, plaintiffs’ attorneys filed additional hearing loss cases in Florida. The Company is the only named defendant. These cases ~~have been~~were filed in several different counties in 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. AsPrior to a dismissal of ~~June 30, 2018,~~these cases pursuant to the Tolling Agreement, there was a total of 166 firefighters ~~are~~ 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 six months ended June 30, 2018 and 2017, the Company recorded $0.2 million and $0.3 million of reimbursements from CNA related to legal costs, respectively.

NOTE 89 – 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 six months ended June 30, ~~2018~~2019 and ~~2017~~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.

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~~(Unaudited)~~

For both the three and six months ended June 30, ~~2018,~~2019, options to purchase ~~0.3~~0.5 million shares 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 six months ended June 30, ~~2017,~~2018, options to purchase ~~0.7~~0.3 million ~~and 1.2 million~~ shares ~~respectively,~~ 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
June 30, Six Months Ended
June 30,
(in millions, except per share data) 2018 2017 2018 2017
Income from continuing operations $ 26.9
$ 11.5
$ 39.8
$ 18.7
Loss from discontinued operations and disposal, net of tax —
(0.1 ) —
—
Net income $ 26.9
$ 11.4
$ 39.8
$ 18.7
Weighted average shares outstanding – Basic 59.9
59.7
59.9
59.7
Dilutive effect of common stock equivalents 1.1
0.6
1.0
0.6
Weighted average shares outstanding – Diluted 61.0
60.3
60.9
60.3
Basic earnings per share:
Earnings from continuing operations $ 0.45
$ 0.19
$ 0.67
$ 0.31
Loss from discontinued operations and disposal, net of tax —
—
—
—
Net earnings per share $ 0.45
$ 0.19
$ 0.67
$ 0.31
Diluted earnings per share:
Earnings from continuing operations $ 0.44
$ 0.19
$ 0.65
$ 0.31
Loss from discontinued operations and disposal, net of tax —
—
—
—
Net earnings per share $ 0.44
$ 0.19
$ 0.65
$ 0.31

NOTE 910 – STOCKHOLDERS’ EQUITY

Dividends

On February 19, ~~2018,~~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 ~~19, 2018~~29, 2019 to holders of record at the close of business on March ~~5, 2018.~~18, 2019.

On ~~May 1, 2018,~~April 30, 2019, the Board declared a quarterly cash dividend of $0.08 per common ~~share payable.~~share. The dividend totaled $4.8 million and was distributed on May ~~29, 2018~~30, 2019 to holders of record at the close of business on May 15, ~~2018.~~2019.

During the three and six months ended June 30, ~~2017,~~2018, dividends of ~~$4.2~~$4.8 million and ~~$8.4~~$9.0 million, respectively, were paid to stockholders.

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On July ~~31, 2018,~~30, 2019, the Board declared a quarterly cash dividend of $0.08 per common share payable on August 28, ~~2018~~2019 to holders of record at the close of business on August 14, ~~2018.~~2019.

Stock Repurchase Program

In November 2014, the Board authorized a stock repurchase program of up to $75.0 million of the Company’s common stock. The 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. Under the stock repurchase 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:

Three 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 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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(in millions) ^(a)
Actuarial Losses Foreign
Currency Translation Unrealized
Gain on
Derivatives Total
Balance at April 1, 2017 $ (78.8 ) $ (11.8 ) $ —
$ (90.6 )
Other comprehensive (loss) income before reclassifications (0.6 ) 5.0
0.2
4.6
Amounts reclassified from accumulated other comprehensive loss 0.5
—
—
0.5
Net current-period other comprehensive (loss) income (0.1 ) 5.0
0.2
5.1
Balance at June 30, 2017 $ (78.9 ) $ (6.8 ) $ 0.2
$ (85.5 )



(in millions) ^(a)	Actuarial Losses			Foreign Currency Translation			Unrealized Gain on Derivatives			Total
Balance at January 1, 2018	$	(75.4	)	$	(2.5	)	$	1.0		$	(76.9	)
Other comprehensive income (loss) before reclassifications	0.4			(3.2		)	1.1			(1.7		)
Amounts reclassified from accumulated other comprehensive loss	1.4			—			(0.1		)	1.3
Net current-period other comprehensive income (loss)	1.8			(3.2		)	1.0			(0.4		)
Balance at June 30, 2018	$	(73.6	)	$	(5.7	)	$	2.0		$	(77.3	)


(a)	Amounts in parentheses indicate losses.

(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 (0.9 ) 6.2
0.2
5.5
Amounts reclassified from accumulated other comprehensive loss 1.0
—
—
1.0
Net current-period other comprehensive income 0.1
6.2
0.2
6.5
Balance at June 30, 2017 $ (78.9 ) $ (6.8 ) $ 0.2
$ (85.5 )

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

The following table summarizes the amounts reclassified from Accumulated other comprehensive loss, net of tax, in the three months ended June 30, ~~2018~~2019 and ~~2017~~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)
2018 2017
(in millions)^(b)

Amortization of actuarial losses of defined benefit pension plans $ (0.8 ) $ (0.7 ) Other expense (income), net
Interest rate swap 0.2
—
Interest expense
Total before tax (0.6 ) (0.7 )
Income tax benefit 0.1
0.2
Income tax expense
Total reclassifications for the period, net of tax $ (0.5 ) $ (0.5 )

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~~(Unaudited)~~


(a)	~~Continuing operations only.~~


~~(b)~~	Amounts in parentheses indicate losses.

The following table summarizes the amounts reclassified from Accumulated other comprehensive loss, net of tax, in the six months ended June 30, ~~2018~~2019 and ~~2017~~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
	2018			2017				2019			2018
(in millions)^(b)(a)
Amortization of actuarial losses of defined benefit pension plans	$	(1.8	)	$	(1.5	)	Other expense (income), net	$	(1.5	)	$	(1.8	)	Other (income) expense, net
Amortization of prior service costs of defined benefit pension plans								(0.1		)	—			Other (income) expense, net
Interest rate swap	0.2			—			Interest expense	0.7			0.2			Interest expense
Total before tax	(1.6		)	(1.5		)		(0.9		)	(1.6		)
Income tax benefit	0.3			0.5			Income tax expense	0.1			0.3			Income tax expense
Total reclassifications for the period, net of tax	$	(1.3	)	$	(1.0	)		$	(0.8	)	$	(1.3	)


(a)	~~Continuing operations only.~~


~~(b)~~	Amounts in parentheses indicate losses.

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(Unaudited)

NOTE 1011 – 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. On June 2, 2017, the Company completed the acquisition of all of the shares of capital stock of GenNx/TBEI Intermediate Co. (collectively with its subsidiaries, “TBEI”). 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. The Company has presented the financial statements of TBEI within the Environmental Solutions Group since the closing date and is in the process of determining the impact, if any, that the TBEI acquisition may have on its reportable segments.

~~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, high-performance waterblasting equipment, dump truck bodies and trailers. The Group manufactures vehicles and equipment in the U.S. and Canada that are sold under the Elgin^®~~, Vactor~~^®~~, Guzzler~~^®~~, Westech~~^TM~~, Jetstream~~^®~~, Ox Bodies~~^®~~, Crysteel~~^®~~, J-Craft~~^®~~, Duraclass~~^®~~, Rugby~~^® ~~and Travis~~^®brand names. Product offerings also include certain products manufactured by other companies, such as refuse and recycling collection vehicles, camera systems, ice resurfacing equipment and snow-removal equipment. Products are sold to both municipal and industrial customers either through a dealer network or direct sales to service customers generally depending on the type and geographic location of the customer. In addition to vehicle and equipment sales, the Group also engages in the sale of parts, service and repair, equipment rentals and training as part of a complete offering to its current and potential customers through its service centers located across North America.

~~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.

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~~(Unaudited)~~

As described in Note 2 – Revenue Recognition, the Company’s revenue recognition accounting policy has been updated to reflect the adoption of Topic 606 on January 1, 2018. The financial information in the comparative periods presented herein has not been restated and continues to be reported under the accounting standards in effect for those periods. Refer to Note 2 – Revenue Recognition for further discussion regarding the impact of the adoption of Topic 606 on Net sales reported by the Environmental Solutions Group. The accounting policies of each operating segment are otherwise 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, 2017. The results for the interim periods are not necessarily indicative of results for a full year.

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
June 30, Six Months Ended
June 30,
(in millions) 2018 2017 2018 2017
Net sales:
Environmental Solutions $ 233.3
$ 174.3
$ 429.9
$ 302.1
Safety and Security Systems 57.7
50.1
110.8
100.1
Total net sales $ 291.0
$ 224.4
$ 540.7
$ 402.2
Operating income (loss):
Environmental Solutions $ 37.2
$ 21.0
$ 57.8
$ 31.3
Safety and Security Systems 8.2
5.6
14.3
12.0
Corporate and eliminations (7.3 ) (7.8 ) (14.4 ) (13.1 )
Total operating income 38.1
18.8
57.7
30.2
Interest expense 2.5
1.3
5.0
1.9
Other expense (income), net 0.4
(0.1 ) 0.5
(0.3 )
Income before income taxes $ 35.2
$ 17.6
$ 52.2
$ 28.6



(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
June 30, 2018 As of December 31, 2017
Total assets:
Environmental Solutions $ 776.8
$ 746.4
Safety and Security Systems 210.4
211.8
Corporate and eliminations 28.5
33.6
Total assets of continuing operations 1,015.7
991.8
Total assets of discontinued operations 0.5
0.5
Total assets $ 1,016.2
$ 992.3

NOTE 1112 – 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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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

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:

~~Table of Contents~~

~~FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES~~

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

~~(Unaudited)~~

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 45 – 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 $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, ~~2018:~~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

Fair Value Measurement at Reporting Date Using
(in millions) Level 1 Level 2 Level 3 Total
Assets:
Cash equivalents $ 4.4
$ 4.4
Interest rate swap 2.9
2.9
Liabilities:
Contingent consideration 6.5
6.5

2423

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

(Unaudited)

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


(in millions)	2018			2017		2019		2018
Contingent consideration liability, at April 1	$	6.4		$	5.4	$	7.1	$	6.4
Foreign currency translation	(0.1		)	—		0.1		(0.1		)
Total losses included in earnings ^(a)	0.2			0.3		0.4		0.2
Contingent consideration liability, at June 30	$	6.5		$	5.7	$	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 six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:


(in millions)	2018			2017		2019		2018
Contingent consideration liability, at January 1	$	6.3		$	5.1	$	6.7	$	6.3
Foreign currency translation	(0.2		)	0.1		0.3		(0.2		)
Total losses included in earnings ^(a)	0.4			0.5		0.6		0.4
Contingent consideration liability, at June 30	$	6.5		$	5.7	$	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 13 – SUBSEQUENT EVENTS

Acquisition of Mark Rite Lines Equipment Company, Inc.

On July 1, 2019, the Company completed the acquisition of substantially all of the assets and operations of Mark Rite Lines Equipment Company, Inc. (“MRL”), a U.S. manufacturer of truck-mounted and ride-on road-marking equipment, including its wholly-owned subsidiary HighMark Traffic Services, Inc., for an initial purchase price of $55.5 million, subject to certain post-closing adjustments, which are expected to be finalized in the fourth quarter of 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 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 expects that MRL will provide an efficient entry into a new line of product offerings and access to new markets. The post-acquisition operating results of 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 form of loans or letters of credit up to the aggregate availability under the facility, with a 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 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 U.S. Borrower and material domestic subsidiaries, (ii) the stock or other equity interests in each of the material domestic subsidiaries and (iii) 65% of outstanding voting capital stock of certain first-tier foreign subsidiaries, subject to certain exclusions.

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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

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 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 lenders ranging between 0.10% to 0.25% per annum on the unused portion of the $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 applicable LIBOR margin plus other customary fees.

The Company is subject to certain 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 the temporary increase of the minimum net leverage ratio following the completion of a permitted acquisition, or a series of acquisitions, when the aggregate consideration over a period of twelve months exceeds $75 million. In addition, the 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.

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, ~~2017.~~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 trailers and (ii) safety, security and communication equipment, such as lights, sirens and warning systems. The Company also distributes and re-sells products manufactured by other companies, which include refuse and recycling collection vehicles, camera systems, ice resurfacing equipment and snow-removal equipment. In addition, we sell parts and provide service, repair, equipment rentals and training as part of a comprehensive aftermarket offering to our customer base. We operate 14 manufacturing facilities in five countries ~~around the world~~ and provide products and integrated solutions to municipal, governmental, industrial and commercial customers in all regions of the world.

As described in Note 1011 – 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 ~~$66.6~~$33.3 million, or ~~30%~~11%, in the three months ended June 30, ~~2018~~2019 as compared to the prior-year quarter. Our Environmental Solutions Group reported a net sales increase of ~~$59.0~~$33.9 million, or ~~34%~~15%, largely due to ~~$39.4 million of incremental net sales resulting from the acquisition of TBEI, which was completed in June 2017, an increase~~increases in shipments of vacuum trucks, sewer cleaners, 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 aftermarket revenues, represented by higher rental income and improved parts, ~~sales, partially offset by lower refuse truck~~service and used equipment sales. Within our Safety and Security Systems Group, net sales ~~increased~~decreased by ~~$7.6~~$0.6 million, or ~~15%~~1%, primarily due to ~~higher~~unfavorable foreign currency translation effects and lower global sales of public safety ~~products.~~

~~Table~~products and warning systems, partially offset by higher sales of ~~Contents~~

industrial signaling equipment.

For the six months ended June 30, ~~2018,~~2019, net sales increased by ~~$138.5~~$57.4 million, or ~~34%~~11%, as compared to the corresponding period of the prior year. Within our Environmental Solutions Group, net sales improved by ~~$127.8~~$56.8 million, or ~~42%~~13%, largely due to ~~$90.7 million of incremental net sales from TBEI, increased~~increases in shipments of vacuum trucks, sewer cleaners, dump truck bodies, and street sweepers of $25.6 million, $9.5 million, $5.5 million and $5.1 million, respectively, as well as a $9.5 million increase in aftermarket revenues, represented by higher rental income and improved parts ~~sales, partially offset by lower refuse truck~~and service sales. In our Safety and Security Systems Group, net sales increased by ~~$10.7~~$0.6 million, or ~~11%~~1%, primarily due to higher ~~global~~ sales of ~~public safety products and favorable~~industrial signaling equipment, partially offset by unfavorable foreign currency translation ~~effects.~~effects and lower sales of warning systems.

Operating income increased by ~~$19.3~~$8.2 million, or ~~103%~~22%, to ~~$38.1~~$46.3 million in the three months ended June 30, ~~2018~~2019 as compared to the prior-year quarter, primarily driven by a ~~$16.2~~$7.6 million increase within our Environmental Solutions Group associated with increased sales volumes and improved operating leverage and an incremental $4.6 million of operating income contribution from TBEI, resulting from the inclusion of three months of activity in the current-year quarter, compared to only one month in the prior-year quarter. TBEI’s operating income contribution in the second quarter included the effects of amortization expense on intangible assets acquired, which contributed to an increase in depreciation and amortization expense of $2.4 million.leverage. Operating income in the three months ended June 30, ~~2018~~2019 within our Safety and Security Systems Group increased by ~~$2.6~~$1.3 million, largely due to benefits from pricing actions, favorable sales mix, and lower operating expenses, while ~~corporate~~Corporate expenses ~~decreased~~increased by ~~$0.5~~$0.7 million. Consolidated operating margin for the three months ended June 30, ~~2018~~2019 was ~~13.1%~~14.3%, up from ~~8.4%~~13.1% in the prior-year quarter.

For the six months ended June 30, ~~2018,~~2019, operating income increased by ~~$27.5~~$14.4 million as compared to the corresponding period of the prior year. Within our Environmental Solutions Group, operating income for the six months ended June 30, ~~2018~~2019 increased by ~~$26.5~~$12.7 million, or ~~85%~~22%, ~~with~~largely due to higher sales volumes and improved operating leverage and an incremental operating income contribution of $9.4 million from TBEI, associated with including six months of activity in 2018, compared to only one month in the prior-year period. TBEI’s operating income contribution in the first half of 2018 included the effects of amortization expense on intangible assets acquired, which contributed to an increase in depreciation and amortization expense of $5.5 million.leverage. Within our Safety and Security Systems Group, operating income in the six months ended June 30, ~~2018~~2019 increased by ~~$2.3~~$3.9 million, or 27%, largely due to benefits from pricing actions, favorable sales mix, and lower operating expenses, while ~~corporate~~Corporate expenses increased by ~~$1.3~~$2.2 million. Consolidated operating margin for the six months ended June 30, ~~2018~~2019 was ~~10.7%~~12.1%, compared to ~~7.5%~~10.7% in the prior-year period.

Income before income taxes increased by ~~$17.6~~$9.2 million, or ~~100%~~26%, to ~~$35.2~~$44.4 million for the three months ended June 30, ~~2018~~2019 as compared to the prior-year quarter. The increase resulted from the higher operating income, ~~partially offset by~~ a ~~$1.2~~$0.5 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 ~~income.~~expense. For the six months ended June 30, ~~2018,~~2019, income before income taxes increased by ~~$23.6~~$15.6 million, or ~~83%~~30%, as compared to the prior-year period, primarily due to the ~~increase in~~higher operating income, ~~partially offset by~~ a ~~$3.1~~$1.0 million ~~increase~~decrease in interest expense and a ~~$0.8~~$0.2 million decrease in other ~~income.~~expense.

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Net income ~~from continuing operations~~ for the three months ended June 30, 2019 increased by $5.9 million compared to the prior-year 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, ~~2018~~2019 was ~~impacted by increases in income tax expense of $2.2 million and $2.5 million, respectively. The increases were largely~~primarily due to higher ~~pre-tax~~ income ~~levels, partially offset by~~levels. For the ~~lower U.S. corporate tax rate following the enactment~~first half of ~~the 2017 Tax Act and the recognition of a $0.5 million excess tax benefit from stock compensation activity in the second quarter. The~~2019, our effective tax rate ~~for the three months ended June 30, 2018~~ was ~~23.6%, compared to 34.7% in the prior-year quarter, while the~~25.8%. We currently expect our full-year effective tax rate ~~for~~to be within the ~~six months ended June 30, 2018 was 23.8%, compared~~range of 25% to 34.6% in the prior-year period. The lower rates in the current year reflect the impact of the reduction in the U.S. corporate tax rate, which was effective at the beginning of 2018, and the excess tax benefit.26%.

Total orders for the three months ended June 30, ~~2018~~2019 were ~~$277.6~~$308.0 million, an increase of ~~$6.5~~$30.4 million, or 2%11%, as compared to the prior-year quarter. Of the orders reported in the fourth quarter of 2017 and the first quarter of 2018, we estimated that the receipt of up to $45 million in orders had been accelerated from later in 2018, with customers placing orders earlier as they sought to secure availability of certain product lines with extended lead times, or to manage the procurement of their related chassis, which also have extended lead times. Despite this acceleration, ourOur Environmental Solutions Group reported total orders of ~~$217.3~~$253.2 million in the second quarter of ~~2018, an increase of $2.6~~2019, up $35.9 million, or ~~1%, compared~~17% in comparison to the prior-year quarter. Organic order growth was approximately $2.7 million, or 2%, primarily represented by improved orders for vacuum trucks, inclusive of higher demand from customers serving utility markets, partially offset by lower orders for refuse trucks. Orders in the three months ended June 30, ~~2018~~2019 within our Safety and Security Systems Group were ~~up $3.9~~$54.8 million, ~~or 7%, primarily due~~compared to ~~improved international orders for public safety products and higher orders for warning systems.~~$60.3 million in the prior-year quarter.

For the six months ended June 30, ~~2018,~~2019, total orders were ~~$607.3~~$607.0 million, ~~an increase~~generally consistent with the order intake in the first half of ~~$121.6 million, or 25%, compared to the prior-year period.~~2018. Our Environmental Solutions Group reported total orders of ~~$491.7~~$496.9 million in the first half of ~~2018,~~2019, an increase of ~~$110.4~~$5.2 million, or ~~29%~~1%, compared to the ~~prior-year period. The improvement was driven by the effects~~first half of the inclusion of TBEI orders for six months in 2018, and organic order growth of approximately $46.9 million, or 15%, primarily represented by improved orders for sewer cleaners and vacuum trucks, inclusive of higher demand from customers serving utility markets, partially offset by lower orders for refuse trucks.2018. Orders in the six months ended June 30, ~~2018~~2019 within our

~~Table of Contents~~

Safety and Security Systems Group ~~were up $11.2~~decreased by $5.5 million, or ~~11%, primarily due to improved orders for public safety products and favorable foreign currency translation effects.~~5%.

Our consolidated backlog at June 30, ~~2018~~2019 was ~~$322.3~~$347.7 million, up ~~$99.6~~$25.4 million, or ~~45%~~8%, compared to ~~$222.7 million at June 30, 2017, largely as a result of~~ the ~~increase in orders for vacuum trucks and sewer cleaners received in the six months ended June 30, 2018.~~prior-year quarter.

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 June 30,									Six Months Ended June 30,									Three Months Ended June 30,									Six Months Ended June 30,
($ in millions, except per share data)	2018			2017			Change			2018			2017			Change			2019			2018			Change			2019			2018			Change
Net sales	$	291.0		$	224.4		$	66.6		$	540.7		$	402.2		$	138.5		$	324.3		$	291.0		$	33.3		$	598.1		$	540.7		$	57.4
Cost of sales	211.8			169.7			42.1			399.6			303.9			95.7			235.3			211.8			23.5			438.8			399.6			39.2
Gross profit	79.2			54.7			24.5			141.1			98.3			42.8			89.0			79.2			9.8			159.3			141.1			18.2
Selling, engineering, general and administrative expenses	40.7			34.8			5.9			82.5			66.2			16.3			41.8			40.7			1.1			85.7			82.5			3.2
Acquisition and integration-related expenses	0.4			1.0			(0.6		)	0.9			1.5			(0.6		)	0.9			0.4			0.5			1.5			0.9			0.6
Restructuring	—			0.1			(0.1		)	—			0.4			(0.4		)
Operating income	38.1			18.8			19.3			57.7			30.2			27.5			46.3			38.1			8.2			72.1			57.7			14.4
Interest expense	2.5			1.3			1.2			5.0			1.9			3.1			2.0			2.5			(0.5		)	4.0			5.0			(1.0		)
Other expense (income), net	0.4			(0.1		)	0.5			0.5			(0.3		)	0.8
Other (income) expense, net																			(0.1		)	0.4			(0.5		)	0.3			0.5			(0.2		)
Income before income taxes	35.2			17.6			17.6			52.2			28.6			23.6			44.4			35.2			9.2			67.8			52.2			15.6
Income tax expense	8.3			6.1			2.2			12.4			9.9			2.5			11.6			8.3			3.3			17.5			12.4			5.1
Income from continuing operations	26.9			11.5			15.4			39.8			18.7			21.1
Loss from discontinued operations and disposal, net of tax	—			(0.1		)	0.1			—			—			—
Net income	$	26.9		$	11.4		$	15.5		$	39.8		$	18.7		$	21.1		$	32.8		$	26.9		$	5.9		$	50.3		$	39.8		$	10.5
Operating data:
Operating margin	13.1		%	8.4		%	4.7		%	10.7		%	7.5		%	3.2		%	14.3		%	13.1		%	1.2		%	12.1		%	10.7		%	1.4		%
Diluted earnings per share – Continuing operations	$	0.44		$	0.19		$	0.25		$	0.65		$	0.31		$	0.34
Diluted earnings per share																			$	0.54		$	0.44		$	0.10		$	0.82		$	0.65		$	0.17
Total orders	277.6			271.1			6.5			607.3			485.7			121.6			308.0			277.6			30.4			607.0			607.3			(0.3		)
Backlog	322.3			222.7			99.6			322.3			222.7			99.6			347.7			322.3			25.4			347.7			322.3			25.4
Depreciation and amortization	9.0			6.6			2.4			17.6			12.3			5.3			9.8			9.0			0.8			19.3			17.6			1.7

Net sales

Net sales increased by ~~$66.6~~$33.3 million, or ~~30%~~11%, in the three months ended June 30, ~~2018~~2019 as compared to the prior-year quarter. The Environmental Solutions Group reported a net sales increase of ~~$59.0~~$33.9 million, or ~~34%~~15%, largely due to ~~$39.4 million of incremental net sales resulting from the acquisition of TBEI, which was completed in June 2017, an increase~~increases in shipments of vacuum trucks, sewer cleaners, 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 aftermarket revenues, represented by higher rental income and improved parts, ~~sales, partially offset by lower refuse truck~~service and used equipment sales. Within the Safety and Security Systems Group, net sales ~~increased~~decreased by ~~$7.6~~$0.6 million, or ~~15%~~1%, primarily due to ~~higher~~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 six months ended June 30, ~~2018,~~2019, net sales increased by ~~$138.5~~$57.4 million, or ~~34%~~11%, as compared to the corresponding period of the prior year. Within the Environmental Solutions Group, net sales improved by ~~$127.8~~$56.8 million, or ~~42%~~13%, largely due to ~~$90.7 million of incremental net sales from TBEI, increased~~increases in shipments of vacuum trucks, sewer cleaners, dump truck bodies, and street sweepers of $25.6 million, $9.5 million, $5.5 million and $5.1 million, respectively, as well as a $9.5 million increase in aftermarket revenues, represented by higher rental income and improved parts ~~sales, partially offset by lower refuse truck~~and service sales. In the Safety and Security Systems Group, net sales increased by ~~$10.7~~$0.6 million, or ~~11%~~1%, primarily due to higher ~~global~~ sales of ~~public safety products and favorable~~industrial signaling equipment, partially offset by unfavorable foreign currency translation ~~effects.~~effects and lower sales of warning systems.

Cost of sales

Cost of sales increased by ~~$42.1~~$23.5 million, or ~~25%~~11%, for the three months ended June 30, ~~2018~~2019 compared to the prior-year quarter, largely due to an increase of ~~$37.4~~$25.1 million, or ~~27%~~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 ~~$2.1~~$0.2 million reduction in purchase accounting expenses. Within the Safety and Security Systems Group, cost of sales ~~increased~~decreased by ~~$4.7~~$1.6 million, or ~~15%~~4%, ~~driven by higher~~primarily related to lower sales volumes ~~as well as unfavorable~~and favorable foreign currency translation ~~and sales mix~~ effects.

For the six months ended June 30, ~~2018,~~2019, cost of sales increased by ~~$95.7~~$39.2 million, or ~~31%~~10%, largely due to an increase of ~~$87.7~~$41.8 million, or ~~36%~~13%, within the Environmental Solutions Group, primarily ~~driven by~~attributable to increased sales volumes, ~~and~~higher material costs in comparison to the ~~effects~~first half of ~~six months of TBEI activity in the current-year period compared with one month in the prior year~~2018, and a ~~$2.1~~$2.0 million increase in depreciation expense, partially offset by a ~~$2.0~~$0.7 million reduction in purchase accounting expenses. This increase was partially offset by ~~an increase~~a decrease in cost of sales of ~~$8.0~~$2.6 million, or ~~13%~~4%, within the Safety and Security Systems Group, largely ~~driven by higher~~due to favorable sales ~~volumes.~~mix and favorable foreign currency translation effects.

Gross profit

Gross profit increased by ~~$24.5~~$9.8 million, or ~~45%~~12%, for the three months ended June 30, ~~2018,~~2019, compared to the prior-year quarter, primarily due to improvements of ~~$21.6~~$8.8 million and ~~$2.9~~$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, ~~2018~~2019 improved to ~~27.2%~~27.4%, from ~~24.4%~~27.2% in the prior-year quarter, primarily ~~due~~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 ~~taken in response to increasing commodity costs,~~and favorable sales ~~mix and the aforementioned reduction in purchase accounting expenses within the Environmental Solutions Group.~~mix.

For the six months ended June 30, ~~2018,~~2019, gross profit increased by ~~$42.8~~$18.2 million, or ~~44%~~13%, primarily due to improvements of ~~$40.1~~$15.0 million and ~~$2.7~~$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, ~~2018~~2019 was ~~26.1%~~26.6%, compared to ~~24.4%~~26.1% in the prior-year period, primarily ~~due~~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 ~~taken in response to increasing commodity costs,~~and favorable sales ~~mix and the aforementioned reduction in purchase accounting expenses within the Environmental Solutions Group.~~mix.

Selling, engineering, general and administrative expenses

Selling, engineering, general and administrative (“SEG&A”) expenses for the three months ended June 30, ~~2018~~2019 increased by ~~$5.9~~$1.1 million, or ~~17%~~3%, ~~compared to the prior-year quarter,~~ primarily due to ~~a $5.3 million increase~~increases within the Environmental Solutions Group ~~largely the result~~and Corporate of ~~the addition of expenses associated with the TBEI acquisition, including an increase in amortization expense of $1.3 million. The prior-year quarter also included~~$0.9 million and $0.5 million, respectively, partially offset by a ~~$1.0~~$0.3 million ~~favorable adjustment of product liability and workers compensation reserves. SEG&A expenses~~reduction within the Safety and Security Systems ~~Group increased by $0.4 million, primarily due to increased expenses associated with new product development and other growth initiatives, while Corporate SEG&A expenses increased by $0.2 million.~~Group. As a percentage of net sales, SEG&A expenses decreased from ~~15.5%~~14.0% in the prior-year quarter, to ~~14.0%~~12.9% in the current-year quarter.

For the six months ended June 30, ~~2018,~~2019, SEG&A expenses increased by ~~$16.3~~$3.2 million, or ~~25%~~4%, primarily ~~represented by a $13.4 million increase~~due to increases within the Environmental Solutions Group ~~largely the result~~and Corporate of ~~the addition of expenses of associated with the TBEI acquisition, including an increase in amortization expense of $3.2 million. SEG&A expenses~~$1.9 million and $2.0 million, respectively, partially offset by a $0.7 million reduction within the Safety and Security Systems Group increased by $0.8 million, primarily due to increased expenses associated with new product development and other growth initiatives, while corporate SEG&A expenses increased by $2.1 million, primarily due to higher employee benefit-related costs, partially offset by a $0.8 million decrease in acquisition and integration-related expenses.Group. As a percentage of net sales, SEG&A expenses decreased from ~~16.5%~~15.3% in the prior-year period, to ~~15.3%~~14.3% in the current-year period.

Operating income

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with increased sales volumes and improved operating leverage and an incremental $4.6 million of operating income contribution from TBEI, resulting from the inclusion of three months of activity in the current-year quarter, compared to only one month in the prior-year quarter. TBEI’s operating income contribution in the second quarter included the effects of amortization expense on intangible assets acquired, which contributed to an increase in depreciation and amortization expense of $2.4 million.leverage. Operating income in the three months ended June 30, ~~2018~~2019 within the Safety and Security Systems Group increased by ~~$2.6~~$1.3 million, largely due to benefits from pricing actions, favorable sales mix, and lower operating expenses, while ~~corporate~~Corporate expenses ~~decreased~~increased by ~~$0.5~~$0.7 million. Consolidated operating margin for the three months ended June 30, ~~2018~~2019 was ~~13.1%~~14.3%, up from ~~8.4%~~13.1% in the prior-year quarter.

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For the six months ended June 30, ~~2018,~~2019, operating income increased by ~~$27.5~~$14.4 million as compared to the corresponding period of the prior year. Within the Environmental Solutions Group, operating income for the six months ended June 30, ~~2018~~2019 increased by ~~$26.5~~$12.7 million, or ~~85%~~22%, ~~with~~largely due to higher sales volumes and improved operating leverage and an incremental operating income contribution of $9.4 million from TBEI, associated with including six months of activity in 2018, compared to only four months in the prior-year period. TBEI’s operating income contribution in the first half of 2018 included the effects of amortization expense on intangible assets acquired, which contributed to an increase in depreciation and amortization expense of $5.5 million.leverage. Within the Safety and Security Systems Group, operating income in the six months ended June 30, ~~2018~~2019 increased by ~~$2.3~~$3.9 million, or 27%, largely due to benefits from pricing actions, favorable sales mix, and lower operating expenses, while Corporate expenses increased by ~~$1.3~~$2.2 million. Consolidated operating margin for the six months ended June 30, ~~2018~~2019 was ~~10.7%~~12.1%, compared to ~~7.5%~~10.7% in the prior-year period.

Interest expense

Interest expense for the three ~~and~~months ended June 30, 2019 decreased by $0.5 million, or 20%. For six months ended June 30, ~~2018 increased~~2019 interest expense decreased by ~~$1.2~~$1.0 million, ~~and $3.1 million, respectively,~~or 20%. The reductions in both periods were largely due to lower average debt levels when compared to ~~the corresponding~~same period of the prior ~~year, largely due to higher average debt levels following the acquisition of TBEI.~~year.

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

For the three months ended June 30, ~~2018,~~2019, other income totaled $0.1 million and was primarily due to foreign currency transaction gains which were partially offset by pension expense, whereas in the prior-year period, other expense totaled $0.4 million and was primarily related to foreign currency transaction losses and pension ~~expense, whereas in the prior-year period, other income of $0.1 million was realized, representing foreign currency transaction gains that were partially offset by $0.1 million of pension~~ expense.

For the six months ended June 30, ~~2018,~~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 foreign currency transaction losses and pension ~~expense, whereas in the prior-year period, other income of $0.3 million was realized, representing foreign currency transaction gains that were partially offset by $0.2 million of pension~~ expense.

Income tax expense

The Company recognized income tax expense of ~~$8.3~~$11.6 million and ~~$6.1~~$8.3 million for the three months ended June 30, 2019 and 2018, ~~and 2017, respectively, and income~~respectively. The increase in tax expense ~~of $12.4 million and $9.9 million for~~in the ~~six months ended June 30, 2018 and 2017, respectively. The increases were~~current-year quarter was largely due to higher pre-tax income ~~levels, partially offset by the lower U.S. corporate~~levels. The Company’s effective tax rate ~~following~~for the ~~enactment of~~three months ended June 30, 2019 was 26.1%, compared to 23.6% in the ~~2017 Tax Act and~~prior-year quarter, which included the recognition of a $0.5 million excess tax benefit from stock compensation ~~activity in~~activity.

For the ~~second quarter. The effective tax rate for the three~~six months ended June 30, 2019 and 2018, ~~was 23.6%, compared to 34.7%~~the Company recognized income tax expense of $17.5 million and $12.4 million, respectively. The increase in tax expense in the ~~prior-year quarter, while the~~current year was largely due to higher pre-tax income levels. The Company’s effective tax rate for the six months ended June 30, ~~2018~~2019 was ~~23.8%~~25.8%, compared to ~~34.6%~~23.8% in the prior-year ~~period. The lower rates in~~period, which included the ~~current year reflect the impact~~recognition of ~~the reduction in the U.S. corporate tax rate, which was effective at the beginning of 2018, and the~~a $0.5 million excess tax ~~benefit.~~benefit from stock compensation activity.

~~Income from continuing operations~~Net income

~~Income from continuing operations~~Net income for the three months ended June 30, ~~2018~~2019 increased by ~~$15.4~~$5.9 million compared to the prior-year period, largely due to the aforementioned increase in operating income, the $0.5 million reduction in interest expense and the $0.5 million in other expense, partially offset by the ~~increase in interest expense, the decrease in other income and the $2.2~~$3.3 million increase in income tax expense.

For the six months ended June 30, ~~2018,~~2019, net income ~~from continuing operations~~ increased by ~~$21.1~~$10.5 million compared to the corresponding period of the prior year, largely due to the aforementioned increase in operating income, the $1.0 million reduction in interest expense and the $0.2 million in other expense, partially offset by the ~~increase in interest expense, the decrease in other income and the $2.5~~$5.1 million increase in income tax expense.

Orders

~~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 three and six~~Three months ended June 30, ~~2017.~~

~~Three Months Ended June 30, 2018~~2019 vs. three months ended June 30, ~~2017~~

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2018

Total orders for the three months ended June 30, ~~2018~~2019 were ~~$277.6~~$308.0 million, an increase of ~~$6.5~~$30.4 million, or 2%11%, as compared to the prior-year quarter. The Environmental Solutions Group reported total orders of ~~$217.3~~$253.2 million in the second quarter of ~~2018, an increase of $2.6~~2019, up $35.9 million, or ~~1%, compared~~17% in comparison to the prior-year ~~quarter, driven by organic order growth of approximately $2.7 million, or 2%, primarily represented by improved orders for vacuum trucks, partially offset by lower orders for refuse trucks.~~quarter. Orders in the three months ended June 30, ~~2018~~2019 within the Safety and Security Systems Group were ~~up $3.9~~$54.8 million, ~~or 7%, primarily due~~compared to ~~improved international orders for public safety products and higher orders for warning systems.~~$60.3 million in the prior-year quarter.

U.S. municipal and governmental orders ~~decreased~~increased by ~~$2.8~~$5.6 million, or 3%6%, primarily due to ~~a $2.9~~an $11.2 million ~~decrease~~increase within the Environmental Solutions Group, ~~associated with lower~~driven by increased orders for sewer cleaners, dump truck bodies and vacuum trucks of $9.4 million, $2.6 million and $1.4 million, respectively. Aftermarket demand also increased by $1.8 million. Partially offsetting these increases was a $4.0 million reduction in orders for street ~~sweepers and sewer cleaners. TBEI’s municipal orders also decreased by $0.8 million.~~sweepers. Within the Safety and Security Systems Group, municipal and governmental orders ~~increased~~decreased by ~~$0.1 million.~~$5.6 million, due to reductions in orders for public safety products and warning systems of $3.6 million and $2.0 million, respectively.

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U.S. industrial orders increased by ~~$2.7~~$15.3 million, or 2%13%, primarily due to ~~an $2.4~~a $14.1 million increase within the Environmental Solutions Group, ~~due to an increase~~largely represented by increases in orders offor dump truck bodies and vacuum trucks of $5.5 million and $5.0 million, respectively. Aftermarket demand also increased by $5.9 million. These improvements were partially offset by ~~decreases~~a $3.3 million decrease in orders for ~~used trucks and sewer cleaners.~~trailers. The Safety and Security Systems Group reported a ~~$0.3~~$1.2 million increase in industrial ~~orders.~~

~~Non-U.S.~~ orders, increased by $6.6 million, or 11%. Within the Safety and Security Systems Group, non-U.S. orders increased by $3.5 million, largely driven by increased international orders for public safety products. Within the Environmental Solutions Group, non-U.S. orders increased by $3.1 million,primarily due to improvements in orders for ~~sewer cleaners, rental~~public safety products and industrial signaling equipment of $0.9 million and $0.4 million, respectively.

Non-U.S. orders increased by $9.5 million, or 14%, primarily due to a $10.6 million increase within the Environmental Solutions Group, primarily due to improvements in orders for refuse trucks, vacuum trucks ~~waterblasting equipment, parts~~ and ~~used equipment,~~street sweepers of $7.5 million, $3.4 million and $2.6 million, respectively, which were partially offset by ~~fewer~~a $2.1 million decrease in orders for ~~refuse trucks. The acquisition~~sewer cleaners. Within the Safety and Security Solutions Group, 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 ~~TBEI also contributed~~$0.6 million and $0.5 million, ~~of incremental orders.~~respectively, which were partially offset by a $0.9 million improvement in orders for industrial signaling equipment.

Six months ended June 30, ~~2018~~2019 vs. six months ended June 30, ~~2017~~2018

Total orders for the six months ended June 30, ~~2018~~2019 were ~~$607.3~~$607.0 million, ~~an increase~~a decrease of ~~$121.6~~$0.3 million, ~~or 25%,~~ as compared to the prior-year period. The Environmental Solutions Group reported total orders of $496.9 million in the first half of 2019, compared to $491.7 million in the first half of 2018, an increase of $110.4 million, or 29%, compared to the prior-year period. The improvement was driven by the effects of the inclusion of TBEI orders for six months in 2018 and organic order growth of approximately $46.9 million, or 15%, primarily represented by improved orders for sewer cleaners and vacuum trucks, partially offset by lower orders for refuse trucks.2018. Orders in the six months ended June 30, ~~2018~~2019 within the Safety and Security Systems Group ~~were up $11.2~~decreased by $5.5 million, or ~~11%, primarily due to improved orders for public safety products and favorable foreign currency translation effects.~~5%.

U.S. municipal and governmental orders ~~increased~~decreased by ~~$16.8~~$5.0 million, or ~~10%~~3%, primarily due to a ~~$14.9~~$6.9 million ~~increase~~decrease within ~~the Environmental Solutions Group, associated with improved orders for sewer cleaners and street sweepers. Within~~ the Safety and Security Systems Group, ~~municipal orders increased by $1.9 million, largely~~ driven by ~~higher orders for public safety products.~~

U.S. industrial orders increased by $95.0 million, or 48%, primarily due to a $93.5 million increase within the Environmental Solutions Group, largely driven by the acquisition of TBEI, which added $62.7 million of incremental industrial orders, and increases in orders of vacuum trucks, parts and waterblasting equipment, partially offset by a decrease in orders for street sweepers. The Safety and Security Systems Group reported a $1.5 million increase in industrial orders.

~~Non-U.S. orders increased by $9.8 million, or 8%. Within the Safety and Security Systems Group, non-U.S. orders increased by $7.8 million, largely driven by an increase~~decreases in orders for public safety products and ~~a favorable foreign currency translation impact.~~warning systems of $4.5 million and $2.4 million, respectively. Within the Environmental Solutions Group, ~~non-U.S.~~municipal and governmental orders increased by ~~$2.0~~$1.9 million, primarily due to ~~increased~~increases in orders ~~of waterblasting equipment,~~for vacuum trucks, ~~rentals, used equipment, snow removal equipment~~dump truck bodies and ~~parts. The acquisition~~sewer cleaners of ~~TBEI also contributed $1.2~~$4.1 million, ~~of orders.~~$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 $14.1 million, or 11%, primarily due to a $16.2 million increase within the Environmental Solutions Group, driven by increases in orders for vacuum trucks, refuse ~~trucks.~~trucks and street sweepers of $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 $1.5 million, $1.3 million and $1.2 million, respectively. Within the Safety and Security Solutions Group, non-U.S. orders decreased by $2.1 million, primarily due to a $2.0 million unfavorable foreign currency translation impact, and reductions in orders of public safety products and warning 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 $347.7 million at June 30, 2019 compared to $322.3 million at June 30, ~~2018 compared to $222.7 million at June 30, 2017.~~2018. The increase of ~~$99.6~~$25.4 million, or ~~45%~~8%, was primarily due to a ~~$93.5~~$30.7 million increase in backlog within the Environmental Solutions Group, largely ~~due to higher backlog~~associated with strong demand for sewer cleaners and vacuum trucks as a result of the strong orders received in the six months ended June 30, 2018. Backlog within the Safety and Security Systems Group was also up $6.1 million, primarily due to an increase in orders for public safety products and warning systems.trucks.

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Environmental Solutions

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


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended June 30,									Six Months Ended June 30,
($ in millions)	2018			2017			Change			2018			2017			Change			2019			2018			Change			2019			2018			Change
Net sales	$	233.3		$	174.3		$	59.0		$	429.9		$	302.1		$	127.8		$	267.2		$	233.3		$	33.9		$	486.7		$	429.9		$	56.8
Operating income	37.2			21.0			16.2			57.8			31.3			26.5			44.8			37.2			7.6			70.5			57.8			12.7
Operating data:
Operating margin	15.9		%	12.0		%	3.9		%	13.4		%	10.4		%	3.0		%	16.8		%	15.9		%	0.9		%	14.5		%	13.4		%	1.1		%
Total orders	$	217.3		$	214.7		$	2.6		$	491.7		$	381.3		$	110.4		$	253.2		$	217.3		$	35.9		$	496.9		$	491.7		$	5.2
Backlog	291.3			197.8			93.5			291.3			197.8			93.5			322.0			291.3			30.7			322.0			291.3			30.7
Depreciation and amortization	8.0			5.6			2.4			15.7			10.2			5.5			8.9			8.0			0.9			17.5			15.7			1.8

Three ~~Months Ended~~months ended June 30, ~~2018~~2019 vs. three months ended June 30, ~~2017~~2018

Total orders increased by ~~$2.6~~$35.9 million, or 1%17%, for the three months ended June 30, ~~2018.~~2019. U.S. orders ~~decreased~~increased by ~~$0.5~~$25.3 million, or 15%, primarily due to ~~reductions~~increases in orders for sewer cleaners, ~~used equipment~~dump truck bodies, and ~~street sweepers~~vacuum trucks, of ~~$2.8~~$10.8 million, ~~$2.7~~$8.1 million, and ~~$2.1~~$6.4 million, ~~respectively, partially offset~~respectively. Additionally, aftermarket demand increased by ~~a $7.4 million increase~~$7.7 million. Partially offsetting these improvements were reductions in orders for ~~vacuum trucks.~~street sweepers and trailers of $3.4 million and $3.3 million, respectively. Non-U.S. orders increased by ~~$3.1~~$10.6 million, or 8%24%, primarily due to improvements in orders ~~of sewer cleaners, rental equipment,~~for refuse trucks, vacuum trucks, ~~waterblasting equipment, parts~~ and ~~used equipment~~street sweepers of ~~$2.8~~$7.5 million, ~~$1.8 million, $1.4 million, $1.1 million, $1.1~~$3.4 million, and ~~$1.1~~$2.6 million, respectively, which were partially offset by a ~~$5.7~~$2.1 million decrease in orders for ~~refuse trucks.~~sewer cleaners.

Net sales increased by ~~$59.0~~$33.9 million, or ~~34%~~15%, for the three months ended June 30, ~~2018.~~2019. U.S. sales increased by ~~$55.2~~$25.6 million, ~~or 43%,~~ primarily due to ~~the acquisition of TBEI, which contributed $39.0 million of incremental sales, as well as~~ increases in ~~shipments~~sales of vacuum trucks, sewer cleaners, and ~~street sweepers~~dump truck bodies of ~~$10.8~~$14.1 million, ~~$1.5~~$5.1 million, and ~~$1.5~~$3.2 million, respectively. In addition, ~~rental income increased by $1.1 million. Non-U.S.~~aftermarket sales increased by $3.8 million, or 9%, primarily due to improvements in sales of vacuum trucks, street sweepers and used equipment of $4.0 million, $1.4 million and $0.6 million, respectively. In addition, parts and service revenues and rental income also increased by $2.7 million and $1.8 million, respectively.$6.0 million. Partially offsetting these ~~improvements~~increases was ~~an $8.9~~a $2.1 million reduction in sales of ~~refuse trucks.~~trailers. Non-U.S. sales increased by $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 ~~$37.4~~$25.1 million, or ~~27%~~14%, for the three months ended June 30, ~~2018,~~2019, primarily attributable to increased sales volumes, higher material costs in comparison to the ~~effects of three months of TBEI activity in the current-year~~prior-year quarter, ~~compared with one month in the prior year~~ and a ~~$1.0~~$0.9 million increase in depreciation expense, partially offset by a ~~$2.1~~$0.2 million reduction in purchase accounting expenses. Gross margin ~~increased~~improved to ~~24.8%~~25.0% from ~~20.8%~~24.8% in the prior-year quarter, primarily due to improved operating leverage, benefits from pricing actions, ~~taken in response to increasing commodity costs,~~and favorable sales ~~mix and the reduction in purchase accounting expenses.~~mix.

SEG&A expenses increased by ~~$5.3~~$0.9 million for the three months ended June 30, ~~2018, largely~~2019, primarily due to ~~the addition~~higher employee related expenses. As a percentage of net sales, SEG&A expenses ~~associated with~~decreased from 8.7% in the ~~prior year TBEI acquisition, including an increase in amortization expense of $1.3 million. The~~ prior-year quarter, ~~also included a $1.0 million favorable adjustment of product liability and workers compensation reserves.~~to 8.0% in the current-year quarter.

Operating income for the three months ended June 30, ~~2018~~2019 increased by ~~$16.2~~$7.6 million, largely due to a ~~$21.6~~$8.8 million increase in gross profit, partially offset by the ~~$5.3~~$0.9 million increase in SEG&A expenses and a ~~$0.1~~$0.3 million increase in acquisition-related expenses.

Six months ended June 30, ~~2018~~2019 vs. six months ended June 30, ~~2017~~2018

Total orders increased by ~~$110.4~~$5.2 million, or ~~29%~~1%, for the six months ended June 30, ~~2018.~~2019. U.S. orders decreased by $11.0 million, or 3%, primarily due 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 ~~$108.4~~$16.2 million, or ~~37%~~18%, ~~largely~~primarily due to ~~the prior-year acquisition of TBEI, which contributed an increase in orders of $62.4 million. The organic growth in the U.S. was largely due to improvements~~increases in orders for vacuum trucks, refuse trucks, and ~~sewer cleaners~~street sweepers of ~~$31.8~~$9.2 million, $7.0 million, and ~~$12.6~~$1.5 million, respectively. ~~Non-U.S. orders~~In addition, aftermarket demand increased by ~~$2.0 million, or 2%, primarily attributable to increased orders for waterblasting equipment, vacuum trucks, rental equipment, used equipment, snow removal equipment and parts of~~ $3.4 ~~million, $2.7 million, $2.7 million, $2.5 million, $2.3 million and $1.3 million, respectively. The acquisition of TBEI also contributed $1.2 million of orders.~~million. Partially offsetting these improvements ~~was a $14.5~~were reductions in orders for sewer cleaners, snow removal trucks, and waterblasting equipment of $1.5 million, ~~reduction in refuse truck orders.~~$1.3 million, and $1.2 million, respectively.

Net sales increased by ~~$127.8~~$56.8 million, or ~~42%~~13%, for the six months ended June 30, ~~2018.~~2019. U.S. sales increased by ~~$122.9~~$35.7 million, ~~or 55%,~~ primarily due to ~~the inclusion of five more months of TBEI activity in the current-year period, accounting for $89.7 million of the sales increase, as well as~~ increases in ~~shipments~~sales of vacuum trucks, dump truck bodies, street sweepers, sewer cleaners, and waterblasting equipment of $18.0 million, $5.7 million, $2.8 million, $2.6 million, and $2.3 million, respectively. In addition, aftermarket

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sales increased by $5.8 million. Partially offsetting these increases was a $1.0 million reduction in sales of trailers. Non-U.S. sales increased by $21.1 million, primarily due to increases in sales of vacuum trucks, sewer cleaners, ~~used equipment~~refuse trucks, and street

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sweepers of ~~$16.5~~$7.6 million, ~~$12.5~~$6.9 million, ~~$1.5~~$4.1 million, and ~~$1.4~~$2.3 million, respectively. In addition, ~~rental income increased by $1.6 million. Non-U.S.~~aftermarket sales increased by $4.9 million, or 6%, primarily due to increases in shipments of vacuum trucks, snow-removal equipment and street sweepers of $4.3 million, $3.8 million and $1.9 million, respectively. Parts and service revenues and rental income also increased by $4.0 million and $2.7 million, respectively.$3.7 million. Partially offsetting these ~~improvements was a $12.3 million reduction~~increases were reductions in sales of ~~refuse trucks.~~snow removal trucks of $2.8 million.

Cost of sales increased by ~~$87.7~~$41.8 million, or ~~36%~~13%, for the six months ended June 30, ~~2018,~~2019, primarily attributable to ~~higher~~increased sales volumes, higher material costs in comparison to the ~~effects~~first half of ~~six months of TBEI activity in the current-year compared with one month in the prior year~~2018, and a ~~$2.1~~$2.0 million increase in depreciation expense, partially offset by a ~~$2.0~~$0.7 million reduction in purchase accounting expenses. Gross margin ~~increased~~improved to ~~23.4%~~23.8% from ~~20.1%~~23.4% in the prior-year period, primarily due to improved operating leverage, benefits from pricing actions, ~~taken in response to increasing commodity costs,~~and favorable sales ~~mix and the reduction in purchase accounting expenses.~~mix.

SEG&A expenses increased by ~~$13.4~~$1.9 million for the six months ended June 30, ~~2018, largely~~2019, primarily due to higher employee-related expenses. As a percentage of net sales, SEG&A expenses decreased from 9.9% in the ~~addition of expenses associated with~~prior-year period, to 9.1% in the ~~TBEI acquisition, including an increase in amortization expense of $3.2 million.~~current-year period.

Operating income for the six months ended June 30, ~~2018~~2019 increased by ~~$26.5~~$12.7 million, largely due to a ~~$40.1~~$15.0 million increase in gross profit, partially offset by the ~~$13.4~~$1.9 million increase in SEG&A expenses and a ~~$0.2~~$0.4 million increase in acquisition-related expenses.

Backlog was $322.0 million at June 30, 2019, up 11% compared to $291.3 million at June 30, ~~2018, up 47.3% compared to $197.8 million at June 30, 2017.~~2018. The increase was largely ~~a result of the increase in orders~~due to continued strong demand for ~~vacuum trucks and~~ sewer cleaners ~~received in the six months ended June 30, 2018.~~and vacuum 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 six months endedJune 30, ~~2018~~2019 and ~~2017~~2018:


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended June 30,									Six Months Ended June 30,
($ in millions)	2018			2017			Change			2018			2017			Change			2019			2018			Change			2019			2018			Change
Net sales	$	57.7		$	50.1		$	7.6		$	110.8		$	100.1		$	10.7		$	57.1		$	57.7		$	(0.6	)	$	111.4		$	110.8		$	0.6
Operating income	8.2			5.6			2.6			14.3			12.0			2.3			9.5			8.2			1.3			18.2			14.3			3.9
Operating data:
Operating margin	14.2		%	11.2		%	3.0		%	12.9		%	12.0		%	0.9		%	16.6		%	14.2		%	2.4		%	16.3		%	12.9		%	3.4		%
Total orders	$	60.3		$	56.4		$	3.9		$	115.6		$	104.4		$	11.2		$	54.8		$	60.3		$	(5.5	)	$	110.1		$	115.6		$	(5.5	)
Backlog	31.0			24.9			6.1			31.0			24.9			6.1			25.7			31.0			(5.3		)	25.7			31.0			(5.3		)
Depreciation and amortization	1.0			1.0			—			1.9			2.0			(0.1		)	0.8			1.0			(0.2		)	1.7			1.9			(0.2		)

Three ~~Months Ended~~months ended June 30, ~~2018~~2019 vs. three months ended June 30, ~~2017~~2018

Total orders ~~increased~~for the three months ended June 30, 2019 decreased by ~~$3.9~~$5.5 million, or 7%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 June 30, ~~2018.~~ 2019.In the aggregate,U.S. ~~orders~~sales increased by ~~$0.4~~$0.1 million, ~~compared to the prior-year quarter,~~ primarily due to a ~~$0.7~~$1.4 million ~~increase~~improvement in ~~orders for warning systems. Non-U.S. orders increased~~sales of industrial signaling equipment, partially offset by ~~$3.5 million, largely driven by a $3.1 million increase~~decreases in ~~orders for~~sales of public safety products ~~a $1.0~~and warning systems of $0.8 million ~~favorable~~and $0.5 million, respectively. Non-U.S. sales decreased by $0.7 million, or 3%, primarily due an unfavorable foreign currency ~~translation~~ impact of $0.9 million and ~~a $0.5 million increase~~reductions in ~~orders for~~sales of warning systems and public safety products of $0.7 million and $0.6 million, respectively, partially offset by a ~~$1.1~~$1.5 million ~~reduction~~improvement in ~~orders for~~sales of industrial signaling equipment.

~~Net~~Cost of sales ~~increased by $7.6 million, or 15%,~~ for the three months ended June 30, ~~2018.U.S. sales increased~~2019 decreased by $1.5 million, primarily due to a $3.1 million increase in sales of public safety products, partially offset by a $1.9 million decrease in sales of warning systems. Non-U.S. sales increased by $6.1 million, primarily due to a $3.9 million increase in sales of public safety products, a $1.0 million favorable foreign currency translation impact, and increases in sales of warning systems and industrial signaling equipment of $0.8 million and $0.4 million, respectively.

~~Cost of sales increased by $4.7~~$1.6 million, or ~~15%~~4%, ~~for the three months ended June 30, 2018, largely due~~primarily related to ~~higher~~lower sales volumes and ~~an unfavorable~~a favorable foreign currency translation impact of $0.7 million. Gross margin for the three months ended June 30, ~~2018~~2019 improved to ~~36.9%~~39.1%, compared to ~~36.7%~~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 June 30, ~~2018~~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 increased by ~~$0.4~~$1.3 million, or 16%, for the three months ended June 30, 2019. The increase was primarily attributable to the $1.0 million improvement in gross profit and the $0.3 million reduction in SEG&A expenses.

Six months ended June 30, 2019 vs. six months ended June 30, 2018

Total orders decreased by $5.5 million, or 5%, for the six months ended June 30, 2019. U.S. orders decreased by $3.4 million, primarily due to reductions in orders for warning systems and public safety products of $2.7 million and $1.8 million, respectively, which were partially offset by a $1.1 million increase in orders for industrial signaling equipment. Non-U.S. orders decreased by $2.1 million, primarily due to a $2.0 million unfavorable foreign currency translation impact, and reductions in orders for public safety products and warning 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.

Net sales increased by $0.6 million, or 1%, for the six months ended June 30, 2019.U.S. sales decreased by $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 improvements in sales of industrial signaling equipment and public safety products of $1.9 million and $1.3 million, respectively, partially offset by an unfavorable foreign currency translation impact of $2.0 million and a $0.5 million reduction in sales of warning systems.

Cost of sales for the six months ended June 30, 2019 decreased by $2.6 million, or 4%, largely due to favorable sales mix and a favorable foreign currency translation impact of $1.5 million. Gross margin for the six months ended June 30, 2019 improved to 39.0%, compared to 36.4% in the prior-year period, primarily due to benefits from pricing actions and improved sales mix in comparison to the prior-year period.

SEG&A expenses for the six months ended June 30, 2019 decreased by $0.7 million, or 3%. As a percentage of net sales, SEG&A expenses decreased from ~~25.3% in the prior-year quarter, to 22.7% in the current-year quarter.~~

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Operating income increased by $2.6 million for the three months ended June 30, 2018. The increase was primarily attributable to the $2.9 million improvement in gross profit and a $0.1 million decrease in restructuring charges, partially offset by the $0.4 million increase in SEG&A expenses.

~~Six months ended June 30, 2018 vs. six months ended June 30, 2017~~

Total orders increased by $11.2 million or 11%, for the six months ended June 30, 2018. In the aggregate, U.S. orders increased by $3.4 million, primarily due to increases in orders for public safety products and warning systems of $2.6 million and $1.5 million, respectively, offset by a $0.6 million reduction in orders for industrial signaling equipment. Non-U.S. orders increased by $7.8 million, largely driven by a $5.8 million increase in orders for public safety products and a $2.9 million favorable foreign currency translation effect, which were partially offset by a $0.6 million reduction in orders for industrial signaling equipment.

~~Net sales increased by $10.7 million, or 11%, for the six months ended June 30, 2018.~~ U.S. sales increased by $3.3 million, primarily due to a $4.6 million increase in sales of public safety products, partially offset by reductions in sales of warning systems and industrial signaling equipment of $0.7 million and $0.6 million, respectively. Non-U.S. sales increased by $7.4 million, primarily due to increases in sales of public safety products, industrial signaling equipment and warning systems of $3.4 million, $1.0 million and $0.6 million, respectively, as well as a $2.4 million favorable foreign currency translation impact.

Cost of sales increased by $8.0 million, or 13%, for the six months ended June 30, 2018, largely due to higher sales volumes, and an unfavorable foreign currency translation impact of $1.8 million. Gross margin for the six months ended June 30, 2018 was 36.4%, compared to 37.6% in the first half of last year, driven by unfavorable mix experienced in the first quarter of 2018 in comparison to the same period of the prior-year.

SEG&A expenses for the six months ended June 30, 2018 increased by $0.8 million, or 3%, primarily due to increased expenses associated with new product development and other growth initiatives. As a percentage of net sales, SEG&A expenses decreased from 25.2%23.5% in the prior-year period, to ~~23.5%~~22.7% in the current-year period.

Operating income increased by ~~$2.3~~$3.9 million for the six months ended June 30, ~~2018.~~2019. The increase was primarily attributable to the ~~$2.7~~$3.2 million ~~increase~~improvement in gross profit and ~~a $0.4~~the $0.7 million reduction ~~in restructuring charges, partially offset by the $0.8 million increase~~ in SEG&A expenses.

Backlog was $25.7 million at June 30, 2019, compared to $31.0 million at June 30, ~~2018, up from $24.9 million at June 30, 2017, primarily due to increased orders for public safety products within international markets and outdoor warning systems.~~2018.

Corporate Expenses

Corporate operating expenses for the three months ended June 30, ~~2018~~2019 were ~~$7.3~~$8.0 million, compared to ~~$7.8~~$7.3 million in the prior-year quarter. The ~~decrease~~increase was primarily driven by increases in employee and post-employment expenses, as well as a ~~$0.7~~$0.2 million ~~reduction~~increase in ~~acquisition and integration-related expenses and lower legal costs, partially offset by increased employee benefit-related costs.~~acquisition-related expenses.

Corporate operating expenses for the six months ended June 30, ~~2018~~2019 were ~~$14.4~~$16.6 million, compared to ~~$13.1~~$14.4 million in the prior-year period. The increase was primarily driven by higher ~~employee benefit-related~~employee-related costs, post-employment expenses, and a $0.2 million increase in acquisition-related expenses, which were partially offset by ~~a $0.8 million decrease in acquisition and integration-related expenses.~~lower expenses associated with hearing loss litigation.

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, and make pension contributions.~~both. Beyond these uses, remaining cash ~~may be~~is used to ~~fund additional strategic acquisitions of businesses,~~ pay down debt, repurchase shares, or fund dividend ~~payments.~~payments and make pension contributions. The Company may also choose to invest in the acquisition of businesses. In the absence of significant unanticipated cash demands, we believe that the Company’s existing cash balances, cash flow from operations and borrowings available under the ~~Amended 2016 Credit Agreement,~~Company’s credit facility will provide funds sufficient for these purposes. The net cash flows

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associated with the Company’s rental equipment transactions are included in cash flow from operating activities.

The Company’s cash and cash equivalents totaled ~~$36.0~~$38.6 million and ~~$37.5~~$37.4 million as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. As of June 30, ~~2018, $22.4~~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 ~~were~~are repatriated. The 2017 Tax Act provides a one-time “transition tax” on E&P of a company’s CFC determined as of November 2, 2017 or December 31, 2017 (whichever date on which there is more deferred E&P). The Company’s accumulatedWhile the Company has no transition tax liability, the Company continues to assert that its undistributed earnings of certain foreign subsidiaries aggregated to an overall E&P deficit. Therefore, the Company estimates that no transition tax will be payable under the provisions of the 2017 Tax Act. As with other tax calculations surrounding the 2017 Tax Act, the Company’s estimate of its transition tax liability as of June 30, 2018 is provisional due to complexities inherent in the computations that it expects to be addressed in whole, or in part, by regulations issued during 2018.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.

~~Net cash of $37.8 million was generated by continuing operating activities in~~In the six months ended June 30, ~~2018, down from $45.8~~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 offset by ~~a $9.2 million increase~~increases in ~~income tax payments, which was largely timing-related, as well as additions to~~ working capital ~~and rental assets in support of increased demand, and~~requirements, higher incentive compensation and tax payments, ~~in comparison to the prior year.~~and rental fleet investment.

Net cash of ~~$3.9~~$9.4 million was used for ~~continuing~~ investing activities in the six months ended June 30, ~~2018,~~2019, compared ~~with $271.8~~to $3.9 million in the prior-year period. InCapital expenditures in the six months ended June 30, ~~2017, the Company paid an initial $269.2~~2019 and 2018 were $9.4 million ~~(net of cash acquired) to acquire TBEI.~~and $7.0 million, respectively. During the six months ended June 30, 2018, the Company also received $3.0 million as part of the finalization of certain post-closing adjustments in connection with the 2017 acquisition of ~~TBEI. Capital expenditures in the six months ended June 30, 2018~~Truck Bodies and ~~2017 were $7.0 million and $2.7 million, respectively.~~Equipment International.

Net cash of ~~$34.9~~$15.4 million was used for ~~continuing~~ financing activities in the six months ended June 30, ~~2018, whereas~~2019, compared to $34.9 million in the prior-year ~~period, $213.0~~period. In the six months ended June 30, 2019, the Company paid down $3.1 million of debt, funded cash ~~was provided by continuing financing activities.~~dividends and share repurchases of $9.6 million and $1.0 million, respectively, and redeemed $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 six months ended June 30, 2018, the Company paid down $26.6 million of debt and funded cash dividends of $9.0 million. In the six months ended June 30, 2017, in connection with the funding of the acquisition of TBEI, the Company borrowed $243.0 million against its revolving credit facility. Prior to June 30, 2017, $20.0 million of those borrowings were paid down. In addition, the Company funded cash dividends of $8.4 million and redeemed $2.4 million of stock in order to remit funds to tax authorities to satisfy employees’ tax withholdings following the vesting of stock-based compensation.

During the six months ended June 30, ~~2018, there were no borrowings against~~2019, the ~~Company’s non-U.S. lines~~Company announced plans to expand the primary production facility of ~~credit which provide for borrowings~~its Vactor Manufacturing, Inc. subsidiary. Over the course of the expansion project, the Company is expecting to invest up to ~~$0.1~~$25 million.

The Company anticipates that capital expenditures for ~~2018~~2019, excluding investment associated with the Vactor plant expansion, will be 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 six months ended June 30, ~~2018,~~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, ~~2017.~~2018.


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, ~~2017.~~2018. During the six months ended June 30, ~~2018,~~2019, there have been no significant changes in our exposure to market risk.


Item 4.	Controls and Procedures.

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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 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 June 30, ~~2018.~~2019. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, ~~2018.~~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. There 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 June 30, ~~2018.~~2019.

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PART II. OTHER INFORMATION


Item 1.	Legal Proceedings.

The information set forth under the heading “Legal Proceedings” in Note 78 – 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, ~~2017.~~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 of the Company’s Amended 2016 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 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~~

The following table provides a summary of the Company’s repurchase activity for its common stock during the three months ended June 30, ~~2018:~~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)
April 2018 (4/1/18 – 5/5/18) —
$ —
—
$ 31,395,802
May 2018 (5/6/18 – 6/2/18) —
—
—
31,395,802
June 2018 (6/3/18 – 6/30/18) —
—
—
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.

Other Events

On ~~August 7, 2018,~~July 30, 2019, the Company entered into the 2019 Credit Agreement, by and among the Company and 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 restates the Company’s Amended 2016 Credit Agreement, is a $500 million revolving credit facility, maturing on July 30, 2024, 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 $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 applicable lenders providing such additional financing. Refer to Note 13 – Subsequent Events to the accompanying condensed consolidated financial statements for a description of certain additional, material terms and conditions contained in the 2019 Credit Agreement. This summary of the 2019 Credit Agreement is not intended to be complete and is qualified in its entirety by reference to the 2019 Credit Agreement, which is attached hereto as Exhibit 10.1 to this Current Report on Form 10-Q and is incorporated herein by reference.

On July 31, 2019, the Company issued a press release announcing its financial results for the three and six months ended June 30, ~~2018.~~2019 and the execution of the aforementioned 2019 Credit Agreement. The presentation slides for the second quarter ~~2018~~2019 earnings call were also posted on the Company’s website at that time. The full text of the second quarter financial results press release and earnings presentation are attached hereto as 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*10.1		~~Form of Nonqualified Stock Option Award Agreement.~~

10.2*		~~Form of Performance Share Unit Award~~Second Amended and Restated Credit Agreement, ~~- Non-U.S.~~

10.3*		~~Form of Performance Share Unit Award Agreement - U.S.~~

10.4*		~~Form of Restricted Stock Award Agreement - U.S.~~

10.5*		~~Form of Restricted Stock Unit Award Agreement - Non-U.S.~~

~~10.6~~		~~First Amendment to the Federal Signal Corporation Retirement Savings Plan, as amended and restated~~dated as of ~~January 1, 2015.~~July 30, 2019, by and among the Company, and 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		Second Quarter Financial Results Press Release, Dated ~~August 7, 2018.~~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.~~

Table of Contents

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:	~~August 7, 2018~~July 31, 2019	/s/ Ian A. Hudson
		Ian A. Hudson
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)



	Three Months Ended June 30, 2017									Six Months Ended June 30, 2017
(in millions)	As Reported			Impact of Adoption			As Adjusted			As Reported			Impact of Adoption			As Adjusted
Selling, engineering, general and administrative expenses	$	34.9		$	(0.1	)	$	34.8		$	66.4		$	(0.2	)	$	66.2
Other expense (income), net	(0.2		)	0.1			(0.1		)	(0.5		)	0.2			(0.3		)



(in millions)	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Geographic Region:
U.S.	$	220.7	$	417.3
Canada	45.8		78.2
Europe/Other	24.5		45.2
Total net sales	$	291.0	$	540.7

Major Product Line:
Environmental Solutions
Vehicles and equipment ^(a)	$	185.2	$	340.8
Parts	32.4		62.2
Rental income ^(b)	11.6		19.4
Other ^(c)	4.1		7.5
Total	$	233.3	$	429.9

Safety and Security Systems
Public safety and security equipment	$	36.7	$	67.3
Industrial signaling equipment	13.5		26.7
Warning systems	7.5		16.8
Total	$	57.7	$	110.8

Total net sales	$	291.0	$	540.7



(in millions)	As of June 30, 2018		As of December 31, 2017
Total assets:
Environmental Solutions	$	776.8	$	746.4
Safety and Security Systems	210.4		211.8
Corporate and eliminations	28.5		33.6
Total assets of continuing operations	1,015.7		991.8
Total assets of discontinued operations	0.5		0.5
Total assets	$	1,016.2	$	992.3