10-K 1 d281202d10k.htm FORM 10-K
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
Commission File Number 1-6003
FEDERAL SIGNAL CORPORATION
(Exact name of the Company as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1415 West 22nd Street,
Oak Brook, Illinois
(Address of principal executive offices)
36-1063330
(I.R.S. Employer
Identification No.)
60523
(Zip Code)
The Company’s telephone number, including area code
(630) 954-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes ¨ No þ
Indicate by check mark whether the Company (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 Company was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, 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 shorter period that the registrant was required to submit and post such
files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of the Company’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨ Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark if the registrant is a shell company, in Rule 12 b-2 of the Exchange Act. Yes ¨ No þ
State the aggregate market value of voting stock held by nonaffiliates of the Company as of June 30, 2011: Common stock,
$1.00 par value — $395,450,956
Indicate the number of shares outstanding of each of the Company’s classes of common stock, as of February 29, 2012:
Common stock, $1.00 par value — 62,184,389 shares
Portions of the definitive proxy statement for the 2012 Annual Meeting of Shareholders are incorporated by reference in
Part III.
Documents Incorporated By Reference
Table of Contents
FEDERAL SIGNAL CORPORATION
Index to Form 10-K
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Signatures
Exhibit Index
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This Form 10-K and other reports filed by Federal Signal Corporation and subsidiaries (“the Company”) with the
Securities and Exchange Commission and comments made by management may contain the words such as “may,” “will,”
“believe,” “expect,” “anticipate,” “intend,” “plan,” “project,” “estimate” and “objective” or the negative thereof or similar
terminology 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 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 cyclical nature of the
Company’s industrial, municipal, government and commercial markets; domestic and foreign governmental policy changes;
restrictive debt covenants; availability of credit and third-party financing for customers; our ability to anticipate and meet
customer demands for new products and product enhancements and the resulting new and enhanced products generating
sufficient revenues to justify research and development expenses; our incurrence of restructuring and impairment changes as
we continue to evaluate opportunities to restructure our business; highly competitive markets; increased product liability,
warranty, recall claims, client service interruptions and other lawsuits and claims; technological advances by competitors;
disruptions in the supply of parts and components from suppliers and subcontractors; attraction and retention of key
employees; disruptions within our dealer network; work stoppages and other labor relations matters; increased pension
funding requirements and expenses beyond our control; costs of compliance with environmental and safety regulations; our
ability to use net operating loss (“NOL”) carryovers to reduce future tax payments; charges related to goodwill and other long-
lived intangible assets; ability to expand our business through successful future acquisitions; unknown or unexpected
contingencies in our existing business or in businesses acquired by us. These risks and uncertainties include, but are not
limited to, the risk factors described under Item 1A, Risk Factors, in the Company’s Annual Report on Form 10-K, Form 10-Qs
and other filings with the SEC. 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 financial position or results of operations. Accordingly, forward-looking statements should not be
relied upon as a predictor of actual results. The Company disclaims any responsibility to update any forward-looking statement
provided in this Form 10-K.
Item 1. Business.
PART I
Federal Signal Corporation, founded in 1901, was reincorporated as a Delaware corporation in 1969. The Company designs
and manufactures a suite of products and integrated solutions for municipal, governmental, industrial and commercial
customers. Federal Signal’s portfolio of products includes safety and security systems, vacuum loader vehicles, street
sweepers, truck mounted aerial platforms, waterblasters, and technology and solutions for intelligent transportation systems.
Federal Signal Corporation and its subsidiaries (referred to collectively as “the Company” or “Company” herein, unless context
otherwise indicates) operate 19 manufacturing facilities in six countries around the world serving customers in approximately
100 countries in all regions of the world.
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Narrative Description of Business
Products manufactured and services rendered by the Company are divided into four major operating segments: Safety and
Security Systems, Fire Rescue, Environmental Solutions and Federal Signal Technologies. 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.
Financial information (net sales, operating income (loss), depreciation and amortization, capital expenditures and
identifiable assets) concerning the Company’s four operating segments as of December 31, 2011 and 2010, and for each of the
three years in the period ended, December 31, 2011 is included in Note 16 to the consolidated financial statements included
under Item 8 of Part II of this Form 10-K and is incorporated herein by reference. Information regarding the Company’s
discontinued operations is included in Note 13 to the consolidated financial statements included under Item 8 of Part II of this
Form 10-K and is incorporated herein by reference.
Safety and Security Systems Group
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, industrial communications, and command and municipal networked security. Specific products
include lightbars and sirens, public warning sirens and public safety software. Products are sold under the Federal Signal
Federal Signal VAMA , Target Tech and Victor brand names. The Group operates manufacturing facilities in North America,
Europe, and South Africa.
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Fire Rescue Group
Our Fire Rescue Group is a leading manufacturer and supplier of sophisticated, vehicle-mounted, aerial platforms for fire
fighting, rescue, electric utility and industrial uses. End customers include fire departments, industrial fire services, electric
utilities, maintenance rental companies for applications such as fire fighting and rescue, transmission line maintenance, and
installation and maintenance of wind turbines. The Group’s telescopic/articulated aerial platforms are designed in accordance
with various regulatory codes and standards, such as European Norms (“EN”), National Fire Protection Association (“NFPA”)
and American National Standards Institute (“ANSI”). In addition to equipment sales, the Group sells parts, service and training
as part of a complete offering to its customer base. The Group manufactures in Finland and sells globally under the Bronto
Skylift brand name.
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Environmental Solutions Group
Our Environmental Solutions Group is a leading manufacturer and supplier of a full range of street sweeper and vacuum
trucks and high-performance waterblasting equipment for municipal and industrial customers. We also manufacture products
for the newer markets of hydro-excavation, glycol recovery and surface cleaning for utility and industrial customers. Products
are sold under the Elgin , Vactor , Guzzler and Jetstream brand names. The Group primarily manufactures its vehicles and
equipment in the United States.
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Under the Elgin brand name, the Company sells the leading U.S. brand of street sweepers primarily designed for large-
scale cleaning of curbed streets, parking lots and other paved surfaces utilizing mechanical sweeping, vacuum, and
recirculating air technology. Vactor is a leading manufacturer of municipal combination catch basin/sewer cleaning vacuum
trucks. Guzzler is a leader in industrial vacuum loaders that clean up industrial waste or recover and recycle valuable raw
materials. Jetstream manufactures high pressure waterblast equipment and accessories for commercial and industrial cleaning
and maintenance operations. In addition to equipment sales, the Group is increasingly engaged in the sale of parts and tooling,
service and repair, equipment rentals and training as part of a complete offering to its customer base.
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Federal Signal Technologies Group
Our Federal Signal Technologies Group (“FSTech”) is a provider of technologies and solutions to the intelligent
transportation systems and public safety markets and other applications. These products and solutions provide end users with
the tools needed to automate data collection and analysis, transaction processing and asset tracking. FSTech provides
technology platforms and services to customers in the areas of radio frequency identification systems (“RFID”), transaction
processing, vehicle classification, electronic toll collection, automated license plate recognition (“ALPR”), electronic vehicle
registration, parking and access control, cashless payment solutions, congestion charging, traffic management, site security
solutions and supply chain systems. Products are sold under PIPS , Idris , Sirit
FSTech operates manufacturing facilities in North America and Europe.
, VESystems and Federal APD brand names.
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Financial Services
The Company ceased entering into new financial services activities in 2008 and sold 92% of its municipal lease portfolio
during 2008. At December 31, 2011, the remaining leases and floor plan receivable balances, net of reserves, of $1.0 million were
included on the balance sheet as a component of assets of discontinued operations, net.
Marketing and Distribution
The Safety and Security Systems Group companies sell to industrial customers through approximately 2,000
wholesalers/distributors who are supported by Company sales personnel and/or independent manufacturers’ representatives.
Products are also sold to municipal and governmental customers through more than 1,900 active independent distributors as
well as through original equipment manufacturers and direct sales. International sales are made through the Group’s
independent foreign distributors or on a direct basis. The Company also sells comprehensive integrated warning and
interoperable communications through a combination of a direct sales force and distributors.
The Fire Rescue and Environmental Solutions Groups use dealer networks and direct sales to service customers generally
depending on the type and location of the customer. The Environmental Solutions direct sales channel concentrates on the
industrial, utility and construction market segments while the dealer networks focus primarily on the municipal markets. The
Company believes its national and global dealer networks for vehicles distinguish it from its competitors. Dealer
representatives demonstrate the vehicles’ functionality and capability to customers and service the vehicles on a timely basis.
The Federal Signal Technologies Group companies sell RFID, ALPR, and Back Office management systems and products
to municipal and governmental tollway agencies and tollway system integrators. These systems, products and services are
sold domestically through a combination of a direct sales force and independent agents. Internationally these systems,
products and services are sold through a network of independent representatives. Parking products and systems are sold to
municipal agencies, hospitals, universities and private parking operators through an independent network of 110 domestic and
international distributors.
Customers and Backlog
Approximately 29%, 34% and 37% of the Company’s total 2011 orders were to U.S. municipal and government customers,
U.S. commercial and industrial customers, and non-U.S. customers, respectively. No single customer accounted for 10% or
more of the Company’s business.
During 2011, the Company’s U.S. municipal and government orders increased 24% from 2010, compared to a 2% increase
in these orders in 2010 as compared to 2009, as the U.S. and global markets continued their recovery from the economic
recession. The U.S. commercial and industrial orders increased 57% from 2010, compared to an increase of 67% in these orders
in 2010 compared to 2009.
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Approximately 70% of orders to non-U.S. customers flow to municipalities and governments while approximately 30% flow
to industrial and commercial customers. The non-U.S. municipal and government segment is essentially similar to the
U.S. municipal and government segment in that it is largely dependent on tax revenues to support spending. Of the non-
U.S. orders, the Company typically sells approximately 30% of its products in Europe, 16% in Canada, 16% in the Middle East
and Africa, 16% in China and less than 10% in any other particular region.
The Company’s backlog totaled $426 million at December 31, 2011 compared to $217 million at December 31, 2010. The
2011 backlog includes several multi-year contracts for the FSTech Group. Backlogs vary by Group due to the nature of the
Company’s products and buying patterns of its customers. Safety and Security Systems typically maintains an average
backlog of two months of shipments, Environmental Solutions maintains an average backlog of three to four months of
shipments, Fire Rescue normally maintains an average backlog of five months of shipments, and FSTech maintains a two to
three month average backlog, excluding service and maintenance contracts that generally cover a period of more than one year.
Suppliers
The Company purchases a wide variety of raw materials from around the world for use in the manufacture of its products,
although the majority of current purchases are from North American sources. To minimize the risks of availability, price and
quality, the Company is party to numerous strategic supplier arrangements. Although certain materials are obtained from either
a single-source supplier or a limited number of suppliers, the Company has identified alternative sources to minimize the
interruption of its business in the event of supply problems.
Components critical to the production of the Company’s vehicles, such as engines and hydraulic systems, are purchased
from a select number of suppliers. The Company also purchases raw and fabricated steel as well as commercial chassis with
certain specifications from a few sources.
The Company believes it has adequate supplies or sources of availability of the raw materials and components necessary
to meet its needs. However, there are risks and uncertainties with respect to the supply of certain of these raw materials that
could impact their price, quality and availability in sufficient quantities.
Competition
Within specific product categories and domestic markets, the Safety and Security Systems Group companies are among
the leaders with three to four strong competitors and several additional ancillary market participants. The Group’s international
market position varies from leader to ancillary participant depending on the geographic region and product line. Generally,
competition is intense with all of the Group’s products, and purchase decisions are made based on competitive bidding, price,
reputation, performance and servicing.
Within the Fire Rescue Group, Bronto Skylift is established as the global leader for aerial platforms used in fire fighting,
rescue and industrial markets. Competitor offerings can include trailer mounted articulated aerials and traditional fire trucks with
ladders. Bronto competes on product performance where it holds technological advantages in its designs, materials and
production processes.
Within the Environmental Solutions Group, Elgin is recognized as the market leader among several domestic sweeper
competitors and differentiates itself primarily on product performance. Vactor and Guzzler both maintain the leading domestic
position in their respective marketplaces by enhancing product performance with leading technology and application flexibility.
Jetstream is a market leader in the in-plant cleaning segment of the U.S. waterblast industry, competing on product performance
and rapid delivery.
Within FSTech, the RFID and Back Office product lines are recognized as leading innovators. They maintain a top tier
leadership position amongst three to four major competitors and ancillary market participants
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depending on geography. The ALPR product line maintains a domestic market leadership position by capitalizing on product
technical leadership and application innovation. The Parking product line competes in a crowded, competitive market and
leverages its distribution network and flexible product offerings to compete as one of the top tier suppliers.
Research and Development
The Company invests in research to support development of new products and the enhancement of existing products and
services. The Company believes this investment is important to maintain and/or enhance its leadership position in key markets.
Expenditures for research and development by the Company were approximately $20 million in 2011, $19 million in 2010, and
$19 million in 2009.
Patents and Trademarks
The Company owns a number of patents and possesses rights under others to which it attaches importance, but does not
believe that its business as a whole is materially dependent upon any such patents or rights. The Company also owns a
number of trademarks that it believes are important in connection with the identification of its products and associated goodwill
with customers, but no material part of the Company’s business is dependent on such trademarks.
Employees
The Company employed approximately 2,900 people in its businesses at the close of 2011. At December 31, 2011, the
Company’s U.S. hourly workers accounted for approximately 39% of its total workforce. Approximately 26% of the Company’s
U.S. hourly workers were represented by unions at December 31, 2011. On April 30, 2012, the current collective bargaining
agreement with the International Brotherhood of Electrical Workers at our University Park, Illinois facility expires. The
Company believes relations with its employees to be good.
Governmental Regulation of the Environment
The Company believes it substantially complies with federal, state and local provisions that have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment.
Capital expenditures in 2011 attributable to compliance with such laws were not material. The Company believes that the overall
impact of compliance with environmental regulations will not have a material adverse effect on its future operations.
The Company retained a consultant to conduct an environmental risk assessment at its Pearland, Texas facility. The
facility, which was previously used by the Company’s discontinued Pauluhn business, manufactured marine, offshore and
industrial lighting products. While the Company has not completed its risk assessment analysis, it appears probable the site
will require remediation. As of December 31, 2011, $2.2 million of reserves related to the environmental remediation are included
in liabilities of discontinued operations on the consolidated balance sheet. The Company’s estimate may change in the near
term as more information becomes available; however, the costs are not expected to have a material adverse effect on the
Company’s results of operations, financial position or liquidity.
Seasonality
Certain of the Company businesses are susceptible to the influences of seasonal buying or delivery patterns. The
Company tends to have lower sales in the first calendar quarter compared to other quarters as a result of these influences.
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Additional Information
The Company makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
other reports and information filed with the SEC and amendments to those reports available, free of charge, through its Internet
website (http://www.federalsignal.com) as soon as reasonably practical after it electronically files or furnishes such materials
to the SEC. All of the Company’s filings may be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E.,
Room 1580, Washington, DC 20549. Information on the operation of the Public Reference Room can be obtained by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding issuers that file electronically.
Item 1A. Risk Factors.
We may occasionally make forward-looking statements and estimates such as forecasts and projections of our future
performance or statements of our plans and objectives. These forward-looking statements may be contained in, among other
things, filings with the Securities and Exchange Commission (“SEC”), including this Annual Report on Form 10-K, press
releases made by us and in oral statements made by our officers. Actual results could differ materially from those contained in
such forward-looking statements. Important factors that could cause our actual results to differ from those contained in such
forward-looking statements include, among other things, the risks described below.
Our financial results are subject to considerable cyclicality.
In 2011, we generated approximately 63% of our sales in the United States. Our ability to be profitable depends heavily on
varying conditions in the United States government and municipal markets and the overall United States economy. The
industrial markets in which we compete are subject to considerable cyclicality, and move in response to cycles in the overall
business environment. Many of our customers are municipal governmental agencies, and as a result, we are dependent on
municipal government spending. Spending by our municipal customers can be affected by local political circumstances,
budgetary constraints, and other factors. The United States government and municipalities depend heavily on tax revenues as
a source of their spending and accordingly, there is a historical correlation of a one or two year lag between the overall strength
of the United States economy and our sales to the United States government and municipalities. Therefore, downturns in the
United States economy are likely to result in decreases in demand for our products. During previous economic downturns, we
experienced decreases in sales and profitability, and we expect our business to remain subject to similar economic fluctuations
in the future.
We have international operations that are subject to foreign economic and political uncertainties.
Our business is subject to fluctuations in demand and changing international economic and political conditions that are
beyond our control. In 2011, 37% of our sales were generated outside the United States and we expect a significant portion of
our revenues to come from international sales for the foreseeable future. Operating in the international marketplace exposes us
to a number of risks, including abrupt changes in foreign government policies and regulations, restrictive domestic and
international trade regulations, U.S. laws applicable to foreign operations, such as the Foreign Corrupt Practices Act (“FCPA”),
the UK Bribery Act, political, religious and economic instability, local labor market conditions, the imposition of foreign tariffs
and other trade barriers and, in some cases, international hostilities. To the extent that our international operations are affected
by unexpected and adverse foreign economic and political conditions, we may experience project disruptions and losses which
could significantly reduce our revenues and profits. In addition, penalties for non-compliance with laws applicable to
international business and trade, such as FCPA, could negatively impact our business.
Some of our contracts are denominated in foreign currencies, which results in additional risk of fluctuating currency
values and exchange rates, hard currency shortages and controls on currency exchange. Changes in the
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value of foreign currencies over the longer term could increase our U.S. dollar costs for, or reduce our U.S. dollar revenues
from, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency fluctuations could
adversely affect our profits.
We are subject to a number of restrictive debt covenants.
We recently entered into new credit facilities for a period of five years ending February 2017. The proceeds from these
new credit facilities were used to refinance the majority of the Company’s existing indebtedness, including the Company’s
secured revolving credit facility and private placement notes. Our new credit facilities contain certain restrictive debt covenants
and other customary events of default. Our ability to comply with these restrictive covenants may be affected by the other
factors described in this “Risk Factors” section and other factors outside of our control. Failure to comply with one or more of
these restrictive covenants may result in an event of default. Upon an event of default, if not waived by our lenders, our
lenders may declare all amounts outstanding as due and payable. If our current lenders accelerate the maturity of our
indebtedness, we may not have sufficient capital available at that time to pay the amounts due to our lenders on a timely basis.
In addition, these restrictive covenants may prevent us from engaging in transactions that benefit us, including responding to
changing business and economic conditions and taking advantage of attractive business opportunities.
The execution of our growth strategy is dependent upon the continued availability of credit and third-party financing
arrangements for our customers.
Economic downturns result in tighter credit markets, which could adversely affect our customers’ ability to secure the
financing or to secure the financing at favorable terms or interest rates necessary to proceed or continue with purchases of our
products and services. Our customers’ or potential customers’ inability to secure financing for projects could result in the
delay, cancellation or down-sizing of new purchases or the suspension of purchases already under contract, which could cause
a decline in the demand for our products and services and negatively impact our revenues and earnings.
Our efforts to develop new products and services or enhance existing products and services involve substantial research,
development and marketing expenses, and the resulting new or enhanced products or services may not generate sufficient
revenues to justify the expense.
We place a high priority on developing new products and services, as well as enhancing our existing products and
services. As a result of these efforts, we may be required to expend substantial research, development and marketing resources,
and the time and expense required to develop a new product or service or enhance an existing product or service are difficult to
predict. We may not succeed in developing, introducing or marketing new products or services or product or service
enhancements. In addition, we cannot be certain that any new or enhanced product or service will generate sufficient revenue
to justify the expense and resources devoted to this product diversification effort.
We could incur restructuring and impairment charges as we continue to evaluate opportunities to restructure our
business and rationalize our manufacturing operations in an effort to optimize the cost structure.
We continue to evaluate opportunities to restructure our business and rationalize our manufacturing operations in an
effort to optimize the cost structure which could include, among other actions, additional rationalization of our manufacturing
operations. These actions could result in significant charges which could adversely affect our financial condition and results of
operations. Future actions could result in restructuring and related charges, including but not limited to impairments, employee
termination costs and charges for pension and other post retirement contractual benefits and pension curtailments that could
be significant. We have substantial amounts of long-lived assets, including goodwill and intangible assets, which are subject
to periodic impairment analysis and review. Identifying and assessing whether impairment indicators exist, or if events or
changes in circumstances have occurred, including market conditions, operating results, competition and general economic
conditions, requires significant judgment. Any of the above future actions could result in charges that could have an adverse
effect on our financial condition and results of operations.
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We operate in highly competitive markets.
The markets in which we operate are highly competitive. Many of our competitors have significantly greater financial
resources than the Company. The intensity of this competition, which is expected to continue, can result in price discounting
and margin pressures throughout the industry and may adversely affect our ability to increase or maintain prices for our
products. In addition, certain of our competitors may have lower overall labor or material costs. In addition, our contracts with
municipal and other governmental customers are in some cases awarded and renewed through competitive bidding. We may
not be successful in obtaining or renewing these contracts, which could be harmful to our business and financial performance.
We may incur material losses and costs as a result of product liability, warranty, recall claims, client service interruption
or other lawsuits or claims that may be brought against us.
We are exposed to product liability and warranty claims in the normal course of business in the event that our products
actually or allegedly fail to perform as expected, or the use of our products results or is alleged to result in bodily injury and/or
property damage. For example, we have been sued by firefighters seeking damages claiming that exposure to our sirens has
impaired their hearing and that the sirens are therefore defective. In addition, we are subject to other claims and litigation from
time to time as further described in the notes to our consolidated financial statements. In addition, we could experience material
liability or contractual damage costs due to software or service interruption in our FSTech business. We could experience
material warranty or product liability costs in the future and incur significant costs to defend against these claims. We carry
insurance and maintain reserves for product liability claims. However, we cannot assure that our insurance coverage will be
adequate if such claims do arise, and any defense costs and liability not covered by insurance could have a material adverse
impact on our results of operations and financial position. A future claim could involve the imposition of punitive damages, the
award of which, pursuant to state laws, may not be covered by insurance. In addition, warranty or other claims are not typically
covered by insurance. Any product liability or warranty issues may adversely impact our reputation as a manufacturer of high
quality, safe products and may have a material adverse effect on our business.
Failure to keep pace with technological developments may adversely affect our operations.
We are engaged in an industry which will be affected by future technological developments. The introduction of products
or processes utilizing new technologies could render our existing products or processes obsolete or unmarketable. Our success
will depend upon our ability to develop and introduce on a timely and cost-effective basis new products, applications and
processes that keep pace with technological developments and address increasingly sophisticated customer requirements. We
may not be successful in identifying, developing and marketing new products, applications and processes and product or
process enhancements. We may experience difficulties that could delay or prevent the successful development, introduction
and marketing of product or process enhancements or new products, applications or processes. Our products, applications or
processes may not adequately meet the requirements of the marketplace and achieve market acceptance. Our business,
operating results and financial condition could be materially and adversely affected if we were to incur delays in developing
new products, applications or processes or product or process enhancements, or if our products do not gain market
acceptance.
The inability to obtain raw materials, component parts, and/or finished goods in a timely and cost-effective manner from
suppliers would adversely affect our ability to manufacture and market our products.
We purchase raw materials and component parts from suppliers to be used in the manufacturing of our products. In
addition, we purchase certain finished goods from suppliers. Changes in our relationships with suppliers, shortages,
production delays or work stoppages by the employees of such suppliers could have a material adverse effect on our ability to
timely manufacture and market products. In addition, increases in the costs of purchased raw materials, component parts or
finished goods could result in manufacturing interruptions,
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delays, inefficiencies or our inability to market products. In addition, our profit margins would decrease if prices of purchased
raw materials, component parts or finished goods increase and we are unable to pass on those increases to our customers.
Our ability to operate effectively could be impaired if we fail to attract and retain key personnel.
Our ability to operate our businesses and implement our strategies depends in part on the efforts of our executive officers
and other key employees. In addition, our future success will depend on, among other factors, our ability to attract and retain
qualified personnel, including finance personnel, research professionals, technical sales professionals and engineers. The loss
of the services of any key employee or the failure to attract or retain other qualified personnel could have a material adverse
effect on our business or business prospects.
Disruptions within our dealer network could adversely affect our business.
We rely on a national and global dealer network to market certain of our products and services. A disruption in our dealer
network within a specific local market could temporarily have an adverse impact on our business within the affected market. In
addition, the loss or termination of a significant number of dealers could cause difficulties in marketing and distributing our
products and have an adverse effect on our business, operating results or financial condition.
Our business may be adversely impacted by work stoppages and other labor relations matters.
We are subject to risk of work stoppages and other labor relations matters because a portion of our workforce is
unionized. As of December 31, 2011, approximately 26% of our U.S. hourly workers are represented by labor unions and are
covered by collective bargaining agreements. Many of these agreements include provisions that limit our ability to realize cost
savings. Any strikes, threats of strikes, or other resistance in connection with the negotiation of new labor agreements or
otherwise could materially adversely affect our business as well as impair our ability to implement further measures to reduce
structural costs and improve production efficiencies. On April 30, 2012, the current collective bargaining agreement with the
International Brotherhood of Electrical Workers at our University Park, Illinois facility expires.
Our pension funding requirements and expenses are affected by certain factors outside of our control, including the
performance of plan assets, the discount rate used to value liabilities, actuarial assumptions and experience and legal and
regulatory changes.
Our funding obligations and pension expense for our defined benefit pension plans are driven by the performance of
assets set aside in trusts for these plans, the discount rate used to value the plans’ liabilities, actuarial assumptions and
experience and legal and regulatory funding requirements. Changes in these factors could have an adverse impact on our
results of operations, liquidity or shareholders’ equity. In addition, a portion our pension plan assets are invested in equity
securities which can experience significant declines if financial markets weaken. The level of the funding of our defined benefit
pension plan liabilities was approximately 68% as of December 31, 2011. Our future pension expenses and funding requirements
could increase significantly due to the effect of adverse changes in the discount rate and asset levels along with a decline in
the estimated return on plan assets. In addition, the Company could be legally required to make increased contributions to the
pension plans, and these contributions could be material and negatively affect our cash flow.
The costs associated with complying with environmental and safety regulations could lower our margins.
We, like other manufacturers, continue to face heavy governmental regulation of our products, especially in the areas of
the environment and employee health and safety. Complying with environmental and safety requirements has added and will
continue to add to the cost of our products, and could increase the capital required. While we believe that we are in compliance
in all material respects with these laws and regulations, we
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may be adversely impacted by costs, liabilities or claims with respect to our operations under existing laws or those that may be
adopted. These requirements are complex, change frequently and have tended to become more stringent over time. Therefore,
we could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions as a result of violation of, or
liabilities under, environmental laws and safety regulations.
Our ability to use net operating loss (“NOL”) carryovers to reduce future tax payments could be negatively impacted if
there is a change in our ownership or a failure to generate sufficient taxable income.
Presently, there is no annual limitation on our ability to use U.S. federal NOLs to reduce future income taxes. However, if
an ownership change as defined in Section 382 of the Internal Revenue Code of 1986, as amended, occurs with respect to our
capital stock, our ability to use NOLs would be limited to specific annual amounts. Generally, an ownership change occurs if
certain persons or groups increase their aggregate ownership by more than 50 percentage points of our total capital stock in a
three-year period. If an ownership change occurs, our ability to use domestic NOLs to reduce taxable income is generally
limited to an annual amount based on the fair market value of our stock immediately prior to the ownership change multiplied by
the long-term tax-exempt interest rate. NOLs that exceed the Section 382 limitation in any year continue to be allowed as carry
forwards for the remainder of the 20-year carry forward period and can be used to offset taxable income for years within the
carryover period subject to the limitation in each year. Our use of new NOLs arising after the date of an ownership change
would not be affected. If more than a 50% ownership change were to occur, use of our NOLs to reduce payments of federal
taxable income may be deferred to later years within the 20-year carryover period; however, if the carryover period for any loss
year expires, the use of the remaining NOLs for the loss year will be prohibited. If we should fail to generate a sufficient level of
taxable income prior to the expiration of the NOL carry forward periods, then we will lose the ability to apply the NOLs as
offsets to future taxable income.
An impairment in the carrying value of goodwill, trade names and other long-lived assets could negatively affect our
consolidated results of operations and net worth.
Goodwill and indefinite-lived intangible assets, such as trade names, are recorded at fair value at the time of acquisition
and are not amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators arise. In
evaluating the potential for impairment of goodwill and trade names, we make assumptions regarding future operating
performance, business trends and market and economic conditions. Such analyses further require us to make certain
assumptions about our sales, operating margins, growth rates and discount rates. There are inherent uncertainties related to
these factors and in applying these factors to the assessment of goodwill and trade name recoverability. Goodwill reviews are
prepared using estimates of the fair value of reporting units based on the estimated present value of future discounted cash
flows. We could be required to evaluate the recoverability of goodwill or trade names prior to the annual assessment if we
experience disruptions to the business, unexpected significant declines in operating results, a divestiture of a significant
component of our business or market capitalization declines.
We also continually evaluate whether events or circumstances have occurred that indicate the remaining estimated useful
lives of its definite-lived intangible assets, excluding goodwill, and other long-lived assets may warrant revision or whether the
remaining balance of such assets may not be recoverable. We use an estimate of the related undiscounted cash flow over the
remaining life of the asset in measuring whether the asset is recoverable.
In the fourth quarter of 2011, the Company recognized $14.8 million and $7.4 million of impairment charges on goodwill and
trade names, respectively, within the FSTech segment. The impairment charges are estimates and may be adjusted during the
first quarter of 2012 upon completion of a detailed impairment analysis. The Company also recorded goodwill and trade name
impairment charges of $67.1 million and $11.8 million, respectively, within the FSTech segment in 2010. An adjustment of $1.6
million was recorded in the first quarter of 2011 to reduce the goodwill impairment charge recognized in 2010 upon completion
of a detailed step
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two analysis. If the future operating performance of our reporting units is not consistent with our assumptions, we could be
required to record additional non-cash impairment charges. Impairment charges could substantially affect our reported earnings
in the periods such charges are recorded. As of December 31, 2011, total consolidated goodwill was approximately 42% of total
consolidated assets.
We may be unsuccessful in our future acquisitions, if any, which may have an adverse effect on our business.
Our long-term strategy includes expanding into adjacent markets through selective acquisitions of companies,
complementary products and services as well as organic growth in order to enhance our global market position and broaden
our product offerings. This strategy may involve the acquisition of companies that, among other things, enable us to build on
our existing strength in a market or that give us access to proprietary products and services that are strategically valuable or
allow us to leverage our distribution channels. In connection with this strategy, we could face certain risks and uncertainties in
addition to those we face in the day-to-day operations of our business. We also may be unable to identify suitable targets for
acquisition or make acquisitions at favorable prices. If we identify a suitable acquisition candidate, our ability to successfully
implement the acquisition would depend on a variety of factors, including our ability to obtain financing on acceptable terms.
In addition, our acquisition activities could be disrupted by overtures from competitors for the targeted companies,
governmental regulation and rapid developments in our industry that decrease the value of a target’s products or services.
Acquisitions involve risks, including those associated with the following:
• integrating the operations, financial reporting, disparate systems and processes and personnel of acquired
companies;
• managing geographically dispersed operations;
• diverting management’s attention from other business concerns;
• entering markets or lines of business in which we have either limited or no direct experience; and
• potentially losing key employees, customers and strategic partners of acquired companies.
We also may not achieve anticipated revenue and cost benefits. Acquisitions may not be accretive to our earnings and
may negatively impact our results of operations as a result of, among other things, the incurrence of debt, write-offs of
goodwill, and amortization expenses of other intangible assets. In addition, future acquisitions could result in dilutive
issuances of equity securities.
Businesses acquired by us may have liabilities which are not known to us.
We may assume liabilities in connection with the acquisition of businesses. There may be liabilities that we fail or are
unable to discover in the course of performing due diligence investigations on the acquired businesses. In these
circumstances, we cannot assure that our rights to indemnification from sellers of the acquired businesses to us will be
sufficient in amount, scope or duration to fully offset the possible liabilities associated with the businesses or property
acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
As of December 31, 2011, the Company utilized 12 principal manufacturing plants located throughout North America, as
well as 6 in Europe, and 1 in South Africa.
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In total, the Company devoted approximately 0.9 million square feet to manufacturing and 0.6 million square feet to
service, warehousing and office space as of December 31, 2011. Of the total square footage, approximately 43% is devoted to
the Safety and Security Systems Group, 10% to the Fire Rescue Group, 41% to the Environmental Solutions Group, and 6% to
the Federal Signal Technologies Group. Approximately 22% of the total square footage is owned by the Company with the
remaining 78% being leased.
All of the Company’s properties, as well as the related machinery and equipment, are considered to be well-maintained,
suitable and adequate for their intended purposes. In the aggregate, these facilities are of sufficient capacity for the Company’s
current business needs.
Item 3. Legal Proceedings.
The information concerning the Company’s legal proceedings included in Note 15 of the consolidated financial
statements contained under Item 8 of Part II of this Form 10-K is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) Market Information
The Company’s common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol FSS. The
information concerning the Company’s market price range data included in Note 19 of the consolidated financial statements
contained under Item 8 of Part II of this Form 10-K is incorporated herein by reference.
(b) Holders
As of February 29, 2012, there were 2,294 holders of record of the Company’s common stock.
(c) Dividends
The information concerning the Company’s quarterly dividend per share data included in Note 19 of the consolidated
financial statements contained under Item 8 of Part II of this Form 10-K is incorporated herein by reference. The payment of
future dividends is at the discretion of the Company’s Board of Directors and will depend, among other things, upon future
earnings and cash flows, capital requirements, the Company’s general financial condition, general business conditions and
other factors.
Effective as of February 22, 2012, under the Company’s new Financing Agreement, dividends shall be permitted only if the
following conditions are met:
• No default or event of default shall exist or shall result from such payment;
• The Fixed Charge Ratio of the Company and its subsidiaries, as defined in the Financing Agreement, shall be, both
before and after the dividend payment (on a pro forma basis), not less than 1.50 to 1.00; and
• The Leverage Ratio of the Company and its subsidiaries, as defined in the Financing Agreement, shall be, both before
and after the dividend payment (on a pro forma basis), less than 2.00 to 1.00.
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A complete list of terms and conditions can be found in the Financing Agreement and Credit Agreement, which have been
previously filed and are incorporated by reference as exhibits to this Form 10-K.
(d) Securities Authorized for Issuance under Equity Compensation
Information concerning the Company’s equity compensation plans is included under Item 12 of Part III of this Form 10-K.
(e) Performance Graph
The graph below matches Federal Signal Corporation’s cumulative 5-year total shareholder return on common stock with
the cumulative total returns of the Russell 2000 Index, the S&P Midcap 400, and the S&P Industrials Index. The graph tracks the
performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from
December 31, 2006 to December 31, 2011.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Federal Signal Corporation, the Russell 2000 Index,
the S&P Midcap 400 Index, and the S&P Industrials Index
*$100 invested on 12/31/06 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright
©
2012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Federal Signal Corporation
Russell 2000
S&P Midcap 400
S&P Industrials
12/06
12/07 12/08 12/09
12/11
100.00 71.17 53.19 40.63 47.97 29.02
100.00 98.43 65.18 82.89 105.14 100.75
100.00 107.98 68.86 94.60 119.80 117.72
100.00 112.03 67.30 81.39 103.15 102.54
12/10
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Notwithstanding anything set forth in any of our previous filings under the Securities Act of 1933, as amended, or the
Securities Act of 1934, as amended, which might be incorporated into future filings in whole or part, including this Annual
Report on Form 10-K, the preceding performance graph shall not be deemed incorporated by reference into any such
findings.
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Item 6. Selected Financial Data.
Operating Results ($ in millions):
Net sales
(Loss) income before income taxes
(Loss) income from continuing operations
Operating margin
Return on average common shareholders’ equity
Common Stock Data (per share):
(Loss) income from continuing operations —
diluted
Cash dividends per share
Market price range:
High
Low
Average common shares outstanding (in millions)
Financial Position at Year-End ($ in millions):
Working capital (a)
Current ratio (a)
Total assets
Long-term debt, net of current portion
Shareholders’ equity
Debt-to-capitalization ratio (b)
Net debt-to-capitalization ratio (c)
Other ($ in millions):
Orders
Backlog
Net cash provided by operating activities
Net cash (used for) provided by investing activities
Net cash (used for) provided by financing activities
Capital expenditures
Depreciation and amortization
Employees
$1,013.4
426.1
6.3
(13.8)
(45.8)
15.7
22.5
2,919
2011
2010
2009
2008
2007
$ 795.6
(13.3)
(14.4)
$ 726.5
(88.4)
(160.7)
$750.4
25.1
19.8
$ 878.0
22.6
28.7
0.4%
(7.2)%
(10.6)%
(33.8)%
4.8%
7.5%
5.9%
(25.9)%
$ 854.5
47.5
35.3
8.1%
13.1%
$ (0.23)
0.00
$
7.79
3.50
62.2
$ 126.8
1.9
706.7
213.1
174.7
56.0%
54.9%
$ (2.79)
0.24
$ 10.30
4.91
57.6
$ 85.4
1.4
764.5
184.4
220.9
54.3%
47.6%
$ 742.6
216.8
31.2
(108.0)
117.6
12.8
19.2
2,812
$ 0.41
0.24
$ 9.30
3.73
48.6
$113.2
1.7
744.5
159.7
328.7
38.0%
35.4%
$638.7
171.2
62.4
31.0
(96.5)
14.4
14.7
2,605
$ 0.61
0.24
$ 17.50
5.10
47.7
$ 147.7
1.8
839.0
241.2
287.1
49.3%
46.1%
$ 859.5
287.3
123.7
54.6
(166.7)
27.9
14.3
3,024
$
0.74
0.24
$ 17.00
10.82
47.9
$
83.3
1.4
1,172.9
240.7
447.3
39.2%
38.2%
$ 919.2
319.3
65.4
(106.6)
36.8
19.5
13.0
3,192
The following table presents the selected financial information of the Company as of and for each of the five years in the
period ended December 31:
(a) Working capital: current assets less current liabilities; current ratio: current assets divided by current liabilities
(b) Total debt divided by the sum of total debt plus equity. Total debt includes capital lease obligations.
(c) Total debt less cash and cash equivalents divided by equity plus total debt less cash and cash equivalents
Loss (income) before income taxes includes restructuring costs of $5.0 million and $1.5 million for the years ended
December 31, 2010 and 2009, respectively and none in 2011. The 2011 loss before income taxes includes goodwill and intangible
asset impairment charges of $20.6 million recorded in the FSTech Group. The 2010 loss before income taxes was impacted by
$78.9 million of goodwill and intangible asset impairment charges recorded in the FSTech Group, $3.9 million in acquisition and
integration related costs associated with Sirit and VESystems, and a $3.8 million settlement charge related to the ongoing
firefighter hearing loss litigation. In the fourth quarter of 2010, the Company recorded $85.0 million of valuation allowance to
reflect the amount of domestic deferred tax assets that may not be realized. The 2010 operating loss was also impacted by
higher research and development costs and amortization expenses due to the newly acquired businesses, Sirit,
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VESystems and Diamond, and the recognition of deferred retention expenses associated with Diamond. The 2008 income before
income taxes was impacted by a $6.9 million loss incurred to settle a dispute and write off assets associated with a large parking
systems contract, and a $13.0 million loss associated with the Company’s decision to terminate funding of a joint venture in
China.
The selected financial data set forth above should be read in conjunction with the Company’s consolidated financial
statements, including the notes thereto, contained under Item 8 of Part II of this Form 10-K and Item 7 of Part II of this Form 10-
K.
The information concerning the Company’s selected quarterly data included in Note 19 of the consolidated financial
statements contained under Item 8 of this Form 10-K is incorporated herein by reference.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to
provide information that is supplemental to and shall be read together with the consolidated financial statements and the
accompanying notes contained in this Annual Report on Form 10-K for the year ended December 31, 2011. Information in
MD&A is intended to assist the reader in obtaining an understanding of the consolidated financial statements, information
about 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 how certain accounting principles affect the Company’s consolidated financial
statements.
Executive Summary
The Company is a leading global manufacturer and supplier of (i) safety, security and communication equipment, (ii) street
sweepers and other environmental vehicles and equipment, and (iii) vehicle-mounted, aerial platforms for fire fighting, rescue,
electric utility and industrial uses. We also are a designer and supplier of technology-based products and services for the
public safety and intelligent transportation systems markets. In addition, we sell parts and tooling and provide service and
repair, equipment rentals and training as part of a comprehensive offering to our customer base. We operate 19 manufacturing
facilities in six countries and provide our products and integrated solutions to municipal, governmental, industrial and
commercial customers throughout the world.
The Company’s business units are organized and managed in four operating segments as follows:
Safety and Security Systems Group
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, public safety
interoperable communications, industrial communications and command and municipal networked security. Specific products
include lightbars and sirens, public warning sirens and public safety software. Products are sold primarily under the Federal
Signal
America, Europe, and South Africa.
, Federal Signal VAMA , Target Tech and Victor brand names. The Group operates manufacturing facilities in North
™
™
™
®
Environmental Solutions Group
Our Environmental Solutions Group is a leading manufacturer and supplier of a full range of street sweeper and vacuum
trucks and high-performance waterblasting equipment for municipal and industrial customers. We also manufacture products
for the newer markets of hydro-excavation, glycol recovery and surface cleaning for utility and industrial customers. Products
are sold under the Elgin , Vactor , Guzzler and Jetstream brand names. The Group primarily manufactures its vehicles and
equipment in the United States.
™
®
®
®
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Under the Elgin brand name, the Company sells the leading U.S. brand of street sweepers primarily designed for large-
scale cleaning of curbed streets, parking lots and other paved surfaces utilizing mechanical sweeping, vacuum, and
recirculating air technology. Vactor is a leading manufacturer of municipal combination catch basin/sewer cleaning vacuum
trucks. Guzzler is a leader in industrial vacuum loaders that clean up industrial waste or recover and recycle valuable raw
materials. Jetstream manufactures high pressure waterblast equipment and accessories for commercial and industrial cleaning
and maintenance operations. In addition to equipment sales, the Group is increasingly engaged in the sale of parts and tooling,
service and repair, equipment rentals and training as part of a complete offering to its customer base.
Fire Rescue Group
Our Fire Rescue Group is a leading manufacturer and supplier of sophisticated, vehicle-mounted, aerial platforms for fire
fighting, rescue, electric utility and industrial uses. End customers include fire departments, industrial fire services, electric
utilities, maintenance rental companies for applications such as fire fighting and rescue, transmission line maintenance, and
installation and maintenance of wind turbines. The Group’s telescopic/articulated aerial platforms are designed in accordance
with various regulatory codes and standards, such as European Norms (“EN”), National Fire Protection Association (“NFPA”)
and American National Standards Institute (“ANSI”). In addition to equipment sales, the Group sells parts, service and training
as part of a complete offering to its customer base. The Group manufactures in Finland and sells globally under the Bronto
Skylift brand name.
®
Federal Signal Technologies Group
Our Federal Signal Technologies Group is a provider of technologies and solutions to the intelligent transportation
systems and public safety markets and other applications. These products and solutions provide end users with the tools
needed to automate data collection and analysis, transaction processing and asset tracking. FSTech provides technology
platforms and services to customers in the areas of radio frequency identification systems, transaction processing, vehicle
classification, electronic toll collection, automated license plate recognition, electronic vehicle registration, parking and access
control, cashless payment solutions, congestion charging, traffic management, site security solutions and supply chain
systems. Products are sold under PIPS , Idris , Sirit
, VESystems and Federal APD brand names. The Group operates
manufacturing facilities in North America and Europe.
™
™
™
®
Results of Operations
Orders
Analysis of orders:
Total orders ($ in millions):
Change in orders year over year
Change in U.S. municipal and government orders year over
year
Change in U.S. industrial and commercial orders year over
year
Change in non-U.S. orders year over year
2011
2010
2009
$
1,013.4
$
36.5%
23.8%
56.7%
31.4%
742.6
16.3%
$
2.1%
66.8%
3.9%
638.7
(25.7)%
(13.4)%
(37.9)%
(27.6)%
Orders of $1.0 billion in 2011 increased 37% compared to 2010 with increases across all segments, primarily fueled by
strong demand for industrial vacuum trucks and sewer cleaners, improved demand for fire-lift products in the Asian and
Australian markets and one large three-year back office and operations contract with a total order value of approximately $68.0
million in the FSTech segment. U.S. municipal and government orders increased 24% in 2011 driven by a $28.3 million increase
in orders for sewer cleaners, $12.2 million increase in sweepers, and a $9.1 million increase in outdoor warning systems. U.S.
industrial and commercial orders increased 57% due to strong order intake of intelligent transportation systems products and
services and
16
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industrial vacuum trucks, partly offset by soft demand for police products. Non-US orders increased 31% compared to 2010
with increases across all segments, primarily led by a $35.4 million increase in orders for Bronto units, a $29.5 million increase in
sweepers, and a $12.5 million increase in FSTech products.
Orders in 2010 increased 16% compared to 2009 as a result of strong industrial market demands for vacuum trucks and the
orders associated with the newly acquired businesses Sirit and VESystems. U.S. municipal and government orders increased
2% in 2010 driven by a $13.5 million increase in orders for sewer cleaners and a $2.1 million increase in ALPR cameras, offset by
a decrease of $8.5 million in first responder products, and a $2.1 million decline in outdoor warning systems. U.S. industrial and
commercial orders increased 67% driven by a $41.5 million increase in orders for vacuum trucks, a $22.5 million increase
associated with the newly acquired businesses, a $8.5 million increase in parking system products, a $7.6 million increase in
Safety and Security Systems products, and a $6.1 million increase in waterblasters. Non-U.S. orders increased 4% primarily due
to an increase in orders related to the newly acquired businesses of $7.1 million, an increase of $3.3 million in Bronto units, and
a $2.8 million increase in Safety and Security Systems products. The increase in non-U.S. orders would have been 6% when
excluding the effect of unfavorable foreign currency translation.
Consolidated results of operations
The following table summarizes the Company’s results of operations and selected operating metrics for each of the three
years in the period ended December 31 ($ in millions, except per share amounts):
Net sales
Cost of sales
Gross profit
Selling, engineering, general and administrative
Acquisition and integration related costs
Goodwill and intangible assets impairment
Restructuring charges
Operating income (loss)
Interest expense
Other expense (income)
Income tax provision
(Loss) income from continuing operations
Gain (loss) from discontinued operations and disposal, net of tax
Net (loss) income
Other data:
Operating margin
(Loss) earnings per share — continuing operations
Orders
Depreciation and amortization
Year Ended December 31, 2011 vs. December 31, 2010
2011
$ 795.6
600.6
195.0
171.1
-
20.6
-
3.3
16.4
0.2
(1.1)
(14.4)
0.2
$ (14.2)
2010
$ 726.5
542.3
184.2
173.3
3.9
78.9
5.0
(76.9)
10.3
1.2
(72.3)
(160.7)
(15.0)
$ (175.7)
2009
$750.4
557.3
193.1
155.8
-
-
1.5
35.8
11.4
(0.7)
(5.3)
19.8
3.3
$ 23.1
0.4%
(10.6)%
4.8%
$ (0.23)
1,013.4
22.5
$ (2.79)
742.6
19.2
$ 0.41
638.7
14.7
Net sales increased 9.5% or $69.1 million compared to 2010, primarily as a result of an increase in industrial vacuum and
sewer cleaner truck shipments and increased net sales associated with the Sirit and VESystems businesses that were acquired
in March 2010. Gross profit margin was 24.5% in 2011 compared to 25.4% in 2010. Operating income increased $80.2 million in
2011 due to a reduction in goodwill and intangible impairment charges of $58.3 million in 2011, higher sales volume in 2011, and
the absence of restructuring charges of $5.0 million that were recorded in 2010. During the fourth quarter of 2011, the Company
recorded
17
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$22.2 million in goodwill and intangible impairment charges. In the first quarter of 2011, the Company recorded a goodwill
impairment adjustment of $1.6 million upon finalizing the detailed step two impairment analysis for the FSTech segment that
also contributed to the increase in operating income in 2011. In the fourth quarter of 2010, the Company recorded $78.9 million
in goodwill and intangible impairment charges for the FSTech segment.
Interest expense increased $6.1 million from 2010, primarily due to an increase in interest rates on the amended debt
agreements that have now been replaced by new financing agreements as of February 2012. For further discussion of the debt
agreements, see Note 6 of the consolidated financial statements contained under Item 8 of Part II of this Form 10-K.
Other expense (income) totaled $0.2 million in 2011 and $1.2 million in 2010 and primarily includes realized losses from
foreign currency transactions and on derivative contracts.
The 2011 effective tax rate on income from continuing operations increased to (8.3%) from (81.7%) in the prior year. The
2010 rate includes aggregate tax expense of $85.0 million related to a domestic valuation allowance and non-deductible goodwill
impairments of $19.5 million. The Company’s 2011 effective tax rate of (8.3%) reflects no recorded tax benefits for domestic
operating losses or domestic loss carryforwards. However, an income tax provision is recorded for foreign operations and other
jurisdictions that are not in a cumulative loss position.
Loss from continuing operations was $14.4 million in 2011 compared to a loss of $160.7 million in 2010. The increase of
$146.3 million was primarily due to the absence of the $85.0 million expense related to establishing the domestic valuation
allowance, a reduction in goodwill and trade name impairment charges in 2011, and from other changes in operating income as
described above.
Loss from discontinued operations and disposal was $15.0 million in 2010 and a $0.2 million gain was recognized in 2011.
Of the $15.0 million loss from discontinued operations in 2010, $5.0 million related to product liability and settlement costs
associated with the Company’s discontinued E-ONE business, $7.2 million related to the discontinued Riverchase and China
Wholly-Owned Foreign Enterprise (“China WOFE”) businesses, and $2.2 million related to the environmental remediation
liability at the Company’s Pearland, Texas site.
Net loss was $14.2 million in 2011 compared to a net loss of $175.7 million in 2010.
Year Ended December 31, 2010 vs. December 31, 2009
Net sales decreased 3% or $23.9 million compared to 2009 as a result of lower volume caused by soft municipal spending
in most western market segments, partially offset by a stronger demand from the industrial market and increases resulting from
FSTech acquisitions. Unfavorable foreign currency movement, most notably a stronger U.S. dollar versus European currencies
in the comparable prior year periods, reduced sales by 1%. Gross profit margin of 25.4% in 2010 was consistent with 2009.
Operating loss was $76.9 million in 2010 compared to operating income of $35.8 million in 2009, primarily due to goodwill and
indefinite lived intangible asset impairment of $78.9 million in the FSTech Group, higher selling, engineering, general, and
administrative expense (“SEG&A”) of $17.5 million, acquisition and integration related costs of $3.9 million, and higher
restructuring costs of $3.5 million. SEG&A expenses increased due to a $3.8 million settlement charge in connection with the
Company’s ongoing hearing loss litigation. In addition, the Company incurred higher research and development costs,
amortization expenses, and additional costs due to higher headcounts related to the newly acquired businesses, Sirit,
VESystem and Diamond, and recognition of deferred retention expenses associated with Diamond. See Note 2 for further
discussion of the deferred retention expenses.
Interest expense decreased 10% from 2009, primarily due to lower average borrowing cost of debt.
Other expense (income) of $1.2 million primarily includes realized losses from foreign currency transactions, partially offset
by realized gains from derivatives contracts.
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The 2010 effective tax rate on (loss) income from continuing operations increased to (81.7%) from 21.1% in the prior year.
The Company’s 2010 effective rate of (81.7%) includes aggregate tax expense of $85.0 million related to a domestic valuation
allowance and non-deductible goodwill impairments of $19.5 million. The 2009 rate benefited from an R&D tax credit and foreign
tax effects.
Loss from continuing operations was $160.7 million in 2010, compared to income from continuing operations of
$19.8 million in 2009. The decrease of $180.5 million was primarily due to a valuation allowance of $85.0 million recorded in the
fourth quarter of 2010 to reflect the amount of domestic deferred tax assets that may not be realized, goodwill and trade name
impairment charges of $67.1 million and $11.8 million, respectively, due to a reduction in the estimated sales and cash flow of
the FSTech segment and from other charges in operating loss as described above.
Loss from discontinued operations and disposal was $15.0 million in 2010 compared to a gain from discontinued
operations and disposal of $3.3 million in 2009. Of the $15.0 million loss from discontinued operations, $5.0 million related to
product liability and settlement costs associated with the Company’s discontinued E-ONE business, $7.2 million related to the
discontinuation of the Riverchase and China WOFE businesses, and $2.2 million related to the environmental remediation
liability at the Company’s Pearland, Texas site. Net gain from discontinued operations totaled $3.3 million in 2009. The gain
primarily related to the sale of the Company’s RAVO and Pauluhn businesses, partially offset by a tax benefit adjustment
related to the sale of the Pauluhn business. For further discussion of the discontinued operations, see Note 13 of the
consolidated financial statements contained under Item 8 of Part II of this Form 10-K.
Safety and Security Systems
The following table presents the Safety and Security Systems Group’s results of operations for each of the three years in
the period ended December 31 ($ in millions):
Total orders
Net sales
Operating income
Operating margin
Depreciation and amortization
2011
$ 235.3
221.4
21.5
9.7%
4.4
2010
$ 215.6
214.5
23.7
11.0%
3.7
2009
$ 216.3
225.8
24.1
10.7%
3.1
Orders increased $19.7 million or 9.1% compared to the prior year period. U.S. orders increased $8.7 million or 7%, as
improved municipal spending for outdoor warning systems and higher demand in industrial markets were offset by continued
weakness in the police market. Non-U.S. orders increased $11.0 million or 11%, driven by strong demand for U.S. exports in
public safety markets as well as strength in international mining markets.
Net sales increased $6.9 million or 3.2% compared to the prior year period as a result of increases in sales of U.S. industrial
products, mining products, and U.S. export products to Asia and Latin America, which were partially offset by a soft U.S. police
market as well as weakness in Europe and public safety markets. Operating income decreased $2.2 million, despite sales
increases, primarily due to increased selling costs, commissions, and legal expenses. There were no restructuring costs
recorded in 2011, while $1.7 million of restructuring charges were incurred in 2010.
Orders in 2010 were slightly below 2009 levels. U.S. orders decreased 3% or $3.5 million due to lower municipal spending
of $11 million in the police, fire and outdoor warning markets, partially offset by stronger industrial demand of $7.6 million. Non-
U.S. orders increased 3% or $2.8 million due to stronger demand in police and industrial products.
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Net sales decreased 5% or $11.3 million in 2010 compared to 2009 caused by lower municipal spending, and an
unfavorable currency impact of $1.8 million, which were partially offset by strong industrial demand. Although the sale volumes
were down, the operating income in 2010 was flat compared to 2009 levels due to lower operating expenses. Operating expenses
were lower than the prior year by $5.0 million driven by cost reduction initiatives throughout the Company. As a result, the
operating margin improved 0.3% compared to the prior year.
Fire Rescue
The following table presents the Fire Rescue Group’s results of operations for each of the three years in the period ended
December 31 ($ in millions):
Total orders
Net sales
Operating income
Operating margin
Depreciation and amortization
2011
$ 137.6
109.5
6.6
6.0%
2.5
2010
$ 101.3
108.8
9.4
8.6%
2.2
2009
96.6
$
160.0
19.2
12.0%
1.9
Orders in 2011 increased $36.3 million or 36% compared to the prior year period, primarily as a result of strong demand for
the fire-lift product in the Asian and Australian markets, partially offset by a soft European market.
Net sales in 2011 increased $0.7 million compared to the prior year as a result of favorable currency impacts, despite 4%
lower sales volume. Operating income decreased $2.8 million due to lower sales volumes and unfavorable product mix, partially
offset by favorable currency impacts.
Orders in 2010 increased 5% or $4.7 million compared to 2009, net of an unfavorable currency impact of $5.4 million. The
increase in orders was mainly due to the increased demand in the Asian market, as the demands for both fire-lift and industrial
products remained slow in most western markets.
Net sales in 2010 decreased 32% (29% excluding currency translation) compared to 2009 due to the weak demand in most
regions except the Asia market. Operating income decreased 51% and operating margin decreased by 3.4% due to the lower
sales volumes and lower gross profit margin, partially offset by the margin improvements related to cost reductions and
process improvements.
Environmental Solutions
The following table presents the Environmental Solutions Group’s results of operations for each of the three years in the
period ended December 31 ($ in millions):
Total orders
Net sales
Operating income
Operating margin
Depreciation and amortization
2011
$ 458.5
357.8
24.5
6.8%
5.2
2010
$ 328.2
309.8
17.9
5.8%
4.7
2009
$ 265.1
299.6
15.1
5.0%
4.5
Orders in 2011 increased $130.3 million or 40% compared to the prior year. U.S. orders increased 37% or $100.8 million in
2011, primarily as a result of increases in orders for vacuum trucks of $51.9 million, sewer cleaners of $28.3 million, sweepers of
$12.2 million, and waterblasters of $3.6 million. Non-U.S. orders increased 52% or $29.5 million from the prior year, with
increases in U.S. export orders from Canada, Mexico, Latin America and the Middle East.
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Net sales in 2011 increased $48.0 million or 15% compared to the prior year as a result of improvements within the
industrial market, partially offset by mix changes between domestic and international sales. Operating income increased $6.6
million or 37% compared to the prior year.
Orders in 2010 increased 24% or $63.1 compared to the prior year due to an increase in demand for sewer cleaning and
industrial vacuum trucks. U.S. orders increased 30% in 2010 from the prior year driven by a $55.0 million increase in sewer
cleaning and industrial vacuum trucks, a $6.1 million increase in waterblasters, a $0.8 increase in parts sales and a $0.7 million
increase in sweepers. Non-U.S. orders increased slightly by 1% or $0.5 million compared to the prior year.
Net sales in 2010 increased 3% or $10.2 million compared to the prior year period driven by higher sales volume in
waterblaster and parts sales of $8.2 million, and better price mix in street sweepers, sewer cleaning and industrial vacuum trucks
of $1.4 million. Operating income increased 19% and operating margin improved by 1%, respectively, due to the increase in
sales volumes compared to the prior year.
Federal Signal Technologies
The following table presents the Federal Signal Technologies Group’s results of operations for each of the three years in
the period ended December 31($ in millions):
Total orders
Net sales
Operating (loss) income
Operating margin
Depreciation and amortization
2011
$ 182.0
106.9
(29.5)
(27.6)%
9.5
2010
97.5
$
93.4
(89.3)
(95.6)%
7.8
2009
60.7
$
65.0
6.0
9.2%
4.4
Orders nearly doubled to $182.0 million compared to the prior year. U.S. orders increased $72.0 million and doubled in size
in 2011, primarily due to a $68.0 million order for one large three year back office and operations system project received in the
fourth quarter of 2011 and other new business from the acquired businesses of Sirit and VESystems. Non-U.S. orders increased
$12.5 million or 43% compared to the prior year.
Net sales increased $13.5 million or 14% compared to the prior year, primarily due to a full year of business in 2011 versus
10 months in 2010 from the acquired businesses of Sirit and VESystems. Operating loss was $29.5 million in 2011 compared to
$89.3 million in 2010. Included in the 2011 operating loss was $20.6 million of goodwill and indefinite intangible asset impairment
charges that are discussed further in Note 5. Included in the 2010 operating loss was $78.9 million of goodwill and indefinite
intangible asset impairment charges.
Orders in 2010 increased 61% or $36.8 million compared to the prior year as a result of orders attributed to the newly
acquired businesses, Sirit, VESystems, and Diamond, and stronger demands in industrial parking system products and the
ALPR cameras in U.S. markets. U.S. orders in 2010 increased 92% or $32.9 million driven by increases of $22.5 million attributed
to the newly acquired businesses, $8.5 million from the parking system products, and $2.1 million from ALPR cameras in
U.S. markets. Non-US orders increased 16% or $3.9 million, primarily driven by an increase of $7.1 million from the newly
acquired businesses, offset by decreases of $2.1 million in ALPR cameras in European markets and $1.1 million in parking
system products.
Net sales in 2010 increased 44% or $28.4 million compared to 2009 due to sales from the newly acquired businesses of Sirit,
VESystems, and Diamond, of $31.5 million, offset by a decrease of $3.1 million in parking systems. Operating loss was
$89.3 million in 2010, compared to operating income of $6.0 million in 2009. Included in the 2010 operating loss was $78.9 million
of goodwill and indefinite lived intangible asset impairment charges that are discussed further in Note 5. The operating loss
was also impacted by increased
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operating expenses of $23.5 million as result of higher research and development costs, higher amortization expense due to the
newly acquired businesses, Sirit, VESystems, and Diamond, and recognition of deferred retention expenses associated with
Diamond.
The deferred retention expense is calculated in accordance with the sale and purchase agreement of Diamond. A sum of
£1,000,000 (one million pounds sterling) was payable to the former owners of Diamond on or before January 31, 2011 in the
event that the former owners of Diamond were employed by the Company on December 31, 2010 and were at that time actively
engaged in the business. An additional amount of £1,000,000 (one million pounds sterling) was payable to the former owners of
Diamond on or before January 31, 2012 in the event that former owners of Diamond were employed by the Company on
December 31, 2011 and were at that time actively engaged in the business. The former owners of Diamond did maintain
employment through December 31, 2011 and as of January 31, 2012 have been paid both contingent payments totaling
£2,000,000 (two million pounds sterling).
In accordance with the Accounting Standards Codification (“ASC”) 805-10-55-25, the deferred retention payments have
been treated as compensation expense for post-combination services as the contingent payments are automatically forfeited if
employment is terminated. The total contingency of £2,000,000 (two million pounds sterling) has been expensed ratably over
the two-year period that the employees were required to stay in order to earn the retention payment.
Corporate Expense
Corporate expenses totaled $19.8 million, $38.6 million, and $28.6 million in 2011, 2010, and 2009, respectively. The 49%
decrease in 2011 compared to 2010 is due to a $10.2 million reduction in legal expenses primarily associated with the hearing
loss litigation. In addition, 2011 benefited by the absence of $1.2 million in restructuring costs, $1.0 million in expense related to
the departure of the Company’s former CEO, and $3.9 million in acquisition and integration related costs associated with Sirit
and VESystems, and a $1.3 million reduction in insurance reserves associated with carrier paid claims. Corporate expenses
include depreciation and amortization expense of $0.9 million, $0.8 million and $0.8 million for 2011, 2010 and 2009, respectively.
The 35% increase in corporate expenses in 2010 compared to 2009 is primarily due to $3.9 million in acquisition and
integration related costs associated with Sirit and VESystems, a $3.8 million settlement charge related to the ongoing firefighter
hearing loss litigation, $1.2 million of restructuring costs, and a $1.0 million expense related to the departure of the Company’s
former President and Chief Executive Officer. See Note 15 for further discussion of the hearing loss litigation charge of $3.8
million.
The hearing loss litigation has historically been managed by the Company’s legal staff resident at the corporate office and
not by management at any reporting segment. In accordance with ASC Topic 280, Segment Reporting, which provides that
segment reporting should follow the management of the item and that some expenses can be corporate expenses, these legal
expenses (which are unusual and not part of the normal operating activities of any of our operating segments), are reported and
managed as corporate expenses. Only the Company and no current or divested subsidiary is a named party to these lawsuits.
Financial Condition, Liquidity and Capital Resources
During each of the three years in the period ended December 31, 2011, the Company used its cash flows from operations
to pay cash dividends, if any, to shareholders, to fund growth, and to make capital investments that both sustain and reduce
the cost of its operations. Beyond these uses, remaining cash was used to fund acquisitions, pay down debt, repurchase
shares of common stock and make voluntary pension contributions.
The Company’s cash and cash equivalents totaled $9.5 million, $62.1 million, and $21.1 million as of December 31, 2011,
2010, and 2009, respectively.
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As of December 31, 2011, $8.7 million of cash and cash equivalents, on the consolidated balance sheet, was held by
foreign subsidiaries. Cash and cash equivalents held by subsidiaries outside the United States is held primarily in the currency
of the country in which it is located. This cash is used to fund the operating activities of our foreign subsidiaries and for further
investment in foreign operations. Generally, we consider such cash to be permanently reinvested in our foreign operations and
our current plans do not demonstrate a need to repatriate such cash to fund U.S. operations. The Company’s ability to
refinance its debt in February 2012 demonstrates that it does not need to repatriate cash from its foreign subsidiaries to fund
U.S. operations. Repatriation of cash held by foreign subsidiaries may require the accrual and payment of taxes in the United
States.
The following table summarizes the Company’s cash flows for each of the three years in the period ended December 31 ($
in millions):
Net cash provided by operating activities
Proceeds from sales of properties, plant and equipment
Purchases of properties and equipment
Payments for acquisitions, net of cash acquired
Gross proceeds from sale of discontinued businesses
Proceeds from equity offering, net of fees
Borrowing activity, net
Cash dividends paid to shareholders
Payments of debt amendment fees
Discontinued financing activities
All other, net
(Decrease) increase in cash and cash equivalents
2011
6.3
$
1.9
(15.7)
-
-
-
(40.3)
(3.7)
(2.3)
0.1
1.1
$ (52.6)
2010
31.2
$
1.9
(12.8)
(97.3)
0.2
71.2
60.1
(13.3)
-
(1.0)
0.8
41.0
$
2009
62.4
$
4.0
(14.4)
(13.5)
47.1
-
(77.7)
(11.7)
-
(7.3)
8.8
(2.3)
$
Net cash provided by operating activities totaled $6.3 million, $31.2 million and $62.4 million in 2011, 2010 and 2009,
respectively. In 2011, the decrease was primarily due to an increase in cash used to support net working capital. The decrease
in 2010 was primarily driven by a reduction in the underlying results of operations, an increase in inventories, and a decrease in
cash flow from discontinued operating activities. In the fourth quarter of 2010, the Company recorded an $85.0 million valuation
allowance against its U.S. deferred tax assets as a non-cash charge to income tax expense. Recording the valuation allowance
does not restrict the Company’s ability to utilize the future deductions and net operating losses associated with the deferred
tax assets assuming taxable income is recognized in future periods.
During the fourth quarters of 2011 and 2010, the Company performed its annual goodwill and indefinite-lived intangible
asset impairment assessment, and determined that the goodwill and trade names associated with FSTech Group reporting unit
were impaired and recorded impairment charges of $14.8 million and $7.4 million, respectively, in 2011 and $67.1 million and
$11.8 million, respectively, in 2010. As of December 31, 2010, the goodwill impairment charge was estimated and subsequently
adjusted during the first quarter of 2011 upon completion of a detailed second step impairment analysis.
Capital expenditures increased by $2.9 million in 2011 compared to 2010. Capital expenditures decreased in 2010 by
$1.6 million compared to 2009 primarily due to decreased spending on production equipment.
The Company acquired two businesses in 2010 that are key components to the development of the Company’s intelligent
transportation systems strategy. VESystems was acquired for $34.8 million, of which $24.6 million was a cash payment. Sirit was
acquired for CDN $77.1 million (USD $74.9 million), all of which was paid in cash. The acquisitions were funded with the
Company’s existing cash balances and debt drawn against the availability of the prior revolving credit facility. In addition to
the use of cash and debt, the Company
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issued 1.2 million shares of its common stock to fund a portion of the cost of purchasing VESystems. The issuances increased
the total number of Company common stock shares outstanding. See Note 2 to the consolidated financial statements for
additional information on the acquisitions.
In 2009, the Company acquired Diamond Consulting Services Ltd. for $13.5 million in cash. See Note 2 of the notes to the
consolidated financial statements for additional information on the acquisition. The Company funded the acquisition through
cash provided by operations, and from proceeds received from the sale of the RAVO and Pauluhn businesses, included in
discontinued operations in 2009, and sold for net proceeds of $45.1 million in cash. See Note 13 to the consolidated financial
statements for additional information on the sale of the RAVO and Pauluhn businesses.
In May 2010, the Company issued 12.1 million common shares at a price of $6.25 per share for total gross proceeds of
$75.6 million. After deducting direct fees, net proceeds totaled $71.2 million. Proceeds from the equity offering were used to pay
down debt.
On February 22, 2012, the Company entered into a Credit Agreement (the “Credit Agreement”), by and among the
Company, as borrower and General Electric Capital Corporation, as a co-collateral agent, and Wells Fargo Capital Finance, LLC,
as administrative agent and co-collateral agent, providing the Company with a new $100 million secured credit facility (the
“ABL Facility”).
Pursuant to the Credit Agreement, the ABL Facility is a five-year asset-based revolving credit facility pursuant to which
up to $100 million initially will be available, with the right, subject to certain conditions, to increase the availability under the
facility by up to an additional $25 million. The Credit Agreement provides for loans and letters of credit in an amount up to the
aggregate availability under the facility subject to meeting certain borrowing base conditions, with a sub-limit of $50 million for
letters of credit. Borrowings under the ABL Facility bear interest, at the Company’s option, at a base rate or a LIBOR rate, plus,
in each case, an applicable margin set forth in the Credit Agreement. The applicable margin ranges from 1.00% to 2.75% for base
rate borrowings and 1.75% to 3.50% for LIBOR borrowings. The Company must also pay a commitment fee to the facility
lenders equal to 0.50% per annum on the unused portion of the ABL 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 allowed to prepay in whole or in part advances under the ABL Facility without penalty or premium other
than customary “breakage” costs with respect to LIBOR loans.
The Credit Agreement contains a requirement that the Company, on a consolidated basis, maintain a minimum monthly
fixed charge coverage ratio, along with other customary restrictive covenants, certain of which are subject to materiality
thresholds.
The obligations under the Credit Agreement are secured by (i) a first priority security interest in the Company’s and its
domestic subsidiaries’ accounts, inventory, chattel paper, payment intangibles, cash and cash equivalents and other working
capital assets (the “ABL First Priority Collateral”) and (ii) a second priority security interest in all other now or hereafter
acquired domestic property and assets, the stock or other equity interests in each of the domestic subsidiaries and certain of
the first-tier foreign subsidiaries, subject to certain exclusions.
The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s domestic
subsidiaries.
On February 22, 2012, the Company also entered into a Financing Agreement (the “Financing Agreement”) by and among
the Company, certain subsidiaries of the Company, as guarantors, the lenders party thereto (the
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“Term Lenders”) and TPG Specialty Lending, Inc., as administrative agent, collateral agent and sole lead arranger, pursuant to
which the Term Lenders agreed to provide the Company with a $215 million term loan (the “Term Loan”).
Pursuant to the Financing Agreement, the Term Loan is a five-year, secured term loan maturing on February 22, 2017.
Installment payments under the Term Loan do not commence until March 2013. The Financing Agreement includes provisions
for mandatory prepayments in certain specified situations. However, based on its current forecast, the Company does not
anticipate making any mandatory payments in 2012. Except in these certain specified situations, the Term Loan is not repayable
in the first 12 months of the term and thereafter is subject to the following prepayment premium; (i) 2.75% in months 13-24,
(ii) 2.00% in months 25-36 and (iii) nothing thereafter. These provisions are subject to change upon the occurrence of certain
specified events.
The Term Loan will bear interest, at the Company’s option, at a base rate or LIBOR rate, plus, in each case, an applicable
margin set forth in the Financing Agreement. The applicable margin ranges from 9.00% to 10.00% for base rate borrowings and
10.00% to 11.00% for LIBOR borrowings. The Company is required to pay certain customary fees in connection with the Term
Loan.
The Financing Agreement requires the Company to comply with financial covenants related to the maintenance of a
minimum monthly fixed charge coverage ratio, maximum capital expenditures, minimum liquidity, and maximum leverage ratio.
The Financing Agreement contains other restrictive covenants which are substantively similar to those contained in the Credit
Agreement.
The obligations under the Financing Agreement are secured by (i) a first priority security interest in all now or hereafter
acquired domestic property and assets (excluding the ABL First Priority Collateral) the stock or other equity interests in each of
the domestic subsidiaries and certain of the first-tier foreign subsidiaries, subject to certain exclusions, and (ii) a second priority
security interest in the ABL First Priority Collateral.
The Company’s obligations under the Financing Agreement are guaranteed by certain of the Company’s non-dormant
domestic subsidiaries.
Under the Financing Agreement, dividends shall be permitted only if the following conditions are met:
• No default or event of default shall exist or shall result from such payment;
• The Fixed Charge Ratio of the Company and its subsidiaries, as defined in the Financing Agreement, shall be, both
before and after the dividend payment (on a pro forma basis), not less than 1.50 to 1.00; and
• The Leverage Ratio of the Company and its subsidiaries, as defined in the Financing Agreement, shall be, both before
and after the dividend payment (on a pro forma basis), less than 2.00 to 1.00.
The Company used the proceeds from the ABL Facility and the Term Loan to (i) repay outstanding balances under the
Company’s existing $240 million secured revolving credit facility , dated as of April 25, 2007, as amended, which was to mature
on April 25, 2012 (the “Prior Credit Agreement”); (ii) retire the Company’s private placement notes issued pursuant to the Note
Purchase Agreement, dated as of June 1, 2009, as amended, and pursuant to the Master Note Purchase Agreement dated as of
June 1, 2003, as amended (together, the “Prior Note Purchase Agreements”); (iii) finance the ongoing general corporate needs
of the Company and its subsidiaries; and (iv) pay fees and expenses associated with repayment of amounts due under the Prior
Credit Agreement and the Prior Note Purchase Agreements, including the payment of approximately $1.0 million in resulting
breakage fees and premiums under the Prior Credit Agreement and Prior Note Purchase Agreements, and pay fees and
expenses associated with the ABL Facility and the Term Loan.
In accounting for the classification of its outstanding debt as of December 31, 2011, the Company considered the
guidance in ASC 470-10-45-14. As the Company has effectively refinanced short-term debt on a
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long-term basis subsequent to the balance sheet date, the amounts outstanding under the Prior Credit Agreement and the Prior
Note Purchase Agreements as of December 31, 2011 have been reflected as a component of long-term borrowings and capital
lease obligations on the consolidated balance sheet.
The Company was in violation of its Interest Coverage Ratio covenant minimum requirement as defined in the Prior Credit
Agreement and the Prior Note Purchase Agreements for the fiscal quarter ended December 31, 2010.
On March 15, 2011, the Company executed an amendment and waiver to the Prior Credit Agreement. On the same date, the
Company also executed an amendment and waiver to the Prior Note Purchase Agreements (collectively, “the 2011
Amendments”). Both of the amendments included a permanent waiver of compliance with the interest coverage ratio covenant
for the Company’s fiscal quarter ended December 31, 2010. Included in the terms of the 2011 Amendments was the replacement
of the interest coverage ratio covenant with a minimum EBITDA covenant, an increase in pricing, mandatory prepayments from
proceeds of asset sales, restrictions on use of excess cash flow, restrictions on dividend payments, share repurchases and
other restricted payments and a 50 basis points fee paid to the bank lenders and holders of the Notes. The Company also
repaid $30.0 million that was applied to the amounts outstanding under the Prior Credit Agreement and the Prior Note Purchase
Agreements on a pro rata basis (i.e., 85.8% under the Prior Credit Facility and 14.2% under the Prior Note Purchase
Agreements.) The $30.0 million was included within the current portion of long-term borrowings and capital lease obligations
on the consolidated balance sheet as of December 31, 2010.
The Prior Credit Agreement was secured by a first-priority perfected security interest in substantially all of the tangible
and intangible assets of the Company and those domestic subsidiaries that acted as guarantors.
On August 15, 2011 and November 15, 2011, the Company made excess cash flow payments of $6.5 million and $6.1
million, respectively. The amounts allocated to the Prior Credit Facility and Prior Note Purchase Agreements were $10.8 million
and $1.8 million, respectively.
As of December 31, 2011, $180.0 million was drawn on the Prior Credit Agreement, leaving available borrowings of
$49.1 million that includes $32.5 million of capacity used for existing letters of credit.
On April 27, 2009, the Company executed the Global Amendment to Note Purchase Agreements (the “Global
Amendment”) with the holders of its private placement debt notes (the “Notes”). The Global Amendment included a provision
allowing the Company to prepay $50.0 million of principal of the $173.4 million Notes outstanding at par with no prepayment
penalty. The prepayment was executed on April 28, 2009, and included principal, related accrued interest and a fee of
$0.2 million totaling $51.1 million. On September 1, 2010, the Company prepaid $20.0 million of its outstanding principal balance
of its private placement debt at par with no prepayment penalty and related accrued interest of $0.4 million.
On February 10, 2009 Bronto Skylift OY AB, a wholly-owned subsidiary of the Company, entered into a loan in which
principal and interest is paid semi-annually. The loan matured and was paid in full in February 2011.
As of December 31, 2011, $9.0 million was drawn against the Company’s non-U.S. lines of credit which provide for
borrowings up to $16.8 million.
Aggregate maturities of total borrowings amount to approximately $9.2 million in 2012, $21.8 million in 2013, $32.4 million in
2014 and $159.8 million in 2015 and thereafter. These maturities primarily reflect the payment terms outlined in the ABL Facility
and the Term Loan. The fair values of borrowings aggregated $221.5 million and $261.7 million at December 31, 2011 and 2010,
respectively. Included in 2012 maturities are $9.0 million of other non-U.S. lines of credit, and $0.2 million of capital lease
obligations.
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At December 31, 2011 and 2010, deferred financing fees, which are amortized over the remaining life of the debt, totaled
$1.0 million and $0.5 million, respectively, and are included in deferred charges and other assets on the balance sheet. The
Company currently estimates the debt issuance costs associated with the execution of the Term loan and ABL Facility to be
approximately $8.5 million.
The Company paid interest of $16.1 million in 2011, $9.7 million in 2010 and $11.3 million in 2009. See Note 9 regarding the
Company’s utilization of derivative financial instruments relating to outstanding debt.
The weighted average interest rate on short-term borrowings was 3.24% at December 31, 2011.
Cash dividends paid to shareholders in 2011, 2010 and 2009 were $3.7 million, $13.3 million, and $11.7 million, respectively.
The Company did not declare any dividends in 2011.
Total debt net of cash and cash equivalents included in continuing operations was $212.8 million representing 55% of
total capitalization at December 31, 2011 versus $200.3 million or 48% at December 31, 2010. The increase in the percentage of
debt to total capitalization in 2011 was due to a reduction in equity of $46.2 million and an increase in net debt of $12.5 million.
The Company anticipates that capital expenditures for 2012 will approximate $16 million and will be restricted to no more
than $20 million under the terms of the Financing Agreement. The Company believes that its financial resources and major
sources of liquidity, including cash flow from operations and borrowing capacity, will be adequate to meet its operating and
capital needs in addition to its financial commitments.
Contractual Obligations and Commercial Commitments
The following table presents a summary of the Company’s contractual obligations and payments due by period as of
December 31, 2011 ($ in millions):
Short-term obligations
Long-term debt*
Operating lease obligations
Capital lease obligations
Interest payments on long term debt
Total contractual obligations
Payments Due by Period
Total
$ 9.0
213.6
62.5
0.6
103.1
$388.8
Less than
1 Year
9.0
$
-
10.0
0.2
25.8
45.0
$
2-3 Years
-
$
53.9
13.8
0.3
45.5
$ 113.5
4-5 Years
-
$
64.5
11.0
0.1
30.0
$ 105.6
More than
5 Years
-
$
95.2
27.7
-
1.8
$ 124.7
* Long term debt includes financial service borrowings which are reported in discontinued operations. The payments due by
period reflect the payment terms outlined in the Company’s new Financing Agreement executed in February 2012, as
discussed in Note 6 to the Consolidated Financial Statements.
The Company also enters into foreign currency forward contracts to protect against the variability in exchange rates on
cash flows and intercompany transactions with its foreign subsidiaries. As of December 31, 2011, there is $0.9 million of
unrealized losses on the Company’s foreign exchange contracts. Volatility in the future exchange rates between the U.S. dollar,
the Euro, and British pound will impact the final settlement of any of these contracts.
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The following table presents a summary of the Company’s commercial commitments and the notional amount by
expiration period as of December 31, 2011 ($ in millions):
Financial standby letters of credit
Performance standby letters of credit
Purchase obligations
Total commercial commitments
Notional Amount by Expiration Period
Total
$ 30.6
3.6
35.8
$ 70.0
Less than
1 Year
30.5
3.6
35.8
69.9
$
$
2-3
Years
$ -
-
-
$ -
4-5
Years
$ 0.1
-
-
$ 0.1
Financial standby letters of credit largely relate to casualty insurance policies for the Company’s workers’ compensation,
automobile, general liability and product liability policies. Performance standby letters of credit represent guarantees of
performance by foreign subsidiaries that engage in cross-border transactions with foreign customers.
Purchase obligations relate to commercial chassis.
As of December 31, 2011, the Company has a liability of approximately $4.3 million for unrecognized tax benefits (refer to
Note 7). Due to the uncertainties related to these tax matters, the Company cannot make a reasonably reliable estimate of the
period of cash settlement for this liability.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. The Company considers the following policies to
be the most critical in understanding the judgments that are involved in the preparation of the Company’s consolidated
financial statements and the uncertainties that could impact the Company’s financial condition, results of operations and cash
flows.
Revenue Recognition
Net sales consist primarily of revenue from the sale of equipment, environmental vehicles, vehicle mounted aerial
platforms, parts, software, service and maintenance contracts.
The Company recognizes revenue for products when persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable, and collection is probable. Product is considered delivered to the customer
once it has been shipped and title and risk of loss have been transferred. For most of the Company’s product sales, these
criteria are met at the time the product is shipped; however, occasionally title passes later or earlier than shipment due to
customer contracts or letter of credit terms. If at the outset of an arrangement the Company determines the arrangement fee is
not, or is presumed not to be, fixed or determinable, revenue is deferred and subsequently recognized as amounts become due
and payable and all other criteria for revenue recognition have been met.
Prior to January 1, 2011, for any product within these groups that either was software or was considered software-related,
the Company accounted for such products in accordance with the specific industry accounting guidance for software and
software-related transactions. In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-14, Topic 985-
Certain Revenue Arrangements That Include Software Elements, which amended the accounting standards for revenue
recognition to remove tangible products containing
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software components and non-software components that function together to deliver the products’ essential functionality from
the scope of industry-specific software revenue recognition guidance. The Company adopted ASU 2009-14 prospectively on
January 1, 2011. Certain businesses within the Company’s Federal Signal Technologies Group sell tangible products containing
software components and non-software components that function together to deliver the products’ essential functionality, and
therefore such products were removed from the scope of industry specific software guidance effective January 1, 2011.
The Company accounts for multiple element arrangements that consist only of software or software-related products in
accordance with industry specific accounting guidance for software and software-related transactions. If a multiple-element
arrangement includes software and other deliverables that are neither software nor software-related, the Company applies
various revenue-related U.S. GAAP to determine if those deliverables constitute separate units of accounting from the software
or software-related deliverables. If the Company can separate the deliverables, the Company applies the industry specific
accounting guidance to the software and software-related deliverables and applies other appropriate guidance to the non-
software-related deliverables. Prior to January 1, 2011, revenue on arrangements that included multiple elements such as
hardware, software, and services was allocated to each element based on the relative fair value of each element. Each element’s
allocated revenue was recognized when the revenue recognition criteria for that element had been met. Fair value was generally
determined by vendor-specific objective evidence (“VSOE”), which was based on the price charged when each element was
sold separately. If the Company could not objectively determine the fair value of any undelivered element included in a
multiple-element arrangement, the Company deferred revenue until all elements were delivered and services were performed, or
until fair value could objectively be determined for any remaining undelivered elements. When the fair value of a delivered
element had not been established, but fair value existed for the undelivered elements, the Company used the residual method to
recognize revenue if the fair value of all undelivered elements was determinable. Under the residual method, the fair value of the
undelivered elements was deferred and the remaining portion of the arrangement fee was allocated to the delivered elements
and was recognized as revenue. In October 2009, the FASB issued ASU 2009-13, Topic 605-Multiple-Deliverable Revenue
Arrangements, which changes the level of evidence of standalone selling price required to separate deliverables in a multiple
deliverable revenue arrangement by allowing a company to make its best estimate of the selling price of deliverables when more
objective evidence of selling price is not available and eliminates the use of the residual method. ASU 2009-13 applies to
multiple deliverable revenue arrangements that are not accounted for under other accounting pronouncements and retains the
use of VSOE if available, and third-party evidence of selling price when VSOE is unavailable. The Company adopted ASU 2009-
13 prospectively on January 1, 2011. Certain businesses within the Federal Signal Technologies Group sell under multiple
deliverable sales arrangements where the Company utilized estimated selling prices under the relative-selling price method. In
arriving at its best estimates of selling price, management considered market conditions as well as Company-specific factors.
Management considered the Company’s overall pricing model and objectives, including profit objectives and internal cost
structure, as well as historical pricing data.
The total effect of adopting the new accounting guidance during 2011 was an increase in revenues of $4.2 million and an
increase in cost of sales of $1.5 million.
Implementation services include the design, development, testing, and installation of systems. These services are
recognized pursuant to ASC 605-35, Construction-Type and Production-Type Contracts. In these cases, the Company is
required to make reasonably dependable estimates relative to the extent of progress toward completion by comparing the total
hours incurred to the estimated total hours for the arrangement and, accordingly, would apply the percentage-of-completion
method. If the Company were unable to make reasonably dependable estimates of progress towards completion, then it would
use the completed-contract method, under which revenue is recognized only upon completion of the services. If total cost
estimates exceed the anticipated revenue, then the estimated loss on the arrangement is recorded at the inception of the
arrangement or at the time the loss becomes apparent.
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Revenue from maintenance contracts is deferred and recognized ratably over the coverage period. These contracts
typically extend phone support, software updates and upgrades, technical support, and equipment repairs.
Certain products which include software elements that are considered to be “more than incidental” are sold with post-
contract support, which may include certain upgrade rights that are offered to customers in connection with software sales or
the sale of extended warranty and maintenance contracts. The Company defers revenue for the fair value of the upgrade rights
until the future obligation is fulfilled or the right to the upgrade expires. When the Company’s software products are available
with maintenance agreements that grant customers rights to unspecified future upgrades over the maintenance term on a when-
and-if available basis, revenue associated with such maintenance is recognized ratably over the maintenance term.
Allowances for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers. The Company’s policy is to establish, on a quarterly
basis, allowances for doubtful accounts based on factors such as historical loss trends, credit quality of the present portfolio,
collateral value, and general economic conditions. If the historical loss trend increased or decreased 10% in 2011, the
Company’s operating income would have decreased or increased by $0.1 million, respectively. Though management considers
the valuation of the allowances proper and adequate, changes in the economy and/or deterioration of the financial condition of
the Company’s customers could affect the reserve balances required.
Inventory Reserve
The Company performs ongoing evaluations to ensure that reserves for excess and obsolete inventory are properly
identified and recorded. The reserve balance includes both specific and general reserves. Specific reserves at 100% are
established for identifiable obsolete products and materials. General reserves for materials and finished goods are established
based upon formulas which reference, among other things, the level of current inventory relative to recent usage, estimated
scrap value, and the level of estimated future usage. Historically, this reserve policy has given a close approximation of the
Company’s experience with excess and obsolete inventory. The Company does not foresee a need to revise its reserve policy
in the future. However, from time to time unusual buying patterns or shifts in demand may cause large movements in the
reserve balance.
Warranty Reserve
The Company’s products generally carry express warranties that provide repairs at no cost to the customer. The length of
the warranty term depends on the product sold, but generally extends from one to ten years based on terms that are generally
accepted in the Company’s marketplaces. Certain components necessary to manufacture the Company’s vehicles (including
chassis, engines, and transmissions) are covered under an original manufacturers’ warranty. Such manufacturers’ warranties
are extended directly to end customers.
The Company accrues its estimated exposure to warranty claims at the time of sale based upon historical warranty claim
costs as a percentage of sales. Management reviews these estimates on a quarterly basis and adjusts the warranty provisions
as actual experience differs from historical estimates. Infrequently, a material warranty issue can arise which is outside the norm
of the Company’s historical experience; costs related to such issues, if any, are provided for when they become probable and
estimable.
The Company’s warranty costs as a percentage of net sales totaled 1.3% in 2011, 1.0% in 2010, and 1.3% in 2009. The
increase in the rate in 2011 is primarily due to higher number of sewer cleaner installations in 2011 for the Environmental
Solutions Group. Management believes the reserve recorded at December 31, 2011 is appropriate. A 10% increase or decrease
in the estimated warranty costs in 2011 would have decreased or increased operating income by $0.9 million, respectively.
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Workers’ Compensation and Product Liability Reserves
Due to the nature of the products manufactured, the Company is subject to product liability claims in the ordinary course
of business. The Company is partially self-funded for workers’ compensation and product liability claims with various retention
and excess coverage thresholds. After the claim is filed, an initial liability is estimated, if any is expected, to resolve the claim.
This liability is periodically updated as more claim facts become known. The establishment and update of liabilities for unpaid
claims, including claims incurred but not reported, is based on the assessment by the Company’s claim administrator of each
claim, an independent actuarial valuation of the nature and severity of total claims, and management’s estimate. The Company
utilizes a third-party claims administrator to pay claims, track and evaluate actual claims experience, and ensure consistency in
the data used in the actuarial valuation. Management believes that the reserve established at December 31, 2011 appropriately
reflects the Company’s risk exposure. The Company has not established a reserve for potential losses resulting from the
firefighter hearing loss litigation (see Note 15 to the consolidated financial statements included in Item 8 of Part II of this
Form 10-K). If the Company is not successful in its defense after exhausting all appellate options, it will record a charge for
such claims, to the extent they exceed insurance recoveries, at the appropriate time.
Goodwill
Goodwill represents the excess of the cost of an acquired business over the amounts assigned to its net assets. Goodwill
is not amortized but is tested for impairment at a reporting unit level on an annual basis or when an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The
Company performed its annual goodwill impairment test as of October 31, 2011.
Goodwill is tested for impairment based on a two-step test. The first step, used to identify potential impairment, compares
the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is unnecessary. If the
carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to
measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with
the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that excess. The Company generally determines the fair value
of its reporting units using two valuation methods: the “Income Approach — Discounted Cash Flow Analysis” method, and
the “Market Approach — Guideline Public Company Method.”
Under the “Income Approach — Discounted Cash Flow Analysis” method the key assumptions consider projected sales,
cost of sales, and operating expenses. These assumptions were determined by management utilizing our internal operating
plan, growth rates for revenues and operating expenses, and margin assumptions. An additional key assumption under this
approach is the discount rate, which is determined by looking at current risk-free rates of capital, current market interest rates,
and the evaluation of risk premium relevant to the business segment. If our assumptions relative to growth rates were to
change or were incorrect, our fair value calculation may change, which could result in impairment.
Under the “Market Approach — Guideline Public Company Method” the Company identified several publicly traded
companies, including Federal Signal, which we believe have sufficiently relevant similarities. For these companies, the
Company calculated the mean ratio of invested capital to revenues and invested capital to EBITDA. Similar to the income
approach discussed above, sales, cost of sales, operating expenses, and their respective growth rates are key assumptions
utilized. The market prices of the Company’s common stock and other guideline companies are additional key assumptions. If
these market prices increase, the estimated market value would increase. If the market prices decrease, the estimated market
value would decrease.
The results of these two methods are weighted based upon management’s evaluation of the relevance of the two
approaches. In the 2011 evaluation, management determined that the income approach provided a more
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relevant measure of each reporting unit’s fair value and used it to determine reporting unit fair value. Management used the
market approach to corroborate the results of the income approach. Management used the income approach to determine fair
value of the reporting units because it considers anticipated future financial performance. The market approach is based upon
historical and current economic conditions which might not reflect the long term prospects or opportunities for the business
segment being evaluated.
During the fourth quarter of 2011, the Company performed the annual assessment, determined that the goodwill
associated with the FSTech Group reporting unit was impaired, and recorded impairment charges of $14.8 million. The
impairment charge resulted from decreased sales and cash flow estimated in our FSTech Group. As of December 31, 2011, the
goodwill impairment charge is an estimate and may be adjusted during the first quarter of 2012 upon finalization of the detailed
second step impairment analysis. We have not completed the second step because we are awaiting additional information
needed to value certain assets of the reporting unit. We will complete the second step in the first quarter of 2012 and changes
to the estimated impairment we have recorded could be material. The fair values of the other reporting units exceeded their
respective carrying amounts by 10% or more.
During the fourth quarter of 2010, the Company performed the annual assessment, determined that the goodwill
associated with the FSTech Group reporting unit was impaired, and recorded impairment charges of $67.1 million. As of
December 31, 2010, the goodwill impairment charge was an estimate. Upon completion of the detailed second step impairment
analysis in the first quarter of 2011, the Company recorded an adjustment of $1.6 million which reduced a portion of the original
goodwill impairment recognized during the fourth quarter of 2010.
The Company had no goodwill impairments in 2009.
Adverse changes to the Company’s business environment and future cash flows could cause us to record impairment
charges on goodwill in future periods, which could be material. See Note 5 of the consolidated financial statements for further
information.
Indefinite lived Intangible Assets
An intangible asset determined to have an indefinite useful life is not amortized. Indefinite lived intangible assets are
evaluated each reporting period to determine whether events and circumstances continue to support an indefinite useful life.
These assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset
might be impaired.
The impairment test consists of a comparison of the fair value of the indefinite lived intangible asset with its carrying
amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal
to that excess.
Significant judgment is applied when evaluating if an intangible asset has an indefinite useful life. In addition, for
indefinite lived intangible assets, significant judgment is applied in testing for impairment. This judgment includes developing
cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, and incorporating general
economic and market conditions.
During the fourth quarter of 2011, as a result of the annual assessment, the Company concluded that the fair value
determined by the income approach, of certain trade names in the FSTech Group was lower than the carrying value. As a result,
the Company recognized a $7.4 million impairment charge to trade names within the FSTech Group in the fourth quarter of 2011.
During the fourth quarter of 2010, as a result of the annual assessment, the Company concluded that the fair value
determined by the income approach, of certain trade names in the FSTech Group was lower than the carrying value. As a result,
the Company recognized an $11.8 million impairment charge to trade names within the FSTech Group in the fourth quarter of
2010.
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The Company had no impairments in 2009.
Adverse changes to the Company’s business environment and future cash flows could cause us to record impairment
charges on indefinite lived intangible assets in future periods, which could be material. See Note 5 of the consolidated financial
statements for further information.
Postretirement Benefits
The Company sponsors domestic and foreign defined benefit pension and other postretirement plans. Major assumptions
used in the accounting for these employee benefit plans include the discount rate, expected return on plan assets and rate of
increase in employee compensation levels. A change in any of these assumptions would have an effect on net periodic pension
and postretirement benefit costs.
The following table summarizes the impact that a change in these assumptions would have on the Company’s operating
income ($ in millions):
Discount rate
Return on assets
Employee compensation levels
Assumption change:
25 Basis Point Increase
0.3
0.3
-
25 Basis Point Decrease
(0.3)
(0.3)
-
The weighted-average discount rate used to measure pension liabilities and costs is set by reference to published, high-
quality bond indices. However, these indices give only an indication of the appropriate discount rate because the cash flows of
the bonds comprising the indices do not precisely match the projected benefit payment stream of the plan. For this reason, we
also consider the individual characteristics of the plan, such as projected cash flow patterns and payment durations, when
setting the discount rate. The weighted-average discount rate used to measure U.S. pension liabilities decreased from 5.75% in
2010 to 5.00% in 2011. See Note 8 to the consolidated financial statements for further discussion.
An incremental component is added for the expected return from active management based on the plan’s experience and
on historical information obtained from the plan’s investment consultants. These forecasted gross returns are reduced by
estimated management fees and expenses, yielding a long-term rate of return of 8.2% per annum for 2011. The expected asset
return assumption is based upon a long-term view; therefore, we do not expect to see frequent changes from year to year based
on positive or negative actual performance in a single year.
Stock-Based Compensation Expense
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation — Stock
Compensation which requires all share-based payments to employees, including grants of employee stock options and
restricted stock, to be recognized in the financial statements based on their respective grant date fair values. We use the Black-
Scholes option pricing model to estimate the fair value of the stock option awards. The Black-Scholes model requires the use of
highly subjective and complex assumptions, including the Company’s stock price, expected volatility, expected term, risk-free
interest rate, and expected dividend yield. For expected volatility, we base the assumption on the historical volatility of the
Company’s common stock. The expected term of the awards is based on historical data regarding employees’ option exercise
behaviors. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of the awards.
The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. In addition to the
requirement for fair value estimates, ASC Topic 718 also requires the recording of an expense that is net of an anticipated
forfeiture rate. Therefore, only expenses associated with awards that are ultimately expected to vest are included in our financial
statements. Our forfeiture rate is determined based on our historical option cancellation experience.
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We evaluate the Black-Scholes assumptions that we use to value our awards on a quarterly basis. With respect to the
forfeiture rate, we revise the rate if actual forfeitures differ from our estimates. If factors change and we employ different
assumptions, stock-based compensation expenses related to future stock-based payments may differ significantly from
estimates recorded in prior periods.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax
assets are also recorded with respect to net operating losses and other tax attribute carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the years in which temporary differences are expected to be
recovered or settled. Valuation allowances are established when it is more likely than not that deferred tax assets will not be
realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income of the period that
includes the enactment date.
The ultimate recovery of deferred tax assets is dependent upon the amount and timing of future taxable income, and other
factors such as the taxing jurisdiction in which the asset is to be recovered. A high degree of judgment is required to determine
if, and the extent that, valuation allowances should be recorded against deferred tax assets. In the year ended December 31,
2010, we recorded a valuation allowance of $85.0 million against our net domestic deferred tax assets based on our assessment
of past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. Specifically,
beginning in the fourth quarter of 2010, we had three years of cumulative domestic losses for continuing operations. In 2011,
we recorded additional valuation allowance of $13.6 million against our domestic deferred tax assets. We believe having three
years of cumulative losses from continuing operations limits our ability to look to future taxable income as a source for
recovering our deferred tax assets. We will continue to evaluate our ability to utilize our deferred tax assets and, as a result, we
may increase or decrease our valuation allowance in future periods. Although we believe that our approach to estimates and
judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in
income taxes that could be material.
Accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. We recognize the tax benefit from an uncertain tax
position if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured
based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
The guidance on accounting for uncertainty in income taxes also provides guidance on de-recognition and classification,
and requires companies to elect and disclose their method of reporting interest and penalties on income taxes. We recognize
interest and penalties related to uncertain tax positions as part of income tax expense.
Financial Market Risk Management
The Company is subject to market risk associated with changes in interest rates and foreign exchange rates. To mitigate
this risk, the Company utilizes interest rate swaps and foreign currency forward contracts. The Company does not hold or issue
derivative financial instruments for trading or speculative purposes and is not party to leveraged derivatives contracts.
Interest Rate Risk
The Company manages its exposure to interest rate movements by targeting a proportionate relationship between fixed-
rate debt to total debt generally within percentages between 40% and 60%. The Company uses
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funded fixed-rate borrowings as well as interest rate swap agreements to balance its overall fixed/floating interest rate mix.
During the month of June 2010, floating to fixed interest rate swaps with a total notional amount of $70 million matured and that
portion of the Company’s debt was left floating rate. Since the floating rate of interest the Company receives on its revolving
credit facility has favorable pricing further enhanced by historically low LIBOR rates, the Company decided to maintain a
percentage of floating rate debt outside of the 40% to 60% targets.
The following table presents the principal cash flows and weighted average interest rates by year of maturity for the
Company’s total debt obligations held at December 31, 2011 ($ in millions):
Variable rate
Average interest rate
2012
$ 9.2
2013
$21.8
Expected Maturity Date
2014
$32.4
2015
$32.3
Thereafter
$ 126.6
Total
$223.2
Fair
Value
$221.5
10.7%
10.7%
10.6%
10.4%
9.7%
10.7%
-
See Note 9 to the consolidated financial statements in this Form 10-K for a description of these agreements. A 100 basis
point increase or decrease in variable interest rates in 2011 would have increased or decreased interest expense by $2.0 million,
respectively.
Foreign Exchange Rate Risk
Although the majority of sales, expenses and cash flows are transacted in U.S. dollars, the Company has exposure to
changes in foreign exchange rates, primarily the Euro and the British pound. If average annual foreign exchange rates had
collectively weakened against the U.S. dollar by 10%, pre-tax earnings in 2011 would have decreased by $1.7 million from
foreign currency translation.
The Company has foreign currency exposures related to buying and selling in currencies other than the local currency in
which it operates. The Company utilizes foreign currency options and forward contracts to manage these risks.
The following table summarizes the Company’s foreign currency derivative instruments as of December 31, 2011. All are
expected to settle in 2012 ($ in millions):
Forward contracts:
Buy U.S. dollars, sell Euros
Buy British Pounds, sell Euros
Buy Euros, sell U.S. dollars
Other currencies
Total foreign currency derivatives
Expected
Settlement Date
2012
Notional
Amount
$
3.9
5.1
11.8
1.0
$ 21.8
Average
Contract
Rate
1.29
.84
1.38
Fair
Value
$ 0.1
0.1
(0.8)
(0.1)
$(0.7)
See Note 9 to the consolidated financial statements in this Form 10-K for a description of these agreements.
Forward exchange contracts are recorded as a natural hedge when the hedged item is a recorded asset or liability that is
revalued each accounting period, in accordance with ASC Topic 830, Foreign Currency Matters. For derivatives designated
as natural hedges, changes in fair values are reported in the “other income (expense)” line of the consolidated statements of
operations.
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Other Matters
The Company has a business conduct policy applicable to all employees and regularly monitors compliance with that
policy. The Company has determined that it had no significant related party transactions in each of the three years in the period
ended December 31, 2011.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The information contained under the caption Financial Market Risk Management included in Item 7 of this Form 10-K is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
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FEDERAL SIGNAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated balance sheets as of December 31, 2011 and 2010
Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements
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38
40
41
42
43
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Federal Signal Corporation
We have audited the accompanying consolidated balance sheets of Federal Signal Corporation as of December 31, 2011
and 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Federal Signal Corporation at December 31, 2011 and 2010, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 of the Notes to the consolidated financial statements, effective January 1, 2011, the Company
adopted the Financial Accounting Standards Board’s amended accounting standards related to revenue recognition for
arrangements with multiple deliverables and arrangements that include software elements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Federal Signal Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 14, 2012, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 14, 2012
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Federal Signal Corporation
We have audited Federal Signal Corporation’s internal control over financial reporting as of December 31, 2011, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“the COSO criteria”). Federal Signal Corporation’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Federal Signal Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets as of December 31, 2011 and 2010, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011 of Federal
Signal Corporation and our report dated March 14, 2012, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 14, 2012
39
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Current assets
ASSETS
Cash and cash equivalents
Accounts receivable, net of allowances for doubtful accounts of $2.9 million and $2.8 million,
$ 9.5
$ 62.1
December 31,
2011
2010
($ in millions)
respectively
Inventories — Note 3
Other current assets
Total current assets
Properties and equipment — Note 4
Other assets
Goodwill — Note 5
Intangible assets, net — Note 5
Deferred charges and other assets
Total assets of continuing operations
Assets of discontinued operations, net — Note 13
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings — Note 6
Current portion of long-term borrowings and capital lease obligations — Note 6
Accounts payable
Customer deposits
Deferred revenue
Accrued liabilities
Compensation and withholding taxes
Other
Total current liabilities
Long-term borrowings and capital lease obligations — Note 6
Long-term pension and other postretirement benefit liabilities — Note 8
Deferred gain — Note 4
Deferred tax liabilities — Note 7
Other long-term liabilities
Total liabilities of continuing operations
Liabilities of discontinued operations — Note 13
Total liabilities
Shareholders’ equity — Notes 10 and 11
Common stock, $1 par value per share, 90.0 million shares authorized, 63.1 million and 63.0 million
shares issued, respectively
Capital in excess of par value
Retained earnings
Treasury stock, 0.9 million and 0.9 million shares, respectively, at cost
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See notes to consolidated financial statements.
126.9
116.1
21.8
274.3
62.2
294.1
70.7
1.9
703.2
3.5
$706.7
$ 9.0
0.2
55.6
15.0
9.9
22.0
35.8
147.5
213.1
74.1
21.4
47.2
16.4
519.7
12.3
532.0
63.1
167.7
36.4
(16.1)
(76.4)
174.7
$706.7
100.4
119.6
17.9
300.0
63.2
310.4
84.4
3.4
761.4
3.1
$764.5
$ 1.8
76.2
53.5
10.2
12.4
21.2
39.3
214.6
184.4
41.3
23.5
45.8
15.8
525.4
18.2
543.6
63.0
164.7
50.6
(15.8)
(41.6)
220.9
$764.5
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
2011
For the Years Ended December 31,
2010
($ in millions, except per share data)
$ 726.5
$
$ 795.6
2009
750.4
600.6
171.1
20.6
-
-
3.3
16.4
0.2
(13.3)
(1.1)
(14.4)
0.2
(14.2)
(0.23)
-
(0.23)
$
$
$
542.3
173.3
78.9
3.9
5.0
(76.9)
10.3
1.2
(88.4)
(72.3)
(160.7)
(15.0)
$ (175.7)
$
$
(2.79)
(0.26)
(3.05)
$
$
$
557.3
155.8
-
-
1.5
35.8
11.4
(0.7)
25.1
(5.3)
19.8
3.3
23.1
0.41
0.06
0.47
Net sales
Costs and expenses
Cost of sales
Selling, engineering, general and administrative
Goodwill and intangible assets impairment — Note 5
Acquisition and integration related costs
Restructuring charges — Note 14
Operating income (loss)
Interest expense
Other expense (income)
(Loss) income before income taxes
Income tax provision — Note 7
(Loss) income from continuing operations
Discontinued operations — Note 13
Gain (loss) from discontinued operations and disposal, net of tax (expense)
benefit of $0.4 million, $0.0 million, and ($1.0) million, respectively
Net (loss) income
Basic and diluted (loss) earnings per share
(Loss) earnings from continuing operations
Earnings (loss) from discontinued operations and disposal, net of taxes
Net (loss) earnings per share
See notes to consolidated financial statements.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common
Stock Par
Value
Capital in
Excess of
Par Value
Retained
Earnings
Treasury
Stock
($ in millions)
Accumulated
Other
Comprehensive
Loss
Total
$
49.3 $ 106.4 $ 229.0 $ (36.1) $
(61.5) $ 287.1
Balance at December 31, 2008
Comprehensive loss:
Net income
Foreign currency translation
Unrealized gains on derivatives, net of $0.1 million tax
expense
Change in unrecognized gains related to pension
benefit plans, net of $5.4 million tax expense
Comprehensive income
Cash dividends declared ($0.24 per common share)
Share based payments:
Non-vested stock and options
Stock awards
Common stock cancelled
Issuance of common stock from treasury
Balance at December 31, 2009
Comprehensive loss:
Net loss
Foreign currency translation
Unrealized gains on derivatives, net of $0.0 million tax
expense
Change in unrecognized gains related to pension
benefit plans, net of $0.0 million tax expense
Comprehensive loss
Shares issued for acquisition
Equity offering, net of fees
Cash dividends declared ($0.24 per common share)
Share based payments:
Non-vested stock and options
Stock awards
Common stock cancelled
Balance at December 31, 2010
Comprehensive loss:
Net loss
Foreign currency translation
Unrealized losses on derivatives, net of $0.1 million tax
benefit
Change in unrecognized losses related to pension
benefit plans, net of $1.6 million tax benefit
Comprehensive loss
Share based payments:
23.1
(11.7)
0.4
(0.1)
49.6
3.1
0.4
(0.2)
(15.9)
93.8
20.3
(15.8)
240.4
(175.7)
1.2
12.1
9.0
59.1
0.1
63.0
2.3
0.3
0.2
164.7
(14.1)
50.6
(15.8)
(41.6)
(14.2)
23.1
12.6
12.6
0.2
9.4
(39.3)
(4.5)
0.8
1.4
0.2
9.4
45.3
(11.7)
3.1
0.8
(0.3)
4.4
328.7
(175.7)
(4.5)
0.8
1.4
(178.0)
10.2
71.2
(14.1)
2.3
0.4
0.2
220.9
(14.2)
(4.3)
(4.3)
(0.7)
(0.7)
(29.8)
(29.8)
(49.0)
2.0
1.0
(0.3)
Non-vested stock and options
Stock awards
Shares received in connection with vesting of awards
0.1
2.0
0.9
(0.3)
Common stock cancelled
Balance at December 31, 2011
0.1
$
63.1 $ 167.7 $ 36.4 $ (16.1) $
0.1
(76.4) $ 174.7
See notes to consolidated financial statements.
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2010
($ in millions)
2011
2009
Operating activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
$(14.2) $(175.7) $ 23.1
(Gain) loss on discontinued operations and disposal
Gain on joint venture
Goodwill and intangible assets impairment
Valuation allowance
Depreciation and amortization
Stock option and award compensation expense
Provision for doubtful accounts
Deferred income taxes
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions of
(0.2)
-
20.6
-
22.5
2.0
0.6
(0.5)
15.0
(0.1)
78.9
85.0
19.2
2.3
1.2
(13.7)
companies
Accounts receivable
Inventories
Other current assets
Accounts payable
Customer deposits
Accrued liabilities
Income taxes
Pension contributions
Deferred revenue
Other
Net cash provided by continuing operating activities
Net cash (used for) provided by discontinued operating activities
Net cash provided by operating activities
Investing activities
Purchases of properties and equipment
Proceeds from sales of properties and equipment
Payments for acquisitions, net of cash acquired
Other, net
Net cash used for continuing investing activities
Net cash provided by discontinued investing activities
Net cash (used for) provided by investing activities
Financing activities
(Decrease) increase in short-term borrowings, net
Proceeds from issuance of long-term borrowings
Payments on long-term borrowings
Payments of debt amendment fees
Cash dividends paid to shareholders
Proceeds from equity offering, net of fees
Other, net
Net cash (used for) provided by continuing financing activities
Net cash provided by (used for) discontinued financing activities
Net cash (used for) provided by financing activities
(28.3)
1.9
(2.1)
2.6
5.0
(0.8)
2.4
(3.8)
(2.4)
4.6
9.9
(3.6)
6.3
(15.7)
1.9
-
-
(13.8)
-
(13.8)
(27.0)
-
(13.3)
(2.3)
(3.7)
-
0.4
(45.9)
0.1
(45.8)
19.6
(7.9)
2.6
4.0
-
(3.4)
(1.2)
(1.1)
6.3
6.8
37.8
(6.6)
31.2
(12.8)
1.9
(97.3)
-
(108.2)
0.2
(108.0)
130.9
-
(70.8)
-
(13.3)
71.2
0.6
118.6
(1.0)
117.6
(3.3)
(1.2)
-
-
14.7
3.1
0.9
3.7
17.8
21.8
(0.7)
(3.3)
(7.4)
(5.8)
1.9
(1.0)
0.2
(3.5)
61.0
1.4
62.4
(14.4)
4.0
(13.5)
10.0
(13.9)
44.9
31.0
(12.6)
12.5
(77.6)
-
(11.7)
-
0.2
(89.2)
(7.3)
(96.5)
Effects of foreign exchange rate changes on cash
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See notes to consolidated financial statements.
43
0.7
(52.6)
62.1
0.8
(2.3)
23.4
$ 9.5 $ 62.1 $ 21.1
0.2
41.0
21.1
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FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data)
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying consolidated financial statements include the accounts of Federal Signal
Corporation and all of its significant subsidiaries (“Federal Signal” or the “Company”) and have been prepared in accordance
with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany
balances and transactions have been eliminated in consolidation. These consolidated financial statements include estimates
and assumptions by management that affect the amounts reported in the consolidated financial statements. Actual results
could differ from these estimates. The operating results of businesses divested during 2010 and 2009 have been excluded since
the date of sale, and which have been reported prior to sale as discontinued operations (See Note 13). Certain prior year
amounts have been reclassified to conform to the current year presentation.
Products manufactured and services rendered by the Company are divided into four major operating segments: Safety and
Security Systems, Fire Rescue, Environmental Solutions and Federal Signal Technologies (“FSTech”). 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.
Non-U.S. Operations: Assets and liabilities of non-U.S. subsidiaries, other than those whose functional currency is the
U.S. dollar, are translated at current exchange rates with the related translation adjustments reported in shareholders’ equity as
a component of accumulated other comprehensive loss. Statements of operations accounts are translated at the average
exchange rate during the period. Where the U.S. dollar is considered the functional currency, monetary assets and liabilities are
translated at current exchange rates with the related adjustment included in net income. Non-monetary assets and liabilities are
translated at historical exchange rates. The Company incurs foreign currency transaction gains/losses relating to assets and
liabilities that are denominated in a currency other than the functional currency. For 2011, 2010 and 2009, the Company incurred
foreign currency translation losses, included in other expense in the consolidated statements of operations, of $0.3 million,
$1.3 million, and $0.3 million, respectively. The cumulative translation adjustment, included in accumulated other
comprehensive loss as of December 31, 2011 and 2010, was a cumulative loss of $0.3 million and cumulative income of $4.0
million, respectively.
Cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less, when
purchased, to be cash equivalents.
Accounts receivable, lease financing and other receivables and allowances for doubtful accounts: A receivable is
considered past due if payments have not been received within agreed upon invoice terms. The Company’s policy is generally
to not charge interest on trade receivables after the invoice becomes past due, but to charge interest on lease receivables. The
Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make
required payments on the outstanding accounts receivable and outstanding lease financing and other receivables. The
allowances are each maintained at a level considered appropriate based on historical and other factors that affect collectability.
These factors include historical trends of write-offs, recoveries and credit losses; portfolio credit quality; and current and
projected economic and market conditions. If the financial condition of the Company’s customers were to deteriorate, resulting
in a reduced ability to make payments, additional allowances may be required.
Inventories: The Company’s inventories are valued at the lower of cost or market. Cost is determined using the first-in,
first-out (“FIFO”) method. Included in the cost of inventories are raw materials, direct wages and associated production costs.
Properties and equipment and related depreciation: Properties and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the assets. Useful lives
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range from 8 to 40 years for buildings and 3 to 15 years for machinery and equipment. Leasehold improvements are depreciated
over the shorter of the remaining life of the lease or the useful life of the improvement. Property and equipment and other long-
term assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or
group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets.
Such analyses necessarily involve significant judgment.
Goodwill and Other Intangible assets: Goodwill represents the excess of the cost of an acquired business over the
amounts assigned to its net assets. Goodwill is not amortized but is tested for impairment at a reporting unit level on an annual
basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. The Company performed its annual goodwill impairment test as of October 31, 2011.
Goodwill is tested for impairment based on a two-step test. The first step, used to identify potential impairment, compares
the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is unnecessary. If the
carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to
measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with
the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that excess. The Company generally determines the fair value
of its reporting units using two valuation methods: the “Income Approach — Discounted Cash Flow Analysis” method, and
the “Market Approach — Guideline Public Company Method.”
Under the “Income Approach — Discounted Cash Flow Analysis” method the key assumptions consider projected sales,
cost of sales, and operating expenses. These assumptions were determined by management utilizing our internal operating
plan, growth rates for revenues and operating expenses, and margin assumptions. An additional key assumption under this
approach is the discount rate, which is determined by looking at current risk-free rates of capital, current market interest rates,
and the evaluation of risk premium relevant to the business segment. If our assumptions relative to growth rates were to
change or were incorrect, our fair value calculation may change, which could result in impairment.
Under the “Market Approach — Guideline Public Company Method” the Company identified several publicly traded
companies, including Federal Signal, which we believe have sufficiently relevant similarities. For these companies the Company
calculated the mean ratio of invested capital to revenues and invested capital to EBITDA. Similar to the income approach
discussed above, sales, cost of sales, operating expenses, and their respective growth rates are key assumptions utilized. The
market prices of Federal Signal and other guideline companies are additional key assumptions. If these market prices increase,
the estimated market value would increase. If the market prices decrease, the estimated market value would decrease.
The results of these two methods are weighted based upon management’s evaluation of the relevance of the two
approaches. In the current year evaluation management determined that the income approach provided a more relevant measure
of each reporting unit’s fair value and used it to determine reporting unit fair value. Management used the market approach to
corroborate the results of the income approach. Management used the income approach to determine fair value of the reporting
units because it considers anticipated future financial performance. The market approach is based upon historical and current
economic conditions which might not reflect the long term prospects or opportunities for the business segment being
evaluated.
During the fourth quarter of 2011, the Company performed the annual assessment, determined that the goodwill
associated with the FSTech Group reporting unit was impaired, and recorded impairment charges of $14.8 million. The
impairment charge resulted from decreased sales and cash flow estimated in our FSTech Group. As of December 31, 2011, the
goodwill impairment charge is an estimate and may be adjusted during the
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first quarter of 2012 upon completion of a detailed second step impairment analysis. We have not completed the second step
because we are awaiting additional information needed to value certain assets of the reporting unit. We will complete the
second step in the first quarter of 2012 and changes to the estimated impairment we have recorded could be material. The fair
values of the other reporting units exceeded their respective carrying amounts by 10% or more.
During the fourth quarter of 2010, the Company performed the annual assessment, determined that the goodwill
associated with the FSTech Group reporting unit was impaired, and recorded impairment charges of $67.1 million. As of
December 31, 2010, the goodwill impairment charge was an estimate. Upon completion of the detailed second step impairment
analysis in the first quarter of 2011, the Company recorded an adjustment of $1.6 million which reduced a portion of the original
goodwill impairment recognized during the fourth quarter of 2010.
The Company had no goodwill impairments in 2009. Adverse changes to the Company’s business environment and future
cash flows could cause us to record impairment charges in future periods which could be material. See Note 5 of the
consolidated financial statements for further information.
An intangible asset determined to have an indefinite useful life is not amortized. Indefinite lived intangible assets are
evaluated each reporting period to determine whether events and circumstances continue to support an indefinite useful life.
These assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset
might be impaired.
The impairment test consists of a comparison of the fair value of the indefinite lived intangible asset with its carrying
amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal
to that excess.
Significant judgment is applied when evaluating if an intangible asset has an indefinite useful life. In addition, for
indefinite lived intangible assets, significant judgment is applied in testing for impairment. This judgment includes developing
cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, and incorporating general
economic and market conditions.
During the fourth quarter of 2011, as a result of the annual assessment, the Company concluded that the fair value
determined by the income approach, of certain trade names in the FSTech Group was lower than the carrying value. As a result,
the Company recognized a $7.4 million impairment charge to trade names within the FSTech segment in the fourth quarter of
2011.
During the fourth quarter of 2010, as a result of the annual assessment, the Company concluded that the fair value
determined by the income approach, of certain trade names in the FSTech Group was lower than the carrying value. As a result,
the Company recognized an $11.8 million impairment charge to trade names within the FSTech segment in the fourth quarter of
2010.
The Company had no impairments in 2009. Adverse changes to the Company’s business environment and future cash
flows could cause us to record impairment charges in future periods, which could be material. See Note 5 of the consolidated
financial statements for further information.
Definite lived intangible assets are amortized using the straight-line method over the estimated useful lives and are tested
for impairment if indicators exist.
Stock-based compensation plans: The Company has various stock-based compensation plans, described more fully in
Note 10.
The Company accounts for stock-based compensation in accordance with the provisions of Accounting Standards
Codification (“ASC”) Topic 718, Compensation — Stock Compensation. The fair value of stock options is determined using a
Black-Scholes option pricing model.
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Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Warranty: Sales of many of the Company’s products carry express warranties based on terms that are generally
accepted in the Company’s marketplaces. The Company records provisions for estimated warranty at the time of sale based on
historical experience and periodically adjusts these provisions to reflect actual experience. Infrequently, a material warranty
issue can arise which is beyond the scope of the Company’s historical experience. The Company provides for these issues as
they become probable and estimable.
Product liability and workers’ compensation liability: Due to the nature of the Company’s products, the Company is
subject to claims for product liability and workers’ compensation in the normal course of business. The Company is self-funded
for a portion of these claims. The Company establishes a reserve using a third-party actuary for any known outstanding
matters, including a reserve for claims incurred but not yet reported.
Financial instruments: The Company enters into agreements (derivative financial instruments) to manage the risks
associated with interest rates and foreign exchange rates. The Company does not actively trade such instruments nor enter into
such agreements for speculative purposes. The Company principally utilizes two types of derivative financial instruments:
1) interest rate swaps to manage its interest rate risk, and 2) foreign currency forward exchange and option contracts to manage
risks associated with sales and expenses (forecast or committed) denominated in foreign currencies.
On the date a derivative contract is entered into, the Company designates the derivative as one of the following types of
hedging instruments and accounts for the derivative as follows:
Fair value hedge: A hedge of a recognized asset or liability or an unrecognized firm commitment is declared as a fair
value hedge. For fair value hedges, both the effective and ineffective portions of the changes in the fair value of the derivative,
along with the gain or loss on the hedged item that is attributable to the hedged risk, are recorded in earnings and reported in
the consolidated statements of operations on the same line as the hedged item.
Cash flow hedge: A hedge of a forecast transaction or of the variability of cash flows to be received or paid related to a
recognized asset or liability is declared as a cash flow hedge. The effective portion of the change in the fair value of a derivative
that is declared as a cash flow hedge is recorded in accumulated other comprehensive income. When the hedged item impacts
the statement of operations, the gain or loss previously included in accumulated other comprehensive income is reported on
the same line in the consolidated statements of operations as the hedged item. In addition, both the fair value of changes
excluded from the Company’s effectiveness assessments and the ineffective portion of the changes in the fair value of
derivatives used as cash flow hedges are reported in other expense in the consolidated statements of operations.
The Company formally documents its hedge relationships, including identification of the hedging instruments and the
hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are
recorded in the consolidated balance sheets at fair value in other deferred charges and assets and other accrued liabilities. This
process includes linking derivatives that are designated as hedges of specific forecast transactions. The Company also
formally assesses, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is
determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer likely to occur,
the Company discontinues hedge accounting, and any deferred gains or losses are recorded in other expense (income) in the
consolidated statements of operations. Amounts related to terminated interest rate swaps are deferred and amortized as an
adjustment to interest expense over the original period of interest exposure, provided the designated liability continues to exist
or is probable of occurring.
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Fair value of financial instruments: The Company applies the provisions of ASC Topic 820, Fair Value Measurements
and Disclosures, to its non-financial assets and non-financial liabilities. ASC Topic 820 established a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs
such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
Revenue recognition: Net sales consist primarily of revenue from the sale of equipment, environmental vehicles, vehicle
mounted aerial platforms, parts, software, service, and maintenance contracts.
The Company recognizes revenue for products when persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable, and collection is probable. Product is considered delivered to the customer
once it has been shipped and title and risk of loss have been transferred. For most of the Company’s product sales, these
criteria are met at the time the product is shipped; however, occasionally title passes later or earlier than shipment due to
customer contracts or letter of credit terms. If at the outset of an arrangement the Company determines the arrangement fee is
not, or is presumed not to be, fixed or determinable, revenue is deferred and subsequently recognized as amounts become due
and payable and all other criteria for revenue recognition have been met.
Prior to January 1, 2011, for any product within these groups that either was software or was considered software-related,
the Company accounted for such products in accordance with the specific industry accounting guidance for software and
software-related transactions. In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-14, Topic 985-
Certain Revenue Arrangements That Include Software Elements, which amended the accounting standards for revenue
recognition to remove tangible products containing software components and non-software components that function
together to deliver the products’ essential functionality from the scope of industry-specific software revenue recognition
guidance. The Company adopted ASU 2009-14 prospectively on January 1, 2011. Certain businesses within the Company’s
Federal Signal Technologies Group sell tangible products containing software components and non-software components that
function together to deliver the products’ essential functionality, and therefore such products were removed from the scope of
industry specific software guidance effective January 1, 2011.
The Company accounts for multiple element arrangements that consist only of software or software-related products in
accordance with industry specific accounting guidance for software and software-related transactions. If a multiple-element
arrangement includes software and other deliverables that are neither software nor software-related, the Company applies
various revenue-related U.S. GAAP to determine if those deliverables constitute separate units of accounting from the software
or software-related deliverables. If the Company can separate the deliverables, the Company applies the industry specific
accounting guidance to the software and software-related deliverables and applies other appropriate guidance to the non-
software-related deliverables. Prior to January 1, 2011, revenue on arrangements that included multiple elements such as
hardware, software, and services was allocated to each element based on the relative fair value of each element. Each element’s
allocated revenue was recognized when the revenue recognition criteria for that element had been met. Fair value was generally
determined by vendor-specific objective evidence (“VSOE”), which was based on the price charged when each element was
sold separately. If the Company could not objectively determine the fair value of any undelivered element included in a
multiple-element arrangement, the Company deferred revenue until all elements were delivered and services were performed, or
until fair value could objectively be determined for any remaining undelivered elements. When the fair value of a delivered
element had not been established, but fair value existed for the undelivered elements, the Company used the residual method to
recognize revenue if the fair value of all undelivered elements was determinable. Under the residual method, the fair value of the
undelivered elements was deferred and the remaining portion of the arrangement fee was allocated to the delivered elements
and was recognized as revenue. In October 2009, the FASB issued ASU 2009-13, Topic 605-Multiple-Deliverable Revenue
Arrangements, which changes the level of evidence of standalone selling
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price required to separate deliverables in a multiple deliverable revenue arrangement by allowing a company to make its best
estimate of the selling price of deliverables when more objective evidence of selling price is not available and eliminates the use
of the residual method. ASU 2009-13 applies to multiple deliverable revenue arrangements that are not accounted for under
other accounting pronouncements and retains the use of VSOE if available, and third-party evidence of selling price when
VSOE is unavailable. The Company adopted ASU 2009-13 prospectively on January 1, 2011. Certain businesses within the
Federal Signal Technologies Group sell under multiple deliverable sales arrangements where the Company utilized estimated
selling prices under the relative-selling price method. In arriving at its best estimates of selling price, management considered
market conditions as well as Company-specific factors. Management considered the Company’s overall pricing model and
objectives, including profit objectives and internal cost structure, as well as historical pricing data.
The total effect of adopting the new accounting guidance during 2011 was an increase in revenues of $4.2 million and an
increase in cost of sales of $1.5 million.
Implementation services include the design, development, testing, and installation of systems. These services are
recognized pursuant to ASC 605-35, Construction-Type and Production-Type Contracts. In these cases, the Company is
required to make reasonably dependable estimates relative to the extent of progress toward completion by comparing the total
hours incurred to the estimated total hours for the arrangement and, accordingly, would apply the percentage-of-completion
method. If the Company were unable to make reasonably dependable estimates of progress towards completion, then it would
use the completed-contract method, under which revenue is recognized only upon completion of the services. If total cost
estimates exceed the anticipated revenue, then the estimated loss on the arrangement is recorded at the inception of the
arrangement or at the time the loss becomes apparent.
Revenue from maintenance contracts is deferred and recognized ratably over the coverage period. These contracts
typically extend phone support, software updates and upgrades, technical support, and equipment repairs.
Certain products which include software elements that are considered to be “more than incidental” are sold with post-
contract support, which may include certain upgrade rights that are offered to customers in connection with software sales or
the sale of extended warranty and maintenance contracts. The Company defers revenue for the fair value of the upgrade rights
until the future obligation is fulfilled or the right to the upgrade expires. When the Company’s software products are available
with maintenance agreements that grant customers rights to unspecified future upgrades over the maintenance term on a when-
and-if available basis, revenue associated with such maintenance is recognized ratably over the maintenance term.
Net sales: Net sales are net of returns and allowances. Returns and allowances are calculated and recorded as a
percentage of revenue based upon historical returns. Gross sales include sales of products and billed freight related to product
sales. Freight has not historically comprised a material component of gross sales.
Product shipping costs: Product shipping costs are expensed as incurred and are included in cost of sales.
Income Taxes: We file a consolidated U.S. federal income tax return for Federal Signal Corporation and its eligible
domestic subsidiaries. Our non-U.S. subsidiaries file income tax returns in their respective local jurisdictions. We account for
income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and tax benefit carry forwards. Deferred tax assets and liabilities at the end of each
period are determined using enacted tax rates. A valuation allowance is established or maintained when, based on currently
available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized.
Accounting standards on accounting for uncertainty in income taxes address the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the financial statements.
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Under the guidance on accounting for uncertainty in income taxes, we may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured
based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The
guidance on accounting for uncertainty in income taxes also provides guidance on de-recognition, classification, interest and
penalties on income taxes, and accounting in interim periods.
Litigation Contingencies: The Company is subject to various claims, other pending and possible legal actions for
product liability and other damages, and other matters arising out of the conduct of the Company’s business. The Company
believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not
have an adverse effect on the Company’s consolidated financial position or results of operations. However, in the event of
unexpected future developments, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material
adverse effect on the Company’s results of operations. Professional legal fees are expensed when incurred. We accrue for
contingent losses when such losses are probable and reasonably estimatable. In the event that estimates or assumptions of
contingent losses are different from actual, adjustments are made in subsequent periods to reflect more current information.
NOTE 2 — ACQUISITIONS
Sirit Inc. and Subsidiaries
On March 5, 2010, the Company acquired all of the issued and outstanding common shares of Sirit Inc. and its
Subsidiaries (“Sirit”) for total cash consideration of CDN $77.1 million (USD $74.9 million). Sirit designs, develops and
manufactures radio frequency identification device technology for applications such as tolling, electronic vehicle registration,
parking and access control, cashless payments, supply chain management and asset tracking solutions. The results of Sirit are
included within the FSTech operating segment. The following table summarizes the fair values of the assets acquired and
liabilities assumed from the acquisition of Sirit:
($ in millions)
Purchase Price
Fair Value of Assets Acquired:
Current assets
Fixed assets
Intangible assets
Other assets
Total Assets Acquired
Fair Value of Liabilities Assumed:
Current liabilities
Deferred tax liabilities, net
Total Liabilities Assumed
Goodwill (1)
Final
Purchase
Price
Allocation
74.9
$
7.0
1.6
37.1
0.4
46.1
13.1
2.7
15.8
44.6
(1) The goodwill of $44.6 million is non-deductible for tax purposes.
VESystems, LLC and Subsidiaries
On March 2, 2010, the Company acquired all of the equity interests in VESystems, LLC and its Subsidiaries (“VESystems”)
for an aggregate purchase price of $34.8 million. The consideration transferred consisted of cash in the amount of
approximately $24.6 million and 1,220,311 shares of Federal Signal common stock with an
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acquisition date fair value of $10.2 million. VESystems designs, develops and deploys advanced software applications and
customer management systems and services for the electronic toll collection and port industries. The results of VESystems are
included within the FSTech operating segment. The following table summarizes the fair values of the assets acquired and
liabilities assumed from the acquisition of VESystems:
($ in millions)
Purchase Price
Fair Value of Assets Acquired:
Current assets
Fixed assets
Intangible assets
Other assets
Total Assets Acquired
Fair Value of Liabilities Assumed:
Current liabilities
Total Liabilities Assumed
Goodwill (2)
Final
Purchase
Price
Allocation
34.8
$
2.2
0.1
16.1
0.5
18.9
2.2
2.2
18.1
(2) The goodwill of $18.1 million is deductible for tax purposes over 15 years, starting in 2010.
Diamond Consulting Services Ltd.
On December 9, 2009, the Company acquired all equity interests of Diamond Consulting Services Ltd. (“Diamond”) for
total consideration of $13.9 million. In addition to the consideration paid, the Company was required to pay up to $3.2 million of
retention payments in future years if certain contingencies were met. The deferred retention expense was calculated in
accordance with the sale and purchase agreement of Diamond. A sum of £1,000,000 (one million pounds sterling) was payable
to the former owners of Diamond on or before January 31, 2011 in the event that the former owners of Diamond were employed
by the Company on December 31, 2010 and were at that time actively engaged in the business. An additional amount of
£1,000,000 (one million pounds sterling) was payable to the former owners of Diamond on or before January 31, 2012 in the
event that former owners of Diamond were employed by the Company on December 31, 2011 and were at that time actively
engaged in the business. The former owners of Diamond did maintain employment through December 31, 2011 and as of
January 31, 2012 have been paid both contingent payments totaling £2,000,000 (two million pounds sterling).
In accordance with ASC 805-10-55-25, the deferred retention payments are being treated as compensation expense for
post-combination services as the contingent payments were to be automatically forfeited if employment was terminated. The
total contingency of £2,000,000 (two million pounds sterling) was expensed ratably over the two-year period that the employees
were required to stay in order to earn the retention payment.
Diamond specializes in vehicle classification systems for tolling and other intelligent transportation systems. The results
of Diamond are included in the FSTech operating segment.
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The following table summarizes the fair value of Sirit and VESystems amortizable and indefinite-lived intangible assets as
of their respective acquisition dates:
($ in millions)
Amortizable intangible assets:
Patents
Customer relationships
Technology
Non-compete
Total amortizable intangible
assets
Indefinite-lived intangibles:
Trade names
Total intangible assets
Sirit
VESystems
Fair Value
Estimated useful
life (in years)
Fair Value
Estimated useful
life (in years)
$
$
$
$
-
18.0
12.1
2.9
33.0
4.1
37.1
18
9
5
$
$
$
$
-
9.5
4.9
0.4
14.8
1.3
16.1
17
16
5
The Company determined the useful life of its customer relationship intangible assets in accordance with ASC 350,
Goodwill and Other. In accordance with ASC 350-30-35-2, the useful lives are based on the period during which 95% of the
undiscounted cash flows of the assets will be realized. In addition to analyzing the pattern of benefit demonstrated by the
asset’s cash flow stream, the Company also considered factors discussed in ASC 350-30-35-3 and determined that the useful
lives are appropriate.
Subsequent to the completion of the aforementioned acquisitions and in association with the Company’s annual
impairment assessments, the Company recorded charges of $78.9 million and $20.6 million to impair goodwill and certain trade
names within the FSTech Group in 2010 and 2011, respectively. See Note 5 for additional information.
Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial information presents the results of operations of the
Company as they may have appeared if the closing of Sirit and VESystems, presented in the aggregate, had been completed on
January 1, 2010 and January 1, 2009, respectively:
($ in millions, except per share data)
Net sales
(Loss) income from continuing operations
(Loss) earnings from continuing operations — per basic and diluted share
December 31,
2010
$ 734.8
(160.3)
$ (2.78)
2009
$797.0
14.0
$ 0.28
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does
not indicate the actual financial results of the Company had the closing of Sirit and VESystems been completed on January 1,
2010 and January 1, 2009, respectively, nor is it indicative of the results of operations in future periods. Included in the
unaudited pro forma combined financial information for the years ended December 31, 2010 and 2009 were pro forma
adjustments to reflect the results of operations of Sirit and VESystems as well as the impact of amortizing certain acquisition
accounting adjustments such as amortizable intangible assets. The pro forma condensed financial information does not
indicate the impact of possible business model changes, nor does it consider any potential impacts of current market
conditions, expense efficiencies or other factors. The combined net sales and net loss for the year ended December 31, 2010
was $30.2 million and $(40.7) million, respectively.
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Acquisition and Integration Related Expenses
For the year ended December 31, 2010, pretax charges totaling $3.9 million were recorded for acquisition and integration
related costs. For the years ended December 31, 2011 and 2009, there were no charges recorded for acquisitions and integration
related costs. These charges, which were expensed in accordance with the accounting guidance for business combinations,
were recorded in “acquisition and integration related costs” and are included as a component of corporate expenses.
NOTE 3 — INVENTORIES
Inventories at December 31 are summarized as follows ($ in millions):
Raw materials
Work in process
Finished goods
Total inventories
NOTE 4 — PROPERTIES AND EQUIPMENT
Properties and equipment at December 31 are summarized as follows ($ in millions):
Land
Buildings and improvements
Machinery and equipment
Accumulated depreciation
Total properties and equipment
2011
$ 54.1
28.0
34.0
$116.1
2010
$ 55.0
29.0
35.6
$119.6
2011
$
0.3
23.5
149.3
(110.9)
$ 62.2
2010
$
0.3
23.1
141.1
(101.3)
$ 63.2
In July 2008, the Company entered into sale-leaseback transactions for its Elgin and University Park, Illinois plant
locations. Net proceeds received were $35.8 million, resulting in a deferred gain of $29.0 million. The deferred gain is being
amortized over the 15-year life of the respective leases. The balance was $21.4 million and $23.5 million at December 31, 2011
and 2010, respectively.
The Company leases certain facilities and equipment under operating leases, some of which contain options to renew.
Total rental expense on all operating leases was $11.0 million in 2011, $11.4 million in 2010, and $10.3 million in 2009. Sublease
income and contingent rentals relating to operating leases were insignificant. At December 31, 2011, minimum future rental
commitments under operating leases having non-cancelable lease terms in excess of one year aggregated $62.5 million payable
as follows: $10.0 million in 2012, $7.1 million in 2013, $6.7 million in 2014, $5.8 million in 2015, $5.2 million in 2016, and
$27.7 million thereafter.
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NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill and trade names for the years ended December 31, 2011 and 2010, by
operating segment, were as follows ($ in millions):
Goodwill
($ in millions)
December 31, 2009
Acquisitions
Translation/Adjustments
Impairment
December 31, 2010
Acquisitions
Translation/Adjustments
Impairment
December 31, 2011
Trade names
($ in millions)
December 31, 2009
Acquisitions
Translation/Adjustments
Impairment
December 31, 2010
Acquisitions
Translation/Adjustments
Impairment
December 31, 2011
Environmental
Solutions
$
$
120.4
-
-
-
120.4
-
-
-
120.4
Fire
Rescue
$ 34.7
-
(0.8)
-
33.9
-
(0.7)
-
$ 33.2
Safety
& Security
$ 120.9
-
(2.7)
-
118.2
-
(1.2)
-
$ 117.0
Environmental
Solutions
$ -
-
-
-
-
-
-
-
-
$
Fire
Rescue
$ -
-
-
-
-
-
-
-
$ -
Safety
& Security
$ -
-
-
-
-
-
-
-
-
$
Federal
Signal
Technologies
43.6
$
62.2
(0.8)
(67.1)
37.9
-
(1.2)
(13.2)
23.5
$
Federal
Signal
Technologies
24.4
$
5.4
(2.7)
(11.8)
15.3
-
(0.1)
(7.4)
7.8
$
Total
$319.6
62.2
(4.3)
(67.1)
310.4
-
(3.1)
(13.2)
$294.1
Total
$ 24.4
5.4
(2.7)
(11.8)
15.3
-
(0.1)
(7.4)
$ 7.8
The following table provides the gross carrying value and accumulated amortization for each major class of intangible
assets:
($ in millions)
Amortizable Intangible Assets:
Developed software
Patents
Customer relationships
Technology
Other
Total
Indefinite-lived Intangible Assets:
Trade names
Total
Weighted
Average
Useful
Life
(Years)
December 31, 2011
December 31, 2010
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Gross
Carrying
Value
Value
Accumulated
Amortization
Net
Carrying
Value
6 $ 24.4 $
10
15
11
5
11
3.7
45.1
23.7
5.6
102.5
7.8
$ 110.3 $
54
(19.3)
(1.1)
(10.8)
(5.3)
(3.1)
(39.6)
-
(39.6)
$
5.1 $ 23.0 $
2.6
34.3
18.4
2.5
62.9
2.3
45.0
23.7
5.7
99.7
(17.5)
(0.6)
(7.3)
(3.1)
(2.1)
(30.6)
$
5.5
1.7
37.7
20.6
3.6
69.1
7.8
15.3
$ 70.7 $ 115.0 $
-
(30.6)
15.3
$ 84.4
Table of Contents
Amortization expense for the years ended December 31, 2011, 2010, and 2009 totaled $9.4 million, $8.2 million, and
$5.2 million, respectively. The Company estimates that the aggregate amortization expenses will be $8.5 million in 2012,
$7.3 million in 2013, $7.2 million in 2014, $6.5 million in 2015, $6.4 million in 2016, and $27.0 million thereafter. Actual amounts of
amortization may differ from estimated amounts due to additional intangible asset acquisitions, changes in foreign currency
rates, impairment of intangible assets, and other events.
The Company accounts for goodwill and indefinite-lived intangible assets in accordance with ASC 360, Intangibles —
Goodwill and Other, as indicated in Note 1.
During the fourth quarter of 2011, the Company performed the annual assessment, determined that the goodwill and
certain trade names within the FSTech Group reporting unit were impaired, and recorded impairment charges of $14.8 million
and $7.4 million, respectively. The impairment charges resulted from decreased sales and cash flow estimated in our FSTech
Group. As of December 31, 2011, the goodwill impairment charge is an estimate and may be adjusted during the first quarter of
2012 upon completion of a detailed second step impairment analysis.
During the fourth quarter of 2010, the Company performed the annual assessment, determined that the goodwill and
certain trade names within the FSTech Group reporting unit were impaired, and recorded impairment charges of $67.1 million
and $11.8 million, respectively. As of December 31, 2010, the goodwill impairment charge was an estimate. Upon completion of
the detailed second step impairment analysis in the first quarter of 2011, the Company recorded an adjustment of $1.6 million
which reduced a portion of the original goodwill impairment recognized during the fourth quarter of 2010.
NOTE 6 — DEBT
Short-term borrowings at December 31 consisted of the following ($ in millions):
Non-U.S. lines of credit
Total short-term borrowings
Long-term borrowings at December 31 consisted of the following ($ in millions):
($ in millions)
Revolving Credit Facility
Alternative Currency Facility (within Revolving Credit Facility)
10.79% Private Placement note with annual installments of $10.0 million due 2010-2011
10.60% Private Placement note with annual installments of $7.1 million due 2010-2011
12.73% Private Placement note due 2012
Private Placement note, floating rate (8.85% and 5.40% at December 31, 2011 and
December 31, 2010, respectively) due 2013
Subsidiary Loan Agreement
Capital Lease Obligations
Unamortized balance of terminated fair value interest rate swaps
Less current maturities, excluding financial services activities
Less current capital lease obligations
Less financial services activities — borrowings (included in discontinued operations)
Total long-term borrowings and capital lease obligations, net
55
2011
$ 9.0
$ 9.0
2010
$ 1.8
$ 1.8
2011
$180.0
-
-
-
27.3
6.2
-
0.6
214.1
0.1
214.2
-
(0.2)
(0.9)
$213.1
2010
$214.6
4.0
1.3
0.6
31.9
7.1
1.0
1.0
261.5
0.6
262.1
(75.8)
(0.4)
(1.5)
$184.4
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On February 22, 2012, the Company entered into a Credit Agreement (the “Credit Agreement”), by and among the
Company, as borrower and General Electric Capital Corporation, as a co-collateral agent, and Wells Fargo Capital Finance, LLC,
as administrative agent and co-collateral agent, providing the Company with a new $100 million secured credit facility (the
“ABL Facility”).
Pursuant to the Credit Agreement, the ABL Facility is a five-year asset-based revolving credit facility pursuant to which
up to $100 million initially will be available, with the right, subject to certain conditions, to increase the availability under the
facility by up to an additional $25 million. The Credit Agreement provides for loans and letters of credit in an amount up to the
aggregate availability under the facility subject to meeting certain borrowing base conditions, with a sub-limit of $50 million for
letters of credit. Borrowings under the ABL Facility bear interest, at the Company’s option, at a base rate or a LIBOR rate, plus,
in each case, an applicable margin set forth in the Credit Agreement. The applicable margin ranges from 1.00% to 2.75% for base
rate borrowings and 1.75% to 3.50% for LIBOR borrowings. The Company must also pay a commitment fee to the facility
lenders equal to 0.50% per annum on the unused portion of the ABL 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 allowed to prepay in whole or in part advances under the ABL Facility without penalty or premium other
than customary “breakage” costs with respect to LIBOR loans.
The Credit Agreement contains a requirement that the Company, on a consolidated basis, maintain a minimum monthly
fixed charge coverage ratio, along with other customary restrictive covenants, certain of which are subject to materiality
thresholds.
The obligations under the Credit Agreement are secured by (i) a first priority security interest in the Company’s and its
domestic subsidiaries’ accounts, inventory, chattel paper, payment intangibles, cash and cash equivalents and other working
capital assets (the “ABL First Priority Collateral”) and (ii) a second priority security interest in all other now or hereafter
acquired domestic property and assets, the stock or other equity interests in each of the domestic subsidiaries and certain of
the first-tier foreign subsidiaries, subject to certain exclusions.
The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s domestic
subsidiaries.
On February 22, 2012, the Company also entered into a Financing Agreement (the “Financing Agreement”) by and among
the Company, certain subsidiaries of the Company, as guarantors, the lenders party thereto (the “Term Lenders”) and TPG
Specialty Lending, Inc., as administrative agent, collateral agent and sole lead arranger, pursuant to which the Term Lenders
agreed to provide the Company with a $215 million term loan (the “Term Loan”).
Pursuant to the Financing Agreement, the Term Loan is a five-year, secured term loan maturing on February 22, 2017.
Installment payments under the Term Loan do not commence until March 2013. The Financing Agreement includes provisions
for mandatory prepayments in certain specified situations. However, based on its current forecast, the Company does not
anticipate making any mandatory prepayments in 2012. Except in these certain specified situations, the Term Loan is not
repayable in the first 12 months of the term and thereafter is subject to the following prepayment premium; (i) 2.75% in months
13-24, (ii) 2.00% in months 25-36 and (iii) nothing thereafter. These provisions are subject to change upon the occurrence of
certain specified events.
The Term Loan will bear interest, at the Company’s option, at a base rate or LIBOR rate, plus, in each case, an applicable
margin set forth in the Financing Agreement. The applicable margin ranges from 9.00% to 10.00% for base rate borrowings and
10.00% to 11.00% for LIBOR borrowings. The Company is required to pay certain customary fees in connection with the Term
Loan.
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The Financing Agreement requires the Company to comply with financial covenants related to the maintenance of a
minimum monthly fixed charge coverage ratio, maximum capital expenditures, minimum liquidity, and maximum leverage ratio.
The Financing Agreement contains other restrictive covenants which are substantively similar to those contained in the Credit
Agreement.
The obligations under the Financing Agreement are secured by (i) a first priority security interest in all now or hereafter
acquired domestic property and assets (excluding the ABL First Priority Collateral) the stock or other equity interests in each of
the domestic subsidiaries and certain of the first-tier foreign subsidiaries, subject to certain exclusions, and (ii) a second priority
security interest in the ABL First Priority Collateral.
The Company’s obligations under the Financing Agreement are guaranteed by certain of the Company’s non-dormant
domestic subsidiaries.
Under the Financing Agreement, dividends shall be permitted only if the following conditions are met:
• No default or event of default shall exist or shall result from such payment;
• The Fixed Charge Ratio of the Company and its subsidiaries, as defined in the Financing Agreement, shall be, both
before and after the dividend payment (on a pro forma basis), not less than 1.50 to 1.00; and
• The Leverage Ratio of the Company and its subsidiaries, as defined in the Financing Agreement, shall be, both before
and after the dividend payment (on a pro forma basis), less than 2.00 to 1.00.
The Company used the proceeds from the ABL Facility and the Term Loan to (i) repay outstanding balances under the
Company’s existing $240 million secured revolving credit facility, dated as of April 25, 2007, as amended, which was to mature
on April 25, 2012 (the “Prior Credit Agreement”); (ii) retire the Company’s private placement notes issued pursuant to the Note
Purchase Agreement, dated as of June 1, 2009, as amended, and pursuant to the Master Note Purchase Agreement dated as of
June 1, 2003, as amended (together, the “Prior Note Purchase Agreements”); (iii) finance the ongoing general corporate needs
of the Company and its subsidiaries; and (iv) pay fees and expenses associated with repayment of amounts due under the Prior
Credit Agreement and the Prior Note Purchase Agreements, including the payment of approximately $1.0 million in resulting
breakage fees and premiums under the Prior Credit Agreement and Prior Note Purchase Agreements, and pay fees and
expenses associated with the ABL Facility and the Term Loan.
In accounting for the classification of its outstanding debt as of December 31, 2011, the Company considered the
guidance in ASC 470-10-45-14. As the Company has effectively refinanced short-term debt on a long-term basis subsequent to
the balance sheet date, the amounts outstanding under the Prior Credit Agreement and the Prior Note Purchase Agreements as
of December 31, 2011 have been reflected as a component of long-term borrowings and capital lease obligations on the
consolidated balance sheet.
The Company was in violation of its Interest Coverage Ratio covenant minimum requirement as defined in the Prior Credit
Agreement and the Prior Note Purchase Agreements for the fiscal quarter ended December 31, 2010.
On March 15, 2011, the Company executed an amendment and waiver to the Prior Credit Agreement. On the same date, the
Company also executed an amendment and waiver to the Prior Note Purchase Agreements (collectively, “the 2011
Amendments”). Both of the 2011 Amendments included a permanent waiver of compliance with the interest coverage ratio
covenant for the Company’s fiscal quarter ended December 31, 2010. Included in the terms of the 2011 Amendments was the
replacement of the interest coverage ratio covenant with a minimum EBITDA covenant, an increase in pricing , mandatory
prepayments from proceeds of asset sales, restrictions on use of excess cash flow, restrictions on dividend payments, share
repurchases and other restricted payments and a 50 basis points fee paid to the bank lenders and holders of the Notes. The
Company also repaid $30.0 million that was applied to the amounts outstanding under the Prior Credit Agreement and the Prior
Note
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Purchase Agreements on a pro rata basis (i.e., 85.8% under the Prior Credit Facility and 14.2% under the Prior Note Purchase
Agreements.) The $30.0 million was included within the current portion of long-term borrowings and capital lease obligations
on the consolidated balance sheet as of December 31, 2010.
The Prior Credit Agreement was secured by a first-priority perfected security interest in substantially all of the tangible
and intangible assets of the Company and those domestic subsidiaries that acted as the guarantors.
On August 15, 2011 and November 15, 2011, the Company made excess cash flow payments of $6.5 million and $6.1
million, respectively. The amounts allocated to the Prior Credit Facility and Prior Note Purchase Agreements were $10.8 million
and $1.8 million, respectively.
As of December 31, 2011, $180.0 million was drawn on the Prior Credit Agreement leaving available borrowings of
$49.1 million that includes $32.5 million of capacity used for existing letters of credit.
On April 27, 2009, the Company executed the Global Amendment to Note Purchase Agreements (the “Global
Amendment”) with the holders of its private placement debt notes (the “Notes”). The Global Amendment included a provision
allowing the Company to prepay $50.0 million of principal of the $173.4 million Notes outstanding at par with no prepayment
penalty. The prepayment was executed on April 28, 2009, and included principal, related accrued interest and a fee of
$0.2 million totaling $51.1 million. On September 1, 2010, the Company prepaid $20.0 million of its outstanding principal balance
of its private placement debt at par with no prepayment penalty and related accrued interest of $0.4 million.
On February 10, 2009 Bronto Skylift OY AB, a wholly-owned subsidiary of the Company, entered into a loan in which
principal and interest is paid semi-annually. The loan matured and was paid in full in February 2011.
As of December 31, 2011, $9.0 million was drawn against the Company’s non-U.S. lines of credit which provide for
borrowings up to $16.8 million.
Aggregate maturities of total borrowings amount to approximately $9.2 million in 2012, $21.8 million in 2013 and
$32.4 million in 2014 and $159.8 million in 2015 and thereafter. These maturities primarily reflect the payment terms outlined in
the ABL Facility and the Term Loan. The fair values of borrowings aggregated $221.5 million and $261.7 million at December 31,
2011 and 2010, respectively. Included in 2012 maturities are $9.0 million of other non-U.S. lines of credit and $0.2 million of
capital lease obligations.
At December 31, 2011 and 2010, deferred financing fees, which are amortized over the remaining life of the debt, totaled
$1.0 million and $0.5 million, respectively, and are included in deferred charges and other assets on the balance sheet.
The Company paid interest of $16.1 million in 2011, $9.7 million in 2010 and $11.3 million in 2009. See Note 9 regarding the
Company’s utilization of derivative financial instruments relating to outstanding debt.
The weighted average interest rate on short-term borrowings was 3.24% at December 31, 2011.
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NOTE 7 — INCOME TAXES
The provision (benefit) for income taxes for each of the three years in the period ended December 31 consisted of the
following ($ in millions):
Current:
Federal
Foreign
State and local
Deferred:
Federal
Foreign
State and local
Total income tax provision
2011
2010
2009
$(3.8)
2.8
0.3
(0.7)
$ 4.7
(2.9)
-
1.8
$ 1.1
$ (3.0)
5.2
0.3
2.5
$71.4
(4.1)
2.5
69.8
$72.3
$(3.9)
5.7
(0.2)
1.6
$ 2.7
0.5
0.5
3.7
$ 5.3
Differences between the statutory federal income tax rate and the effective income tax rate for each of the three years in
the period ended December 31 are summarized below:
Statutory federal income tax rate
State income taxes, net of federal tax benefit
Domestic Valuation Allowance
Non-deductible goodwill impairments
Non-deductible acquisition costs
Tax reserves
R&D tax credits
Foreign tax rate effects
Other, net
Effective income tax rate
2011
35.0%
(1.4)
(39.2)
(27.8)
-
(5.2)
5.1
23.8
1.4
(8.3)%
2010
35.0%
(0.2)
(96.2)
(22.0)
(0.5)
1.1
0.6
0.8
(0.3)
(81.7)%
2009
35.0%
0.8
-
-
1.2
(2.5)
(1.9)
(11.3)
(0.2)
21.1%
The Company’s 2011 effective rate was (8.3)%. Due to the company’s recent cumulative domestic losses for book
purposes and the uncertainty of the realization of certain deferred tax assets, the Company continues to adjust its valuation
allowance as the deferred tax assets increase or decrease, resulting in effectively no recorded tax benefit for domestic operating
losses. However, the company has recorded tax expense for the increase in the deferred tax liabilities of its domestic indefinite
lived intangibles. An income tax provision is still required for foreign operations that are not in a cumulative loss position.
The Company’s 2010 effective rate of (81.7)% includes tax expense related to a domestic valuation allowance and non-
deductible goodwill impairments.
The Company’s 2009 effective rate of 21.1% reflects a benefit for the reduction in reserves primarily due to the completion
of an audit of the Company’s 2006 U.S. tax return in accordance with ASC Topic 740, Income Taxes. The Company’s effective
rate also reflects benefits for the R&D tax credit and foreign tax rate effects.
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Deferred income tax assets and liabilities at December 31 are summarized as follows ($ in millions):
Deferred tax assets:
Depreciation and amortization
Accrued expenses
Net operating loss, capital loss, alternative minimum tax, research and development, and foreign
tax credit carryforwards
Definite lived intangibles
Indefinite lived intangibles
Pension benefits
Other
Deferred revenue
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Expenses capitalized for book
Indefinite lived intangibles
Definite lived intangibles
Other
Gross deferred tax liabilities
Net deferred tax liability
2011
2010
$ 12.7
29.7
9.5
$
30.8
75.0
1.8
5.7
27.4
0.4
2.1
154.8
(122.9)
31.9
(5.9)
(4.1)
(57.0)
(14.7)
-
(81.7)
$ (49.8)
70.0
5.8
-
17.8
0.1
1.9
135.9
(109.1)
26.8
(12.0)
(4.1)
(43.2)
(11.3)
(1.8)
(72.4)
$ (45.6)
Federal and state income taxes have not been provided on accumulated undistributed earnings of certain foreign
subsidiaries aggregating approximately $86.1 million and $85.2 million at December 31, 2011 and 2010, respectively; as such
earnings have been reinvested in the business. The determination of the amount of the unrecognized deferred tax liability
related to the undistributed earnings is not practicable.
In the fourth quarter of 2010, the Company determined that $15 million of previously undistributed earnings at one of the
Company’s foreign subsidiaries would be repatriated in the future. As a result of this change, the Company increased its
deferred tax liabilities related to the $15 million by $0.2 million. The remainder of the foreign subsidiaries undistributed earnings
is indefinitely reinvested.
The deferred tax asset for tax loss carryforwards at December 31, 2011, includes Federal net operating loss carryforwards
of $3.5 million, which begin to expire in 2026, state net operating loss carryforwards of $1.6 million, which will begin to expire in
2019; foreign net operating loss carryforwards of $2.4 million of which $0.5 million has an indefinite life; $22.2 million for capital
loss carryforwards that will expire in 2012 and 2013. The deferred tax asset for tax credit carryforwards includes U.S. research tax
credit carryforwards of $6.3 million, which will begin to expire in 2022, U.S. foreign tax credits of $20.3 million, which will begin to
expire in 2015 and U.S. alternative minimum tax credit carryforwards of $4.0 million with no expiration.
The deferred tax asset for tax loss carryforwards at December 31, 2010, includes Federal net operating loss carryforwards
of $2.7 million, which begin to expire in 2026, state net operating loss carryforwards of $1.3 million, which begin to expire in
2019; foreign net operating loss carryforwards of $2.2 million of which $0.1 million has an indefinite life; $22.2 million for capital
loss carryforwards that will expire in 2012 and 2013. The deferred tax asset for tax credit carryforwards includes U.S. research tax
credit carryforwards of $5.6 million, which will begin to expire in 2022, U.S. foreign tax credits of $15.5 million, which will begin to
expire in 2015 and U.S. alternative minimum tax credit carryforwards of $3.4 million with no expiration.
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Valuation allowances totaling $122.9 million have been established at December 31, 2011 and include $1.6 million related to
state net operating loss carryforwards, $2.4 million related to the foreign net operating loss carryforwards, $22.2 million related
to capital loss carryforwards, and $96.7 million related to domestic deferred tax assets.
Valuation allowances totaling $109.1 million have been established at December 31, 2010 and include $1.3 million related to
state net operating loss carryforwards, $2.2 million related to the foreign net operating loss carryforwards, $22.2 million related
to capital loss carryforwards, and $83.4 million related to domestic deferred tax assets
The net deferred tax asset at December 31 is classified in the balance sheet as follows ($ in millions):
Current net deferred tax assets
Current valuation allowance
Total current deferred tax (liability) asset
Long-term net deferred tax asset
Long-term valuation allowance
Long-term net deferred tax liability
$
2011
7.0
(9.6)
$ (2.6)
$ 66.1
(113.3)
$ (47.2)
2010
$ 15.9
(15.7)
$ 0.2
$ 47.6
(93.4)
$(45.8)
ASC Topic 740, Income Taxes, requires that the future realization of deferred tax assets depends on the existence of
sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the
future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate
future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income. If, based
upon all available evidence, both positive and negative, it is more likely than not such deferred tax assets will not be realized, a
valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A
company’s three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are
realizable and the accounting guidance restricts the amount of reliance the Company can place on projected taxable income to
support the recovery of the deferred tax assets.
In the fourth quarter of 2010, the company recorded an $85.0 million valuation allowance against our U.S. Federal deferred
tax assets as a non-cash charge to income tax expense after the Company fell into a cumulative three year domestic loss
position after excluding the results of discontinued operations and disposals. In reaching this conclusion, the Company
considered the weak municipal markets in the United States and significant impairment charges, which have led to a three-year
cumulative U.S. loss position from continuing operations in the fourth quarter of 2010. Recording the valuation allowance does
not restrict our ability to utilize the future deductions and net operating losses associated with the deferred tax assets assuming
taxable income is recognized in future periods.
The $31.9 million of deferred tax assets at December 31, 2011, for which no valuation allowance is recorded, is anticipated
to be realized through the future reversal of existing taxable temporary differences recorded as deferred tax liabilities at
December 31, 2011. Should the company determine that it would not be able to realize our remaining deferred tax assets in the
future, an adjustment to the valuation allowance would be recorded in the period such determination is made. The need to
maintain a valuation allowance against deferred tax assets may cause greater volatility in our effective tax rate.
The Company paid income taxes of $4.2 million in 2011, $6.8 million in 2010, and $5.1 million in 2009.
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(Loss) income from continuing operations before taxes for each of the three years ended December 31 consisted of the
following ($ in millions):
United States
Non-U.S.
2011
$(14.4)
1.1
$(13.3)
2010
$(74.5)
(13.9)
$(88.4)
2009
$ 4.4
20.7
$25.1
The following table summarizes the activity related to the Company’s unrecognized tax benefits ($ in millions):
Balance at January 1, 2010
Increases related to current year tax positions
Decreases due to settlements with tax authorities
Decreases due to lapse of statute of limitations
Balance at December 31, 2010
Increases related to current year tax
Decreases due to settlements with tax authorities
Decreases due to lapse of statute of limitations
Balance at December 31, 2011
$ 4.9
0.6
(1.5)
(0.2)
$ 3.8
1.3
(0.2)
(0.6)
$ 4.3
Included in the unrecognized tax benefits of $4.3 million at December 31, 2011 was $4.2 million of tax benefits that if
recognized, would impact our annual effective tax rate. The Company’s continuing practice is to recognize interest and
penalties related to income tax matters in income tax expense. Interest and penalties amounting to $0.2 million and $0.1 million,
respectively, are included in the consolidated balance sheet but are not included in the table above. We expect our
unrecognized tax benefits to decrease by $1.6 million over the next 12 months due to potential expiration of statute of limitations
and settlements with tax authorities.
Included in the unrecognized tax benefits of $3.8 million at December 31, 2010 was $4.1 million of tax benefits that if
recognized, would impact our annual effective tax rate. The Company’s continuing practice is to recognize interest and
penalties related to income tax matters in income tax expense. Interest and penalties amounting to $0.8 million and $0.1 million,
respectively, are included in the consolidated balance sheet but are not included in the table above.
We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2008 through
2011 tax years generally remain subject to examination by federal and most state tax authorities. In significant foreign
jurisdictions, the 2007 through 2011 tax years generally remain subject to examination by their respective tax authorities.
NOTE 8 — POSTRETIREMENT BENEFITS
The Company and its subsidiaries sponsor a number of defined benefit retirement plans covering certain of its salaried
and hourly employees. Benefits under these plans are primarily based on final average compensation and years of service as
defined within the provisions of the individual plans. The Company also participates in a retirement plan that provides defined
benefits to employees under certain collective bargaining agreements.
The Company uses a December 31 measurement date for its U.S. and non-U.S. benefit plans in accordance with ASC
Topic 715, Compensation — Retirement Benefits.
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The components of net periodic pension expense for each of the three years in the period ended December 31, are
summarized as follows ($ in millions):
Company-sponsored plans
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Multi-employer plans
Net periodic pension expense
U.S. Benefit Plans
Non-U.S. Benefit Plan
2011
2010
2009
2011
2010
2009
$ -
7.8
(7.6)
4.8
5.0
0.3
$ 5.3
$ -
7.9
(8.7)
3.6
2.8
0.2
$ 3.0
$ -
8.0
(9.5)
2.0
0.5
0.2
$ 0.7
$ 0.1
2.9
(3.3)
0.9
0.6
-
$ 0.6
$ 0.2
2.7
(3.1)
0.8
0.6
-
$ 0.6
$ 0.2
2.6
(2.7)
1.1
1.2
-
$ 1.2
The Company, through its subsidiaries, participates in certain multiemployer pension plans under U.S. collective
bargaining agreements. None of these plans are considered individually significant to the Company. Contributions to these
plans totaled $0.3 million, $0.2 million, and $0.2 million for 2011, 2010, and 2009, respectively.
The following table summarizes the weighted-average assumptions used in determining pension costs in each of the three
years for the period ended December 31:
Discount rate
Rate of increase in compensation levels *
Expected long term rate of return on plan assets
U.S. Benefit Plans
2010
6.0%
3.5%
8.5%
2011
5.8%
3.5%
8.2%
2009
6.5%
3.5%
8.5%
Non-U.S. Benefit Plan
2010
5.7%
N/A
6.5%
2011
5.4%
N/A
6.5%
2009
5.7%
N/A
6.8%
* Non-U.S. plan benefits are not adjusted for compensation level changes.
The following summarizes the changes in the projected benefit obligation and plan assets, the funded status of the
Company-sponsored plans, and the major assumptions used to determine these amounts at December 31 ($ in millions):
Change in Benefit Obligation
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Translation and other
Benefit obligation, end of year
Accumulated benefit obligation, end of year
U.S. Benefit Plans
Non-U.S. Benefit Plan
2011
2010
2011
2010
$ 138.4
-
7.8
17.4
(7.0)
-
$ 156.6
$ 154.5
$ 133.5
-
7.9
6.1
(9.1)
-
$ 138.4
$ 136.5
$
$
$
52.6
0.1
2.9
4.9
(2.5)
(0.9)
57.1
57.1
$
$
$
50.0
0.2
2.7
3.0
(2.4)
(0.9)
52.6
52.6
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The following table summarizes the weighted-average assumptions used in determining benefit obligations as of
December 31:
Discount rate
Rate of increase in compensation levels
U.S. Benefit Plans
Non-U.S. Benefit Plan
2011
2010
2011
2010
5.0%
3.5%
5.8%
3.5%
4.6%
5.4%
N/A
N/A
Change in Plan Assets ($ in millions)
Fair value of plan assets, beginning of year
Actual return on plan assets
Company contribution
Benefits and expenses paid
Translation and other
Fair value of plan assets, end of year
U.S. Benefit Plans
Non-U.S. Benefit Plan
2011
2010
2011
2010
$ 104.8
(3.5)
2.7
(7.0)
-
97.0
$
$ 101.0
12.9
-
(9.1)
-
$ 104.8
$
$
50.6
(0.8)
1.1
(2.5)
(0.5)
47.9
$
$
48.2
4.6
1.1
(2.4)
(0.9)
50.6
The amounts included in translation and other in the preceding tables reflect the impact of the foreign exchange
translation for the non-U.S. benefit plan.
The plan asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement.
Following is a description of the valuation methodologies used for assets measured at fair value for U.S. plan:
Cash and Cash Equivalents — Valued at net asset value as provided by the administrator of the fund.
U.S. Government and agency securities — Valued at the closing price reported on the active market on which the security
is traded or valued by the trustee at year-end using various pricing services of financial institutions.
Common stock — Valued at the closing price reported on the active market on which the security is traded.
Collective/Common trust — Valued at the net asset value, based on quoted market value of the underlying assets, of
shares held by the plan at year end.
Mutual funds — Valued at the net asset value, based on quoted market prices in active markets, of shares held by the
plan at year end.
Plan assets for the non-U.S. benefit plans are based on quoted prices in active markets for identical assets.
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The following table summarizes the Company’s pension assets in a three-tier fair value hierarchy for its benefit plan as of
December 31 ($ in millions):
Cash and Cash Equivalents
Equities
U.S. Large Cap
U.S. Small and Mid Cap
Developed International
Emerging Markets
Fixed Income
Government Bonds
Asset-backed Securities
Federal Signal Common Stock
Collective/Common Trust and Other
Mutual Funds
Total assets at fair value
Equity Securities
Government Securities
Company Bonds and Debt Securities
Insurance Policy
Cash
Total
U. S. Benefit Plans
2011
2010
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
$ - $ 3.9 $ - $ 3.9 $ - $ 1.5 $ - $ 1.5
27.7
9.9
3.7
3.3
-
-
-
-
-
- 27.7 27.0
- 9.9 11.8 0.4
- 3.7 5.1 0.1
-
- 3.3 3.5
-
-
-
-
27.0
12.2
5.2
3.5
4.5
-
- 6.7
-
3.9
-
- 4.5 6.8
- 6.7
- 4.8
- 3.9 6.4 0.2
-
-
-
6.8
4.8
6.6
33.3 0.1
37.2
$ 86.3 $ 10.7 $ - $97.0 $ 96.8 $ 8.0 $ - $104.8
- 33.4 36.2 1.0
-
Non-U. S. Benefit Plan
2011
2010
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
$ 29.1 $ - $ - $29.1 $ 31.0 $ - $ - $31.0
4.7
4.9 4.7
4.9
- 5.4
- 5.3 5.4
5.3
- 0.3
- - 0.3
-
- 9.2
- 8.6 9.2
8.6
$ 47.9 $ - $ - $47.9 $ 50.6 $ - $ - $50.6
-
-
-
-
-
-
During 2010, the Company adopted a structured derisking investment strategy for the U.S. pension plans to improve
alignment of assets and liabilities that includes: (1) maintain a diversified portfolio that can provide a near-term weighted-
average target return of 8.2% or more; (2) maintain liquidity to meet obligations; and (3) prudently manage administrative and
management costs. The plan invests in equity, mutual funds, and fixed income instruments.
Plan assets for the non-U.S. benefit plan consist principally of a diversified portfolio of equity securities, U.K. government
securities, company bonds and debt securities.
As of December 31, 2011 and 2010, equity securities included 0.9 million and 0.9 million shares of the Company’s common
stock valued at $3.9 million and $6.4 million, respectively. Dividends paid on the Company’s common stock to the pension
trusts aggregated $0.1 million and $0.2 million in each of the years ended December 31, 2011 and 2010, respectively.
Funded status, end of year ($ in millions):
Fair value of plan assets
Benefit obligations
Funded status
U.S. Benefit Plans
Non-U.S. Benefit Plan
2011
2010
2011
2010
$
97.0
156.6
$ (59.6)
$ 104.8
138.4
$ (33.6)
$
$
47.9
57.1
(9.2)
$
$
50.6
52.6
(2.0)
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Amounts recognized in the Balance Sheet consist of
($ in millions):
Long term pension liabilities
Accumulated other comprehensive loss, pre-tax
Net amount recognized
Amounts recognized in Accumulated Other
Comprehensive Income consist of ($ in millions):
Net actuarial loss
Prior service cost
Net amount recognized, pre-tax
U.S. Benefit Plans
Non-U.S. Benefit Plan
2011
2010
2011
20010
$ (59.6)
79.3
19.7
$
$ (33.6)
55.4
21.8
$
$
$
(9.2)
23.2
14.0
$
$
(2.0)
15.6
13.6
U.S. Benefit Plans
Non-U.S. Benefit Plan
2011
2010
2011
2010
$
$
79.3
-
79.3
$
$
55.4
-
55.4
$
$
23.2
-
23.2
$
$
15.6
-
15.6
The Company expects $6.2 million relating to amortization of the actuarial loss to be amortized from Accumulated Other
Comprehensive Loss into Net Periodic Benefit Cost in 2012.
The Company expects to contribute up to $11.2 million to the U.S. benefit plans and up to $1.5 million to the non-U.S. plan
in 2012. Future contributions to the plans will be based on such factors as annual service cost as well as return on plan asset
values, interest rate movements, and benefit payments.
The following table presents the benefits expected to be paid under the Company’s defined benefit plans in each of the
next five years, and in aggregate for the five years thereafter ($ in millions):
2012
2013
2014
2015
2016
2017-2021
U.S. Benefit
Plans
$
7.1
7.5
7.7
8.4
8.7
48.6
Non-U.S.
Benefit Plan
2.4
$
2.5
2.6
2.7
2.8
15.5
The Company also sponsors a number of defined contribution pension plans covering a majority of its employees.
Participation is via automatic enrollment; employees may elect to opt out of the plan. Company contributions to the plan are
based on employees’ age and service as well as a percentage of employee contributions. In January 1, 2009, the Company
suspended the Company match of Federal Signal non-union employees’ 401(k) contribution to the plans. Effective January 1,
2010, the Company reinstated the company matching contribution.
The cost of these plans during each of the three years in the period ended December 31, 2011, was $7.0 million in 2011,
$6.3 million in 2010 and $4.8 million in 2009.
Prior to September 30, 2003, the Company also provided medical benefits to certain eligible retired employees. These
benefits were funded when the claims were incurred. Participants generally became eligible for these benefits at age 60 after
completing at least fifteen years of service. The plan provided for the payment of specified percentages of medical expenses
reduced by any deductible and payments made by other primary group coverage and government programs. Effective
September 30, 2003, the Company amended the retiree medical plan and effectively canceled coverage for all eligible active
employees except for retirees and a limited group
66
Table of Contents
that qualified under a formula based on age and years of service. Accumulated postretirement benefit liabilities of $1.0 million
and $1.2 million at December 31, 2011 and 2010, respectively, were fully accrued. The net periodic postretirement benefit costs
have not been significant during the three-year period ended December 31, 2011.
NOTE 9 — DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
At December 31, 2009, the Company was party to interest rate swap agreements with financial institutions in which the
Company pays interest at a fixed rate and receives interest at variable LIBOR rates. These derivative instruments terminated in
2010. These interest rate swap agreements are designated as cash flow hedges.
The Company manages the volatility of cash flows caused by fluctuations in currency rates by entering into foreign
exchange forward contracts and options. These derivative instruments may be designated as cash flow hedges that hedge
portions of the Company’s anticipated third-party purchases and forecast sales denominated in foreign currencies. The
Company also enters into foreign exchange contracts that are not intended to qualify for hedge accounting, but are intended to
offset the effect on earnings of foreign currency movements on short and long-term intercompany transactions. Gains and
losses on these derivative instruments are recorded through earnings.
For assets and liabilities measured at fair value on a recurring basis, the Company uses an income approach to value the
assets and liabilities for outstanding derivative contracts which include interest rate swap and foreign currency forward
contracts. The income approach consists of a discounted cash flow model that takes into account the present value of future
cash flows under the terms of the contracts using current market information as of the reporting date, such as prevailing
interest rates and foreign currency spot and forward rates. The following table provides a summary of the fair values of assets
and liabilities ($ in millions):
Assets
Derivatives
Liabilities
Derivatives
Assets
Derivatives
Liabilities
Derivatives
Fair Value Measurements at December 31, 2011
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total
$0.1
$
-
$
0.1
$
-
Fair Value Measurements at December 31, 2011
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total
$0.8
$
-
$
0.8
$
-
Fair Value Measurements at December 31, 2010
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total
$ -
$
-
$
-
$
-
Fair Value Measurements at December 31, 2010
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total
$0.6
$
-
$
0.6
$
-
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The fair value of the Company’s derivative instruments was recorded as follows at December 31, 2011 and 2010 ($ in
millions):
Derivatives designated as hedging instruments:
Foreign exchange
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
Asset Derivatives
December 31, 2011
Balance Sheet
Location
Liability Derivatives
December 31, 2011
Fair
Value
Balance Sheet
Location
Fair
Value
Other current assets $ -
-
Other current liabilities $ 0.8
0.8
Foreign exchange
Accounts receivable, net
0.1
Other current liabilities
-
Total derivatives not designated as hedging
instruments
Total derivatives
Derivatives designated as hedging instruments:
Foreign exchange
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
0.1
$ 0.1
0.0
$ 0.8
Asset Derivatives
December 31, 2010
Balance Sheet
Location
Liability Derivatives
December 31, 2010
Fair
Value
Balance Sheet
Location
Fair
Value
Other current assets $ -
-
Other current liabilities $ 0.2
0.2
Foreign exchange
Accounts receivable, net
-
Other current liabilities
0.4
Total derivatives not designated as hedging
instruments
Total derivatives
-
$ -
0.4
$ 0.6
The effect of derivative instruments on the consolidated statement of operations for the year ended December 31, 2011
and 2010, respectively ($ in millions):
2011
Derivatives in
Cash Flow Hedging
Relationships
Foreign exchange
Total
Amount of Gain/(Loss)
Recognized in OCI
on Derivative
(Effective Portion)
$
(0.9)
(0.9)
68
Location of Gain/(Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
Net sales
Amount of Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
(Effective Portion)
$
0.2
0.2
Table of Contents
2010
Derivatives in
Cash Flow Hedging
Relationships
Interest rate contracts
Foreign exchange
Total
Amount of Gain/(Loss)
Recognized in OCI
on Derivative
(Effective Portion)
$
$
0.4
(1.2)
(0.8)
Location of Gain/(Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
Interest expense
Net sales
Amount of Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
(Effective Portion)
$
$
0.5
1.0
1.5
The location and amount of gain (loss) recognized in income on derivatives not designated as hedging instruments are as
follows for the years ended December 31, 2011 and 2010, respectively ($ in millions):
2011
Foreign currency contracts
Total gain (loss)
2010
Foreign currency contracts
Total gain (loss)
Location in Consolidated
Statement of Operations
Other income (expense)
Location in Consolidated
Statement of Operations
Other income (expense)
Amount of Gain
(Loss)
Recognized
(0.1)
(0.1)
$
Amount of Gain
(Loss)
Recognized
1.4
1.4
$
At December 31, 2011 and 2010, accumulated other comprehensive loss associated with foreign exchange contracts
qualifying for hedge accounting treatment was $0.6 million and $(0.1) million, respectively, net of income tax effects. The
Company expects $0.9 million of pre-tax net loss on cash flow hedges that are reported in accumulated other comprehensive
loss as of December 31, 2011 to be reclassified into earnings within the next 12 months as the respective hedged transactions
affect earnings. The Company’s foreign currency contracts typically do not extend beyond a year.
The following table summarizes the carrying amounts and fair values of the Company’s financial instruments at
December 31 ($ in millions):
Short-term debt
Long-term debt*
Foreign exchange contracts
2011
2010
Notional
Amount
$
9.0
214.2
21.8
Fair
Value
$ 9.0
212.5
(0.7)
Notional
Amount
$
1.8
262.1
28.3
Fair
Value
$ 1.8
259.9
(0.6)
* Long-term debt includes financial service borrowings for all periods presented, which is included in discontinued operations,
current portions of long term debt and capital lease obligations.
The carrying value of short-term debt approximates fair value due to its short maturity. The fair value of long-term debt is
based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities.
The following table summarizes the Company’s money market accounts in a three-tier fair value hierarchy as of
December 31 ($ in millions):
Cash equivalents
Total
2011
2010
Total
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
- $37.0
$ - $ - $ - $ - $ 37.0 $ - $
$ - $ - $ - $ - $ 37.0 $ - $ - $37.0
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Table of Contents
NOTE 10 — STOCK-BASED COMPENSATION
The Company’s stock compensation plans, approved by the Company’s shareholders and administered by the
Compensation and Benefits Committee of the Board of Directors of the Company, provide for the grant of incentive and non-
incentive stock options, restricted stock, and other stock-based awards or units to key employees and directors. The plans, as
amended, authorize the grant of up to 7.8 million shares or units through April 2020. These share or unit amounts exclude
amounts that were issued under predecessor plans.
Stock options vest equally over the three years from the date of the grant. The cost of stock options, based on the fair
market value of the shares on the date of grant, is charged to expense over the respective vesting periods. Stock options
normally become exercisable at a rate of one-third annually and in full on the third anniversary date. All options and rights must
be exercised within ten years from date of grant. At the Company’s discretion, vested stock option holders are permitted to
elect an alternative settlement method in lieu of purchasing common stock at the option price. The alternative settlement
method permits the employee to receive, without payment to the Company, cash, shares of common stock, or a combination
thereof equal to the excess of market value of common stock over the option purchase price. The Company intends to settle all
such options in common stock.
The weighted average fair value of options granted during 2011, 2010, and 2009 was $3.12, $3.27 and $2.00, respectively.
The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following
assumptions:
Dividend yield
Expected volatility
Risk free interest rate
Weighted average expected option life in years
2011
0.6%
52%
2.2%
5.9
2010
2.9%
48%
2.0%
5.9
2009
3.7%
40%
2.2%
6.5
The expected life of options represents the weighted average period of time that options granted are expected to be
outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected life
of the options. Expected volatility is based on historical volatility of the Company’s common stock. Dividend yields are based
on historical dividend payments.
Stock option activity for the three years ended December 31, 2011 was as follows:
Option Shares
Weighted Average Exercise Price
2011
2010
2009
2011
(In millions)
2010
2009
Outstanding at beginning of year
Granted
Cancelled or expired
Exercised
Outstanding at end of year
Exercisable at end of year
1.9
0.7
(0.6)
-
2.0
1.0
2.1
0.4
(0.6)
-
1.9
1.2
70
6.50
14.02
6.68
2.3 $ 12.61 $ 13.60 $ 16.20
6.74
0.5
17.00
(0.7)
-
-
2.1 $ 10.16 $ 12.61 $ 13.60
1.3 $ 13.12 $ 14.84 $ 16.35
8.93
13.47
6.68
Table of Contents
The following table summarizes information concerning stock options outstanding as of December 31, 2011 under all
plans:
Options Outstanding
Options Exercisable
Range of Ex ercise Prices
Shares
Remaining Life
Weighted
Average
$ 0.00 — $5.00
5.01 — 10.00
10.01 — 15.00
15.01 — 20.00
20.01 — 25.00
(in millions)
-
1.0
0.5
0.5
-
2.0
(in years)
9.7
8.8
6.7
3.3
0.2
6.9
Weighted
Average
Exercise
Price
$
4.47
6.51
10.78
16.86
23.00
$ 10.16
Shares
(in millions)
-
0.2
0.4
0.4
-
1.0
Weighted
Average
Ex ercise
Price
$
-
6.58
11.01
16.86
23.00
$ 13.12
The exercise price of stock options outstanding and exercisable at December 31, 2011 exceeded the market value and
therefore, the aggregate intrinsic value was near zero. The closing price on December 31, 2011 was $4.15.
Restricted stock awards are granted to employees at no cost. Through 2004, these awards primarily vested at the rate of
25% annually commencing one year from the date of award, provided the recipient was still employed by the Company on the
vesting date. Beginning in 2005, awards primarily cliff vest at the third anniversary from the date of award, provided the
recipient is still employed by the Company on the vesting date. The cost of restricted stock awards, based on the fair market
value at the date of grant, is being charged to expense over the respective vesting periods. The following table summarizes
restricted stock grants for the twelve month period ended December 31, 2011:
(shares in millions)
Outstanding and non-vested at December 31, 2010
Granted
Vested
Cancelled
Outstanding and non-vested at December 31, 2011
Number of
Restricted
Shares
0.6
-
(0.1)
(0.1)
0.4
Weighted Average
Price per Share
8.78
$
6.09
10.56
8.72
7.99
$
The total compensation expense related to all share-based compensation plans was $2.0 million, $2.3 million, and
$3.1 million for the years ended December 31, 2011, 2010, and 2009, respectively. Also, as of December 31, 2011, there were $2.3
million and $1.6 million of total unrecognized compensation cost related to stock options and stock awards, respectively, that is
expected to be recognized over the weighted-average period of approximately 2.2 and 1.4 years, respectively.
Beginning in 2008, the Company established a long term incentive plan for executive officers under which awards
thereunder are classified as equity in accordance with ASC Topic 718, Compensation — Stock Compensation. Performance
shares units shall become vested if (1) the Company achieves certain specified stock performance targets compared to a
defined group of peer companies and (2) the employee remains continuously employed by the Company three calendar years
from date of the grant. Compensation expense for the stock performance portion of the plan is based on the fair value of the
plan that is determined on the day the units are awarded. The fair value is calculated using a Monte Carlo simulation model.
The total compensation expense for these awards is being amortized over a three-year service period. Compensation expense
relating to these awards included in the consolidated statement of operations was $0.2 million, ($0.1) million, and $0.4 million,
for 2011, 2010, and 2009, respectively. As of December 31, 2011, the unrecognized compensation cost relating to these plans
was $0.2 million, which will be amortized over the remaining requisite service period.
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Table of Contents
The performance shares units granted in 2011 were extended to certain other non-executive officers. The 2011 performance
shares units shall become vested if (1) the Company achieves certain earnings per share (EPS) on December 31, 2011 and (2) the
employee remains continuously employed by the Company three calendar years from date of the grant. No compensation
expense was recorded relating to this award as the Company did not meet the EPS target.
NOTE 11 — SHAREHOLDERS’ EQUITY
The Company’s board of directors has the authority to issue 90.0 million shares of common stock at a par value of $1 per
share. The holders of common stock (i) may receive dividends subject to all of the rights of the holders of preference stock;
(ii) shall be entitled to share ratably upon any liquidation of the Company in the assets of the Company, if any, remaining after
payment in full to the holders of preference stock; and (iii) receive one vote for each common share held and shall vote together
share for share with the holders of voting shares of preference stock as one class for the election of directors and for all other
purposes. The Company has 63.1 million and 63.0 million common shares issued as of December 31, 2011 and 2010,
respectively. Of those amounts, 62.2 million and 62.2 million common shares were outstanding as of December 31, 2011 and
2010, respectively.
The Company’s board of directors is also authorized to provide for the issuance of 0.8 million shares of preference stock
at a par value of $1 per share. The authority of the board of directors includes, but is not limited to, the determination of the
dividend rate, voting rights, conversion and redemption features, and liquidation preferences. The Company has not
designated or issued any preference stock as of December 31, 2011.
In May 2010, the Company issued 12.1 million shares of common stock at a price of $6.25 per share for total gross
proceeds of $75.6 million. After deducting direct fees, net proceeds to the Company totaled $71.2 million. Proceeds from the
equity offering were used to pay down debt.
NOTE 12 — EARNINGS (LOSS) PER SHARE
Earnings (loss) per share — basic is computed by dividing income or loss available to common stockholders by the
weighted average number of shares of common stock outstanding for the period. Earnings (loss) per share — diluted reflects
the potential dilution that could occur if options issued under stock-based compensation awards were converted into common
stock. In 2011, 2010, and 2009, options to purchase 2.0 million, 1.9 million, and 2.1 million shares of the Company’s common
stock had exercise prices that were greater than the average market price of those shares during the respective reporting
periods. As a result, these shares are excluded from the earnings per share calculation as they are anti-dilutive.
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Table of Contents
The following is a reconciliation of net income (loss) to earnings per share — basic and diluted — at December 31 ($ in
millions, except per share amounts):
Computation of Earnings (Loss) per Common Share
($ in millions, except per share data)
(Loss) income from continuing operations
Gain (loss) from discontinued operations and disposal, net of tax
Net (loss) income
Average shares outstanding — basic
Dilutive effect of stock options and other
Diluted shares outstanding
(Loss) earnings from continuing operations per share
Basic
Diluted
(Loss) earnings from discontinued operations per share
Basic
Diluted
(Loss) earnings per share
Basic
Diluted
2011
$(14.4)
0.2
$(14.2)
62.2
-
62.2
2010
$(160.7)
(15.0)
$(175.7)
57.6
-
57.6
2009
$19.8
3.3
$23.1
48.6
-
48.6
$(0.23)
$(0.23)
$ (2.79)
$ (2.79)
$0.41
$0.41
$ -
$ -
$ (0.26)
$ (0.26)
$0.06
$0.06
$(0.23)
$(0.23)
$ (3.05)
$ (3.05)
$0.47
$0.47
NOTE 13 — DISCONTINUED OPERATIONS
The following table presents the operating results of the Company’s discontinued operations for the three-year period
ended December 31 ($ in millions):
Pauluhn (SSG Segment)
Net sales
Costs and expenses
Income before income taxes
Income tax (expense)
Income from discontinued operations
RAVO (ESG Segment)
Net sales
Costs and expenses
Income before income taxes
Income tax expense
Income from discontinued operations
73
2011
$ -
-
-
-
$ -
2011
$ -
-
-
-
$ -
2010
$ -
-
-
-
$ -
2010
$ -
-
-
-
$ -
2009
$ 17.3
(14.6)
2.7
(0.9)
$ 1.8
2009
$ 28.2
(27.4)
0.8
-
$ 0.8
Table of Contents
E-ONE (Fire Rescue Segment)
Net sales
Costs and expenses
Loss before income taxes
Income tax expense
Loss from discontinued operations
Financial Services
Net sales
Costs and expenses
Other income
Income (loss) before income taxes
Income tax (expense) benefit
Income (loss) from discontinued operations
Riverchase (SSG Segment)
Net sales
Costs and expenses
Loss before income taxes
Income tax benefit
Loss from discontinued operations
China WOFE
Net sales
Costs and expenses
Loss before income taxes
Income tax benefit
Loss from discontinued operations
Refuse (ESG Segment)
Net sales
Other income
Income before income taxes
Income tax expense
Income from discontinued operations
2011
$ -
-
-
-
$ -
2011
$ -
-
-
-
-
$ -
2011
$ -
-
-
-
$ -
2011
$ 0.2
(0.5)
(0.3)
-
$(0.3)
2011
$ -
-
-
-
$ -
2010
$ -
-
-
-
$ -
2010
$ 0.1
(0.1)
-
-
-
$ -
2010
$ -
(1.3)
(1.3)
-
$(1.3)
2010
$ 1.5
(3.2)
(1.7)
-
$(1.7)
2010
$ -
-
-
-
$ -
2009
$ -
-
-
(0.7)
$(0.7)
2009
$ 0.2
(0.4)
-
(0.2)
0.1
$(0.1)
2009
$ 1.3
(2.5)
(1.2)
0.4
$(0.8)
2009
$ 0.8
(1.7)
(0.9)
-
$(0.9)
2009
$ -
-
-
-
$ -
In December 2010, the Company determined that its China WOFE business was no longer strategic. The results of the
China WOFE operations previously were included within the Environmental Solutions and Safety and Security Systems
Groups. The 2010 loss includes a write-down of $2.1 million to reflect the estimated fair value of the net assets and certain other
costs associated with the dissolution of the business. The 2011 loss includes $0.5 million of costs associated with the wind
down of the business.
On September 1, 2010, the Company sold its Riverchase business for $0.2 million, which had previously been reported as
part of the Safety and Security Systems operating segment. The Company’s Riverchase business developed a suite of
products that enables emergency response agencies to manage and communicate remotely
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Table of Contents
with their fleets. The Company wrote down assets of the Riverchase business to net realizable value, resulting in a net loss of
$2.1 million. The 2010 net loss included the write-off of $1.9 million of intangible assets.
On November 30, 2009, the Company sold 100% of the shares of Pauluhn, located in Pearland, Texas, for $35.0 million of
which $3.2 million was received in 2010. The results of Pauluhn’s operations were previously included within the Safety and
Security Systems Group. Pauluhn provided marine, offshore and industrial lighting products with innovative solutions for
hazardous locations and corrosive environments. In association with the sale, the Company recognized a gain on disposal of
discontinued operations of Pauluhn of $14.3 million at December 31, 2009, which included a gain of $1.8 million transferred from
cumulative translation adjustments. The gain included costs associated with the sale of $1.1 million and the write-off of
$18.3 million of goodwill of the Safety and Security Systems Group attributable to Pauluhn. Proceeds from the sale were used to
pay down debt and fund core operations. For the years ended December 31, 2010 and 2009, the Company recorded a loss of
$2.2 million and $0.7 million, respectively, related to an environmental remediation liability. In December 2010, the Company
decided to sell the Pauluhn building after receiving a notice of termination of leasing agreement from the tenant. The net book
value of the building was written down by $0.4 million to its estimated net realizable value.
On July 16, 2009, the Company sold 100% of the shares of its European sweeper business, Ravo Holdings B.V., (“Ravo”)
located in the Netherlands for €8.5 million, or approximately $12.1 million. The Ravo businesses were classified as discontinued
operations as of the second quarter of 2009. The results of Ravo’s operations were previously included within the
Environmental Solutions Group. In association with this sale, the Company recognized a loss on disposal of discontinued
operations of Ravo of $11.3 million at December 31, 2009. The loss includes a write-down of $4.9 million to reflect the fair value
of the net assets sold, costs associated with the sale of $0.2 million, a gain of $0.3 million transferred from cumulative
translation adjustments, and the write-off of $6.2 million of goodwill of the Environmental Solutions Group attributable to Ravo.
Proceeds from the sale were used to pay down debt and fund core operations.
All of the Company’s E-ONE businesses were discontinued in 2008 leaving just the Company’s Bronto businesses within
its Fire Rescue segment. For the years ended December 31, 2011 and 2010, the Company recorded a loss on discontinued
operations associated with E-ONE of $0.2 million and $5.0 million, respectively, primarily related to a change in the estimate of
workers compensation and product liability reserves.
The Company provided its domestic municipal customers with the opportunity to finance purchases through leasing
arrangements with the Company. Following the sale of the E-ONE business, the Company elected to discontinue its financial
services activities through divestiture of this leasing portfolio. In 2008, the Company sold its municipal leasing portfolio to
Banc of America Public Capital Corp. In October, 2008, the Company discontinued entirely its practice of providing lease
financing to its customers and all other financial service activities, principally its dealer floor planning.
In December 2005, the Company determined that its investment in the Refuse business operating under the Leach brand
name was no longer strategic. The majority of the assets of the business have been sold since that time and the operation has
been shut down. For the years ended December 31, 2011 and 2010, the Company recorded a gain of $0.4 million and $0.7 million,
respectively, primarily related to a revision in the estimate of product liability reserves.
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Table of Contents
The following table shows an analysis of assets and liabilities of discontinued operations as of December 31:
($ in millions)
Current assets
Properties and equipment
Long-term assets
Financial service assets, net
Total assets of discontinued operations
Current liabilities
Long-term liabilities
Financial service liabilities
Total liabilities of discontinued operations
2011
$ 0.6
0.5
1.4
1.0
$ 3.5
$ 4.0
7.4
0.9
$12.3
2010
$ -
0.7
0.8
1.6
$ 3.1
$ 5.9
10.8
1.5
$18.2
Included in current liabilities at December 31, 2011 and 2010 is $2.2 million and $2.6 million, respectively, related to
environment remediation at the Pearland, Texas facility, which was previously used by the Company’s discontinued Pauluhn
business. Included in long-term liabilities at December 31, 2011 and 2010 is $5.1 million and $6.0 million, respectively, relating to
estimated product liability obligations of the North American refuse truck body business.
NOTE 14 — RESTRUCTURING
During fiscal 2010 and 2009, the Company announced restructuring initiatives. As of December 31, 2011 and 2010, the
Company’s total restructuring accrual was $0.3 million and $2.5 million, respectively, and was included in accrued liabilities
other on the consolidated balance sheets. There were no new restructuring activities initiated in fiscal 2011. The Company
continues to review its business for opportunities to reduce operating expenses and focus on executing its strategy based on
core competencies and cost efficiencies.
2010 Plan
During the second quarter of 2010, the Company announced restructuring initiatives focused on aligning the Company’s
cost base with revenues and other functional reorganizations and recorded $4.6 million in restructuring charges related to a
global reduction in force across all functions. The total restructuring charge was $4.6 million in the year ended December 31,
2010 and these actions are expected to be completed by June 30, 2012.
2009 Plan
In July 2009, the Company began an initiative to consolidate a number of manufacturing and distribution operations into
the Company’s University Park, Illinois, plant. The Company recorded an additional $0.4 million in charges related to the 2009
plan in 2010. The Company completed these actions as of December 31, 2010.
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The following table summarizes the 2010 restructuring charges by segment and the total charges estimated to be incurred
($ in millions):
Group
Environmental Solutions
Safety and Security Systems
Fire Rescue
Federal Signal Technologies
Corporate
Total restructuring
Pre-Tax
Restructuring
Charges at
December 31,
2010
$
$
0.8
1.8
0.6
0.6
1.2
5.0
$
Estimate of
Total
Charges
0.8
1.8
0.6
0.6
1.2
5.0
$
The following presents an analysis of the restructuring reserves included in other accrued liabilities as of December 31,
2011 and 2010, respectively ($ in millions):
2010 Plan
Balance as of December 31, 2009
Charges to selling, general and administrative expenses
Cash payments
Balance as of December 31, 2010
Charges to selling, general and administrative expenses
Cash payments
Balance as of December 31, 2011
2009 Plan
Balance as of December 31, 2008
Charges to selling, general and administrative expenses
Cash payments
Balance as of December 31, 2009
Charges to selling, general and administrative expenses
Cash payments
Balance as of December 31, 2010
Charges to selling, general and administrative expenses
Cash payments
Balance as of December 31, 2011
Severance
Other
Total
$
$
$
-
3.6
(1.7)
1.9
0.1
(2.0)
-
$ -
1.0
(0.4)
$ 0.6
(0.1)
(0.3)
$ 0.2
$ -
4.6
(2.1)
$ 2.5
-
(2.3)
$ 0.2
Severance
Other
Total
$
$
$
$
-
1.1
(0.4)
0.7
0.4
(1.1)
-
-
-
-
$ -
0.4
-
$ 0.4
-
(0.4)
$ -
-
-
$ -
$ -
1.5
(0.4)
$ 1.1
0.4
(1.5)
$ -
-
-
$ -
NOTE 15 — LEGAL PROCEEDINGS
The Company is subject to various claims, other pending and possible legal actions for product liability and other
damages, and other matters arising out of the conduct of the Company’s business. The Company believes, based on current
knowledge and after consultation with counsel, that the outcome of such claims and actions will not have an adverse effect on
the Company’s consolidated financial position or results of operations. However, in the event of unexpected future
developments, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material adverse effect on
the Company’s results of operations.
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The Company has been sued by firefighters seeking damages claiming 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 1999-2004,
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. Beginning in 2009, six additional cases were filed in Cook County,
involving 299 Pennsylvania firefighter plaintiffs. The trial of the first 27 of these plaintiffs’ claims occurred in 2008, when 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 9. The trial for these nine plaintiffs
concluded with a verdict returned against the Company and for the plaintiffs in varying amounts totaling $0.4 million. The
Company is appealing this verdict. A third consolidated trial involving 8 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
last trial, the Court advised the parties that it was considering the possibility of a bifurcated class action trial in which it would
consolidate claims of all Chicago Fire Department firefighters and conduct a trial on the issue of whether the Company’s sirens
are defective and unreasonably dangerous. On March 12, 2012, after considering briefs and argument submitted by the parties,
the Court entered an order certifying a class of the remaining Chicago firefighter plaintiffs for trial on certain issues, including
whether Federal Signal sirens were defective and unreasonably dangerous. The Court has scheduled this trial for September 4,
2012. The Company is considering an appeal of this ruling.
The Company has also been sued on this issue outside of the Cook County, Illinois venue. Most of these cases have
involved lawsuits filed by a single attorney in the Court of Common Pleas, Philadelphia County, Pennsylvania. Since September
2007, this attorney filed a total of 71 lawsuits, involving 71 plaintiffs in this jurisdiction. Three of these cases have been
dismissed pursuant to pretrial motions filed by the Company. Another case has been voluntarily dismissed. Prior to trial in four
cases, the Company paid nominal sums, which included reimbursements of expenses, to obtain dismissals. Three trials have
occurred in Philadelphia involving these cases. The first trial involving one of these plaintiffs occurred in 2010, when the jury
returned a verdict for the plaintiff. In particular, the jury found that the Company’s siren was not defectively designed, but that
the Company negligently constructed the siren. The jury awarded damages in the amount of $0.1 million, which was
subsequently reduced to $0.08 million. The Company appealed this verdict. Another trial, involving 9 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, involving 9 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 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 represents (the “Claimants”)
and who have asserted product claims against the Company (the “Claims”). Three hundred and eight of these claimants have
lawsuits pending against the Company in Cook County, Illinois.
The Settlement Agreement, as amended, provided that the Company pay (the “Settlement Payment”) a total amount of
$3.8 million 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
must 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, must dismiss his or her lawsuit, with prejudice; (iii) by April 29, 2011, at least 93% of the claimants
identified in Appendix A to the Settlement Agreement must have agreed to settle their claims and provided a signed Release to
the Company; and (iv) the law firm shall have withdrawn from representing any claimants who did not agree to the settlement,
including those who filed lawsuits. If the conditions to the settlement set forth in the Settlement Agreement were
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met, but less than 100% of the Claimants have agreed to settle their Claims and sign a Release, the Settlement Payment will be
reduced by the percentage of Claimants who do 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% of all claimants identified in the Settlement Agreement.
The Company generally denies the allegations made in the claims and lawsuits and denies that its products caused any
injuries to the claimants. Nonetheless, to avoid the expense and uncertainty of further litigation, the Company has entered into
the Settlement Agreement for the purpose of minimizing its expenses, including legal fees, and the inconvenience and
distraction of the claims and lawsuits.
Firefighters have brought hearing loss claims against the Company in jurisdictions other than Philadelphia and Cook
County. In particular, cases have been filed in New Jersey, Missouri, Maryland, and New York. All of those cases, however
were dismissed prior to trial, including four cases in the Supreme Court of Kings County, New York which were dismissed upon
the Company’s motion in 2008. The trail court subsequently denied reconsideration of its ruling. On appeal, the 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.
Federal Signal’s ongoing negotiations with CNA over insurance coverage on these claims have resulted in
reimbursements of a portion of the Company’s defense costs. In the year ended December 31, 2011, the Company recorded
$0.8 million of reimbursements from CNA as a reduction of corporate operating expenses of which $0.8 million has been
received as of December 31, 2011. In the years ended December 31, 2010 and 2009, the Company recorded $0.6 million and
$0.7 million, respectively, of CNA reimbursements.
On July 29, 2011, Neology, Inc. filed a complaint against the Company for alleged patent infringements in the U.S. District
Court of Delaware. The lawsuit demands that the Company cease manufacturing, marketing, importing or selling Radio
Frequency Identification systems and products that infringe certain specified patents owned by Neology, and also demands
compensation for past alleged infringement. On December 2, 2011, Neology filed a motion for preliminary injunction, requesting
that the court enter an order preliminarily enjoining the Company from further alleged infringement of certain Neology patents.
The court has scheduled a hearing on the motion on May 1, 2012. The Company has denied the allegations in the complaint
and the motion for preliminary injunction and intends to vigorously defend itself in this litigation.
NOTE 16 — SEGMENT AND RELATED INFORMATION
The Company has four continuing operating segments as defined under ASC Topic 280, Segment Reporting. Business
units are organized under each segment because they share certain characteristics, such as technology, marketing, distribution
and product application, which create long-term synergies. The principal activities of the Company’s operating segments are as
follows:
Information regarding the Company’s discontinued operations is included in Note 13 — Discontinued Operations.
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 used to protect people and property. Offerings include systems for campus and community
alerting, emergency vehicles, first responder interoperable communications, industrial communications and command and
municipal networked security. Specific products include lightbars and sirens, public warning sirens and public safety software.
Products are primarily sold under the Federal
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TM
, Federal Signal VAMA , Target Tech , and Victor
Signal
North America, Europe, and South Africa.
TM
®
TM
brand names. The Group operates manufacturing facilities in
Fire Rescue — The Fire Rescue Group manufactures articulated and telescopic aerial platforms for rescue and fire fighting
and for maintenance purposes. This Group sells to municipal and industrial fire services, civil defense authorities, rental
companies, electric utilities and industrial customers. The Group manufactures in Finland and sells globally under the Bronto
Skylift brand name.
®
Environmental Solutions — The Environmental Solutions Group manufactures a variety of self-propelled street cleaning
vehicles, vacuum loader vehicles, municipal catch basin/sewer cleaning vacuum trucks, and waterblasting equipment.
Environmental Solutions sells primarily to municipal and government customers and industrial contractors. Products are sold
under the Elgin , Vactor , Guzzler and Jetstream brand names. The Group primarily manufactures its vehicles and equipment
in the United States.
®
®
®
®
Federal Signal Technologies — Our Federal Signal Technologies Group is a provider of technologies and solutions to
the intelligent transportation systems and public safety markets and other applications. These products and solutions provide
end users with the tools needed to automate data collection and analysis, transaction processing and asset tracking. FSTech
provides technology platforms and services to customers in the areas of radio frequency identification systems, transaction
processing vehicle classification, electronic toll collection, automated license plate recognition, electronic vehicle registration,
parking and access control, cashless payment solutions, congestion charging, traffic management, site security solutions and
brand names. The Group operates
supply chain systems. Products are sold under the PIPS , Idris , Sirit
manufacturing facilities in North America and Europe.
and VESystems
TM
TM
TM
®
Corporate contains those items that are not included in our other 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. Operating
segment depreciation expense, identifiable assets and capital expenditures relate to those assets that are utilized by the
respective operating segment. Corporate assets consist principally of cash and cash equivalents, short-term investments, notes
and other receivables and fixed assets. The accounting policies of each operating segment are the same as those described in
the summary of significant accounting policies.
Revenues attributed to customers located outside of the U.S. aggregated $296.0 million in 2011, $285.8 million in 2010, and
$333.4 million in 2009, of which sales exported from the U.S. aggregated $126.1 million, $112.4 million, and $113.5 million,
respectively.
The Company invests in research to support development of new products and the enhancement of existing products and
services. The Company believes this investment is important to maintain and/or enhance its leadership position in key markets.
Expenditures for research and development by the Company were approximately $19.7 million in 2011, $18.8 million in 2010, and
$19.0 million in 2009.
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A summary of the Company’s continuing operations by segment for each of the three years in the period ended
December 31 is as follows ($ in millions):
Net sales
Safety and Security Systems
Fire Rescue
Environmental Solutions
Federal Signal Technologies
Total net sales
Operating income (loss)
Safety and Security Systems
Fire Rescue
Environmental Solutions
Federal Signal Technologies
Corporate expense
Total operating (loss) income
Interest expense
Gain (loss) on investment in joint venture (Environmental Solutions Segment)
Other (expense)
Income (loss) before income taxes
Depreciation and amortization
Safety and Security Systems
Fire Rescue
Environmental Solutions
Federal Signal Technologies
Corporate
Total depreciation and amortization
Identifiable assets
Safety and Security Systems
Fire Rescue
Environmental Solutions
Federal Signal Technologies
Corporate
Total assets of continuing operations
Assets of discontinued operations
Total identifiable assets
Capital expenditures
Safety and Security Systems
Fire Rescue
Environmental Solutions
Federal Signal Technologies
Corporate
Total capital expenditures
81
2011
2010
2009
$221.4
109.5
357.8
106.9
$795.6
$ 21.5
6.6
24.5
(29.5)
(19.8)
3.3
(16.4)
-
(0.2)
$ (13.3)
$ 4.4
2.5
5.2
9.5
0.9
$ 22.5
$214.5
108.8
309.8
93.4
$726.5
$ 23.7
9.4
17.9
(89.3)
(38.6)
(76.9)
(10.3)
0.1
(1.3)
$ (88.4)
$ 3.7
2.2
4.7
7.8
0.8
$ 19.2
$225.8
160.0
299.6
65.0
$750.4
$ 24.1
19.2
15.1
6.0
(28.6)
35.8
(11.4)
1.2
(0.5)
$ 25.1
$ 3.1
1.9
4.5
4.4
0.8
$ 14.7
2011
2010
$200.3
117.3
231.7
134.7
19.2
703.2
3.5
$706.7
$246.9
123.1
240.6
104.8
46.0
761.4
3.1
$764.5
2011
2010
2009
$ 3.6
2.9
6.7
2.2
0.3
$15.7
$ 3.0
1.1
6.5
1.5
0.7
$12.8
$ 2.6
2.2
8.9
0.4
0.3
$14.4
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The segment information provided below is classified based on geographic location of the Company’s subsidiaries ($ in
millions):
Net sales
United States
Europe
Canada
Long-lived assets (including intangibles)
United States
Europe
Canada
Other
Long-lived assets (excluding intangibles)
United States
Europe
Other
2011
2010
2009
$417.0
299.2
34.2
$750.4
$499.6
255.0
41.0
$795.6
$253.1
162.3
11.9
1.6
$428.9
$ 47.8
15.7
0.6
$ 64.1
$440.7
244.7
41.1
$726.5
$231.0
202.1
27.1
1.2
$461.4
$ 49.8
16.3
0.5
$ 66.6
NOTE 17 — COMMITMENTS
At December 31, 2011 and 2010, the Company had outstanding standby letters of credit aggregating $34.2 million and
$29.6 million, respectively, principally to act as security for retention levels related to casualty insurance policies and to
guarantee the performance of subsidiaries that engage in export transactions to foreign governments and municipalities.
The Company issues product performance warranties to customers with the sale of its products. The specific terms and
conditions of these warranties vary depending upon the product sold and country in which the Company does business, with
warranty periods generally ranging from one to ten years. The Company estimates the costs that may be incurred under its
basic limited warranty and records a liability in the amount of such costs at the time the sale of the related product is
recognized. Factors that affect the Company’s warranty liability include the number of units under warranty from time to time,
historical and anticipated rates of warranty claims, and costs per claim. The Company periodically assesses the adequacy of its
recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company’s warranty liabilities for the years ended December 31, 2011 and 2010 were as follows ($ in
millions):
Balance at January 1
Provisions to expense
Actual costs incurred
Balance at December 31
2011
$ 5.7
10.2
(8.7)
$ 7.2
2010
$ 6.2
7.5
(8.0)
$ 5.7
The Company has retained an environmental consultant to conduct an environmental risk assessment at its Pearland,
Texas facility. The facility, which was previously used by the Company’s discontinued Pauluhn business, manufactured
marine, offshore, and industrial lighting products. While the Company has not completed the risk assessment analysis, it
appears probable the site will require remediation. An undiscounted estimate of
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the range of costs to remediate the site is $1.6 million to $2.6 million, depending upon the remediation approach and other
factors. As of December 31, 2010, $2.6 million of expense had been recognized in connection with this matter. No additional
amounts were recorded in 2011. At December 31, 2011 and 2010, $2.2 million and $2.6 million, respectively, of reserves related to
the environmental remediation are included in the liabilities of discontinued operations. The Company’s estimate may change in
the near term as more information becomes available; however the costs are not expected to have a material adverse effect on
the Company’s results of operations, financial position or liquidity.
NOTE 18 — NEW ACCOUNTING PRONOUNCEMENTS
In October 2009, the FASB issued ASU No. 2009-14, Topic 985, Certain Revenue Arrangements That Include Software
Elements, which amended the accounting standards for revenue recognition to remove tangible products containing software
components and non-software components that function together to deliver the products’ essential functionality from the
scope of industry-specific software revenue recognition guidance.
In October 2009, the FASB also issued ASU No. 2009-13, Topic 605, Multiple-Deliverable Revenue Arrangement, which
changes the level of evidence of standalone selling price required to separate deliverables in a multiple deliverable revenue
arrangement by allowing a company to make its best estimate of the selling price of deliverables when more objective evidence
of selling price is not available and eliminates the use of residual method. ASU No. 2009-13 applies to multiple deliverable
revenue arrangements that are not accounted for under other accounting pronouncements and retains the use of vendor-
specific objective evidence (“VSOE”) of selling price if available and third-party evidence of selling price, when VSOE is
unavailable.
The Company adopted ASU No. 2009-14 and ASU No. 2009-13 prospectively on January 1, 2011. The majority of the
Company’s businesses generate revenue through the manufacture and sale of a broad range of specialized products and
components, with revenue recognized upon transfer of title and risk of loss, which is generally upon shipment. Certain
businesses within the Federal Signal Technologies Group sell under multiple deliverable sales arrangements where the
Company utilized estimated selling prices under the relative-selling price method. In arriving at its best estimates of selling
price, management considered market conditions as well as Company-specific factors. Management considered the Company’s
overall pricing model and objectives, including profit objectives and internal cost structure, as well as historical pricing data.
The effect of adopting the new accounting guidance during 2011 was an increase in revenues of $4.2 million and an increase in
cost of sales of $1.5 million.
In May 2011, the FASB ASU No. 2011-04, Fair Value Measurement Topic 820, Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which amends the definition of fair value
measurement principles and disclosure requirements to eliminate differences between U.S. GAAP and International Financial
Reporting Standards. ASU 2011-04 requires new quantitative and qualitative disclosures about the sensitivity of recurring
Level 3 measurement disclosures, as well as transfers between Level 1 and Level 2 of the fair value hierarchy. The provisions of
this update are effective as of January 1, 2012. The Company is currently evaluating the impact of this update on its financial
statement disclosures.
In June 2011, the FASB issued ASU No. 2011-05, Topic 220, Presentation of Comprehensive Income, which requires
companies to include a statement of comprehensive income as part of its interim and annual financial statements. The new
guidance gives companies the option to present net income and comprehensive income either in one continuous statement or
in two separate but consecutive statements. This approach represents a change from current GAAP, which allows companies
to report other comprehensive income (“OCI”) and its components in the statement of shareholders’ equity. The guidance also
allows companies to present OCI either net of tax with details in the notes or shown gross of tax (with tax effects shown
parenthetically). The Company’s disclosure of OCI for the year ended December 31, 2011 is presented in the Company’s
Consolidated Statements of Shareholders’ Equity under Item 8 of this Form 10-K. Under the new guidance, certain information
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set forth in the statement would be shown in the new statement of comprehensive income. This guidance is effective for fiscal
years beginning after December 15, 2011. ASU 2011-05 is effective for fiscal years, and interim periods within those years,
beginning January 1, 2012 and should be applied retrospectively. The new guidance impacts disclosures only and will not have
an impact on the Company’s financial position, results of operations, or liquidity. The Company is currently evaluating the
impact of this update on its financial statement disclosures.
In September 2011, the FASB issued ASU No. 2011-08, Topic 350, Testing of Goodwill for Impairment, which allows
companies to assess qualitative factors to determine whether they need to perform the two-step quantitative goodwill
impairment test. Under the option, an entity no longer would be required to calculate the fair value of a reporting unit unless it
determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying
amount. The ASU may change how a company tests goodwill for impairment but should not change the timing or measurement
of goodwill impairments. The ASU is effective for fiscal years beginning after December 15, 2011. ASU 2011-08 is effective for
the Company for annual and interim periods beginning January 1, 2012. The Company does not expect the adoption of ASU
2011-08 to have a material impact on its results of operations or financial position.
In September 2011 the FASB issued ASU No. 2011-09, Subtopic 715-80, Disclosures about an Employer’s Participation
in a Multiemployer Plan. This update requires additional disclosures, both quantitative and qualitative, about an employer’s
participation in significant multiemployer pension plans. Some of the required disclosures include the plan names and
identifying numbers of the significant multiemployer plans in which an employer participates, the level of an employer’s
participation in the plans, the financial health of the plans, and the nature of employer commitments to the plans. ASU 2011-09
is effective for the Company’s annual reporting period ended December 31, 2011. The adoption of this ASU during the fourth
quarter of 2011 had an immaterial impact on the Company’s disclosures as its multiemployer plans are not significant
individually or in the aggregate.
In December 2011, the FASB issued ASU No. 2011-11, Topic 210, Disclosures about Offsetting Assets and Liabilities.
This update is intended to improve the comparability of statements of financial position prepared in accordance with GAAP
and IFRS, requiring both gross and net presentation of offsetting assets and liabilities. The new requirements are effective for
fiscal years beginning on or after January 1, 2013, and for interim periods within those fiscal years. The Company will adopt this
standard for 2013 and does not expect it to have a material impact on its results of operations or financial position.
No other new accounting pronouncements issued or effective during 2011 have had or are expected to have a material
impact on the consolidated financial statements.
NOTE 19 — SELECTED QUARTERLY DATA (UNAUDITED)
The Company reports its interim quarterly periods on a 13-week basis ending on a Saturday with the fiscal year ending on
December 31. For convenience purposes, the Company uses “March 31”, “June 30”, “September 30” and “December 31” to
refer to its results of operations for the quarterly periods then ended. In 2011, the Company’s interim quarterly periods ended
April 2, July 2, October 1, and December 31; and in 2010, the Company’s interim quarterly periods ended
April 3, July 3, October 2, and December 31, respectively.
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The following is a summary of the quarterly results of operations, including income per share, for the Company for the
quarterly periods of fiscal 2011 and 2010 ($ in millions, except per share amount):
Net sales
Gross margin
(Loss) income from continuing operations
Gain (loss) from discontinued operations and disposal
Net (loss) income
Per share data — diluted: (loss) earnings from continuing operations
Earnings from discontinued operations
Net (loss) income
Dividends paid per share
Market price range per share
High
Low
Net sales
Gross margin
(Loss) income from continuing operations
(Loss) from discontinued operations and disposal
Net (loss) income
Per share data — diluted: (loss) earnings from continuing operations
Loss from discontinued operations
Net (loss) income
Dividends paid per share
Market price range per share
High
Low
April 2
$ 173.6
41.5
(5.3)
0.0
(5.3)
$ (0.08)
-
(0.08)
-
July 2
$ 204.5
51.7
5.7
0.3
6.0
$ 0.09
0.01
0.10
-
2011
October 1
$ 194.2
46.3
2.0
(0.3)
1.7
0.03
-
0.03
-
$
December 31
223.3
$
55.5
(16.8)
0.2
(16.6)
(0.27)
-
(0.27)
-
$
7.79
5.06
6.96
5.74
6.79
4.26
5.21
3.50
April 3
$ 164.6
40.3
(4.0)
(1.0)
(5.0)
$ (0.08)
(0.02)
(0.10)
0.06
July 3
$ 195.6
51.2
(0.5)
(2.2)
(2.7)
$ (0.01)
(0.04)
(0.05)
0.06
2010
October 2
$ 179.6
44.5
2.2
(1.0)
1.2
0.04
(0.02)
0.02
0.06
$
December 31,
186.7
$
48.2
(158.4)
(10.8)
(169.2)
(2.55)
(0.17)
(2.72)
0.06
$
9.50
6.02
10.30
5.58
6.95
4.91
7.16
5.22
In fourth quarter of 2011, the Company recorded goodwill and trade name impairment charges of $14.8 million and $7.4
million, respectively. In addition, during first quarter 2011, the goodwill adjustment for recorded in fourth quarter 2010 was
subsequently reduced by $1.6 million upon completion of a detailed step two impairment analysis.
In fourth quarter of 2010, the Company recorded goodwill and trade name impairment charges of $67.1 million and $11.8
million, respectively. The Company also recorded $85.0 million of valuation allowance in the fourth quarter of 2010 to income tax
provision on continuing operations to reflect the estimated amount of domestic deferred tax assets that may not be realized.
NOTE 20 — SUBSEQUENT EVENTS
On February 22, 2012, the Company completed a refinancing of its existing senior secured credit facilities. The new senior
secured credit facilities are comprised of a fully funded $215 million five-year senior secured term loan and a $100 million five-
year senior secured revolving credit facility. See Note 6 for additional information.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s
“disclosure controls and procedures” (as defined in the Exchange Act Rule 13a-15(e)) as of the end of the period covered by
this report.
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 December 31, 2011.
(b) Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Registered
Public Accounting Firm
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over
financial reporting, as defined in the Exchange Act Rule 13a-15(f). Management conducted an assessment of the Company’s
internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of
the Treadway Commission in Internal Control — Integrated Framework. Based on the assessment, management concluded that,
as of December 31, 2011, the Company’s internal control over financial reporting is effective.
Ernst & Young LLP, an independent registered public accounting firm, has audited the consolidated financial statements
included in this Annual Report on Form 10-K and, as part of their audit, has issued its report, included herein, on the
effectiveness of the Company’s internal control over financial reporting. See “Report of Independent Registered Public
Accounting Firm” on page 37.
(c) Changes in Internal Control over Financial Reporting
From time to time, the Company may make changes aimed at enhancing the effectiveness of the controls and to ensure
that the systems evolve with the business. There were no changes in the Company’s internal control over financial reporting
that occurred during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Information regarding directors and nominees for directors is set forth in the Company’s proxy statement for its 2012
Annual Meeting of Stockholders and is incorporated herein by reference.
The following is a list of the Company’s executive officers, their ages, business experience and positions and offices as of
February 1, 2012:
Dennis J. Martin, age 61, was appointed President and Chief Executive Officer in October 2010 and was appointed to the
Board of Directors in March 2008. Mr. Martin has been an independent business consultant since 2005 and was the Chairman,
President and Chief Executive Officer of General Binding Corporation from 2001 to 2005.
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Charles F. Avery, Jr., age 47, was appointed Vice President, Corporate Controller and Chief Information Officer in May
2011. Mr. Avery was Vice President, Information Technology and Controller from March 2010 to May 2011 and was Vice
President Finance for the Environmental Solutions Group from March 2005 to March 2010.
William G. Barker, III, age 53, was appointed Senior Vice President and Chief Financial Officer in December 2008.
Mr. Barker was Senior Vice President and Chief Financial Officer of Sun-Times Media Group from 2007 to 2008. He was Vice
President, Finance and Strategy, Gatorade of PepsiCo, Inc. from 2001 to 2007.
Bryan L. Boettger, age 59, was appointed President of Public Safety Systems in May 2011. Mr. Boettger was Vice
President of Operations for the Safety and Security Systems Group from 2010 to 2011 and Interim Vice President/General
Manager Public Safety Systems and President of Emergency Products Division from 2006 to 2009.
Esa Peltola, age 60, was appointed President of Bronto Skylift Oy Ab in July 2007. Mr. Peltola was Managing Director of
Bronto Skylift from 1998 to 2007.
Manfred A. Rietsch, age 70, was appointed President of the Federal Signal Technologies Group in April 2010. Mr. Rietsch
was the founder and Chief Executive Officer of VESystems, LLC, established in 2000.
Jennifer L. Sherman, age 47, was appointed Chief Administrative Officer, Senior Vice President, General Counsel and
Secretary in October 2010. Ms. Sherman was Senior Vice President, Human Resources, General Counsel and Secretary from
April 2008 to July 2010. Ms. Sherman was Vice President, General Counsel and Secretary from 2004 to March 2008 and was
Deputy General Counsel and Assistant Secretary from 1998 to 2004.
Mark D. Weber, age 54, was appointed President of the Environmental Solutions Group in April 2003. Mr. Weber was Vice
President Sweeper Products for the Environmental Solutions Group from 2002 to 2003 and General Manager of Elgin Sweeper
Company from 2001 to 2002.
Joseph W. Wilson, age 54, was appointed President of Industrial Systems Division in May 2011. Mr. Wilson was Vice
President/General Manager of the Industrial Systems Division from 2010 to 2011, in 2007 was Vice President/General Manager
Industrial & Commercial System Division, and in 2006 was Vice President/General Manager Public Safety & Transportation
System Division.
These officers hold office until the next annual meeting of the Board of Directors following their election and until their
successors have been elected and qualified.
There are no family relationships among any of the foregoing executive officers.
Information regarding Compliance with Section 16(a) of the Exchange Act is set forth in the Company’s 2012 proxy
statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by
reference. Information regarding the Company’s Audit Committee, Nominating and Governance Committee, and Compensation
and Benefits Committee are set forth in the Company’s 2012 proxy statement under the caption “Information Concerning the
Board of Directors” and is incorporated herein by reference.
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and
principal accounting officer. This code of ethics and the Company’s corporate governance policies are posted on the
Company’s website at http://www.federalsignal.com. The Company intends to satisfy its disclosure requirements regarding
amendments to or waivers from its code of ethics by posting such information on this website. The charters of the Audit
Committee, Nominating and Corporate Governance Committee, and
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Compensation and Benefits Committee of the Company’s Board of Directors are available on the Company’s website and are
also available in print free of charge.
Item 11. Executive Compensation.
The information contained under the captions “Information Concerning the Board of Directors”, “Compensation
Committee Interlocks and Insider Participation”, “Compensation Discussion and Analysis”, “Compensation and Benefits
Committee Report” and “Executive Compensation in the Last Fiscal Year” of the Company’s 2012 proxy statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding security ownership of certain beneficial owners, of all directors and nominees, of the named
executive officers, and of directors and executive officers as a group is set forth in the Company’s 2012 proxy statement under
the caption “Ownership of Our Common Stock” and is incorporated herein by reference. Information regarding our equity
compensation plans is set forth in the Company’s 2012 proxy statement under the caption “Equity Compensation Plan
Information” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships is hereby incorporated by reference from the Company’s 2012 proxy statement
under the heading “Information Concerning the Board of Directors” and under the heading “Certain Relationships and Related
Party Transactions”.
Item 14. Principal Accountant Fees and Services.
Information regarding principal accountant fees and services is incorporated by reference from the Company’s 2012 proxy
statement under the heading “Accounting Fees”.
Item 15. Exhibits, Financial Statement Schedules.
(a) 1. Financial Statements
PART IV
The following consolidated financial statements of Federal Signal Corporation and Subsidiaries and the report of the
Independent Registered Public Accounting Firm contained under Item 8 of this Form 10-K are incorporated herein by reference:
Consolidated balance sheets as of December 31, 2011 and 2010
Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial statement schedule of Federal Signal Corporation and Subsidiaries, for the three
years ended December 31, 2011 is filed as a part of this Report in response to Item 15(a)(2):
Schedule II — Valuation and Qualifying Accounts
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All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.
3. Exhibits
See Exhibit Index.
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Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FEDERAL SIGNAL CORPORATION
By:
/s/ Dennis J Martin
Dennis J. Martin
President and Chief Executive Officer
Date: March 14, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities indicated, as of March 14, 2012.
/s/ Dennis J. Martin
Dennis J. Martin
/s/ William G. Barker, III
William G. Barker, III
/s/ Charles F. Avery, Jr.
Charles F. Avery, Jr.
/s/ James E. Goodwin
James E. Goodwin
/s/ Charles R. Campbell
Charles R. Campbell
/s/ Paul W. Jones
Paul W. Jones
/s/ Richard R. Mudge
Richard R. Mudge
/s/ William F. Owens
William F. Owens
/s/ Brenda L. Reichelderfer
Brenda L. Reichelderfer
/s/ Dominic A. Romeo
Dominic A. Romeo
/s/ Joseph R. Wright
President and Chief
Executive Officer
Board of Director
(Principal Executive Officer)
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
Vice President, Corporate Controller and Chief Information
Officer
(Principal Accounting Officer)
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Joseph R. Wright
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SCHEDULE II
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the Years Ended December 31, 2011, 2010 and 2009
Description
Allowance for doubtful accounts:
Year ended December 31, 2011:
Year ended December 31, 2010:
Year ended December 31, 2009:
Inventory obsolescence:
Year ended December 31, 2011:
Year ended December 31, 2010:
Year ended December 31, 2009:
Product liability and workers’ compensation:
Year ended December 31, 2011:
Year ended December 31, 2010:
Year ended December 31, 2009:
Income tax valuation allowances:
Year ended December 31, 2011:
Year ended December 31, 2010:
Year ended December 31, 2009:
Balance at
Beginning
of Year
Additions
Charged
to
Costs and
Expenses
Deductions
Accounts
Written off
Net of
Recoveries
($ in millions)
$
$
$
$
$
$
$
$
$
2.8
2.4
2.0
7.7
7.6
5.9
8.2
5.9
5.8
$ 109.1
25.2
$
32.5
$
$
$
$
$
$
$
$
$
$
$
$
$
0.6
1.2
0.9
3.9
2.4
4.6
3.7
6.4
3.5
13.9
86.0
0.1
$
$
$
$
$
$
$
$
$
$
$
$
(0.5)
(0.8)
(0.5)
(2.9)
(2.3)
(2.9)
(1.9)
(4.1)
(3.4)
(0.1)
(2.1)
(7.4)
Balance
at End
of Year
$ 2.9
$ 2.8
$ 2.4
$ 8.7
$ 7.7
$ 7.6
$ 10.0
$ 8.2
$ 5.9
$122.9
$109.1
$ 25.2
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EXHIBIT INDEX
The following exhibits, other than those incorporated by reference, have been included in the Company’s Form 10-K filed
with the Securities and Exchange Commission. The Company shall furnish copies of these exhibits upon written request to the
Corporate Secretary at the address given on the cover page. (* denotes exhibit filed in this Form 10-K)
3.
4.
10.
a.
b.
a.
b.
c.
d.
e.
f.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
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.
Amended and Restated By-laws of the Company. Incorporated by reference to Exhibit 3.1 to the Company’s
Form 8-K filed February 28, 2012.
Second Amended and Restated Credit Agreement among the Company, Bank of Montreal and other third party
lenders named therein, dated April 25, 2007. Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q
for the quarter ended September 30, 2007.
Supplemental Agreement to the Second Amended and Restated Credit Agreement among the Company, Federal
Signal of Europe B.V. y CIA, SC, and Bank of Montreal, Ireland and other third party lenders named therein, dated
September 6, 2007. Incorporated by reference to Exhibit 4.C to the Company’s Form 10-K for the year ended
December 31, 2007.
Second Amendment and Waiver to the Second Amended and Restated Credit Agreement, dated March 27, 2008.
Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2008.
Global Amendment to Note Purchase Agreements between the Company and the holders of senior notes named
therein, dated April 27, 2009. Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter
ended March 31, 2009.
Third Amendment and Waiver to the Second Amended and Restated Credit Agreement, dated March 15, 2011.
Incorporated by reference to Exhibit 4.e to the Company’s Form 10-K for the year ended December 31, 2011.
Second Global Amendment and Waiver to the Note Purchase Agreements, dated March 15, 2011. Incorporated by
reference to Exhibit 4.f to the Company’s Form 10-K for the year ended December 31, 2011.
The 1996 Stock Benefit Plan, as amended. Incorporated by reference to Exhibit 10.(A) to the Company’s Form 10-K
for the year ended December 31, 2003.(1)
Supplemental Pension Plan. Incorporated by reference to Exhibit 10.C to the Company’s Form 10-K for the year
ended December 31, 1995.(1)
Executive Disability, Survivor and Retirement Plan. Incorporated by reference to Exhibit 10.D to the Company’s
Form 10-K for the year ended December 31, 1995.(1)
Director Deferred Compensation Plan. Incorporated by reference to Exhibit 10.H to the Company’s Form 10-K for
the year ended December 31, 1997.(1)
Pension Agreement with Stephanie K. Kushner. Incorporated by reference to Exhibit 10.G to the Company’s
Form 10-K for the year ended December 31, 2002.(1)
Savings Restoration Plan, as amended and restated January 1, 2007. Incorporated by reference to Exhibit 10.FF to
the Company’s Form 10-K for the year ended December 31, 2008.(1)
First Amendment of the Federal Signal Corporation Savings Restoration Plan. Incorporated by reference to
Exhibit 10.MM to the Company’s Form 10-K for the year ended December 31, 2008.(1)
Second Amendment to Federal Signal Corporation Savings Restoration Plan. Incorporated by reference to
Exhibit 10.NN to the Company’s Form 10-K for the year ended December 31, 2008.(1)
Third Amendment to Federal Signal Corporation Savings Restoration Plan. Incorporated by reference to
Exhibit 10.OO to the Company’s Form 10-K for the year ended December 31, 2008.(1)
Executive General Severance Plan, as amended and restated October 2011. Incorporated by reference to Exhibit 10.1
to the Company’s Form 10-Q for the quarter ended September 30, 2011.(1)
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k.
l.
m.
n.
o.
p.
q.
r.
s.
t.
u.
v.
w.
x.
y.
z.
aa.
Form of 2008 Executive Change-In-Control Severance Agreement (Tier 1) with certain executive officers. Incorporated
by reference to Exhibit 10.HH to the Company’s Form 10-K for the year ended December 31, 2008.(1)
Form of 2008 Executive Change-In-Control Severance Agreement (Tier 2) with and certain executive officers.
Incorporated by reference to Exhibit 10.II to the Company’s Form 10-K for the year ended December 31, 2008.(1)
Employment Letter Agreement between the Company and William G. Barker, III dated November 10, 2008.
Incorporated by reference to Exhibit 10.JJ to the Company’s Form 10-K for the year ended December 31, 2008.(1)
Forms of Equity Award Agreements. Incorporated by reference to Exhibit 10.LL to the Company’s Form 10-K for the
year ended December 31, 2008, Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2009 and
Exhibit 10 to the Company’s Form 10-Q for the quarter ended June 30, 2010.(1)
Short Term Incentive Bonus Plan. Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on
February 26, 2009.(1)
Share Purchase Agreement among Fayat, Federal Signal of Europe B.V. and the Company, dated July 16, 2009.
Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2009.
Arrangement Agreement between the Company and 1815315 Ontario Limited and Sirit Inc., dated January 13, 2010.
Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 15, 2010.
Release and Severance Agreement between the Company and David R. McConnaughey, dated January 20, 2010.
Incorporated by reference to Exhibit 10.00 of the Company’s Form 10-K filed February 26, 2010.(1)
Release and Severance Agreement by and between the Company and William H. Osborne. Incorporated by reference
to Exhibit 10.1 to the Company’s Form 8-K filed November 3, 2010.(1)
Global Settlement Agreement between and among the Company and the law firm of Cappelli Mustin LLC, including
each attorney with Cappelli Mustin. Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed
January 10, 2011.
Form of 2010 Executive Change-In-Control Severance Agreement with certain executive officers (Tier 1). Incorporated
by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2010.(1)
Form of 2010 Executive Change-In-Control Severance Agreement with certain executive officers (Tier 2). Incorporated
by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2010.(1)
Employment Agreement between the Company and Manfred Rietsch, dated 2010. Incorporated by reference to
Exhibit 10.3 to the Company’s Form 10-Q for the Company’s Form 10-Q for the quarter ended March 31, 2010.(1)
2005 Executive Incentive Compensation Plan (2010 Restatement). Incorporated by reference to Appendix B to the
Company’s Definitive Proxy statement filed on Schedule 14A filed March 25, 2010.(1)
Federal Signal Corporation Executive Incentive Performance Plan, as amended and restated. Incorporated by
reference to Appendix C to the Company’s Definitive Proxy Statement filed on Schedule 14A filed March 25, 2010.(1)
Release and Severance Agreement by and between the Company and Jennifer M. Erfurth, dated January 7, 2011.
Incorporated by reference to Exhibit 10.z to the Company’s Form 10-K for the year ended December 31, 2011.(1)
Release and Severance Agreement by and between the Company and Fred H. Lietz dated January 7, 2011.
Incorporated by reference to Exhibit 10.aa to the Company’s Form 10-K for the year ended December 31, 2011.(1)
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bb.
cc.
dd.
Credit Agreement, dated as of February 22, 2012, by and among the Company, the lenders identified on the
signature pages thereof, General Electric Capital Corporation, as a co-collateral agent and Wells Fargo
Capital Finance, LLC, as administrative agent and a co-collateral agent. Incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed February 28, 2012.
Financing Agreement, dated as of February 22, 2012, by and among the Company, certain Subsidiaries of
the Company, as Guarantors, the Lenders from time to time party thereto, and TPG Specialty Lending, Inc.,
as administrative agent, collateral agent and sole lead arranger. Incorporated by reference to Exhibit 10.2 to
the Company’s Form 8-K filed February 28, 2012.
Intercreditor Agreement, dated as of February 22, 2012, among Wells Fargo Capital Finance, LLC, as the
ABL Agent, and TPG Specialty Lending, Inc., as the Term Agent. Incorporated by reference to Exhibit 10.3
to the Company’s Form 8-K filed February 28, 2012.
Statement re Computation of Ratio of Earnings to Fixed Charges. Incorporated by reference to Exhibit 12.1
to the Company’s Form S-3 filed March 18, 2010.
Code of Ethics for Chief Executive Officer and Senior Financial Officers, as amended. Incorporated by
reference to Exhibit 14 to the Company’s Form 10-K for the year ended December 31, 2003.
Subsidiaries of the Company.*
Consent of Independent Registered Public Accounting Firm.*
CEO Certification under Section 302 of the Sarbanes-Oxley Act.*
CFO Certification under Section 302 of the Sarbanes-Oxley Act.*
CEO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act.*
CFO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act.*
Press Release*
Q4 Earnings Call Presentation Slides.*
XBRL Instance Document(2)
XBRL Taxonomy Extension Schema Document(2)
XBRL Taxonomy Calculation Linkbase Document(2)
XBRL Taxonomy Extension Definition Linkbase Document(2)
XBRL Taxonomy Label Linkbase Document(2)
XBRL Taxonomy Presentation Llinkbase Document(2)
12.
14.
21.
23.
31.1
31.2
32.1
32.2
99.1
99.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Filed herewith.
*
(1) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of
(2)
Form 10-K.
In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed “not filed” for purposes of section
18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under that section.
94