e10vk
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,
2009
Commission File Number 1-6003
FEDERAL SIGNAL
CORPORATION
(Exact name of the Company as
specified in its charter)
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Delaware
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36-1063330
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1415 West 22nd Street,
Oak Brook, Illinois
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60523
(Zip Code)
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(Address of principal executive
offices)
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The Companys telephone number, including area code
(630) 954-2000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $1.00 per share
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New York Stock Exchange
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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 o 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 o 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 o
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 preceeding
12 months (or shorter period that the registrant was
required to submit and post such
files). Yes þ No o
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 Companys
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. o
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):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark if the registrant is a shell company, in
Rule 12b-2
of the Exchange
Act. Yes o No þ
State the aggregate market value of voting stock held by
nonaffiliates of the Company as of June 30, 2009: Common
stock, $1.00 par value $368,510,675
Indicate the number of shares outstanding of each of the
Companys classes of common stock, as of January 31,
2010: Common stock, $1.00 par value
48,713,962 shares
Documents
Incorporated By Reference
Portions of the definitive proxy statement for the 2010 Annual
Meeting of Shareholders are incorporated by reference in
Part III.
FEDERAL
SIGNAL CORPORATION
Index to
Form 10-K
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 Companys
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 Companys
possible or assumed future performance or results of operations
and are not guarantees of future events or results. 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
Companys actual results, performance or achievements to be
materially different.
These risks and uncertainties, some of which are beyond the
Companys control, include the cyclical nature of the
Companys industrial, municipal, government and commercial
markets; availability of credit and third-party financing for
customers; volatility in securities trading markets; economic
downturns; risks associated with suppliers, dealer and other
partner alliances; changes in cost competitiveness including
those resulting from foreign currency movements; technological
advances by competitors; increased warranty and product
liability expenses; compliance with environmental and safety
regulations; restrictive debt covenants; disruptions in the
supply of parts or components from sole source suppliers and
subcontractors; retention of key employees and general changes
in the competitive environment. These risks and uncertainties
include, but are not limited to, the risk factors described
under Item 1A, Risk Factors, in this
Form 10-K.
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.
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 Signals portfolio of products includes safety and
security systems, vacuum loader vehicles, street sweepers, truck
mounted aerial platforms and waterblasters. Federal Signal
Corporation and its subsidiaries (referred to collectively as
the Company or Company herein, unless
context otherwise indicates) operate 19 manufacturing facilities
in 7 countries around the world serving customers in
approximately 100 countries in all regions of the world.
Narrative
Description of Business
Products manufactured and services rendered by the Company are
divided into three major operating segments: Safety and Security
Systems, Fire Rescue and Environmental Solutions. The individual
operating companies 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 Companys three
operating segments as of December 31, 2009 and 2008, and
for each of the three years in the period ended,
December 31, 2009 are included in Note 16 to the
Consolidated Financial Statements included under Item 8 of
Part II of this
Form 10-K,
and incorporated herein by reference. Information regarding the
Companys 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 incorporated herein by reference.
Safety
and Security Systems Group
Federal Signal Corporations Safety and Security Systems
Group designs, manufactures and deploys comprehensive safety and
security systems and products that help law enforcement,
fire/rescue and Emergency Medical Services, emergency operations
and industrial plant/facility first responders protect people,
property and the environment.
Offerings include systems for automated license plate
recognition, campus and community alerting, emergency vehicles,
first responder interoperable communications, industrial
communications and command, municipal networked security,
vehicle classification and parking revenue and access control
for municipal, governmental and industrial applications.
Specific products include access control devices, lightbars and
sirens, public warning sirens, public safety software and
automated license plate recognition cameras.
Products are sold under the Federal Signal, Federal Signal VAMA,
Federal APD, PIPS, Idris, Target Tech and Victor brand names.
The group operates manufacturing facilities in North America,
Europe and South Africa. Many of the groups products are
designed in accordance with various regulatory codes and
standards and meet agency approvals such as Underwriters
Laboratory (UL), International Electrotechnical Commission (IEC)
and American Bureau of Shipping (ABS).
In 2009, the Company acquired Diamond Consulting Services Ltd.
(DCS) which specializes in vehicle classification
systems for tolling and other Intelligent Transportation Systems
(ITS).
Segment results have been restated for all periods presented to
exclude the operations of the groups Pauluhn business
which were reclassified as discontinued operations and sold in
2009.
Fire
Rescue Group
The Fire Rescue Group is the world leader in designing and
manufacturing 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 groups telescopic/
1
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.
Segment results have been restated for all periods presented to
exclude the operations of the groups
E-ONE
business which were reclassified as discontinued operations and
sold in 2008.
Environmental
Solutions Group
The Environmental Solutions Group manufactures and markets
worldwide a full range of street cleaning and vacuum loader
vehicles and high-performance water blasting equipment. Products
are also manufactured for the newer markets of hydro-excavation,
glycol recovery and surface cleaning. Products are sold under
the Elgin, Vactor, Guzzler and Jetstream brand names. The group
primarily manufactures its vehicles and equipment in the
United States.
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 for cleaning. 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 water blast
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.
Segment results have been restated for all periods presented to
exclude the operation of the groups Ravo business which
was reclassified as discontinued operations and sold in 2009.
Tool
Group
In 2008, the Company sold the remaining businesses within the
Tool Group, referred to collectively as Die and Mold
Operations. The results of the Die and Mold Operations are
reported within discontinued operations for all periods
presented.
Financial
Services
The Company ceased entering into new financial services
activities in 2008 and sold 92% of its municipal lease portfolio
during 2008. The operating results and gain recorded upon sale
are reported within discontinued operations. At
December 31, 2009, the remaining leases and floor plan
receivable balances, net of reserves, of $2.6 million were
included on the balance sheet as Assets of Discontinued
Operations.
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 900 active independent distributors as well as through
original equipment manufacturers and direct sales. International
sales are made through the groups independent foreign
distributors or on a direct basis. The Company also sells
comprehensive integrated warning, interoperable communications
and parking systems through a combination of a direct sales
force and distributors.
Fire Rescue and Environmental Solutions 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.
2
Customers
and Backlog
Approximately 37%, 21% and 42% of the Companys total 2009
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 Companys business.
The Companys U.S. municipal and government customers
depend on tax revenues to support spending. A sluggish
industrial economy, therefore, will eventually impact a
municipalitys revenue base as tax receipts decline due to
higher levels of unemployment and declining profits.
Additionally, a decline in housing prices may yield lower
property tax receipts. During 2009, the Companys
U.S. municipal and government orders declined 14% from
2008, compared to a 12% decrease in these orders in 2008
compared to 2007.
Orders to the U.S. commercial and industrial segment relate
to the energy industries, principally oil and gas production and
coal mining, to industrial contractors and rental companies and
to parking operators.
Approximately 80% of orders to
non-U.S. customers
flow to municipalities and governments while approximately 20%
flow to industrial and commercial customers. The municipal and
government segment is essentially similar to the U.S. in
that it is largely dependent on tax revenues to support
spending. Of the
non-U.S. orders,
the Company typically sells approximately 47% of its products in
Europe, 16% in the Middle East and Africa, 14% in Canada and
less than 10% in any other particular region.
The Companys backlog totaled $171 million at
December 31, 2009, which averages to nearly three months of
shipments overall. Backlogs vary by group due to the nature of
the Companys products and buying patterns of its
customers. Safety and Security Systems typically maintains an
average backlog of two months of shipments, Environmental
Solutions three to four months of shipments and Fire Rescue
normally six months of shipments.
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 availability, price and quality
risk, 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 to its business in the event of supply
problems.
Components critical to the production of the Companys
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 groups
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 groups
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
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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.
Research
and Development
The information concerning the Companys research and
development activities included in Note 16 of the
Consolidated Financial Statements included under Item 8 of
Part II of this
Form 10-K
is incorporated herein by reference.
Patents
and Trademarks
The Company owns a number of patents and possesses rights under
others to which it attaches importance, but does not believe
that its business as a whole is materially dependent upon any
such patents or rights. The Company also owns a number of
trademarks that it believes are important in connection with the
identification of its products and associated goodwill with
customers, but no material part of the Companys business
is dependent on such trademarks.
Employees
The Company employed approximately 2,600 people in ongoing
businesses at the close of 2009. Approximately 32% of the
Companys domestic hourly workers were represented by
unions at December 31, 2009. 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 2009 attributable to compliance with such laws
were not material. The Company believes that the overall impact
of compliance with environmental regulations will not have a
material adverse effect on its future operations.
Seasonality
Certain of the Companys businesses are susceptible to the
influences of seasonal buying or delivery patterns causing lower
sales typically in both the first and third calendar quarters
compared to other quarters. The Companys businesses which
tend to experience this seasonality include aerial platforms and
European light bars and sirens.
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. Additionally, the
Company makes its proxy statement and its Annual Report to
stockholders available at the same internet website
(http://www.federalsignal.com),
free of charge, when sent to stockholders prior to the meeting
date. All of the Companys filings may be read or copied at
the SECs Public Reference Room at 100 F. Street, N.E.,
Washington, DC 20549. Information on the operation of the Public
Reference Room can be obtained by calling the SEC 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.
We may occasionally make forward-looking statements and
estimates such as forecasts and projections of our future
performance or statements of our plans and objectives. These
forward-looking statements may be contained in, among other
things, filings with the Securities and Exchange Commission,
including this Annual Report on
4
Form 10-K,
press releases made by us and in oral statements made by our
officers. Actual results could differ materially from those
contained in such forward-looking statements. Important factors
that could cause our actual results to differ from those
contained in such forward-looking statements include, among
other things, the risks described below.
The
execution of our growth strategy is dependent upon the continued
availability of credit and
third-party
financing arrangements for our customers.
The recent economic downturn has resulted in tighter credit
markets, which could adversely affect our customers
ability to secure the financing necessary to proceed or continue
with purchases of our products and services. Our customers
or potential customers inability to secure financing for
projects could result in the delay, cancellation or down-sizing
of new purchases or the suspension of purchases already under
contract, which could cause a decline in the demand for our
products and services and negatively impact our revenues and
earnings.
We rely
on access to financial markets to finance a portion of our
working capital requirements and support our liquidity needs.
Access to these markets may be adversely affected by factors
beyond our control, including turmoil in the financial services
industry, volatility in securities trading markets and general
economic downturns.
We draw upon our revolving credit facility and our operating
cash flow to fund working capital needs, capital expenditures,
strategic acquisitions, pension contributions, debt repayments,
share repurchases and dividends. Market disruptions such as
those recently experienced in the United States and abroad have
materially impacted liquidity in the credit and debt markets,
making financing terms for borrowers less attractive and in
certain cases have resulted in the unavailability of certain
types of financing. Continued uncertainty in the financial
markets may negatively impact our ability to access additional
financing or to refinance our existing credit facility or
existing debt arrangements on favorable terms or at all, which
could negatively affect our ability to fund current and future
operations as well as future acquisitions and development. These
disruptions may include turmoil in the financial services
industry, unprecedented volatility in the markets where our
outstanding securities trade, and general economic downturns in
the areas where we do business. If we are unable to access
monies at competitive rates, or if our short-term or long-term
borrowings costs dramatically increase, our ability to finance
our operations, meet our short-term obligations and implement
our operating strategy could be adversely affected.
Our
financial results are subject to considerable
cyclicality.
Our ability to be profitable depends heavily on varying
conditions in the United States government and municipal markets
and the overall United States economy. The industrial markets in
which we compete are subject to considerable cyclicality, and
move in response to cycles in the overall business environment.
Many of our customers are municipal governmental agencies, and
as such, we are dependent on municipal government spending.
Spending by our municipal customers can be affected by local
political circumstances, budgetary constraints, and other
factors. The United States government and municipalities depend
heavily on tax revenues as a source of their spending and,
accordingly, there is a historical correlation, of a one or two
year lag between the overall strength of the United States
economy and our sales to the United States government and
municipalities. Therefore, downturns in the United States
economy are likely to result in decreases in demand for our
products. During previous economic downturns, we experienced
decreases in sales and profitability, and we expect our business
to remain subject to similar economic fluctuations in the future.
The
inability to obtain raw materials, component parts, and/or
finished goods in a timely 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 or increases in the costs of
purchased raw materials, component parts or finished goods could
result in manufacturing interruptions, delays, inefficiencies or
our inability to market products. In addition, our profit
margins would decrease if prices of purchased raw materials,
component parts or finished goods increase and we are unable to
pass on those increases to our customers.
5
We
operate in highly competitive markets.
The markets in which we operate are highly competitive. The
intensity of this competition, which is expected to continue,
can result in price discounting and margin pressures throughout
the industry and adversely affects our ability to increase or
maintain prices for our products. In addition, certain of our
competitors may have lower overall labor or material costs.
We have
international operations that are subject to foreign economic
and political uncertainties.
Our business is subject to fluctuations in demand and changing
international economic and political conditions which are beyond
our control. During 2009, approximately 44% of our sales were to
customers outside the United States; with approximately 31%
of sales being supplied from our overseas operations. We expect
a significant and increasing portion of our revenues and profits
to come from international sales for the foreseeable future.
Operating in the international marketplace exposes us to a
number of risks, including abrupt changes in foreign government
policies and regulations and, in some cases, international
hostilities. To the extent that our international operations are
affected by unexpected and adverse foreign economic and
political conditions, we may experience project disruptions and
losses which could significantly reduce our revenues and profits.
Some of our contracts are denominated in foreign currencies,
which result in additional risk of fluctuating currency values
and exchange rates, hard currency shortages and controls on
currency exchange. Although currency exposure is hedged in the
short term, over the longer term changes in the value of foreign
currencies could increase our U.S. dollar costs for, or
reduce our U.S. dollar revenues from, our foreign
operations. Any increased costs or reduced revenues as a result
of foreign currency fluctuations could affect our profits.
Failure
to keep pace with technological developments may adversely
affect our operations.
We are engaged in an industry which will be affected by future
technological developments. The introduction of products or
processes utilizing new technologies could render our existing
products or processes obsolete or unmarketable. Our success will
depend upon our ability to develop and introduce on a timely and
cost-effective basis new products, processes and applications
that keep pace with technological developments and address
increasingly sophisticated customer requirements. We may not be
successful in identifying, developing and marketing new
products, applications and processes and product or process
enhancements. We may experience difficulties that could delay or
prevent the successful development, introduction and marketing
of product or process enhancements or new products, applications
or processes. Our products, applications or processes may not
adequately meet the requirements of the marketplace and achieve
market acceptance. Our business, operating results and financial
condition could be materially and adversely affected if we were
to incur delays in developing new products, applications or
processes or product or process enhancements or if our products
do not gain market acceptance.
Our
ability to operate effectively could be impaired if we fail to
attract and retain key personnel.
Our ability to operate our businesses and implement our
strategies depends, in part, on the efforts of our executive
officers and other key employees. In addition, our future
success will depend on, among other factors, our ability to
attract and retain qualified personnel, including finance
personnel, research professionals, technical sales professionals
and engineers. The loss of the services of any key employee or
the failure to attract or retain other qualified personnel could
have a material adverse effect on our business or business
prospects.
We may
incur material losses and costs as a result of product
liability, warranty, recall claims or other lawsuits or claims
that may be brought against us.
We are exposed to product liability and warranty claims in the
normal course of business in the event that our products
actually or allegedly fail to perform as expected or the use of
our products results, or is alleged to result, in bodily injury
and/or
property damage. Accordingly, we could experience material
warranty or product liability costs in the future and incur
significant costs to defend against these claims. We carry
insurance and maintain reserves for product liability claims.
However, we cannot be assured that our insurance coverage will
be adequate if such claims do arise, and any liability not
covered by insurance could have a material adverse impact on our
results
6
of operations and financial position. A future claim could
involve the imposition of punitive damages, the award of which,
pursuant to state laws, may not be covered by insurance. In
addition, warranty or other claims are not typically covered by
insurance coverage. Any product liability or warranty issues may
adversely impact our reputation as a manufacturer of high
quality, safe products and may have a material adverse effect on
our business.
The costs
associated with complying with environmental and safety
regulations could lower our margins.
We, like other manufacturers, continue to face heavy
governmental regulation of our products, especially in the areas
of the environment and employee health and safety. Complying
with environmental and safety requirements has added and will
continue to add to the cost of our products, and could increase
the capital required. While we believe that we are in compliance
in all material respects with these laws and regulations, we may
be adversely impacted by costs, liabilities or claims with
respect to our operations under existing laws or those that may
be adopted. These requirements are complex, change frequently
and have tended to become more stringent over time. Therefore,
we could incur substantial costs, including cleanup costs, fines
and civil or criminal sanctions as a result of violations, or
liabilities under, environmental laws and safety regulations.
We may be
required to recognize impairment charges for our goodwill and
other indefinite lived intangible assets.
In accordance with generally accepted accounting principles, we
periodically assess our goodwill and other indefinite lived
intangible assets to determine if they are impaired. Significant
negative industry or economic trends, disruptions to our
business, unexpected significant changes or planned changes in
use of the assets and market capitalization declines may result
in impairments to goodwill and other long lived assets. Future
impairment charges could significantly affect our results of
operations in the periods recognized. Impairment charges would
also reduce our consolidated shareholders equity and
increase our
debt-to-total-capitalization
ratio, which may result in an event of default on our credit
facility and other debt facilities. Upon an event of default, if
not waived by our lenders, our lenders may declare all amounts
outstanding as due and payable.
We are
subject to a number of restrictive debt covenants.
Our credit facility and other debt instruments contain certain
restrictive debt covenants and other customary events of default
that may hinder our ability to continue operating or to take
advantage of attractive business opportunities. These
restrictive covenants include, among other things, an interest
coverage ratio of 3.00:1 in all quarters and a maximum
debt-to-total-capitalization
ratio of 0.5:1.0. Our ability to comply with these restrictive
covenants may be affected by the other factors described in this
Risk Factors section and other factors outside our
control. Failure to comply with one or more of these restrictive
covenants may result in an event of default. Upon an event of
default, if not waived by our lenders, our lenders may declare
all amounts outstanding as due and payable. If we are unable to
comply with the restrictive covenants in the future, we would be
required to obtain further modifications from our lenders or
secure another source of financing. If our current lenders
accelerate the maturity of our indebtedness, we may not have
sufficient capital available at that time to pay the amounts due
to our lenders on a timely basis. In addition, these restrictive
covenants may prevent us from engaging in transactions that
benefit us, including responding to changing business and
economic conditions and taking advantage of attractive business
opportunities.
Our
strategy to pursue growth through selective acquisitions may not
be successful.
Our long-term strategy includes expanding into adjacent markets
through selective acquisitions of companies, complementary
technologies and organic growth. This strategy may involve the
acquisition of companies that enable us to build on our existing
strength in a market or that give us access to proprietary
technologies that are strategically valuable or allows us to
leverage our distribution channels. In connection with this
strategy, we could face certain risks and uncertainties in
addition to those we face in the
day-to-day
operations of our business. The acquisitions that we may
consider may not be successfully consummated. Our acquisition
activities can be disrupted by overtures from competitors for
the targeted candidates, governmental regulation and rapid
developments in our industry. We may face additional risks and
uncertainties following an acquisition including: (i) the
difficulty in integrating the newly-acquired business and
operations in an efficient and effective manner; (ii) the
7
inability to achieve strategic objectives, cost savings,
expected levels of profitability and other benefits from the
acquisition; (iii) the lack of success by the acquired
business in its markets; (iv) the loss of key employees of
the acquired business; (v) the diversion of the attention
of senior management from our operations; and (vi) the
liabilities that were not known at the time of the acquisition
or the need to address tax or accounting issues. If we fail to
timely recognize or address these matters or to devote adequate
resources to them, we may fail to achieve our growth strategy or
otherwise realize the intended benefits of the acquisition. Even
if we are unable to integrate our business operations
successfully, the integration may not result in the realization
of the full benefits of synergies, cost savings, profitability,
innovation and operational efficiencies that may be possible
from the integration or that the benefits will be achieved
within the forcasted period of time. In addition, our
acquisition activities could require us to secure additional
debt or equity financing, which we may not be able to secure on
favorable terms or at all.
Our
efforts to develop new products and services or enhance existing
products and services involve substantial research, development
and marketing expenses, and the resulting new or enhanced
products or services may not generate sufficient revenues to
justify the expense.
We place a high priority on developing new products and
services, as well as enhancing our existing products and
services. As a result of these efforts, we may be required to
expend substantial research, development and marketing
resources, and the time and expense required to develop a new
product or service or enhance an existing product or service are
difficult to predict. We may not succeed in developing,
introducing or marketing new products or services or product or
service enhancements. In addition, we cannot be certain that any
new or enhanced product or service will generate sufficient
revenue to justify the expense and resources devoted to this
product diversification effort.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
As of December 31, 2009, the Company utilized 8 principal
manufacturing plants located throughout North America, as
well as 9 in Europe, 1 in South Africa and 1 in the Far East.
In total, the Company devoted approximately 1.1 million
square feet to manufacturing and 0.7 million square feet to
service, warehousing and office space as of December 31,
2009. Of the total square footage, approximately 43% is devoted
to the Safety and Security Systems Group, 9% to the Fire Rescue
Group and 48% to the Environmental Solutions Group.
Approximately 18% of the total square footage is owned by the
Company with the remaining 82% being leased.
All of the Companys 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
Companys current business needs.
|
|
Item 3.
|
Legal
Proceedings.
|
The information concerning the Companys 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.
|
Submission
of Matters to a Vote of Security Holders.
|
No matters were submitted to a vote of security holders through
the solicitation of proxies or otherwise during the three months
ended December 31, 2009.
8
|
|
Item 4A.
|
Executive
Officers.
|
The following is a list of the Companys executive
officers, their ages, business experience and positions and
offices as of February 1, 2010:
William H. Osborne, age 49, was appointed Chief Executive
Officer and President in September 2008 and elected to the Board
of Directors in April 2009. Mr. Osborne was President and
Chief Executive Officer of Ford of Australia in 2008. From 2005
to 2008 Mr. Osborne was the President and Chief Executive
Officer of Ford of Canada and from 2003 to 2005 he was the
Executive Director, Pickup Truck and Commercial Vehicles, North
American Truck Business of Ford Motor Company.
William G. Barker, III, age 51, was appointed Senior
Vice President and Chief Financial Officer in December 2008.
Mr. Barker was Senior Vice President and Chief Financial
Officer of Sun-Times Media Group from 2007 to 2008. He was Vice
President, Finance and Strategy, Gatorade of PepsiCo, Inc. from
2001 to 2007.
David E. Janek, age 46, was appointed Vice President and
Controller in August 2008. Mr. Janek was Vice President and
Treasurer from 2006 to 2008 and was Vice President Finance,
Safety and Security Systems Group from 2002 to 2006.
Fred H. Lietz, age 54, was appointed Vice President and
Chief Procurement Officer in May 2007. Mr. Lietz was Vice
President of Global Procurement and Logistics at Andrew
Corporation from 2001 to 2006.
Esa Peltola, age 58, was appointed President of Bronto
Skylift Oy Ab in July 2007. Mr. Peltola was Managing
Director of Bronto Skylift from 1998 to 2007.
Jennifer L. Sherman, age 45, was appointed Senior Vice
President, Human Resources, General Counsel and Secretary in
April 2008. Ms. Sherman was Vice President, General Counsel
and Secretary from 2004 to 2007 and was Deputy General Counsel
and Assistant Secretary from 1998 to 2004.
Mark D. Weber, age 52, was appointed President of the
Environmental Solutions Group in April 2003. Mr. Weber was
Vice President Sweeper Products for the Environmental Solutions
Group from 2002 to 2003 and General Manager of Elgin Sweeper
Company from 2001 to 2002.
These officers hold office until the next annual meeting of the
Board of Directors following their election and until their
successors have been elected and qualified.
There are no family relationships among any of the foregoing
executive officers.
PART II
|
|
Item 5.
|
Market
for Companys Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
The Companys common stock is listed and traded on the New
York Stock Exchange (NYSE) under the symbol FSS. At
December 31, 2009, there were no material restrictions on
the Companys ability to pay dividends. The information
concerning the Companys 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.
As of January 31, 2010, there were 2,556 holders of record
of the Companys common stock.
9
The graph below matches Federal Signal Corporations
cumulative
5-year total
shareholder return on common stock with the cumulative total
returns of the Russell 2000 index, the S&P Industrials
index, and the S&P Midcap 400 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, 2004 to December 31, 2009.
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 12/31/04 in stock or index, including
reinvestment of dividends. Fiscal year ending December 31.
Copyright
©
2010 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
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|
|
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|
|
|
|
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|
|
|
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|
|
|
|
12/04
|
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|
12/05
|
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|
12/06
|
|
|
12/07
|
|
|
12/08
|
|
|
12/09
|
Federal Signal Corporation
|
|
|
|
100.00
|
|
|
|
|
86.26
|
|
|
|
|
93.58
|
|
|
|
|
66.59
|
|
|
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|
49.77
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|
|
|
|
38.02
|
|
Russell 2000
|
|
|
|
100.00
|
|
|
|
|
104.55
|
|
|
|
|
123.76
|
|
|
|
|
121.82
|
|
|
|
|
80.66
|
|
|
|
|
102.58
|
|
S&P Midcap 400
|
|
|
|
100.00
|
|
|
|
|
112.55
|
|
|
|
|
124.17
|
|
|
|
|
134.08
|
|
|
|
|
85.50
|
|
|
|
|
117.46
|
|
S&P Industrials
|
|
|
|
100.00
|
|
|
|
|
102.33
|
|
|
|
|
115.93
|
|
|
|
|
129.87
|
|
|
|
|
78.02
|
|
|
|
|
94.35
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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.
The information concerning the Companys 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 Companys Board of
Directors and will depend, among other things, upon future
earnings and cash flows, capital requirements, the
Companys general financial condition, general business
conditions and other factors. Accordingly, the Companys
Board of Directors may at any time reduce or eliminate the
Companys quarterly dividend based on these factors.
10
|
|
Item 6.
|
Selected
Financial Data.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating Results ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(a)
|
|
$
|
752.5
|
|
|
$
|
879.0
|
|
|
$
|
854.8
|
|
|
$
|
720.8
|
|
|
$
|
636.2
|
|
Income before income taxes(a)
|
|
|
22.3
|
|
|
|
20.7
|
|
|
|
47.1
|
|
|
|
34.9
|
|
|
|
36.0
|
|
Income from continuing operations(a)
|
|
|
17.7
|
|
|
|
27.2
|
|
|
|
35.1
|
|
|
|
26.8
|
|
|
|
38.6
|
|
Operating margin(a)
|
|
|
4.4
|
%
|
|
|
5.7
|
%
|
|
|
8.0
|
%
|
|
|
6.8
|
%
|
|
|
8.0
|
%
|
Return on average common shareholders equity
|
|
|
7.5
|
%
|
|
|
(25.9
|
)%
|
|
|
13.1
|
%
|
|
|
5.7
|
%
|
|
|
(1.2
|
)%
|
Common Stock Data (per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations diluted
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
|
$
|
0.56
|
|
|
$
|
0.80
|
|
Cash dividends per share
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
Market price range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
9.30
|
|
|
$
|
17.50
|
|
|
$
|
17.00
|
|
|
$
|
19.75
|
|
|
$
|
17.95
|
|
Low
|
|
|
3.73
|
|
|
|
5.10
|
|
|
|
10.82
|
|
|
|
12.69
|
|
|
|
13.80
|
|
Average common shares outstanding (in millions)
|
|
|
48.6
|
|
|
|
47.7
|
|
|
|
47.9
|
|
|
|
48.0
|
|
|
|
48.2
|
|
Financial Position at Year-End (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(a)(b)
|
|
$
|
113.0
|
|
|
$
|
148.0
|
|
|
$
|
83.4
|
|
|
$
|
42.9
|
|
|
$
|
52.0
|
|
Current ratio(a)(b)
|
|
|
1.7
|
|
|
|
1.9
|
|
|
|
1.4
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Total assets
|
|
|
744.9
|
|
|
|
839.0
|
|
|
|
1,172.9
|
|
|
|
1,054.3
|
|
|
|
1,122.8
|
|
Long-term debt, net of current portion
|
|
|
159.7
|
|
|
|
241.2
|
|
|
|
240.7
|
|
|
|
160.3
|
|
|
|
203.7
|
|
Shareholders equity
|
|
|
328.7
|
|
|
|
287.1
|
|
|
|
447.3
|
|
|
|
388.6
|
|
|
|
378.4
|
|
Debt-to-capitalization
ratio(c)
|
|
|
38.0
|
%
|
|
|
49.3
|
%
|
|
|
39.2
|
%
|
|
|
36.7
|
%
|
|
|
42.2
|
%
|
Net
debt-to-capitalization
ratio(d)
|
|
|
35.4
|
%
|
|
|
46.1
|
%
|
|
|
38.2
|
%
|
|
|
35.0
|
%
|
|
|
32.8
|
%
|
Other (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orders(a)
|
|
$
|
639.7
|
|
|
$
|
860.9
|
|
|
$
|
920.1
|
|
|
$
|
782.5
|
|
|
$
|
632.2
|
|
Backlog(a)
|
|
|
170.5
|
|
|
|
290.2
|
|
|
|
319.9
|
|
|
|
237.2
|
|
|
|
168.8
|
|
Net cash provided by operating activities
|
|
|
62.4
|
|
|
|
123.7
|
|
|
|
65.4
|
|
|
|
29.7
|
|
|
|
70.6
|
|
Net cash provided by (used for) investing activities
|
|
|
31.0
|
|
|
|
54.6
|
|
|
|
(106.6
|
)
|
|
|
(19.3
|
)
|
|
|
(0.7
|
)
|
Net cash (used for) provided by financing activities
|
|
|
(96.5
|
)
|
|
|
(166.7
|
)
|
|
|
36.8
|
|
|
|
(83.0
|
)
|
|
|
7.1
|
|
Capital expenditures(a)
|
|
|
14.6
|
|
|
|
28.0
|
|
|
|
19.5
|
|
|
|
11.7
|
|
|
|
7.5
|
|
Depreciation and amortization(a)
|
|
|
15.3
|
|
|
|
14.9
|
|
|
|
13.3
|
|
|
|
8.8
|
|
|
|
9.0
|
|
Employees(a)
|
|
|
2,614
|
|
|
|
3,034
|
|
|
|
3,198
|
|
|
|
2,915
|
|
|
|
2,737
|
|
|
|
|
(a) |
|
continuing operations only, prior year amounts have been
reclassified for discontinued operations as discussed in
Note 13 to the Consolidated Financial Statements |
|
(b) |
|
working capital: current assets less current liabilities;
current ratio: current assets divided by current liabilities |
|
(c) |
|
total debt divided by the sum of total debt plus equity |
|
(d) |
|
net debt to capitalization ratio: debt less cash and cash
equivalents and short-term investments divided by equity plus
debt less cash and cash equivalents and short-term investments |
11
The 2009 and 2008 income before income taxes includes
restructuring costs of $1.5 million and $2.7 million,
respectively. 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
Companys decision to terminate funding of a joint venture
in China (China Joint Venture). 2009 operating
income benefitted from $5.8 million in lower legal and
trial costs associated with the Companys ongoing
firefighter hearing loss litigation. The 2005 loss before income
taxes was impacted by a $6.7 million gain on the sale of
two industrial lighting product lines.
The selected financial data set forth above should be read in
conjunction with the Companys 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 Companys 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.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The Company designs and manufactures a suite of products and
integrated solutions for municipal, governmental, industrial and
commercial customers. Federal Signals products include
safety and security systems, vacuum loader vehicles, street
sweepers, truck mounted aerial platforms and waterblasters. Due
to technology, marketing, distribution and product application
synergies, the Companys business units are organized and
managed in three operating segments: Safety and Security
Systems, Fire Rescue and Environmental Solutions. The
information concerning the Companys manufacturing
businesses included in Item 1 of this
Form 10-K
and Note 16 of the Consolidated Financial Statements
contained under Item 8 of Part II of this
Form 10-K
are incorporated herein by reference.
Results
of Operations
Operating results have been restated to exclude the following
operations discontinued during 2009: all RAVO businesses
formerly reported within the Environmental Solutions Group
segment, and all Pauluhn businesses formerly reported within the
Safety and Security Systems Group segment. Information relating
to each of these discontinued operations is presented in
Note 13 of the Consolidated Financial Statements contained
under Item 8 of this
Form 10-K.
Orders
and backlog
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Analysis of orders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total orders ($ in millions):
|
|
$
|
639.7
|
|
|
$
|
860.9
|
|
|
$
|
920.1
|
|
Change in orders year over year
|
|
|
(25.7
|
)%
|
|
|
(6.4
|
)%
|
|
|
17.6
|
%
|
Change in U.S. municipal and government orders year over year
|
|
|
(13.6
|
)%
|
|
|
(12.2
|
)%
|
|
|
5.4
|
%
|
Change in U.S. industrial and commercial orders year over year
|
|
|
(37.9
|
)%
|
|
|
(8.0
|
)%
|
|
|
11.4
|
%
|
Change in
non-U.S.
orders year over year
|
|
|
(27.6
|
)%
|
|
|
(0.7
|
)%
|
|
|
35.1
|
%
|
Orders in 2009 fell 26% compared to 2008 reflecting weakness
across all segments and most markets due to the global economic
recession. U.S. municipal and government orders decreased
14% in 2009 primarily as a result of decreased orders of sewer
cleaners of $16.8 million, first responder products of
$9.5 million, sweepers of $5.2 million, and a
$5.5 million decline in outdoor warning systems.
U.S. industrial and commercial orders decreased 38% driven
by a $51.5 million reduction in orders for vacuum trucks
and a $12.8 million reduction in orders for Safety and
Security Systems products.
Non-U.S. orders
decreased 28% as compared to prior year primarily due to a
decrease in Bronto aerial platforms of approximately
$63.1 million and a $26.0 million decline in Safety
and Security Systems products.
Non-U.S. orders
declined 26% when excluding the effect of unfavorable foreign
currency translation.
U.S. municipal and government orders decreased 12% in 2008
primarily as a result of decreased orders of sweepers of
$22.3 million, sewer cleaners of $13.1 million and a
$12.3 million decline in police products offset by
12
an increase in automated license plate recognition
(ALPR) cameras of $6.1 million.
U.S. industrial and commercial orders decreased 8% driven
by lower orders for sweepers and vacuum trucks of
$21.2 million and a reduction in parking system orders of
$6.1 million, offset by an increase in Bronto aerial
platforms of $4.7 million.
Non-U.S. orders
remained relatively flat as compared to prior year with
increases in ALPR cameras of $15.1 million and European
sweeper orders and water blasters of $1.3 million, offset
by a decrease in Bronto aerial platforms of $16.6 million.
Consolidated
results of operations
The following table summarizes the Companys results of
operations and selected operating metrics for each of the three
years in the period ended December 31 ($ in millions, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
752.5
|
|
|
$
|
879.0
|
|
|
$
|
854.8
|
|
Cost of sales
|
|
|
(558.9
|
)
|
|
|
(643.6
|
)
|
|
|
(623.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
193.6
|
|
|
|
235.4
|
|
|
|
231.0
|
|
Operating expenses
|
|
|
(159.1
|
)
|
|
|
(182.9
|
)
|
|
|
(162.3
|
)
|
Restructuring charges
|
|
|
(1.5
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
33.0
|
|
|
|
49.8
|
|
|
|
68.7
|
|
Interest expense
|
|
|
(11.4
|
)
|
|
|
(15.3
|
)
|
|
|
(18.5
|
)
|
Gain (loss) on investment in joint venture
|
|
|
1.2
|
|
|
|
(13.0
|
)
|
|
|
(3.3
|
)
|
Other (expense) income
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
0.2
|
|
Income tax (expense) benefit
|
|
|
(4.6
|
)
|
|
|
6.5
|
|
|
|
(12.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
17.7
|
|
|
|
27.2
|
|
|
|
35.1
|
|
Gain (loss) from discontinued operations and disposal, net of tax
|
|
|
5.4
|
|
|
|
(122.2
|
)
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
$
|
54.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
4.4
|
%
|
|
|
5.7
|
%
|
|
|
8.0
|
%
|
Earnings per share continuing operations
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
Year
Ended December 31, 2009 vs. December 31,
2008
Net sales decreased 14% or $126.5 million over 2008 as a
direct result of a decrease in volume as the global economic
recession reduced demand for the Companys products across
most market segments. 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 margins fell in 2009 to 25.7% from 26.7%.
Operating income decreased by 34% in 2009 due to lower sales
volumes offset in part by lower spending in both fixed
manufacturing and SG&A of $29.6 million. Included in
operating expenses in 2009 is a $0.7 million charge related
to an environmental remediation issue at the Companys
Pearland, Texas site. Operating income also benefitted from the
absence of $6.9 million in charges to settle a dispute and
write off assets associated with a parking systems contract and
$5.8 million in lower legal and trial costs associated with
the Companys ongoing firefighter hearing loss litigation.
Interest expense decreased 25% from 2008, primarily due to lower
interest rates and lower average borrowings in 2009 from a
reduction in net debt of $65.0 million. The Company paid
down debt using net proceeds of $11.9 million from the sale
of RAVO and $34.0 million from the sale of its 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.
In 2009, the Company recorded a gain of $1.2 million
associated with the shutdown of the China Joint Venture which is
related to the sale of the remaining assets of the business. In
2008, losses on the Companys investment in
13
the China Joint Venture totaled $13.0 million. The
Companys share of operating losses was $0 in 2009 and
$2.6 million in 2008. A charge of $10.4 million was
taken in 2008 to reflect the Companys contingent
obligations to guarantee the debt of the joint venture and to
guarantee the investment of one of its joint venture partners. A
review of the market and forecasts of the joint ventures
cash flows indicated its bank debt was unlikely to be repaid and
it was unlikely to provide a return to the joint venture
partners. In 2009, the partners agreed to voluntarily liquidate
the China Joint Venture.
Other expenses of $0.5 million include realized losses from
foreign currency transactions and on derivatives contracts.
The 2009 effective tax rate on income from continuing operations
increased to 20.6% from (31.4)% in the prior year. The 2008 rate
benefited from a capital loss utilization tax strategy on a
sale/leaseback of real estate properties, the China Joint
Venture shutdown tax benefits, and a higher mix of profits in
lower taxed countries.
The Companys 2009 effective rate of 20.6% reflects a
benefit for the reduction in FIN 48 reserves primarily due
to the completion of an audit of the Companys 2006
U.S. tax return in accordance with Accounting Standards
Codification (ASC) Topic 740, Income
Taxes (FIN 48). The Companys effective rate
also reflects benefits for the R&D tax credit and foreign
tax rate effects.
Income from continuing operations decreased 35% from 2008 due to
lower operating income as described above and a higher effective
tax rate, offset by the benefits of lower interest expense of
$3.9 million and other expense of $0.3 million.
Net income was $23.1 million in 2009 versus a net loss of
$95.0 million in 2008. In 2009, there was an after-tax gain
from discontinued operations of $5.4 million relating to
the sale of the Companys RAVO and Pauluhn businesses. Net
losses from discontinued operations totaled $122.2 million
in 2008 relating primarily to the impairment of assets and sale
of the Companys Die and Mold Operations and
E-ONE. The
Company also discontinued its financial services activities
during 2008 which generated income of $0.3 million. 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.
Year
Ended December 31, 2008 vs. December 31,
2007
Net sales in 2008 increased 3% over 2007, or 2% after removing
the favorable effects of currency translation from a weaker
U.S. dollar. Sales volume increases at Fire Rescue were
largely offset by reductions at Environmental Solutions, Safety
and Security Systems were relatively flat (see segment
discussions below). Gross profit margins fell slightly in 2008
to 26.7% from 27.0% due largely to the absence of a favorable
$1.8 million excise tax settlement which occurred in 2007.
Operating income decreased by 28% in 2008 as the gross profit
increase of $4.4 million was more than offset by an
increase of $20.6 million of operating expenses due to
$9.9 million of higher legal costs associated with the
Companys ongoing firefighter hearing loss litigation,
$6.2 million of increased charges to settle a dispute and
write off assets associated with a parking systems contract and
$2.7 million of restructuring costs largely due to
severance associated with streamlining the management structure.
Interest expense decreased 17% from 2007 primarily due to lower
average borrowings in 2008 from a reduction in net debt of
$30.7 million. The Company paid down debt mostly by using
net proceeds of $59.9 million from the sale of its Tool
Group businesses and $35.8 million from the sale-leaseback
of its Elgin and University Park, Illinois plants. 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.
Losses on the Companys China Joint Venture totaled
$13.0 million in 2008. The Companys share of
operating losses was $2.6 million in 2008 versus
$3.3 million in 2007. A charge of $10.4 million was
taken in 2008 to reflect the Companys contingent
obligations to guaranty the debt of the joint venture and to
guaranty the investment of one of its joint venture partners.
Other expenses of $0.8 million include realized losses from
foreign currency transactions and on derivatives contracts.
14
The 2008 effective tax rate on income from continuing operations
decreased to (31.4)% from 25.4% in the prior year. The 2008 rate
benefited from a capital loss utilization tax strategy on a
sale/leaseback of real estate properties, the China Joint
Venture shutdown tax benefits, and a higher mix of profits in
lower taxed countries.
Income from continuing operations decreased 23% from 2007
primarily as a result of the aforementioned changes in operating
expenses, loss on joint venture and offsetting tax benefits.
Net loss was $95.0 million in 2008 versus net income of
$54.7 million in 2007. Net losses from discontinued
operations totaled $122.2 million in 2008 relating
primarily to the impairment of assets and sale of the
Companys Die and Mold Operations and
E-ONE. The
Company also discontinued its financial services activities
during 2008 which generated income of $0.3 million. A net
gain of $19.6 million on discontinued operations in 2007
resulted primarily from the sale of the Cutting Tool Operations
in that year. For further discussion of the discontinued
operations, see Note 13 of the Consolidated Financial
Statements contained under Item 8 of Part II of this
Form 10-K.
Safety
and Security Systems Operations
The following table presents the Safety and Security Systems
Groups results of operations for each of the three years
in the period ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total orders
|
|
$
|
277.7
|
|
|
$
|
341.3
|
|
|
$
|
339.8
|
|
Net sales
|
|
|
292.7
|
|
|
|
345.9
|
|
|
|
340.4
|
|
Operating income
|
|
|
27.5
|
|
|
|
35.2
|
|
|
|
44.0
|
|
Operating margin
|
|
|
9.4
|
%
|
|
|
10.2
|
%
|
|
|
12.9
|
%
|
Orders declined 19% as compared to the prior year period with
declines in most market segments with the exception of automated
license plate recognition (ALPR) cameras in the
U.S., primarily as a result of the economic recession.
U.S. orders decreased 15% due to softness in oil and gas
markets and decline in municipal spending due to the global
economic recession. 2009 orders in the U.S. decreased
$10.5 million for warning systems, $8.6 million for
police products, $8.3 million for industrial signal and
communication systems, and $4.5 million for parking
systems, offset by an increase of $5.4 million in ALPR
cameras.
Non-U.S. orders
decreased 23% compared to 2008 primarily due to a decline in
vehicular lighting and siren sales of $21.0 million.
Net sales decreased 15% as compared to 2008 with decreases
across all businesses except warning systems, which increased
$1.6 million driven by international and military segments,
and ALPR cameras in the U.S. Operating income in 2009
declined 22% as a result of lower sales volumes and a charge of
$0.7 million related to an environmental remediation issue
at the Companys Pearland, Texas site. Operating expenses
were lower than the prior year by $15.3 million driven by
cost management initiatives implemented in 2009 and the absence
of $5.3 million in charges in 2008 to settle a dispute and
write-off assets associated with a parking system contract.
Operating margins declined 8% compared to the prior year as a
result of the lower sales volumes.
Orders remained relatively flat in 2008 as compared to 2007.
U.S. orders decreased 6% due to weak municipal spending and
a relative softening in the industrial economy compared to 2007.
For 2008, orders in the U.S. fell $12.3 million for
police products, $6.1 million for parking systems, and
$0.7 million for hazardous area lighting products. Partly
offsetting these declines was an increase in orders of
$6.1 million for ALPR cameras made by PIPS Technologies,
which was acquired in the third quarter of 2007.
Non-U.S. orders
in 2008 increased 9% over the prior year or 6% when excluding
the favorable effects of currency translation due to strength in
outdoor warning systems and the addition of PIPS Technologies
acquired in 2007.
Net sales increased 2% in 2008. An increase in shipments of ALPR
cameras during 2008 of $19.2 million and industrial
communications systems of $2.4 million was offset by a
$17.7 million decrease in global vehicular lighting and
siren sales. Operating income in 2008 declined 20% and operating
margins fell, primarily due to $6.2 million of increased
charges to settle a dispute and write off assets associated with
a parking system contract, $1.8 million of employee
severance costs associated with restructuring initiatives, and
$0.8 million associated with other cost reduction
initiatives.
15
Fire
Rescue Operations
The following table presents the Fire Rescue Groups
results of operations for each of the three years in the period
ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total orders
|
|
$
|
96.6
|
|
|
$
|
162.3
|
|
|
$
|
174.1
|
|
Net sales
|
|
|
160.0
|
|
|
|
145.5
|
|
|
|
117.9
|
|
Operating income
|
|
|
19.2
|
|
|
|
10.4
|
|
|
|
7.9
|
|
Operating margin
|
|
|
12.0
|
%
|
|
|
7.1
|
%
|
|
|
6.7
|
%
|
Orders in 2009 decreased 40% from the prior year as the global
economic recession reduced demand for the Companys
products in both fire-lift and industrial markets was weak in
all regions.
Net sales in 2009 increased 10% and 14% excluding currency
translation, compared to the prior year. Unusually high backlog
at the end of 2008 and the recent plant expansion enabled strong
shipment levels especially during the fourth quarter despite the
reduction in orders. Operating income and margin increased 85%
and 70% respectively, due to the increase in sales volumes and
also due to margin improvements related to the plant expansion
and process improvements.
Orders in 2008 decreased 7% compared to 2007 or 15% when
excluding the favorable effects of currency translation.
Brontos entire order decline existed within its industrial
markets, primarily with weakness in Europe.
Net sales in 2008 increased 23% from 2007 or 19% when excluding
the favorable effects of currency translation. Brontos
large backlog, which exceeded 12 months of shipments at the
end of 2007, allowed for strong shipments in 2008 despite a
reduction in orders during the year.
Operating income rose 32% in 2008 and operating margins improved
as a result of the increased sales volumes. Higher product costs
for steel and other components and inefficiencies caused by the
plant expansion offset some of the sales volume impact.
Environmental
Solutions Operations
The following table presents the Environmental Solutions
Groups results of operations for each of the three years
in the period ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total orders
|
|
$
|
265.4
|
|
|
$
|
357.3
|
|
|
$
|
406.2
|
|
Net sales
|
|
|
299.8
|
|
|
|
387.6
|
|
|
|
396.5
|
|
Operating income
|
|
|
14.9
|
|
|
|
34.9
|
|
|
|
37.9
|
|
Operating margin
|
|
|
5.0
|
%
|
|
|
9.0
|
%
|
|
|
9.6
|
%
|
Orders of $265.4 million in 2009 were 26% below the prior
year due to the global economic recession and reduced municipal
and industrial spending. U.S. orders decreased 30% in 2009
from the prior year driven by a $71.3 million reduction in
sewer cleaning and industrial vacuum trucks, a $9.0 million
reduction in water blasters and an $8.4 million reduction
in sweepers.
Non-U.S. orders
decreased 5% due to a weaker market environment for sweepers.
Net sales decreased 23% compared to the prior year period on
lower sales volume in sewer cleaning and industrial vacuum
trucks of $61.3 million, street sweepers of
$16.4 million and waterblasters of $9.7 million. The
flow through of the decline in sales volume resulted in a
$20.0 million reduction in operating income and a lower
operating margin.
In 2008, orders decreased 12% from 2007 as weak municipal and
industrial markets drove a $25.6 million reduction in
sweepers and a $26.7 million reduction in sewer cleaning
and industrial vacuum trucks offset by an increase of
$5.8 million in waterblasters. Net sales in 2008 compared
to 2007 decreased 2% as a decline in U.S sweeper shipments of
$23.6 million more than offset a $13.6 million
increase in global shipments of sewer cleaning and industrial
vacuum trucks.
16
Operating income decreased 8% in 2008 due to lower sales volumes
and the absence of a favorable $1.8 million excise tax
settlement which occurred in 2007.
Corporate
Expense
Corporate expenses totaled $28.6 million in 2009,
$30.7 million in 2008 and $21.1 million in 2007. The
7% decrease in 2009 is due to $5.8 million in lower legal
and trial costs associated with the Companys ongoing
firefighter hearing loss litigation offset by $2.6 million
associated with the costs for a proxy contest initiated by an
activist shareholder. Other offsetting amounts include higher
bonus costs of approximately $1.2 million.
The 45% increase in 2008 expense is primarily due to
$9.9 million of higher legal costs associated with the
Companys ongoing firefighter hearing loss litigation and
$1.5 million of costs associated with the hiring of a new
chief executive officer and chief financial officer, reduced by
lower bonus and stock-based compensation costs of
$1.8 million.
The hearing loss litigation has historically been managed by the
Companys legal staff resident at the corporate office and
not by management at any reporting segment. In accordance with
ASC Topic 280, Segment Reporting
(SFAS No. 131), 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
subsidiaries is a named party to these lawsuits.
Legal
Matters
The Company has been sued by over 2,500 firefighters in numerous
separate cases alleging that exposure to the Companys
sirens impaired their hearing. The Company contests the
allegations. Over 100 cases have been dismissed in Cook County
including 27 by way of verdict. The Company continues to
aggressively defend the matter. For further details regarding
this and other legal matters, refer to Note 15 in the
Consolidated Financial Statements included in Item 8 of
Part II of this
Form 10-K.
Financial
Condition, Liquidity and Capital Resources
During each of the three years in the period ended
December 31, 2009, the Company used its cash flows from
operations to pay cash dividends 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 Companys cash and cash equivalents totaled
$21.1 million, $23.4 million and $12.5 million as
of December 31, 2009, 2008 and 2007, respectively. The
following table summarizes the Companys cash flows for
each of the three years in the period ended December 31 ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating cash flow
|
|
$
|
62.4
|
|
|
$
|
123.7
|
|
|
$
|
65.4
|
|
Proceeds from sale of properties, plant and equipment
|
|
|
4.0
|
|
|
|
38.0
|
|
|
|
0.6
|
|
Capital expenditures
|
|
|
(14.6
|
)
|
|
|
(28.0
|
)
|
|
|
(19.5
|
)
|
Payments for acquisitions, net of cash acquired
|
|
|
(13.5
|
)
|
|
|
|
|
|
|
(147.5
|
)
|
Gross proceeds from sale of discontinued businesses
|
|
|
47.1
|
|
|
|
65.9
|
|
|
|
65.4
|
|
Borrowing activity, net
|
|
|
(77.7
|
)
|
|
|
(20.1
|
)
|
|
|
59.6
|
|
Dividends
|
|
|
(11.7
|
)
|
|
|
(11.5
|
)
|
|
|
(11.5
|
)
|
Purchases of treasury stock
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
Payments for discontinued financing activities
|
|
|
(7.3
|
)
|
|
|
(129.3
|
)
|
|
|
(11.7
|
)
|
All other, net
|
|
|
9.0
|
|
|
|
(21.8
|
)
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash
|
|
$
|
(2.3
|
)
|
|
$
|
10.9
|
|
|
$
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Operating cash flow decreased $61.3 million in 2009
compared to 2008. The decrease in 2009 was driven by a
$127.0 million decrease in cash from discontinued operating
activities offset by an increase of $65.7 million in cash
provided by continuing operating activities. In 2009 the Company
discontinued its RAVO and Pauluhn businesses and in 2008, the
Company discontinued its Die and Mold Operations,
E-ONE
business and Financial Services activities which generated cash
of $126.2 million during the year. In 2008, approximately
92% of the Companys municipal leases were sold for net
cash proceeds of approximately $94.0 million. The increase
in cash provided by continuing operations of $65.7 million
in 2009 was caused primarily by a decrease in accounts
receivable and inventories, lower pension contributions and a
gain on the China Joint Venture due to the liquidation of assets.
Proceeds from the sale of properties, plant and equipment in
2008 are primarily the result of net cash proceeds of
$35.8 million received from a sale-leaseback of the
Companys Elgin and University Park, Illinois plants.
Capital expenditures decreased $13.4 million in 2009
compared to 2008 due primarily to the expansion of the
Companys plants in Pori, Finland and in Streator, Illinois
that occurred in 2008. Capital expenditures rose
$8.5 million in 2008 from 2007 again largely due to these
plant expansions.
In 2009, the Company acquired Diamond Consulting Services Ltd.
for $13.5 million in cash. See Note 11 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 RAVO and Pauluhn businesses, included in discontinued
operations in 2009, and sold for net proceeds of
$45.1 million in cash. See Note 13 of the notes to the
Consolidated Financial Statements for additional information on
the sale of RAVO and Pauluhn busineses.
In 2008, the Company divested its Die and Mold Operations and
E-ONE
business for net cash proceeds of $59.9 million and a
payment of $0.6 million, respectively. Gross proceeds from
the sale of
E-ONE were
$3.4 million, of which $0.5 million had been received
at December 31, 2008.
In 2009, net borrowings decreased $77.7 million, largely
upon paydowns upon the receipt of cash from the RAVO and Pauluhn
businesses included in discontinued operations in 2009. In 2008,
net borrowings decreased $20.1 million, largely upon
receipt of cash from the aforementioned sale of its municipal
leasing portfolio which was included in discontinued operations
in 2008 and the aforementioned sale leaseback transactions. In
2007, net borrowings increased $59.6 million due to the
acquisition of PIPS Technologies in the second half of the year.
Payments for discontinued financing activities of
$129.3 million in 2008 reflect the repayment of financial
service borrowings as a result of the Companys decision to
exit the municipal lease financing business.
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. The prepayment was funded by the
Companys available capacity under its revolving credit
facility.
The Global Amendment included changes to the Notes coupon
interest rates. The coupon interest rates on the Notes were
increased by 100 basis points upon execution of the Global
Amendment. On January 1, 2010, the outstanding
Notes coupon interest rates will increase by an additional
100 basis points. On April 1, 2010,
the outstanding Notes coupon interest rates will
increase an additional 200 basis points if the
Companys private placement debt rating does not improve by
one rating level on or before this date.
The Global Amendment also included changes and additions to
various covenants within the Note Agreements. Financial
covenants were modified to more closely align with those
included in the Companys revolving credit facility
agreement, which allows for the exclusion of various charges
when computing covenants for minimum net worth and maximum debt
to capitalization.
Aggregate maturities of total borrowings amount to approximately
$41.9 million in 2010, $10.5 million in 2011,
$144.6 million in 2012 and $7.1 million in 2013. The
fair values of these borrowings aggregated $204.9 million
and $286.3 million at December 31, 2009 and 2008,
respectively. Included in 2010 maturities is $2.5 million
of other foreign lines of credit and $39.4 million of
private placement debt.
18
In March 2008, the Company executed an amendment (the
Second Credit Amendment) to the Revolving Credit
Facility. The Second Credit Amendment modified the definitions
of Consolidated Net Worth and EBIT, reduced the Total
Indebtedness to Capital ratio maximum to 0.50, reduced the
minimum Interest Coverage Ratio requirement and reduced the
required minimum percentage of consolidated assets directly
owned by the Credit Agreements borrower and guarantors to
50%. The amendment also allowed for the unencumbered sale of the
E-One
business.
In April, 2007, the Company amended its Revolving Credit
Agreement. This Second Amended and Restated Credit Agreement
(Credit Agreement) provides for borrowings of
$250.0 million and matures April, 2012. It also allows the
Company to borrow up to $35 million in an alternative
currency under the swing line provision. As of December 31,
2009, $16.2 million was drawn on the Alternative Currency
Facility and $85.0 million was drawn on the Second Credit
Amendment for a total of $101.2 million drawn under the
Second Amended and Restated Credit Agreement leaving available
borrowings of $148.8 million.
Cash dividends paid to shareholders in 2009, 2008 and 2007 were
$11.7 million, $11.5 million and $11.5 million
respectively. The Company declared dividends of $0.24 per share
in 2009, 2008 and 2007.
During 2008, the Company completed repurchases totaling
$6.0 million of stock under share repurchase programs
approved by the Board of Directors to offset the dilutive
effects of stock-based compensation.
Total debt net of cash and short-term investments included in
continuing operations was $180.5 million representing 35%
of total capitalization at December 31, 2009 versus
$245.5 million or 46% of total capitalization at
December 31, 2008. The decrease in the percentage of debt
to total capitalization in 2009 was due to a reduction in debt
of $77.7 million and an increase in equity of
$41.6 million. The Company was in compliance with the
financial covenants throughout 2009 and 2008.
The Company anticipates that capital expenditures for 2010 will
approximate $16 million and that its financial resources
and major sources of liquidity, including cash flow from
operations and borrowing capacity, will be adequate to meet its
operating and capital needs in addition to its financial
commitments.
Contractual
Obligations and Commercial Commitments
The following table presents a summary of the Companys
contractual obligations and payments due by period as of
December 31, 2009 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Long-term debt*
|
|
$
|
204.1
|
|
|
$
|
41.9
|
|
|
$
|
155.1
|
|
|
$
|
7.1
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
70.9
|
|
|
|
10.4
|
|
|
|
13.6
|
|
|
|
10.6
|
|
|
|
36.3
|
|
Fair value of interest rate swaps
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on long term debt
|
|
|
13.1
|
|
|
|
5.6
|
|
|
|
7.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
288.6
|
|
|
$
|
58.4
|
|
|
$
|
176.1
|
|
|
$
|
17.8
|
|
|
$
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Long term debt includes financial service borrowings which are
reported in discontinued operations. |
The Company is party to various interest rate swap agreements in
conjunction with the management of borrowing costs. As of
December 31, 2009, the fair value of the Companys net
position would result in cash payments of $0.5 million.
Future changes in the U.S. interest rate environment would
correspondingly affect the fair value and ultimate settlement of
the contracts.
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, 2009, there is
$0.1 million unrealized losses on the Companys
foreign exchange contracts. Volatility in the future exchange
rates between the U.S. dollar and Euro, Canadian dollar and
British pound will impact the final settlement of any of these
contracts.
19
The following table presents a summary of the Companys
commercial commitments and the notional amount by expiration
period as of December 31, 2009 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount by Expiration Period
|
|
|
|
|
|
|
Less than
|
|
|
2-3
|
|
|
4-5
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Financial standby letters of credit
|
|
$
|
29.3
|
|
|
$
|
29.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Performance standby letters of credit
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
Purchase obligations
|
|
|
30.5
|
|
|
|
24.9
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
63.8
|
|
|
$
|
58.0
|
|
|
$
|
5.7
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial standby letters of credit largely relate to casualty
insurance policies for the Companys 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, 2009, the Company has a liability of
approximately $5.8 million for unrecognized tax benefits
(refer to Note 6). 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 Companys
Consolidated Financial Statements and the uncertainties that
could impact the Companys financial condition, results of
operations and cash flows.
Allowances
for Doubtful Accounts
The Company performs ongoing credit evaluations of its
customers. The Companys 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 2009, the Companys 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 Companys
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
Companys 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.
20
Warranty
Reserve
The Companys products generally carry express warranties
that provide repairs at no cost to the customer. The length of
the warranty term depends on the product sold, but generally
extends from six months to five years based on terms that are
generally accepted in the Companys marketplaces. Certain
components necessary to manufacture the Companys 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 Companys historical experience; costs related to such
issues, if any, are provided for when they become probable and
estimable.
The Companys warranty costs as a percentage of net sales
totaled 1.2% in 2009, 0.9% in 2008 and 0.8% in 2007. The
increase in the rate in 2009 is primarily due to increased costs
in the Environmental Solutions Group. Management believes the
reserve recorded at December 31, 2009 is appropriate. A 10%
increase or decrease in the estimated warranty costs in 2009
would have decreased or increased operating income by
$0.9 million, respectively.
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 Companys claim
administrator of each claim, an independent actuarial valuation
of the nature and severity of total claims and managements
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, 2009 appropriately reflects the
Companys risk exposure. The Company has not established a
reserve for potential losses resulting from hearing loss
litigation (see Note 15 to the Companys 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 the net assets. Goodwill
is not amortized but is tested for impairment at a reporting
unit level on an annual basis or if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount.
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
considered not impaired, thus 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 shall be 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 shall be recognized in an amount equal to that
excess.
Significant judgment is applied when goodwill is assessed for
impairment. This judgment includes developing cash flow
projections, selecting appropriate discount rates, identifying
relevant market comparables, incorporating general economic and
market conditions and selecting an appropriate control premium.
The income approach is based on discounted cash flows which are
derived from internal forecasts and economic expectations for
each respective reporting unit. The Company had no goodwill
impairments in 2009, 2008 or 2007. The fair values of the
21
reporting units exceeded their respective carrying amounts by
10% or more, except at the Environmental Solutions Group
reporting unit. The fair value of the Environmental Solutions
Group reporting unit exceeded its carrying value by 4%. The
Environmental Solutions Group reporting units goodwill is
$120.4 million. Adverse changes to the Companys
business environment and future cash flows could cause us to
record impairment charges in future periods which could be
material. See Note 12 to the Consolidated Financial
Statements in this
form 10-K
for a summary of the Companys goodwill.
Indefinite
lived Intangible Assets
An intangible asset determined to have an indefinite useful life
is not amortized until its useful life is determined to be no
longer indefinite. 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 a finite 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. The Company had no
impairments of indefinite lived intangible assets in 2009, 2008
or 2007. Adverse changes to the Companys business
environment and future cash flows could cause us to record
impairment charges in future periods which could be material.
See Note 12 to the Consolidated Financial Statements in
this
form 10-K
for a summary of the Companys indefinite lived intangible
assets.
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 Companys operating income ($
in millions):
|
|
|
|
|
|
|
|
|
|
|
Assumption Change:
|
|
|
25 Basis
|
|
25 Basis
|
|
|
Point Increase
|
|
Point Decrease
|
|
Discount rate
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
Return on assets
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
Employee compensation levels
|
|
|
|
|
|
|
|
|
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 match the
projected benefit payment stream of the plan precisely. 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 6.5% in 2008 to 6.0% in 2009. See Note 7 to
the Consolidated Financial Statements for further discussion.
Stock-Based
Compensation Expense
The Company accounts for stock-based compensation in accordance
with ASC Topic 718, Compensation Stock
Compensation (SFAS No. 123(R)), 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
22
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 Companys 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 Companys
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 Companys
history and expectation of dividend payouts. In addition to the
requirement for fair value estimates, ASC Topic 718
(SFAS No. 123(R)) also requires the recording of
expense that is net of an anticipated forfeiture rate.
Therefore, only expenses associated with awards that are
ultimately expected to vest are included in our financial
statements. Our forfeiture rate is determined based on our
historical option cancellation experience.
We evaluate the Black-Scholes assumptions that we use to value
our awards on a quarterly basis. With respect to the forfeiture
rate, we revise the rate if actual forfeitures differ from our
estimates. If factors change and we employ different
assumptions, stock-based compensation expense related to future
stock-based payments may differ significantly from estimates
recorded in prior periods.
Financial
Market Risk Management
The Company is subject to market risk associated with changes in
interest rates and foreign exchange rates. To mitigate this
risk, the Company utilizes interest rate swaps and foreign
currency 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 funded fixed-rate borrowings as well as
interest rate swap agreements to balance its overall
fixed/floating interest rate mix.
The following table presents the principal cash flows and
weighted average interest rates by year of maturity for the
Companys total debt obligations held at December 31,
2009 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
Fair
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Fixed rate
|
|
$
|
25.1
|
|
|
$
|
9.1
|
|
|
$
|
42.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
76.9
|
|
|
$
|
77.8
|
|
Average interest rate
|
|
|
7.5
|
%
|
|
|
7.3
|
%
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
7.4
|
%
|
|
|
|
|
Variable rate
|
|
$
|
16.8
|
|
|
$
|
1.4
|
|
|
$
|
101.9
|
|
|
$
|
7.0
|
|
|
$
|
|
|
|
$
|
127.2
|
|
|
$
|
127.2
|
|
Average interest rate
|
|
|
2.0
|
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
|
|
3.4
|
%
|
|
|
|
|
|
|
1.9
|
%
|
|
|
|
|
The following table presents notional amounts and weighted
average interest rates by expected (contractual) maturity date
for the Companys interest rate swap contracts held at
December 31, 2009 ($ in millions). Notional amounts are
used to calculate the contractual payments to be exchanged under
the contract. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
Fair
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Pay fixed, receive variable
|
|
$
|
70.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
70.0
|
|
|
$
|
(0.5
|
)
|
Average pay rate
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 8 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 2009 would
have increased or decreased interest expense by
$0.9 million, respectively.
23
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
British pound. If average annual foreign exchange rates
collectively weakened against the U.S. dollar by 10%,
pre-tax earnings in 2009 would have decreased by
$1.2 million from foreign currency translation.
The Company has foreign currency exposures related to buying and
selling in currencies other than the local currency in which it
operates. The Company utilizes foreign currency options and
forward contracts to manage these risks.
The following table summarizes the Companys foreign
currency derivative instruments as of December 31, 2009.
All are expected to settle in 2010 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
|
|
|
|
Settlement Date
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Notional
|
|
|
Contract
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Value
|
|
|
Forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy U.S dollars, sell Euros
|
|
$
|
18.4
|
|
|
|
1.4
|
|
|
$
|
(0.3
|
)
|
Buy Euros, sell U.S. dollars
|
|
|
2.2
|
|
|
|
|
|
|
|
(0.1
|
)
|
Buy British Pounds, sell Euros
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
Other currencies
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign currency derivatives
|
|
$
|
24.1
|
|
|
|
|
|
|
$
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 8 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
(SFAS No. 52). For derivatives designated as natural
hedges, changes in fair values are reported in the Other
income (expense) line of the Consolidated Statements of
Operations.
Other
Matters
The Company has a business conduct policy applicable to all
employees and regularly monitors compliance with that policy.
The Company has determined that it had no significant related
party transactions in each of the three years in the period
ended December 31, 2009.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
The information contained under the caption Financial Market
Risk Management included in Item 7 of this
Form 10-K
is incorporated herein by reference.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
24
FEDERAL
SIGNAL CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
25
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Federal Signal
Corporation
We have audited the accompanying consolidated balance sheets of
Federal Signal Corporation as of December 31, 2009 and
2008, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys
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, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2009, 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 6 to the consolidated financial
statements, on January 1, 2007, Federal Signal Corporation
changed its method of accounting for uncertain tax positions to
conform with Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Federal Signal Corporations internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 26,
2010, expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, Illinois
February 26, 2010
26
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Federal Signal Corporation
We have audited Federal Signal Corporations internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Federal Signal Corporations 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 Managements Annual
Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Companys
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 companys 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 companys
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
companys 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, 2009, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of December 31, 2009 and
2008, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2009 of Federal
Signal Corporation and our report dated February 26, 2010
expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, Illinois
February 26, 2010
27
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008*
|
|
|
|
($ in millions)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21.1
|
|
|
$
|
23.4
|
|
Short-term investments
|
|
|
|
|
|
|
10.0
|
|
Accounts receivable, net of allowances for doubtful accounts of
$2.5 million and $2.0 million, respectively
|
|
|
120.2
|
|
|
|
136.1
|
|
Inventories Note 3
|
|
|
112.1
|
|
|
|
131.6
|
|
Other current assets
|
|
|
26.0
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
279.4
|
|
|
|
322.1
|
|
Properties and equipment Note 4
|
|
|
65.5
|
|
|
|
62.5
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill Note 12
|
|
|
319.6
|
|
|
|
303.6
|
|
Intangible assets, net Note 12
|
|
|
52.7
|
|
|
|
47.8
|
|
Deferred tax assets Note 6
|
|
|
17.5
|
|
|
|
31.2
|
|
Deferred charges and other assets
|
|
|
1.7
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
Total assets of continuing operations
|
|
|
736.4
|
|
|
|
771.7
|
|
Assets of discontinued operations, net Note 13
|
|
|
8.5
|
|
|
|
67.3
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
744.9
|
|
|
$
|
839.0
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings Note 5
|
|
$
|
|
|
|
$
|
12.6
|
|
Current portion of long-term borrowings Note 5
|
|
|
41.9
|
|
|
|
25.1
|
|
Accounts payable
|
|
|
45.2
|
|
|
|
47.5
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Compensation and withholding taxes
|
|
|
20.8
|
|
|
|
23.3
|
|
Customer deposits
|
|
|
10.4
|
|
|
|
17.4
|
|
Other
|
|
|
48.1
|
|
|
|
48.2
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
166.4
|
|
|
|
174.1
|
|
Long-term borrowings Note 5
|
|
|
159.7
|
|
|
|
241.2
|
|
Long-term pension and other postretirement benefit liabilities
|
|
|
39.6
|
|
|
|
58.0
|
|
Deferred gain Note 4
|
|
|
24.2
|
|
|
|
26.2
|
|
Other long-term liabilities
|
|
|
12.2
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of continuing operations
|
|
|
402.1
|
|
|
|
512.8
|
|
Liabilities of discontinued operations Note 13
|
|
|
14.1
|
|
|
|
39.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
416.2
|
|
|
|
551.9
|
|
Shareholders equity Notes 9 and 10
|
|
|
|
|
|
|
|
|
Common stock, $1 par value per share, 90.0 million
shares authorized, 49.6 million and 49.3 million
shares issued, respectively
|
|
|
49.6
|
|
|
|
49.3
|
|
Capital in excess of par value
|
|
|
93.8
|
|
|
|
106.4
|
|
Retained earnings
|
|
|
240.4
|
|
|
|
229.0
|
|
Treasury stock, 0.8 million and 1.9 million shares,
respectively, at cost
|
|
|
(15.8
|
)
|
|
|
(36.1
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
Foreign currency translation, net
|
|
|
8.5
|
|
|
|
(4.1
|
)
|
Net derivative loss, cash flow hedges, net
|
|
|
(0.7
|
)
|
|
|
(0.9
|
)
|
Unrecognized pension and postretirement losses, net
|
|
|
(47.1
|
)
|
|
|
(56.5
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive (loss)
|
|
|
(39.3
|
)
|
|
|
(61.5
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
328.7
|
|
|
|
287.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
744.9
|
|
|
$
|
839.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Prior periods have been adjusted to reflect a change in
accounting method as discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
28
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008*
|
|
|
2007*
|
|
|
|
($ in millions, except per share data)
|
|
|
Net sales
|
|
$
|
752.5
|
|
|
$
|
879.0
|
|
|
$
|
854.8
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
558.9
|
|
|
|
643.6
|
|
|
|
623.8
|
|
Selling, engineering, general and administrative
|
|
|
159.1
|
|
|
|
182.9
|
|
|
|
162.3
|
|
Restructuring charges Note 14
|
|
|
1.5
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
33.0
|
|
|
|
49.8
|
|
|
|
68.7
|
|
Interest expense
|
|
|
11.4
|
|
|
|
15.3
|
|
|
|
18.5
|
|
(Gain) loss on investment in joint venture
|
|
|
(1.2
|
)
|
|
|
13.0
|
|
|
|
3.3
|
|
Other expense (income)
|
|
|
0.5
|
|
|
|
0.8
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
22.3
|
|
|
|
20.7
|
|
|
|
47.1
|
|
Income tax (provision) benefit Note 6
|
|
|
(4.6
|
)
|
|
|
6.5
|
|
|
|
(12.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
17.7
|
|
|
|
27.2
|
|
|
|
35.1
|
|
Discontinued operations Note 13
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations and disposal, net of
tax charge (benefit) of $1.6 million, ($16.2) million
and ($2.2) million, respectively
|
|
|
5.4
|
|
|
|
(122.2
|
)
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
$
|
54.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
Earnings (loss) from discontinued operations and disposal, net
of taxes
|
|
|
0.11
|
|
|
|
(2.56
|
)
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
|
|
$
|
0.47
|
|
|
$
|
(1.99
|
)
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Prior periods have been adjusted to reflect a change in
accounting method as discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
29
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Excess of
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Par
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
Earnings
|
|
|
Stock
|
|
|
Loss
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006*
|
|
$
|
49.1
|
|
|
$
|
99.8
|
|
|
$
|
292.9
|
|
|
$
|
(30.1
|
)
|
|
$
|
(23.1
|
)
|
|
$
|
388.6
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
54.7
|
|
|
|
|
|
|
|
|
|
|
|
54.7
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.7
|
|
|
|
11.7
|
|
|
|
|
|
Unrealized losses on derivatives, net of $1.2 million tax
benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
Amortization of pension and postretirement losses, net of
$1.8 million tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66.3
|
|
|
|
|
|
Adjustments to adopt ASC 740 (FIN 48)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
Adjustments to adopt ASC 715 (SFAS 158), net of
$0.0 million tax expense
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
0.5
|
|
|
|
0.9
|
|
|
|
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards and options
|
|
|
0.3
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
Excess tax benefits on share based payments
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007*
|
|
|
49.4
|
|
|
|
103.2
|
|
|
|
335.8
|
|
|
|
(30.1
|
)
|
|
|
(11.0
|
)
|
|
|
447.3
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(95.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(95.0
|
)
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.0
|
)
|
|
|
(20.0
|
)
|
|
|
|
|
Unrealized gains on derivatives, net of $0.7 million tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
|
|
Change in unrecognized losses related to pension benefit plans,
net of $16.3 million tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31.6
|
)
|
|
|
(31.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145.5
|
)
|
|
|
|
|
Adjustment to adopt ASC Topic 715 (EITF 06 04)
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock and options
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
Stock awards
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
Common stock cancelled
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008*
|
|
|
49.3
|
|
|
|
106.4
|
|
|
|
229.0
|
|
|
|
(36.1
|
)
|
|
|
(61.5
|
)
|
|
|
287.1
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.6
|
|
|
|
12.6
|
|
|
|
|
|
Unrealized gains on derivatives, net of $0.1 million tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
Change in unrecognized gains related to pension benefit plans,
net of $5.4 million tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.4
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.3
|
|
|
|
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(11.7
|
)
|
|
|
|
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock and options
|
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
|
|
|
Stock awards
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
Common stock cancelled
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
Issuance of common stock from treasury
|
|
|
|
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
20.3
|
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
49.6
|
|
|
$
|
93.8
|
|
|
$
|
240.4
|
|
|
$
|
(15.8
|
)
|
|
$
|
(39.3
|
)
|
|
$
|
328.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Prior periods have been adjusted to reflect change in accounting
method discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
30
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008*
|
|
|
2007*
|
|
|
|
($ in millions)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
$
|
54.7
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on discontinued operations and disposal
|
|
|
(5.4
|
)
|
|
|
122.2
|
|
|
|
(19.6
|
)
|
(Gain) loss on joint venture
|
|
|
(1.2
|
)
|
|
|
13.0
|
|
|
|
3.3
|
|
Depreciation and amortization
|
|
|
15.3
|
|
|
|
14.9
|
|
|
|
13.3
|
|
Stock option and award compensation expense
|
|
|
3.1
|
|
|
|
2.9
|
|
|
|
3.5
|
|
Provision for doubtful accounts
|
|
|
0.9
|
|
|
|
7.1
|
|
|
|
0.6
|
|
Deferred income taxes
|
|
|
3.6
|
|
|
|
(14.4
|
)
|
|
|
6.2
|
|
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions of companies
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
17.4
|
|
|
|
(14.2
|
)
|
|
|
(0.9
|
)
|
Inventories
|
|
|
20.9
|
|
|
|
(18.6
|
)
|
|
|
(19.6
|
)
|
Other current assets
|
|
|
(0.7
|
)
|
|
|
1.9
|
|
|
|
(1.3
|
)
|
Accounts payable
|
|
|
(3.1
|
)
|
|
|
(10.4
|
)
|
|
|
1.6
|
|
Customer deposits
|
|
|
(7.4
|
)
|
|
|
|
|
|
|
3.6
|
|
Accrued liabilities
|
|
|
(5.9
|
)
|
|
|
(1.9
|
)
|
|
|
0.3
|
|
Income taxes
|
|
|
2.0
|
|
|
|
(7.9
|
)
|
|
|
(3.5
|
)
|
Pension contributions
|
|
|
(1.0
|
)
|
|
|
(11.5
|
)
|
|
|
(6.7
|
)
|
Other
|
|
|
(3.3
|
)
|
|
|
4.5
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) continuing operating activities
|
|
|
58.3
|
|
|
|
(7.4
|
)
|
|
|
34.5
|
|
Net cash provided by discontinued operating activities
|
|
|
4.1
|
|
|
|
131.1
|
|
|
|
30.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
62.4
|
|
|
|
123.7
|
|
|
|
65.4
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of properties and equipment
|
|
|
(14.6
|
)
|
|
|
(28.0
|
)
|
|
|
(19.5
|
)
|
Proceeds from sales of properties and equipment
|
|
|
4.0
|
|
|
|
38.0
|
|
|
|
0.6
|
|
Payments for acquisitions, net of cash acquired
|
|
|
(13.5
|
)
|
|
|
|
|
|
|
(147.5
|
)
|
Other, net
|
|
|
10.0
|
|
|
|
(10.1
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for continuing investing activities
|
|
|
(14.1
|
)
|
|
|
(0.1
|
)
|
|
|
(168.1
|
)
|
Net cash provided by discontinued investing activities
|
|
|
45.1
|
|
|
|
54.7
|
|
|
|
61.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
31.0
|
|
|
|
54.6
|
|
|
|
(106.6
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(Reduction) increase in short-term borrowings, net
|
|
|
(12.6
|
)
|
|
|
0.6
|
|
|
|
(28.3
|
)
|
Proceeds from issuance of long-term borrowings
|
|
|
12.5
|
|
|
|
148.8
|
|
|
|
230.1
|
|
Repayment of long-term borrowings
|
|
|
(77.6
|
)
|
|
|
(169.5
|
)
|
|
|
(142.2
|
)
|
Purchases of treasury stock
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
Cash dividends paid to shareholders
|
|
|
(11.7
|
)
|
|
|
(11.5
|
)
|
|
|
(11.5
|
)
|
Other, net
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by continuing financing activities
|
|
|
(89.2
|
)
|
|
|
(37.4
|
)
|
|
|
48.5
|
|
Net cash used for discontinued financing activities
|
|
|
(7.3
|
)
|
|
|
(129.3
|
)
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by financing activities
|
|
|
(96.5
|
)
|
|
|
(166.7
|
)
|
|
|
36.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of foreign exchange rate changes on cash
|
|
|
0.8
|
|
|
|
(0.7
|
)
|
|
|
1.1
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(2.3
|
)
|
|
|
10.9
|
|
|
|
(3.3
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
23.4
|
|
|
|
12.5
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
21.1
|
|
|
$
|
23.4
|
|
|
$
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Prior periods have been adjusted to reflect change in accounting
method discussed in Notes 1 and 3. |
See notes to consolidated financial statements.
31
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying
consolidated financial statements include the accounts of
Federal Signal Corporation and all of its significant
subsidiaries (the Company) and have been prepared in
accordance with accounting principles generally accepted in the
United States of America (GAAP). All significant
intercompany balances and transactions have been eliminated in
consolidation. These consolidated financial statements include
estimates and assumptions by management that effect the amounts
reported in the consolidated financial statements. Actual
results could differ from these estimates. The operating results
of businesses divested during 2009, 2008 and 2007 have been
excluded since the date of sale, and have been reported prior to
sale as discontinued operations (See Note 13). Certain
prior year amounts have been reclassified to conform to the
current presentation.
As of July 1, 2009, the Company changed its method for
accounting for certain inventories from
last-in,
first-out (LIFO) to
first-in,
first-out (FIFO). The Company adopted this change in accounting
principle retrospectively (See Note 3).
Foreign Operations: Assets and liabilities of
foreign subsidiaries, other than those whose functional currency
is the U.S. dollar, are translated at current exchange
rates with the related translation adjustments reported in
stockholders equity as a component of accumulated other
comprehensive income (loss). Income statement accounts are
translated at the average exchange rate during the period. Where
the U.S. dollar is considered the functional currency,
monetary assets and liabilities are translated at current
exchange rates with the related adjustment included in net
income. Non-monetary assets and liabilities are translated at
historical exchange rates. The Company incurs foreign currency
transaction gains/losses relating to assets and liabilities that
are denominated in a currency other than the functional
currency. For 2009, 2008 and 2007, the Company incurred foreign
currency transaction losses, included in other expenses in the
Consolidated Statement of Operations, of $0.3 million,
$0.7 million and $0.5 million, respectively.
Cash equivalents: The Company considers all
highly liquid investments with a maturity of three-months or
less, when purchased, to be cash equivalents.
Short-term investments: Short-term investments
are stated at cost since they represent highly liquid
certificates of deposit that mature in less than 12 months.
Accounts receivable, lease financing and other receivables
and allowances for doubtful accounts: A
receivable is considered past due if payments have not been
received within agreed upon invoice terms. The Companys
policy is generally to not charge interest on trade receivables
after the invoice becomes past due, but to charge interest on
lease receivables. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments on the outstanding
accounts receivable and outstanding lease financing and other
receivables. The allowances are each maintained at a level
considered appropriate based on historical and other factors
that affect collectibility. These factors include historical
trends of write-offs, recoveries and credit losses; portfolio
credit quality; and current and projected economic and market
conditions. If the financial condition of the Companys
customers were to deteriorate, resulting in a reduced ability to
make payments, additional allowances may be required.
Inventories: The Companys 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 depreciation: Properties and
equipment are stated at cost. Depreciation, is computed using
the straight-line method over the estimated useful lives of the
assets. Depreciation ranges from 8 to 40 years for
buildings and 3 to 15 years for machinery and equipment.
Leasehold improvements are depreciated over the shorter of the
remaining life of the lease or the useful life of the
improvement. Property, plant and equipment and other
32
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
long-term assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. If the sum of the expected undiscounted cash
flows is less than the carrying value of the related asset or
group of assets, a loss is 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
and other intangible assets primarily result from business
acquisitions. The excess of cost over net assets of businesses
acquired is recorded as goodwill. Goodwill and indefinite lived
intangible assets are assessed yearly for impairment in the
fourth quarter and also between annual tests if an event occurs
or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying amount.
Definite lived intangible assets are amortized using the
straight-line method over the estimated useful lives of the
amounts.
Stock-based compensation plans: The Company
has various stock-based compensation plans, described more fully
in Note 9.
The Company accounts for stock-based compensation in accordance
with the provisions of ASC Topic 718,
Compensation Stock Compensation
(SFAS 123(R)). The fair value stock options are determined
using a Black-Scholes option pricing model.
Use of estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Warranty: Sales of many of the Companys
products carry express warranties based on terms that are
generally accepted in the Companys 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 Companys 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
Companys products, the Company is subject to claims for
product liability and workers compensation in the normal
course of business. The Company is self-funded for a portion of
these claims. The Company establishes a reserve using a
third-party actuary for any known outstanding matters, including
a reserve for claims incurred but not yet reported.
Financial instruments: The Company enters into
agreements (derivative financial instruments) to manage the
risks associated with interest rates and foreign exchange rates.
The Company does not actively trade such instruments nor enter
into such agreements for speculative purposes. The Company
principally utilizes two types of derivative financial
instruments: 1) interest rate swaps to manage its interest
rate risk, and 2) foreign currency forward exchange and
option contracts to manage risks associated with sales and
expenses (forecast or committed) denominated in foreign
currencies.
On the date a derivative contract is entered into, the Company
designates the derivative as one of the following types of
hedging instruments and accounts for the derivative as follows:
Fair value hedge: A hedge of a recognized
asset or liability or an unrecognized firm commitment is
declared as a fair value hedge. For fair value hedges, both the
effective and ineffective portions of the changes in the fair
value of the derivative, along with the gain or loss on the
hedged item that is attributable to the hedged risk, are
recorded in earnings and reported in the consolidated statements
of operations on the same line as the hedged item.
Cash flow hedge: A hedge of a forecast
transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability is declared
as a cash flow hedge. The effective portion of the change in the
33
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
fair value of a derivative that is declared as a cash flow hedge
is recorded in accumulated other comprehensive income. When the
hedged item impacts the statement of operations, the gain or
loss previously included in accumulated other comprehensive
income is reported on the same line in the consolidated
statements of operations as the hedged item. In addition, both
the fair value of changes excluded from the Companys
effectiveness assessments and the ineffective portion of the
changes in the fair value of derivatives used as cash flow
hedges are reported in Other income (expense) in the
consolidated statements of operations.
The Company formally documents its hedge relationships,
including identification of the hedging instruments and the
hedged items, as well as its risk management objectives and
strategies for undertaking the hedge transaction. Derivatives
are recorded in the consolidated balance sheets at fair value in
other deferred charges and assets and other accrued liabilities.
This process includes linking derivatives that are designated as
hedges of specific forecast transactions. The Company also
formally assesses, both at inception and at least quarterly
thereafter, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in
either the fair value or cash flows of the hedged item. If it is
determined that a derivative ceases to be a highly effective
hedge, or if the anticipated transaction is no longer likely to
occur, the Company discontinues hedge accounting, and any
deferred gains or losses are recorded in Other income (expense).
Amounts related to terminated interest rate swaps are deferred
and amortized as an adjustment to interest expense over the
original period of interest exposure, provided the designated
liability continues to exist or is probable of occurring.
Fair value of financial instruments: In
September 2006, the Financial Accounting Standards Board (FASB)
issued ASC Topic 820, Fair Value Measurements and
Disclosures, (SFAS No. 157) which defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP) and
expands disclosure about fair value measurements. The Company
adopted the provisions of ASC Topic 820
(SFAS No. 157) with respect to its financial
assets and liabilities that are measured at fair value within
the financial statements as of January 1, 2008. The Company
adopted the provisions of ASC Topic 820
(SFAS No. 157) with respect to its non-financial
assets and
non-financial
liabilities as of January 1, 2009. The adoption of ASC
Topic 820 (SFAS No. 157) did not have a material
impact on the Companys fair value measurements and the
required disclosures are contained in the notes to Consolidated
Financial Statements.
ASC Topic 820 (SFAS No. 157) established a
three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1,
defined as observable inputs such as quoted prices in active
markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
In February 2007, the FASB issued ASC Topic 825, Financial
Instruments, (SFAS No. 159), which permits
entities to choose to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value. The Company adopted this
statement as of January 1, 2008 and has elected not to
apply the fair value option to any of its financial instruments
at this time.
Business Combinations: In December 2007, the
FASB issued ASC Topic 805, Business Combinations
(SFAS No. 141(R)) which expands the definition of a
business and a business combination, requires the fair value of
the purchase price of an acquisition including the issuance of
equity securities to be determined on the acquisition date,
requires that all assets, liabilities, contingent consideration,
contingencies and in-process research and development costs of
an acquired business be recorded at fair value at the
acquisition date, requires that acquisition costs generally be
expensed as incurred, requires that restructuring costs
generally be expensed in periods subsequent to the acquisition
date, and requires changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after
the measurement period to impact income tax expense. The Company
adopted the guidance on January 1, 2009.
34
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Split-dollar life insurance arrangements: In
accordance with ASC Topic
715-60,
Defined benefit plans other
postretirement
(EITF 06-04),
which concludes that an employer should recognize a liability
for post-employment benefits promised to an employee. This
guidance is effective for fiscal years beginning after
December 15, 2007. The Company has one arrangement that
meets these criteria and recorded a liability of approximately
$0.4 million and $0.3 million at December 31,
2009 and 2008, respectively.
Revenue recognition: The Company recognizes
revenue when all of the following are satisfied: persuasive
evidence of an arrangement exists, the price is fixed or
determinable, collectibility is reasonably assured and title has
passed or services have been rendered. Typically, title passes
at time of shipment, however occasionally title passes later or
earlier than shipment due to customer contracts or letter of
credit terms. Infrequently, a sales contract qualifies for
percentage of completion or for multiple-element accounting. For
percentage of completion revenues, the Company utilizes the
cost-to-cost
method and the contract payments are received as progress
payments as costs are incurred or based on installation and
performance milestones. Management believes that all relevant
criteria and conditions are considered when recognizing revenues.
Net sales: Net sales are net of returns and
allowances. Returns and allowances are calculated and recorded
as a percentage of revenue based upon historical returns. Gross
sales includes sale of products and billed freight related to
product sales. Freight has not historically comprised a material
component of gross sales.
Product shipping costs: Product shipping costs
are expensed as incurred and are included in cost of sales.
Investments: In 2005, the Company entered into
an agreement with the Shanghai Environmental Sanitary Vehicle
and Equipment Factory (SHW) and United Motor Works (UMW) to form
a joint venture to manufacture specialty vehicles in the Peoples
Republic of China (China joint Venture). The
investment in the joint venture was accounted for under the
equity method. The Companys 50% interest in the venture
did not represent a controlling interest. In February 2009, the
Company decided to terminate funding to this venture as a review
of the market and forecasts of the joint ventures cash
flows indicated its bank debt was unlikely to be repaid and that
its assets were impaired. A charge of $10.4 million was
taken in 2008 and reported in the Statements of Operations as
loss on investment in joint venture to write-down completely the
Companys investment and to reflect the Companys
$9.4 million obligation to guaranty the debt of the joint
venture and $1.0 million obligation to guaranty the
investment of UMW. In 2009, the partners agreed to voluntarily
liquidate the joint venture. A net gain of $1.2 million was
reported in the Statements of Operations as a gain in investment
in joint venture that pertains primarily to the liquidation of
assets. The debt guaranty is included in Short-term Borrowings
and the investment guaranty is included in Accrued
liabilities Other in the Consolidated Balance Sheet
at December 31, 2008. The Companys share of operating
losses was $0, $2.6 million and $3.3 million, in each
of the three years ended December 31, 2009, 2008, and 2007,
respectively.
NOTE 2
EARNINGS (LOSS) PER SHARE
Earnings(Loss) per share basic is computed by
dividing income or loss available to common stockholders by the
weighted average number of shares of common stock outstanding
for the period. Earnings (loss) per share diluted
reflects the potential dilution that could occur if options
issued under stock-based compensation awards were converted into
common stock. In 2009, 2008 and 2007, options to purchase
2.1 million, 2.5 million and 2.4 million shares
of the Companys common stock had exercise prices that were
greater than the average market price of those shares during the
respective reporting periods. As a result, these shares are
excluded from the earnings per share calculation as they are
anti-dilutive.
The following is a reconciliation of net income (loss) to
earnings per share basic and diluted at
December 31 ($ in millions, except per share amounts):
35
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Computation
of Earnings (Loss) per Common Share
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income from continuing operations
|
|
$
|
17.7
|
|
|
$
|
27.2
|
|
|
$
|
35.1
|
|
Gain (loss) from discontinued operations and disposal, net of tax
|
|
|
5.4
|
|
|
|
(122.2
|
)
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
$
|
54.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding basic
|
|
|
48.6
|
|
|
|
47.7
|
|
|
|
47.9
|
|
Dilutive effect of stock options and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
48.6
|
|
|
|
47.7
|
|
|
|
47.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.36
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
(2.56
|
)
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
(2.56
|
)
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.47
|
|
|
$
|
(1.99
|
)
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.47
|
|
|
$
|
(1.99
|
)
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3
INVENTORIES
Inventories at December 31 are summarized as follows ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
53.9
|
|
|
$
|
64.3
|
|
Work in process
|
|
|
28.0
|
|
|
|
34.6
|
|
Finished goods
|
|
|
30.2
|
|
|
|
32.7
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
112.1
|
|
|
$
|
131.6
|
|
|
|
|
|
|
|
|
|
|
Prior to July 1, 2009 the Company valued certain
inventories under the
last-in,
first-out cost method (LIFO). As of July 1,
2009, the method of accounting for these inventories was changed
from the LIFO method to the FIFO method. As of December 31,
2008, approximately 22% of total inventories were valued under
the LIFO method of accounting. The Company believes that this
change is to a preferable method which better reflects the
current cost of inventory on its consolidated balance sheets.
Additionally, this change conforms all of the Companys
inventories to a consistent costing method providing better
comparability across businesses and peers. The Company has
applied this change retrospectively to all prior periods
presented herein in accordance with accounting principles
relating to accounting changes. As a result of the retrospective
change in accounting principle, opening retained earnings as of
January 1, 2007 increased by $2.2 million.
Additionally, 2008 cost of sales decreased by $0.9 million,
income from continuing operations increased by $0.6 million
and the net loss decreased by $0.6 million for the year
ended December 31, 2008. In 2007, cost of sales increased
by $0.2 million, income from continuing operations
decreased $0.1 million and net income decreased
36
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
$0.1 million. Basic and diluted earnings (loss) per share
for the years ended December 31, 2008 and 2007 increased
$0.02 per share, and decreased $0.01 per share, respectively, by
the change in method. The elimination of LIFO increased
inventory by $4.1 million, decreased deferred tax assets by
$1.5 million and increased shareholders equity by
$2.6 million, the amount of the LIFO-based reserves, net of
related tax liabilities as of December 31, 2008. Had the
Company continued to value a portion of its inventories under
the LIFO method for the year ended December 31, 2009,
actual results reflected herein would not have been
significantly different.
NOTE 4
PROPERTIES AND EQUIPMENT
Properties and equipment at December 31 are summarized as
follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
Buildings and improvements
|
|
|
24.1
|
|
|
|
17.3
|
|
Machinery and equipment
|
|
|
138.1
|
|
|
|
135.5
|
|
Accumulated depreciation
|
|
|
(97.0
|
)
|
|
|
(90.6
|
)
|
|
|
|
|
|
|
|
|
|
Total properties and equipment
|
|
$
|
65.5
|
|
|
$
|
62.5
|
|
|
|
|
|
|
|
|
|
|
In July 2008, the Company entered into sale-leaseback
transactions for its Elgin and University Park, Illinois plant
locations. Net proceeds received were $35.8 million
resulting in a deferred gain of $29.0 million. The deferred
gain is being amortized over the
15-year life
of the respective leases.
The Company leases certain facilities and equipment under
operating leases, some of which contain options to renew. Total
rental expense on all operating leases was $10.5 million in
2009, $9.3 million in 2008 and $7.8 million in 2007.
Sublease income and contingent rentals relating to operating
leases were insignificant. At December 31, 2009, minimum
future rental commitments under operating leases having
noncancelable lease terms in excess of one year aggregated
$70.9 million payable as follows: $10.4 million in
2010, $7.2 million in 2011, $6.4 million in 2012,
$5.4 million in 2013, $5.2 million in 2014 and
$36.3 million thereafter.
NOTE 5
DEBT
Short-term borrowings at December 31 consisted of the following
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
China Joint Venture debt guarantee (Note 1)
|
|
$
|
|
|
|
$
|
9.4
|
|
Other foreign lines of credit
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$
|
|
|
|
$
|
12.6
|
|
|
|
|
|
|
|
|
|
|
37
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Long-term borrowings at December 31 consisted of the following
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Revolving Credit Facility
|
|
$
|
85.0
|
|
|
$
|
86.9
|
|
Alternative Currency Facility (within Revolving Credit Facility)
|
|
|
16.2
|
|
|
|
10.1
|
|
7.79% Unsecured Private Placement note with annual installments
of $10.0 million due
2009-2011
|
|
|
11.4
|
|
|
|
30.0
|
|
7.60% Unsecured Private Placement note with annual installments
of $7.1 million due
2009-2011
|
|
|
8.1
|
|
|
|
21.4
|
|
5.93% Unsecured Private Placement note with annual installments
of $8.0 million due
2009-2012
|
|
|
14.8
|
|
|
|
32.0
|
|
6.24% Unsecured Private Placement note due 2012
|
|
|
42.7
|
|
|
|
60.0
|
|
Unsecured Private Placement note, floating rate (2.35% and
4.837% at December 31, 2009 and 2008, respectively) due
2010-2013
|
|
|
21.3
|
|
|
|
30.0
|
|
Subsidiary Loan Agreement
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202.7
|
|
|
|
270.4
|
|
Fair value of interest rate swaps
|
|
|
1.0
|
|
|
|
1.1
|
|
Unamortized balance of terminated fair value interest rate swaps
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204.1
|
|
|
|
272.1
|
|
Less current maturities, excluding financial services activities
|
|
|
(41.9
|
)
|
|
|
(25.1
|
)
|
Less financial services activities borrowings
(included in discontinued operations)
|
|
|
(2.5
|
)
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term borrowings, net
|
|
$
|
159.7
|
|
|
$
|
241.2
|
|
|
|
|
|
|
|
|
|
|
The Company has a $250.0 million line that expires
April 25, 2012 under its Revolving Credit Facility.
Borrowings under the facility bear interest, at the
Companys option, at the Base Rate or LIBOR, plus an
applicable margin. The applicable margin ranges from 0.00% to
0.75% for Base Rate borrowings and 1.00% to 2.00% for LIBOR
borrowings depending on the Companys total indebtedness to
capital ratio. At December 31, 2009 and 2008, the
Companys applicable margin over LIBOR and Base Rate
borrowings was 1.50% and 0.25%, respectively.
In March 2008, the Company executed an amendment (the
Second Credit Amendment) to the Revolving Credit
Facility. The Second Credit Amendment modified the definitions
of Consolidated Net Worth and EBIT, reduced the Total
Indebtedness to Capital ratio maximum to 0.50, reduced the
minimum Interest Coverage Ratio requirement and reduced the
required minimum percentage of consolidated assets directly
owned by the Credit Agreements borrower and guarantors to
50%. The amendment also allowed for the unencumbered sale of the
E-One
business.
On September 6, 2007 Federal Signal of Europe B.V. y CIA ,
SC, a restricted subsidiary of the Company, entered into a
Supplemental Agreement to the Companys Second Amended and
Restated Credit Agreement (Alternative Currency
Facility) whereby Federal Signal of Europe B.V. y CIA ,
SC, became a Designated Alternative Currency Borrower for the
purpose of making swing loans denominated in Euros.
As of December 31, 2009, $16.2 million was drawn on
the Alternative Currency Facility and $85.0 million was
drawn on the Second Credit Amendment for a total of
$101.2 million drawn under the Second Amended and Restated
Credit Agreement leaving available borrowings of
$148.8 million.
38
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
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. The prepayment was funded by the
Companys available capacity under its revolving credit
facility.
The Global Amendment included changes to the Notes coupon
interest rates. The coupon interest rates on the Notes were
increased by 100 basis points upon execution of the Global
Amendment. On January 1, 2010, the outstanding
Notes coupon interest rates will increase by an additional
100 basis points. On April 1, 2010,
the outstanding Notes coupon interest rates will
increase an additional 200 basis points if the
Companys private placement debt rating does not improve by
one rating level on or before this date.
The Global Amendment also included changes and additions to
various covenants within the Notes Agreements. Financial
covenants were modified to more closely align with those
included in the Companys revolving credit facility, which
allows for the exclusion of various charges when computing
covenants for minimum net worth and maximum debt to
capitalization.
Aggregate maturities of total borrowings amount to approximately
$41.9 million in 2010, $10.5 million in 2011,
$144.6 million in 2012 and $7.1 million in 2013. The
fair values of these borrowings aggregated $204.9 million
and $286.3 million at December 31, 2009 and 2008,
respectively. Included in 2010 maturities is $2.5 million
of other foreign lines of credit and $39.4 million of
private placement debt.
On February 10, 2009 Bronto Skylift OY AB, a wholly-owned
subsidiary of the Company, entered into a loan in which
principal and interest is paid semi-annually and the loan
expires two years after the loan date. At the end of
December 31, 2009 the balance outstanding was
$3.2 million.
On March 24, 2005,
E-ONE, Inc.
(E-ONE),
formerly a wholly-owned subsidiary of the Company, entered into
a loan agreement with Banc of America Leasing &
Capital, LLC (the Loan Agreement) under a
nonrecourse loan facility.
E-Ones
indebtedness and other obligations under the Loan Agreement were
payable out of certain customer leases of emergency equipment
and other collateral as described in the Loan Agreement. In
December 2007, the Loan Agreement was amended to include
customer leases of
E-One Inc.,
E-One New
York, Inc., Elgin Sweeper Company and Vactor Manufacturing, Inc.
(Amended Loan Agreement). In August 2008, the
outstanding debt of the Amended Loan Agreement was paid in full,
prior to the sale of
E-ONE.
The Company was in compliance with the financial covenants
throughout 2009 and 2008.
At December 31, 2009 and 2008, deferred financing fees,
which are amortized over the remaining life of the debt, totaled
$0.9 million and $1.3 million, respectively, and are
included in deferred charges and assets on the balance sheet.
The Company paid interest of $11.3 million in 2009,
$21.4 million in 2008 and $26.2 million in 2007. See
Note 8 regarding the Companys utilization of
derivative financial instruments relating to outstanding debt.
Weighted average interest rates on short-term borrowings was
5.94% at December 31, 2008.
39
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The provision/(benefit) for income taxes for each of the three
years in the period ended December 31 consisted of the following
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(4.5
|
)
|
|
$
|
1.6
|
|
|
$
|
(0.1
|
)
|
Foreign
|
|
|
5.7
|
|
|
|
5.8
|
|
|
|
6.0
|
|
State and local
|
|
|
(0.2
|
)
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
7.9
|
|
|
|
5.8
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2.6
|
|
|
|
(14.7
|
)
|
|
|
5.7
|
|
Foreign
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
State and local
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
|
(14.4
|
)
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) provision
|
|
$
|
4.6
|
|
|
$
|
(6.5
|
)
|
|
$
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Differences between the statutory federal income tax rate and
the effective income tax rate for each of the three years in the
period ended December 31 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
0.9
|
|
|
|
2.1
|
|
|
|
2.5
|
|
Losses on China Joint Venture and legal entity restructuring
|
|
|
|
|
|
|
(14.3
|
)
|
|
|
|
|
Non-deductible acquisition costs
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
Dividend repatriation
|
|
|
|
|
|
|
|
|
|
|
(3.2
|
)
|
Capital loss utilization via sale/leaseback
|
|
|
|
|
|
|
(40.0
|
)
|
|
|
|
|
Tax reserves
|
|
|
(2.8
|
)
|
|
|
1.4
|
|
|
|
4.0
|
|
R&D tax credits
|
|
|
(2.1
|
)
|
|
|
(2.7
|
)
|
|
|
(1.1
|
)
|
Foreign tax rate effects
|
|
|
(11.3
|
)
|
|
|
(11.0
|
)
|
|
|
(4.8
|
)
|
Foreign financing strategies
|
|
|
|
|
|
|
|
|
|
|
(2.3
|
)
|
Capital loss Canadian legal entity restructuring
|
|
|
|
|
|
|
|
|
|
|
(3.0
|
)
|
Other, net
|
|
|
(0.4
|
)
|
|
|
(1.9
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
20.6
|
%
|
|
|
(31.4
|
)%
|
|
|
25.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys 2009 effective rate of 20.6% reflects a
benefit for the reduction in FIN 48 reserves primarily due
to the completion of an audit of the Companys 2006
U.S. tax return in accordance with ASC Topic 740,
Income Taxes (FIN 48). The Companys
effective rate also reflects benefits for the R&D tax
credit and foreign tax rate effects.
The Companys 2008 effective tax rate of (31.4)% reflects a
benefit of $8.2 million for the utilization of capital loss
carryforwards resulting from the sale-leaseback transaction for
two U.S. based manufacturing facilities and a benefit of
$3.1 million for losses in the China Joint Venture
previously not recognized.
40
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Deferred income tax assets and liabilities at December 31 are
summarized as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
17.3
|
|
|
$
|
17.6
|
|
Net operating loss, capital loss, alternative minimum tax,
research and development, and foreign tax credit carryforwards
|
|
|
53.2
|
|
|
|
60.4
|
|
Tax effect of items in other comprehensive income
|
|
|
25.9
|
|
|
|
31.2
|
|
Other
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
96.4
|
|
|
|
112.2
|
|
Valuation allowance
|
|
|
(25.2
|
)
|
|
|
(32.5
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
71.2
|
|
|
|
79.7
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(37.1
|
)
|
|
|
(35.4
|
)
|
Revenue recognition
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
Other
|
|
|
(1.3
|
)
|
|
|
|
|
Pension liabilities
|
|
|
(11.4
|
)
|
|
|
(9.9
|
)
|
Undistributed earnings of
non-U.S.
subsidiary
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(50.5
|
)
|
|
|
(46.9
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
20.7
|
|
|
$
|
32.8
|
|
|
|
|
|
|
|
|
|
|
Federal and state income taxes have not been provided on
accumulated undistributed earnings of certain foreign
subsidiaries aggregating approximately $97.2 million at
December 31, 2009, as such earnings have been reinvested in
the business. The determination of the amount of the
unrecognized deferred tax liability related to the undistributed
earnings is not practicable.
The deferred tax asset for tax loss carryforwards at
December 31, 2009, includes Federal net operating loss
carryforwards of $1.9 million, which begin to expire in
2029, state net operating loss carryforwards of
$1.0 million, which will begin to expire in 2019; foreign
net operating loss carryforwards of $0.9 million of which
$0.9 million has an indefinite life; $23.4 million for
capital loss carryforwards that will expire in 2012 and 2013.
The deferred tax asset for tax credit carryforwards includes
U.S. research tax credit carryforwards of
$5.0 million, which will begin to expire in 2022,
U.S. foreign tax credits of $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.
Valuation allowances totaling $25.2 million have been
established at December 31, 2009 and include
$0.9 million related to state net operating loss
carryforwards and $0.9 million related to the foreign net
operating loss carryforwards and $23.4 million related to
capital loss carryforwards.
The net deferred tax asset at December 31 is classified in the
balance sheet as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current net deferred tax assets (included in Other current
assets in the Consolidated Balance Sheets)
|
|
$
|
3.2
|
|
|
$
|
1.6
|
|
Long-term net deferred tax asset
|
|
|
17.5
|
|
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20.7
|
|
|
$
|
32.8
|
|
|
|
|
|
|
|
|
|
|
41
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
As of December 31, 2009, the Company is in a net
U.S. deferred tax asset position of $34.4 million.
Additionally, the Company has incurred cumulative domestic
losses for the last three years. Under the provisions of ASC
Topic 740, Income Taxes (SFAS No. 109),
the Company may be required to establish a valuation allowance
for its U.S. deferred tax assets. However, ASC Topic 740,
(SFAS No. 109) provides that a valuation
allowance may not be needed if the Company can demonstrate a
strong earnings history exclusive of the losses that created the
deferred tax assets coupled with evidence indicating that loss
is due to an unusual, infrequent, or extraordinary item and not
a continuing condition. The Company considers that the
cumulative three year domestic loss was primarily due to losses
recorded on discontinued operations and disposal during the
three year period and accordingly, no valuation allowance has
been established for the net U.S. deferred tax asset
position as of December 31, 2009.
The Company paid income taxes of $5.1 million in 2009,
$6.1 million in 2008 and $7.0 million in 2007.
Income from continuing operations before taxes for each of the
three years in the period ended December 31 consisted of the
following ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
1.9
|
|
|
$
|
(3.0
|
)
|
|
$
|
26.2
|
|
Non-U.S.
|
|
|
20.4
|
|
|
|
23.7
|
|
|
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22.3
|
|
|
$
|
20.7
|
|
|
$
|
47.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 1, 2007, the Company adopted the provisions of
ASC Topic 740, (FIN 48). As a result, an increase of
$0.7 million in the liability for unrecognized tax benefits
and a $0.7 million reduction in retained earnings were
recorded in 2007.
The following table summarizes the activity related to the
Companys unrecognized tax benefits
($ in millions):
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
8.3
|
|
Increases related to current year tax positions
|
|
|
0.8
|
|
Increases from prior period positions
|
|
|
(0.9
|
)
|
Decreases due to lapse of statute of limitations
|
|
|
(0.7
|
)
|
Decreases from prior periods
|
|
|
(2.5
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
5.0
|
|
Increases related to current year tax
|
|
|
1.4
|
|
Decreases due to settlements with tax authorities
|
|
|
(1.0
|
)
|
Decreases due to lapse of statute of limitations
|
|
|
(0.5
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
4.9
|
|
|
|
|
|
|
Included in the unrecognized tax benefits of $4.9 million
at December 31, 2009 was $4.7 million of tax benefits
that if recognized, would impact our annual effective tax rate.
The Companys continuing practice is to recognize interest
and penalties related to income tax matters in income tax
expense. Interest and penalties amounting to $0.7 million
and $0.1 million, respectively, are included in the
consolidated balance sheet but are not included in the table
above. We expect our unrecognized tax benefits to decrease by
$0.8 million over the next 12 months.
We file U.S., state and foreign income tax returns in
jurisdictions with varying statutes of limitations. The 2006
through 2009 tax years generally remain subject to examination
by federal and most state tax authorities. In significant
foreign jurisdictions, the 2004 through 2009 tax years generally
remain subject to examination by their respective tax
authorities.
42
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
|
|
NOTE 7
|
POSTRETIREMENT
BENEFITS
|
The Company and its subsidiaries sponsor a number of defined
benefit retirement plans covering certain of its salaried and
hourly employees. Benefits under these plans are primarily based
on final average compensation and years of service as defined
within the provisions of the individual plans. The Company also
participates in a retirement plan that provides defined benefits
to employees under certain collective bargaining agreements.
The Company uses a December 31 measurement date for its
U.S. and
non-U.S. benefit
plans in accordance with ASC Topic 715,
Compensation Retirement Benefits
(SFAS No. 158).
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Company-sponsored plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
0.9
|
|
|
$
|
1.8
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Interest cost
|
|
|
8.0
|
|
|
|
8.7
|
|
|
|
8.8
|
|
|
|
2.6
|
|
|
|
3.3
|
|
|
|
3.1
|
|
Expected return on plan assets
|
|
|
(9.5
|
)
|
|
|
(10.8
|
)
|
|
|
(10.9
|
)
|
|
|
(2.7
|
)
|
|
|
(4.0
|
)
|
|
|
(4.2
|
)
|
Amortization of actuarial loss
|
|
|
2.0
|
|
|
|
0.6
|
|
|
|
1.6
|
|
|
|
1.1
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Curtailment charge
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement charge
|
|
|
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
5.7
|
|
|
|
1.3
|
|
|
|
1.2
|
|
|
|
|
|
|
|
(0.3
|
)
|
Multiemployer plans
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense (income)
|
|
$
|
0.7
|
|
|
$
|
5.9
|
|
|
$
|
1.5
|
|
|
$
|
1.2
|
|
|
$
|
|
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 21, 2008, the Company sold its Die and Mold
Operations. The operations were included in discontinued
operations for all periods presented through the sale date. As a
result of an amendment related to this sale, the Company was
required to recognize a curtailment adjustment of
$0.4 million and subsequently, a settlement charge of
$5.9 million under ASC Topic 715,
Compensation Retirement Benefits
(SFAS No. 88). Pension expense relating to the Tool
segment employees, excluding the previously mentioned charges,
was $0.3 million and $1.3 million for the years ended
December 31, 2008 and 2007, respectively.
The remeasurement of these defined benefit plans as a result of
the sale of the Die and Mold Operations also included a change
in the weighted average discount rate to determine pension costs
from 6.45% used at January 1, 2008 to 6.6% at the
May 1, 2008 remeasurement date, and to 6.8% at the
July 1, 2008 remeasurement date.
On April 28, 2008, an amendment to the Companys
U.S. defined benefit plans for University Park, Illinois
IBEW employees within the Safety and Security Systems Group was
approved. The amendment froze service accruals for these
employees as of December 31, 2008. The participants do,
however, continue to accrue benefits resulting from future
salary increases through 2016.
The following table summarizes the weighted-average assumptions
used in determining pension costs in each of the three years in
the period ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
6.5
|
%
|
|
|
6.8
|
%
|
|
|
6.0
|
%
|
|
|
5.7
|
%
|
|
|
5.9
|
%
|
|
|
5.8
|
%
|
Rate of increase in compensation levels
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
N/A
|
*
|
|
|
N/A
|
*
|
|
|
NA
|
*
|
Expected long term rate of return on plan assets
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
6.8
|
%
|
|
|
6.6
|
%
|
|
|
6.9
|
%
|
|
|
|
* |
|
Non-U.S.
plan benefits are not adjusted for compensation level changes |
43
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
129.7
|
|
|
$
|
142.5
|
|
|
$
|
42.6
|
|
|
$
|
61.3
|
|
Service cost
|
|
|
|
|
|
|
0.9
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Interest cost
|
|
|
8.0
|
|
|
|
8.7
|
|
|
|
2.6
|
|
|
|
3.3
|
|
Actuarial (gain)/loss
|
|
|
3.1
|
|
|
|
(1.9
|
)
|
|
|
3.2
|
|
|
|
(3.4
|
)
|
Benefits paid
|
|
|
(7.3
|
)
|
|
|
(21.2
|
)
|
|
|
(2.8
|
)
|
|
|
(3.0
|
)
|
Curtailments
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
Translation and other
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
|
|
(15.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
133.5
|
|
|
$
|
129.7
|
|
|
$
|
50.0
|
|
|
$
|
42.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation, end of year
|
|
$
|
132.0
|
|
|
$
|
125.2
|
|
|
$
|
50.0
|
|
|
$
|
42.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the weighted-average assumptions
used in determining benefit obligations as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
Non-U.S. Benefit Plan
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Discount rate
|
|
|
6.0
|
%
|
|
|
6.5
|
%
|
|
|
5.7
|
%
|
|
|
5.9
|
%
|
Rate of increase in compensation levels
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
Change in Plan Assets ($ in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
79.1
|
|
|
$
|
132.9
|
|
|
$
|
38.9
|
|
|
$
|
63.3
|
|
Actual return on plan assets
|
|
|
24.8
|
|
|
|
(42.6
|
)
|
|
|
7.2
|
|
|
|
(8.2
|
)
|
Company contribution
|
|
|
4.4
|
|
|
|
10.0
|
|
|
|
1.0
|
|
|
|
1.6
|
|
Benefits and expenses paid
|
|
|
(7.3
|
)
|
|
|
(21.2
|
)
|
|
|
(2.8
|
)
|
|
|
(2.9
|
)
|
Translation and other
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
101.0
|
|
|
$
|
79.1
|
|
|
$
|
48.2
|
|
|
$
|
38.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts included in Translation and other in the preceding
tables reflect the impact of the foreign exchange translation
for the
non-U.S. benefit
plan.
The plan assets fair value measurement level within the
fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement.
Following is a description of the valuation methodologies used
for assets measured at fair value for U.S. plan:
Mutual funds Valued at the net asset value, based on
quoted market prices in active markets, of shares held by the
Plan at year end.
Common stock Valued at the closing price reported on
the active market on which the security is traded.
44
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
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.
Partnership A hedge fund of funds investments
consisting of equity and debt security and other instruments.
The exchange traded assets are valued through the use of
independent trading feeds (Bloomberg, Reuters. Etc.). Grosvenor
Institutional Partners, LP records the funds investment in
an underlying portfolio on the trade date as determined by the
governing documents of the relevant portfolio and values the
investment in a portfolio at the net asset value of such
investment as reported by the manager of such portfolio.
Plan assets for the
non-U.S. benefit
plans are based on quoted prices in active markets for identical
assets.
The following table summarizes the Companys pension assets
in a three-tier fair value hierarchy for its benefit plan as of
December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Benefit Plans
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Mutual funds
|
|
$
|
45.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45.9
|
|
|
$
|
19.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19.9
|
|
Common stock
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
11.3
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
9.3
|
|
Collective fund
|
|
|
|
|
|
|
31.8
|
|
|
|
|
|
|
|
31.8
|
|
|
|
|
|
|
|
37.6
|
|
|
|
|
|
|
|
37.6
|
|
Unallocated insurance policy
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
Partnership
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
11.0
|
|
|
|
11.0
|
|
Cash
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58.0
|
|
|
$
|
32.7
|
|
|
$
|
10.3
|
|
|
$
|
101.0
|
|
|
$
|
29.6
|
|
|
$
|
38.5
|
|
|
$
|
11.0
|
|
|
$
|
79.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U. S. Benefit Plan
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Equity securities
|
|
$
|
28.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
28.7
|
|
|
$
|
20.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20.1
|
|
Bonds holding
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
12.3
|
|
|
|
13.8
|
|
|
|
|
|
|
|
|
|
|
|
13.8
|
|
Insurance policy
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Cash
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
6.9
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48.2
|
|
|
$
|
38.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38.9
|
|
The following table summarizes the changes in the fair value of
the Plans level 3 assets as of December 31:
|
|
|
|
|
|
|
|
|
Change in Level 3 plan Assets ($ in millions):
|
|
2009
|
|
|
2008
|
|
|
Fair value of the assets, beginning of year
|
|
$
|
11.0
|
|
|
$
|
13.9
|
|
Unrealized Gain (loss)
|
|
|
1.3
|
|
|
|
(2.9
|
)
|
Purchases (sales)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of the assets, end of year
|
|
$
|
10.3
|
|
|
$
|
11.0
|
|
|
|
|
|
|
|
|
|
|
The investment strategy for the U.S. benefit plans is to
1) maintain a diversified portfolio that can provide a
weighted-average target return of 8.5% or more, 2) maintain
liquidity to meet obligations and 3) prudently manage
administrative and management costs. The plan invests in equity,
alternative and fixed income instruments. The U.S. plan
investment strategy and target asset allocation are under review
and the Company expects to implement changes once the review is
finalized. The use of derivatives is allowed in limited
circumstances. The plan held no derivatives during the years
ended December 31, 2009 and 2008.
45
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Plan assets for the
non-U.S. benefit
plan consist principally of a diversified portfolio of equity
securities, U.K. government obligations and fixed interest
securities.
As of December 31, 2009 and 2008, equity securities
included 0.9 million and 0.2 million shares of the
Companys common stock valued at $5.6 million and
$1.9 million, respectively. Dividends paid on the
Companys common stock to the pension trusts aggregated
$0.3 million and $0.1 million in each of the years
ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
Funded status, end of year ($ in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Fair value of plan assets
|
|
$
|
101.0
|
|
|
$
|
79.1
|
|
|
$
|
48.2
|
|
|
$
|
38.9
|
|
Benefit obligations
|
|
|
133.5
|
|
|
|
129.7
|
|
|
|
50.0
|
|
|
|
42.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(32.5
|
)
|
|
$
|
(50.6
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
Amounts recognized in the Balance Sheet consist of ($ in
millions):
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Long term pension liabilities
|
|
$
|
(32.5
|
)
|
|
$
|
(50.6
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(3.7
|
)
|
Accumulated other comprehensive loss, pre-tax
|
|
|
57.2
|
|
|
|
71.4
|
|
|
|
15.1
|
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
24.7
|
|
|
$
|
20.8
|
|
|
$
|
13.3
|
|
|
$
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in Accumulated Other Comprehensive Income
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
consist of ($ in millions):
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net actuarial loss
|
|
$
|
57.2
|
|
|
$
|
71.4
|
|
|
$
|
15.1
|
|
|
$
|
16.0
|
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized, pre-tax
|
|
$
|
57.2
|
|
|
$
|
71.4
|
|
|
$
|
15.1
|
|
|
$
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects $4.1 million relating to amortization
of the actuarial loss to be amortized from Accumulated Other
Comprehensive Income into Net Periodic Benefit Cost in 2010.
The Company expects to contribute up to $3.0 million to the
U.S. benefit plans in 2010 and up to $1.0 million to
the
non-U.S. plan.
Future contributions to the plans will be based on such factors
as annual service cost as well as return on plan asset values,
interest rate movements and benefit payments.
46
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The following table presents the benefits expected to be paid
under the Companys defined benefit plans in each of the
next five years, and in aggregate for the five years thereafter
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit
|
|
Non-U.S.
|
|
|
Plans
|
|
Benefit Plan
|
|
2010
|
|
$
|
6.5
|
|
|
$
|
2.4
|
|
2011
|
|
|
6.5
|
|
|
|
2.5
|
|
2012
|
|
|
6.9
|
|
|
|
2.7
|
|
2013
|
|
|
7.6
|
|
|
|
2.8
|
|
2014
|
|
|
8.3
|
|
|
|
2.9
|
|
2015-2019
|
|
|
46.7
|
|
|
|
15.3
|
|
The Company also sponsors a number of defined contribution
pension plans covering a majority of its employees. Through 2006
participation in the plans was at each employees election
and Company contributions to these plans were based on a
percentage of employee contributions. Effective January 1,
2007, participation is via automatic enrollment; employees may
elect to opt out of the plan. Company contributions to the plan
are now based on employees age and service as well as a
percentage of employee contributions. Effective January 1,
2009, the Company froze the Company match of Federal Signal
employees 401k contribution to the plans.
The cost of these plans during each of the three years in the
period ended December 31, 2009, was $4.8 million in
2009, $8.2 million in 2008 and $9.9 million in 2007.
Prior to September 30, 2003, the Company also provided
medical benefits to certain eligible retired employees. These
benefits were funded when the claims were incurred. Participants
generally became eligible for these benefits at age 60
after completing at least fifteen years of service. The plan
provided for the payment of specified percentages of medical
expenses reduced by any deductible and payments made by other
primary group coverage and government programs. Effective
September 30, 2003, the Company amended the retiree medical
plan and effectively canceled coverage for all eligible active
employees except for retirees and a limited group that qualified
under a formula based on age and years of service. Accumulated
postretirement benefit liabilities of $1.4 million and
$1.7 million at December 31, 2009 and 2008,
respectively, were fully accrued. The net periodic
postretirement benefit costs have not been significant during
the three-year period ended December 31, 2009.
NOTE 8
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE
MEASUREMENTS
In March 2008, the FASB amended and revised existing financial
statement disclosure requirements related to derivative
instruments and hedging activities. The requirements enhance
disclosures for derivative instruments, including those used in
hedging activities. The Company adopted the requirements on
January 1, 2009 and the required disclosures are included
herein.
At December 31, 2009, the Company was party to interest
rate swap agreements with financial institutions in which the
Company pays interest at a fixed rate and receives interest at
variable LIBOR rates. These derivative instruments terminate in
2010. These interest rate swap agreements are designated as cash
flow hedges.
The Company manages the volatility of cash flows caused by
fluctuations in currency rates by entering into foreign exchange
forward contracts and options. These derivative instruments may
be designated as cash flow hedges that hedge portions of the
Companys anticipated third-party purchases and forecast
sales denominated in foreign currencies. The Company also enters
into foreign exchange contracts that are not intended to qualify
for hedge accounting, but are intended to offset the effect on
earnings of foreign currency movements on short and long term
intercompany transactions. Gains and losses on these derivative
instruments are recorded through earnings.
For assets and liabilities measured at fair value on a recurring
basis, the Company uses an income approach to value the assets
and liabilities for outstanding derivative contracts which
include interest rate swap and foreign
47
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
Quoted Prices in Active
|
|
Significant Other
|
|
Significant
|
|
|
|
|
Markets for Identical
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
|
Total
|
|
Assets (Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
Quoted Prices in Active
|
|
Significant Other
|
|
Significant
|
|
|
|
|
Markets for Identical
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
|
Total
|
|
Assets (Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
1.0
|
|
|
$
|
|
|
|
$
|
1.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
|
|
Quoted Prices in Active
|
|
Significant Other
|
|
Significant
|
|
|
|
|
Markets for Identical
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
|
Total
|
|
Assets (Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
4.4
|
|
|
$
|
|
|
|
$
|
4.4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
10.0
|
|
|
$
|
|
|
|
$
|
10.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
|
|
Quoted Prices in Active
|
|
Significant Other
|
|
Significant
|
|
|
|
|
Markets for Identical
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
|
Total
|
|
Assets (Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
5.1
|
|
|
$
|
|
|
|
$
|
5.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The fair value of the Companys derivative instruments was
recorded as follows at December 31, 2009.
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2009
|
|
|
December 31, 2009
|
|
|
|
Balance Sheet
|
|
Fair
|
|
|
Balance Sheet
|
|
Fair
|
|
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
0.5
|
|
Foreign exchange
|
|
Other current assets
|
|
|
|
|
|
Other current liabilities
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
|
Accounts receivable, net
|
|
|
|
|
|
Other current liabilities
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
|
|
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2008
|
|
|
December 31, 2008
|
|
|
|
Balance Sheet
|
|
Fair
|
|
|
Balance Sheet
|
|
Fair
|
|
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
Interest rate contracts
|
|
Deferred charges and other assets
|
|
$
|
1.1
|
|
|
Other long-term liabilities
|
|
$
|
1.4
|
|
Foreign exchange
|
|
Other current assets
|
|
|
1.6
|
|
|
Other current liabilities
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
2.7
|
|
|
|
|
|
1.9
|
|
Derivatives not designated as hedging instruments;
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Deferred charges and other assets
|
|
|
|
|
|
Other long-term liabilities
|
|
|
0.7
|
|
Foreign exchange
|
|
Accounts receivable, net
|
|
|
1.7
|
|
|
Other current liabilities
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
1.7
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
4.4
|
|
|
|
|
$
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The effect of derivative instruments on the condensed
consolidated statement of operations for the year ended
December 31, 2009, was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
|
Amount of Gain/(Loss)
|
|
|
Location of Gain/(Loss)
|
|
Reclassified from
|
|
Derivatives in
|
|
Recognized in OCI
|
|
|
Reclassified from
|
|
Accumulated OCI
|
|
Cash Flow Hedging
|
|
on Derivative
|
|
|
Accumulated OCI into
|
|
into Income
|
|
Relationships
|
|
(Effective Portion)
|
|
|
Income (Effective Portion)
|
|
(Effective Portion)
|
|
|
Interest rate contracts
|
|
$
|
(0.4
|
)
|
|
Interest expense
|
|
$
|
0.2
|
|
Foreign exchange
|
|
|
|
|
|
Net sales
|
|
|
0.5
|
|
Foreign exchange
|
|
|
0.1
|
|
|
Other income (expense), net
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(0.3
|
)
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The location and amount of gain (loss) recognized in income on
derivatives not designated as hedging instruments are as follows
for the year ended December 31, 2009 ($ in millions):
|
|
|
|
|
|
|
|
|
Location in Consolidated
|
|
Amount of Gain
|
|
|
|
Statement of Operations
|
|
(Loss) Recognized
|
|
|
Interest rate swaps
|
|
Interest expense
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Other (income) expense, net
|
|
|
1.5
|
|
|
|
|
|
|
|
|
Total gain (loss)
|
|
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, accumulated other
comprehensive loss associated with interest rate swaps and
foreign exchange contracts qualifying for hedge accounting
treatment was $0.7 million and $0.9 million,
respectively, net of income tax effects. The Company expects
$0.9 million of pre-tax net loss on cash flow hedges that
are reported in accumulated other comprehensive loss as of
December 31, 2009, to be reclassified into earnings within
the next 12 months as the respective hedged transactions
affect earnings.
The following table summarizes the carrying amounts and fair
values of the Companys financial instruments at December
31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Short-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12.6
|
|
|
$
|
12.6
|
|
Long-term debt*
|
|
|
204.1
|
|
|
|
205.0
|
|
|
|
270.4
|
|
|
|
273.7
|
|
Fair value swaps
|
|
|
|
|
|
|
|
|
|
|
50.0
|
|
|
|
1.7
|
|
Cash flow swaps
|
|
|
70.0
|
|
|
|
(0.5
|
)
|
|
|
60.0
|
|
|
|
(2.7
|
)
|
Foreign exchange contracts
|
|
|
24.1
|
|
|
|
(0.5
|
)
|
|
|
59.2
|
|
|
|
0.3
|
|
|
|
|
* |
|
Long term debt includes financial service borrowings for all
periods presented, which is included in discontinued operations. |
The carrying value of short-term debt approximates fair value
due to its short maturity. The fair value of long-term debt is
based on interest rates that are currently available to us for
issuance of debt with similar terms and remaining maturities.
50
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The following table summarizes the Companys money market
accounts in a three-tier fair value hierarchy as of December 31
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Cash equivalents
|
|
$
|
4.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4.5
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4.5
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.1
|
|
NOTE 9
STOCK-BASED COMPENSATION
The Companys stock benefit plans, approved by the
Companys shareholders, and administered by the
Compensation and Benefits Committee of the Board of Directors of
the Company, provides for the grant of incentive and
non-incentive stock options, restricted stock and other
stock-based awards or units to key employees and directors. The
plans, as amended, authorize the grant of up to 4.0 million
shares or units through April 2015. These share or unit amounts
exclude amounts that were issued under predecessor plans.
Stock options grade 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 being
charged to expense over the respective vesting periods. Stock
options normally become exercisable at a rate of one-third
annually and in full on the third anniversary date. All options
and rights must be exercised within ten years from date of
grant. At the Companys 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 2009,
2008 and 2007 was $2.00, $3.60, and $5.68, respectively. The
fair value of each option grant was estimated using the
Black-Scholes option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Dividend yield
|
|
|
3.7
|
%
|
|
|
1.7
|
%
|
|
|
1.7
|
%
|
Expected volatility
|
|
|
40
|
%
|
|
|
33
|
%
|
|
|
31
|
%
|
Risk free interest rate
|
|
|
2.2
|
%
|
|
|
3.2
|
%
|
|
|
4.4
|
%
|
Weighted average expected option life in years
|
|
|
6.5
|
|
|
|
6.4
|
|
|
|
7.0
|
|
The expected life of options represents the weighted average
period of time that options granted are expected to be
outstanding giving consideration to vesting schedules and the
Companys historical exercise patterns. The risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the time of the grant for periods corresponding with
the expected life of the options. Expected volatility is based
on historical volatilities of the Companys common stock.
Dividend yields are based on historical dividend payments.
51
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Stock option activity for the three years ended
December 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Shares
|
|
|
Weighted Average Exercise Price
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
2.3
|
|
|
|
2.4
|
|
|
|
2.6
|
|
|
$
|
16.20
|
|
|
$
|
17.47
|
|
|
$
|
18.15
|
|
Granted
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
6.74
|
|
|
|
11.13
|
|
|
|
15.69
|
|
Cancelled or expired
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
17.00
|
|
|
|
16.00
|
|
|
|
19.67
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
15.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
2.1
|
|
|
|
2.3
|
|
|
|
2.4
|
|
|
$
|
13.60
|
|
|
$
|
16.20
|
|
|
$
|
17.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
1.3
|
|
|
|
1.6
|
|
|
|
1.5
|
|
|
$
|
16.35
|
|
|
$
|
17.68
|
|
|
$
|
18.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information concerning stock
options outstanding as of December 31, 2009 under all plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
Remaining Life
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
|
(in millions)
|
|
|
(in years)
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
$ 5.00 - $ 7.59
|
|
|
0.4
|
|
|
|
9.1
|
|
|
$
|
6.69
|
|
|
|
|
|
|
$
|
|
|
7.60 - 11.00
|
|
|
0.4
|
|
|
|
7.9
|
|
|
|
10.47
|
|
|
|
0.1
|
|
|
|
10.56
|
|
11.01 - 15.00
|
|
|
0.2
|
|
|
|
7.6
|
|
|
|
13.76
|
|
|
|
0.1
|
|
|
|
13.30
|
|
15.01 - 17.00
|
|
|
0.8
|
|
|
|
3.7
|
|
|
|
16.15
|
|
|
|
0.8
|
|
|
|
16.15
|
|
17.01 - 21.00
|
|
|
0.2
|
|
|
|
2.7
|
|
|
|
18.92
|
|
|
|
0.2
|
|
|
|
18.92
|
|
21.01 - 26.13
|
|
|
0.1
|
|
|
|
1.5
|
|
|
|
22.42
|
|
|
|
0.1
|
|
|
|
22.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
5.7
|
|
|
$
|
13.60
|
|
|
|
1.3
|
|
|
$
|
16.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The exercise price of stock options outstanding and exercisable
at December 31, 2009 exceeded the market value and
therefore, the aggregate intrinsic value was near zero. The
closing price on December 31, 2009 was $6.02.
Restricted stock awards are granted to employees at no cost.
Through 2004, these awards primarily vested at the rate of 25%
annually commencing one year from the date of award, provided
the recipient was still employed by the Company on the vesting
date. Beginning in 2005, awards primarily cliff vest at the
third anniversary from the date of award, provided the recipient
is still employed by the Company on the vesting date. The cost
of restricted stock awards, based on the fair market value at
the date of grant, is being charged to expense over the
respective vesting periods. The following table summarizes
restricted stock grants for the twelve month period ended
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
(shares in millions)
|
|
Restricted Shares
|
|
|
Price per Share
|
|
|
Outstanding and non-vested at December 31, 2008
|
|
|
0.6
|
|
|
$
|
13.87
|
|
Granted
|
|
|
0.3
|
|
|
|
6.70
|
|
Vested
|
|
|
(0.2
|
)
|
|
|
17.07
|
|
Cancelled
|
|
|
(0.1
|
)
|
|
|
11.17
|
|
|
|
|
|
|
|
|
|
|
Outstanding and non-vested at December 31, 2009
|
|
|
0.6
|
|
|
$
|
10.09
|
|
|
|
|
|
|
|
|
|
|
52
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The total compensation expense related to all share-based
compensation plans was $3.1 million, $2.9 million, and
$3.5 million for the years ended December 31, 2009,
2008 and 2007, respectively. Also, as of December 31, 2009,
the total remaining unrecognized compensation cost related to
awards of stock options amounted to $1.1 million, which
will be amortized over the weighted-average period of
approximately 18 months.
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
(SFAS 123(R)). The ultimate payment of the performance
shares units will be based on the Companys stock
performance as compared to the stock performance of a peer
group. Compensation expense for the stock performance portion of
the plan is based on the fair value of the plan that is
determined on the day the plan is established. The fair value is
calculated using a Monte Carlo simulation model. The total
compensation expense for these awards is being amortized over a
three-year service period. Compensation expense relating to
these awards included in the Consolidated Statement of
Operations for 2009 was $0.4 million. As of
December 31, 2009, the unrecognized compensation cost
relating to these plans was $0.7 million, which will be
amortized over the remaining requisite service period.
NOTE 10
SHAREHOLDERS EQUITY
The Companys board of directors has the authority to issue
90.0 million shares of common stock at a par value of $1
per share. The holders of common stock (i) may receive
dividends subject to all of the rights of the holders of
preference stock, (ii) shall be entitled to share ratably
upon any liquidation of the Company in the assets of the
Company, if any, remaining after payment in full to the holders
of preference stock and (iii) receive one vote for each
common share held and shall vote together share for share with
the holders of voting shares of preference stock as one class
for the election of directors and for all other purposes. The
Company has 49.6 million and 49.3 million common
shares issued as of December 31, 2009 and 2008,
respectively. Of those amounts 48.8 million and
47.4 million common shares were outstanding as of
December 31, 2009 and 2008, respectively.
The Companys board of directors is also authorized to
provide for the issuance of 0.8 million shares of
preference stock at a par value of $1 per share. The authority
of the board of directors includes, but is not limited to, the
determination of the dividend rate, voting rights, conversion
and redemption features and liquidation preferences. The Company
has not issued any preference stock as of December 31, 2009.
NOTE 11
ACQUISITION
On December 9, 2009, the Company acquired all voting equity
interests of Diamond Consulting Services Ltd. (DCS) for total
consideration of approximately $13.5 million in cash and
deferred payments in future years of up to $3.2 million.
DCS specializes in vehicle classification systems for tolling
and other Intelligent Transportation Systems (ITS). The
acquisition supports the Companys long-term strategy by
creating growth opportunities and revenue synergies. The
December 31, 2009 balance sheet and statement of operations
are included in the Safety and Security Systems Segment. Pro
forma financial information for the acquisition has not been
presented as the results are immaterial to the consolidated and
segment financial statements for all periods presented.
The preliminary fair values assigned to the net assets acquired
resulted in approximately $9.5 million of goodwill and
approximately $7.0 million of other intangible assets. None
of the goodwill is deductible for tax purposes. The Company
believes that the information used in the determination of the
preliminary fair values is reasonable, however, the Company is
waiting on additional information necessary to finalize those
fair values. The Company expects to finalize the valuation and
complete the purchase price allocation by the end of the first
quarter of 2010.
53
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
NOTE 12
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets deemed to have indefinite
lives are not amortized, but are subject to annual impairment
tests. Other intangible assets are amortized over their useful
lives.
Changes in the carrying amount of goodwill for the years ended
December 31, 2009 and 2008, by operating segment, were as
follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
Fire
|
|
|
Safety
|
|
|
|
|
|
|
Solutions
|
|
|
Rescue
|
|
|
Security
|
|
|
Total
|
|
|
December 31, 2007
|
|
$
|
120.5
|
|
|
$
|
35.5
|
|
|
$
|
164.2
|
|
|
$
|
320.2
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.3
|
|
Translation
|
|
|
(0.2
|
)
|
|
|
(2.5
|
)
|
|
|
(14.2
|
)
|
|
|
(16.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
120.3
|
|
|
|
33.0
|
|
|
|
150.3
|
|
|
|
303.6
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
9.5
|
|
Translation
|
|
|
0.1
|
|
|
|
1.7
|
|
|
|
4.7
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
120.4
|
|
|
$
|
34.7
|
|
|
$
|
164.5
|
|
|
$
|
319.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company tests its goodwill annually for impairment in the
fourth quarter or earlier if impairment indicators exist in
accordance with ASC Topic 350 Intangibles
Goodwill and Other. The Company performed this test in
2009 and determined that there was no impairment. The Company
determined the fair value of each reporting unit In accordance
with ASC Topic 820 Fair Value Measurements and
Disclosures. See Note 11 for a discussion of goodwill
additions as a result of the acquisition made in the year ended
December 31, 2009.
54
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
OTHER INTANGIBLE ASSETS
The carrying value of other intangible assets is impacted by
changes in foreign currency exchange rates. In 2009, the Company
acquired intangible assets through the acquisition of DCS. See
Note 11 for a discussion of intangible additions as a
result of the acquisition made in the year ended
December 31, 2009. Following are the carrying amount and
accumulated amortization of these assets as of December 31 ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(Years)
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Definite lived (amortizable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed software
|
|
|
6
|
|
|
$
|
25.2
|
|
|
$
|
(17.0
|
)
|
|
$
|
8.2
|
|
|
$
|
24.6
|
|
|
$
|
(14.1
|
)
|
|
$
|
10.5
|
|
Patents
|
|
|
5-10
|
|
|
|
0.7
|
|
|
|
(0.5
|
)
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
(0.4
|
)
|
|
|
0.2
|
|
Customer relationships
|
|
|
5-10
|
|
|
|
19.0
|
|
|
|
(4.2
|
)
|
|
|
14.8
|
|
|
|
15.0
|
|
|
|
(2.3
|
)
|
|
|
12.7
|
|
Technology
|
|
& |