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, 2010
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 o 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 12 b-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, 2010: Common
stock, $1.00 par value $371,834,220
Indicate the number of shares outstanding of each of the
Companys classes of common stock, as of February 28,
2011: Common stock, $1.00 par value
62,133,115 shares
Documents
Incorporated By Reference
Portions of the definitive proxy statement for the 2011 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; restrictive debt covenants; impairment of goodwill and
other indefinite lived intangible assets; ability to use net
operating loss (NOL) carryovers to reduce future tax
payments; availability of credit and third-party financing for
customers; technological advances by competitors; the ability of
the Company to expand into new geographic markets and to
anticipate and meet customer demands for new products and
product enhancements; domestic and foreign governmental policy
change; changes in cost competitiveness including those
resulting from foreign currency movements; increased competition
and pricing pressures in the markets served by the Company;
retention of key employees; volatility in securities trading
markets; economic downturns; increased warranty and product
liability expenses and client service interruption; an ability
to expand our business through acquisitions, our ability to
finance acquisitions or successfully integrate acquired
companies; unknown liabilities assumed in connection with
acquisitions; unforeseen developments in contingencies such as
litigation; protection and validity of patent and other
intellectual property rights; the Companys ability to
achieve expected savings from integration, synergy and other
cost-control initiatives; compliance with environmental and
safety regulations; disruptions in the supply of parts or
components from sole source suppliers and subcontractors; risks
associated with suppliers, dealer and other partner alliances;
increased competition and pricing pressures in the markets
served by the Company; disruptions within our dealer market;
risks associated with work stoppages and other labor relations
matters; restructuring and impairment charges as we continue to
evaluate opportunities to restructure our business in an effort
to optimize the cost structure; 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 the Companys
Annual Report on
Form 10-K,
Form 10-Qs
and other filings with the SEC. These factors may not constitute
all factors that could cause actual results to differ materially
from those discussed in any forward-looking statement. The
Company operates in a continually changing business environment
and new factors emerge from time to time. The Company cannot
predict such factors nor can it assess the impact, if any, of
such factors on its financial position or results of operations.
Accordingly, forward-looking statements should not be relied
upon as a predictor of actual results. The Company disclaims any
responsibility to update any forward-looking statement provided
in this
Form 10-K.
Explanatory
Note
In this
Form 10-K,
we are restating our unaudited selected quarterly financial data
for the first three quarters of 2010. We have not filed an
amendment to our previously issued quarters. These prior interim
period adjustments individually and in the aggregate are not
material to the financial results for previously issued interim
financial data in 2010. For more detailed information about the
restatement, please see Note 19, Summary of Quarterly
Financial Information (unaudited) in the accompanying
Consolidated Financial Statements.
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, waterblasters, and technology and
solutions for intelligent transportation systems. Federal Signal
Corporation and its subsidiaries (referred to collectively as
the Company or Company herein, unless
context otherwise indicates) operate 20 manufacturing facilities
in 6 countries around the world serving customers in
approximately 100 countries in all regions of the world.
Narrative
Description of Business
Effective June 6, 2010, the Company reorganized its
segments to better align the Companys intelligent
transportation and public safety businesses for growth. As a
result of this reorganization, the Company created a new
operating segment called Federal Signal Technologies Group
(FSTech) that includes the vehicle classification
software, automated license plate recognition and parking
systems businesses from our Safety and Security Systems
operating segment and the newly acquired businesses, Sirit and
VESystems. The Safety and Security Systems operating segment
retained the businesses that offer systems for campus and
community alerting, emergency vehicles, first responder
interoperable communications, industrial communications and
command and municipal security.
As a result of this reorganization, products manufactured and
services rendered by the Company are divided into four major
operating segments: Federal Signal Technologies, Safety and
Security Systems, Fire Rescue and Environmental Solutions. The
individual operating businesses are organized as such because
they share certain characteristics, including technology,
marketing, distribution and product application, which create
long-term synergies.
Financial information (net sales, operating income (loss),
depreciation and amortization, capital expenditures and
identifiable assets) concerning the Companys four
operating segments as of December 31, 2010 and 2009, and
for each of the three years in the period ended,
December 31, 2010 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.
Federal
Signal Technologies Group
Our Federal Signal Technologies Group is a provider of
technologies and solutions to the intelligent transportation
systems and public safety markets and other applications. These
products and solutions provide end users with the tools needed
to automate data collection and analysis, transaction processing
and asset tracking. FSTech provides technology platforms and
services to customers in the areas of radio frequency
identification systems (RFID), transaction
processing vehicle classification, electronic toll collection,
automated license plate recognition (ALPR),
electronic vehicle registration, parking and access control,
cashless payment solutions, congestion charging, traffic
management, site security solutions and supply chain systems.
Products are sold under
1
PIPStm,
Idris®,
Sirittm
and
VESystemstm
brand names. FSTech operates manufacturing facilities in
North America and Europe.
Safety
and Security Systems Group
Our Safety and Security Systems Group is a leading manufacturer
and supplier of comprehensive systems and products that law
enforcement, fire rescue, emergency medical services, campuses,
military facilities and industrial sites use to protect people
and property. Offerings include systems for campus and community
alerting, emergency vehicles, first responder interoperable
communications, industrial communications, and command and
municipal networked security. Specific products include
lightbars and sirens, public warning sirens and public safety
software. Products are sold under the Federal
Signaltm,
Federal Signal
VAMAtm,
Target
Tech®
and
Victortm
brand names. The Group operates manufacturing facilities in
North America, Europe, and South Africa.
Segment results have been restated for all periods presented to
exclude the operations of the Groups China Wholly Owned
Foreign Entity (China WOFE) business, which was
reclassified as discontinued operations in 2010, and the
Riverchase and Pauluhn businesses, which were reclassified as
discontinued operations and sold in 2010 and 2009, respectively.
Fire
Rescue Group
Our Fire Rescue Group is a leading manufacturer and supplier of
sophisticated, vehicle-mounted, aerial platforms for fire
fighting, rescue, electric utility and industrial uses. End
customers include fire departments, industrial fire services,
electric utilities, maintenance rental companies for
applications such as fire fighting and rescue, transmission line
maintenance, and installation and maintenance of wind turbines.
The Groups telescopic/articulated aerial platforms are
designed in accordance with various regulatory codes and
standards, such as European Norms (EN), National
Fire Protection Association (NFPA) and American
National Standards Institute (ANSI). In addition to
equipment sales, the Group sells parts, service and training as
part of a complete offering to its customer base. The Group
manufactures in Finland and sells globally under the Bronto
Skylift®
brand name.
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
Our Environmental Solutions Group is a leading manufacturer and
supplier of a full range of street sweeper and vacuum trucks and
high-performance waterblasting equipment for municipal and
industrial customers. We also manufacture products for the newer
markets of hydro-excavation, glycol recovery and surface
cleaning for utility and industrial customers. Products are sold
under the
Elgin®,
Vactor®,
Guzzler®
and
Jetstreamtm
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 waterblast
equipment and accessories for commercial and industrial cleaning
and maintenance operations. In addition to equipment sales, the
Group is increasingly engaged in the sale of parts and tooling,
service and repair, equipment rentals and training as part of a
complete offering to its customer base.
Segment results have been restated for all periods presented to
exclude the operation of the Groups China WOFE business,
which was reclassified as discontinued operations in 2010, and
the Ravo business, which was sold in 2009.
2
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, 2010, the remaining leases and floor plan
receivable balances, net of reserves, of $1.6 million were
included on the balance sheet as Assets of Discontinued
Operations, net.
Marketing
and Distribution
The Federal Signal Technologies Group companies sell RFID, ALPR,
and Back Office management systems and products to municipal and
governmental tollway agencies and tollway system integrators.
These systems, products and services are sold domestically
through a combination of a direct sales force and independent
agents. Internationally these systems, products and services are
sold through a network of independent representatives. Parking
products and systems are sold to municipal agencies, hospitals,
universities and private parking operators through an
independent network of 110 domestic and international
distributors.
The Safety and Security Systems Group companies sell to
industrial customers through approximately 2,000
wholesalers/distributors who are supported by Company sales
personnel
and/or
independent manufacturers representatives. Products are
also sold to municipal and governmental customers through more
than 1,900 active independent distributors as well as through
original equipment manufacturers and direct sales. International
sales are made through the Groups independent foreign
distributors or on a direct basis. The Company also sells
comprehensive integrated warning and interoperable
communications through a combination of a direct sales force and
distributors.
The Fire Rescue and Environmental Solutions Groups use dealer
networks and direct sales to service customers generally
depending on the type and location of the customer. The
Environmental Solutions direct sales channel concentrates on the
industrial, utility and construction market segments while the
dealer networks focus primarily on the municipal markets. The
Company believes its national and global dealer networks for
vehicles distinguish it from its competitors. Dealer
representatives demonstrate the vehicles functionality and
capability to customers and service the vehicles on a timely
basis.
Customers
and Backlog
Approximately 33%, 29% and 38% of the Companys total 2010
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.
During 2010, the Companys U.S. municipal and
government orders increased 2% from 2009, compared to a 13%
decrease in these orders in 2009 as compared to 2008, due to the
global economic recession. The U.S. commercial and
industrial orders increased 67% from 2009, compared to a
decrease of 38% in these orders in 2009 compared to 2008.
Approximately 70% of orders to
non-U.S. customers
flow to municipalities and governments while approximately 30%
flow to industrial and commercial customers. The
Non-U.S. municipal
and government segment is essentially similar to the
U.S. municipal and government segment in that it is largely
dependent on tax revenues to support spending. Of the
non-U.S. orders,
the Company typically sells approximately 36% of its products in
Europe, 16% in Canada, 15% in the Middle East and Africa, 12% in
China and less than 10% in any other particular region.
The Companys backlog totaled $216.8 million at
December 31, 2010, which averages 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,
3
Environmental Solutions maintains an average backlog of three to
four months of shipments, Fire Rescue normally maintains an
average backlog of five months of shipments, and FSTech
maintains a two to three month average backlog, excluding
maintenance contracts that cover a period of more than one year.
Suppliers
The Company purchases a wide variety of raw materials from
around the world for use in the manufacture of its products,
although the majority of current purchases are from North
American sources. To minimize the risks of availability, price
and quality, the Company is party to numerous strategic supplier
arrangements. Although certain materials are obtained from
either a single-source supplier or a limited number of
suppliers, the Company has identified alternative sources to
minimize the interruption of its business in the event of supply
problems.
Components critical to the production of the 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 FSTech, the RFID and Back Office product lines are
recognized as leading innovators. They maintain a top tier
leadership position amongst three to four major competitors and
ancillary market participants depending on geography. The
Advanced Imaging product line maintains a domestic market
leadership position by capitalizing on product technical
leadership and application innovation. The Parking product line
competes in a crowded, competitive market and leverages its
distribution network and flexible product offerings to compete
as one of the top tier suppliers.
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 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 Company invests in research to support development of new
products and the enhancement of existing products and services.
The Company believes this investment is important to maintain
and/or
enhance its leadership position in key markets. Expenditures for
research and development by the Company were approximately
$18.8 million in 2010, $19.0 million in 2009 and
$20.9 million in 2008.
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
4
and associated goodwill with customers, but no material part of
the Companys business is dependent on such trademarks.
Employees
The Company employed approximately 2,800 people in ongoing
businesses at the close of 2010. Approximately 28% of the
Companys domestic hourly workers were represented by
unions at December 31, 2010. 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 2010 attributable to compliance with such laws
were not material. The Company believes that the overall impact
of compliance with environmental regulations will not have a
material adverse effect on its future operations.
Seasonality
Certain of the Company businesses are susceptible to the
influences of seasonal buying or delivery patterns causing lower
sales typically in both the first and third calendar quarters as
compared to other quarters. The Companys businesses that
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. All of the
Companys filings may be read or copied at the SECs
Public Reference Room at 100 F Street, N.E.,
Room 1580, Washington, DC 20549. Information on the
operation of the Public Reference Room can be obtained by
calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet website
(http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding issuers that file electronically.
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
Form 10-K,
press releases made by us and in oral statements made by our
officers. Actual results could differ materially from those
contained in such forward-looking statements. Important factors
that could cause our actual results to differ from those
contained in such forward-looking statements include, among
other things, the risks described below.
Our
financial results are subject to considerable
cyclicality.
Our ability to be profitable depends heavily on varying
conditions in the United States government and municipal markets
and the overall United States economy. The industrial markets in
which we compete are subject to considerable cyclicality, and
move in response to cycles in the overall business environment.
Many of our customers are municipal governmental agencies, and
as a result, we are dependent on municipal government spending.
Spending by our municipal customers can be affected by local
political circumstances, budgetary constraints, and other
factors. The United States government and municipalities depend
heavily on tax revenues as a source of their spending and
accordingly, there is a historical correlation of a one or two
year lag between the overall strength of the United States
economy and our sales to the United States government and
municipalities. Therefore, downturns in the United States
economy are likely to result in decreases in demand for our
products. During
5
previous economic downturns, we experienced decreases in sales
and profitability, and we expect our business to remain subject
to similar economic fluctuations in the future.
We were
not incompliance with our restrictive debt covenants as of
December 31, 2010.
Our revolving credit facility and other debt instruments contain
certain restrictive debt covenants and other customary events of
default. These restrictive covenants include, among other
things, an interest coverage ratio of 3.0:1.0 in all quarters
and a maximum
debt-to-total-capitalization
ratio of 0.5:1.0 as of December 31, 2010.
The Company was in violation of its Interest Coverage Ratio
covenant minimum requirement as defined in the Second Amended
and restated Credit Agreement and the Note Purchase Agreements
for the fiscal quarter ended December 31, 2010.
On March 15, 2011, the Company executed the Third Amendment
and Waiver to Second Amended and Restated Credit Agreement dated
as of April 25, 2007, among the Company, the lenders party
thereto, and Bank of Montreal, as Agent (the Third
Amendment and Waiver). On the same date, the Company also
executed the Second Global Amendment and Waiver to the Note
Purchase Agreements (Second Global Amendment) with
the holders of its private placement notes (the
Notes). Both the Third Amendment and Waiver and the
Second Global Amendment include a permanent waiver of compliance
with the Interest Coverage Ratio covenant for the Companys
fiscal quarter ended December 31, 2010. Included in the
terms of the Third Amendment and Waiver and the Second Global
Amendment are the replacement of the Interest Coverage Ratio
covenant with a minimum EBITDA covenant effective
January 1, 2011 with the first required reporting period on
April 2, 2011, an increase in pricing to the Companys
revolving Credit Facility pricing grid, an increase in pricing
for the outstanding Notes, mandatory prepayments from proceeds
of asset sales, restrictions on use of excess cash flow,
restrictions on dividend payments, share repurchases and other
restricted payments and a 50 basis points fee paid to the
bank lenders and holders of Notes upon execution of the Third
Amendment and Waiver and the Second Global Amendment. There can
be no assurance that we will be able to meet all of the revised
financial covenants and other conditions required by our Credit
Agreements in the future. In the event of a future default, our
lenders may not grant additional waivers of future covenant
violations and declare all amounts outstanding as due and
payable, which would negatively impact our liquidity and our
ability to operate. In addition, financial and other covenants
we have with our lenders will limit our ability to incur
additional indebtedness, make investments, pay dividends and
engage in other transactions, and the leverage may cause
potential lenders to be less willing to loan funds to us in the
future.
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 resulting 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 revolving 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. If we
are unable to access financing 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 debt
obligations and implement our operating strategy could be
adversely affected.
We
recognized impairment charges for our goodwill and other
indefinite lived intangible assets.
In the fourth quarter of 2010, the Company recognized
$67.1 million and $11.8 million of impairment charges
on goodwill and trade names, respectively, within the FSTech
segment. The goodwill impairment charge is an estimate and may
be adjusted during the first quarter of 2011 upon completion of
a detailed second step impairment analysis. In accordance with
generally accepted accounting principles, we periodically assess
our goodwill and
6
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 the use of our assets and market
capitalization declines may result in additional future
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 under our
revolving credit facility and other debt instruments. Upon an
event of default, if not waived by our lenders, our lenders may
declare all amounts outstanding as due and payable. See
Note 5 Goodwill and Other Intangible Assets for
further detail.
Our
ability to use net operating loss (NOL) carryovers
to reduce future tax payments could be negatively impacted if
there is a change in our ownership or a failure to generate
sufficient taxable income.
Presently, there is no annual limitation on our ability to use
U.S. federal NOLs to reduce future income taxes. However,
if an ownership change as defined in Section 382 of the
Internal Revenue Code of 1986, as amended, occurs with respect
to our capital stock, our ability to use NOLs would be limited
to specific annual amounts. Generally, an ownership change
occurs if certain persons or groups increase their aggregate
ownership by more than 50 percentage points of our total
capital stock in a three-year period. If an ownership change
occurs, our ability to use domestic NOLs to reduce taxable
income is generally limited to an annual amount based on the
fair market value of our stock immediately prior to the
ownership change multiplied by the long-term tax-exempt interest
rate. NOLs that exceed the Section 382 limitation in any
year continue to be allowed as carry forwards for the remainder
of the
20-year
carry forward period and can be used to offset taxable income
for years within the carryover period subject to the limitation
in each year. Our use of new NOLs arising after the date of an
ownership change would not be affected. If more than a 50%
ownership change were to occur, use of our NOLs to reduce
payments of federal taxable income may be deferred to later
years within the
20-year
carryover period; however, if the carryover period for any loss
year expires, the use of the remaining NOLs for the loss year
will be prohibited. If we should fail to generate a sufficient
level of taxable income prior to the expiration of the NOL carry
forward periods, then we will lose the ability to apply the NOLs
as offsets to future taxable income.
The
execution of our growth strategy is dependent upon the continued
availability of credit and third-party financing arrangements
for our customers.
Economic downturns result in tighter credit markets, which could
adversely affect our customers ability to secure the
financing or to secure the financing at favorable terms or
interest rates necessary to proceed or continue with purchases
of our products and services. Our customers or potential
customers inability to secure financing for projects could
result in the delay, cancellation or down-sizing of new
purchases or the suspension of purchases already under contract,
which could cause a decline in the demand for our products and
services and negatively impact our revenues and earnings.
Failure
to keep pace with technological developments may adversely
affect our operations.
We are engaged in an industry which will be affected by future
technological developments. The introduction of products or
processes utilizing new technologies could render our existing
products or processes obsolete or unmarketable. Our success will
depend upon our ability to develop and introduce on a timely and
cost-effective basis new products, applications and processes
that keep pace with technological developments and address
increasingly sophisticated customer requirements. We may not be
successful in identifying, developing and marketing new
products, applications and processes and product or process
enhancements. We may experience difficulties that could delay or
prevent the successful development, introduction and marketing
of product or process enhancements or new products, applications
or processes. Our products, applications or processes may not
adequately meet the requirements of the marketplace and achieve
market acceptance. Our business, operating results and financial
condition could be materially and adversely affected if we were
to incur delays in developing new products, applications or
processes or product or process enhancements, or if our products
do not gain market acceptance.
7
Our
efforts to develop new products and services or enhance existing
products and services involve substantial research, development
and marketing expenses, and the resulting new or enhanced
products or services may not generate sufficient revenues to
justify the expense.
We place a high priority on developing new products and
services, as well as enhancing our existing products and
services. As a result of these efforts, we may be required to
expend substantial research, development and marketing
resources, and the time and expense required to develop a new
product or service or enhance an existing product or service are
difficult to predict. We may not succeed in developing,
introducing or marketing new products or services or product or
service enhancements. In addition, we cannot be certain that any
new or enhanced product or service will generate sufficient
revenue to justify the expense and resources devoted to this
product diversification effort.
We
have international operations that are subject to foreign
economic and political uncertainties.
Our business is subject to fluctuations in demand and changing
international economic and political conditions that are beyond
our control. We expect a significant 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, restrictive domestic and
international trade regulations, U.S. laws applicable to
foreign operations, such as the Foreign Corrupt Practices Act
(FCPA), political, religious and economic
instability, local labor market conditions, the imposition of
foreign tariffs and other trade barriers and, in some cases,
international hostilities. To the extent that our international
operations are affected by unexpected and adverse foreign
economic and political conditions, we may experience project
disruptions and losses which could significantly reduce our
revenues and profits. Additionally, penalties for non-compliance
with laws applicable to international business and trade, such
as FCPA, could negatively impact our business.
Some of our contracts are denominated in foreign currencies,
which results in additional risk of fluctuating currency values
and exchange rates, hard currency shortages and controls on
currency exchange. Changes in the value of foreign currencies
over the longer term could increase our U.S. dollar costs
for, or reduce our U.S. dollar revenues from, our foreign
operations. Any increased costs or reduced revenues as a result
of foreign currency fluctuations could adversely affect our
profits.
We
operate in highly competitive markets.
The markets in which we operate are highly competitive. Many of
our competitors have significantly greater financial resources
than the Company. The intensity of this competition, which is
expected to continue, can result in price discounting and margin
pressures throughout the industry and may adversely affect our
ability to increase or maintain prices for our products. In
addition, certain of our competitors may have lower overall
labor or material costs. In addition, our contracts with
municipal and other governmental customers are in some cases
awarded and renewed through competitive bidding. We may not be
successful in obtaining or renewing these contracts, which could
be harmful to our business and financial performance.
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, client service interruption
or other lawsuits or claims that may be brought against
us.
We are exposed to product liability and warranty claims in the
normal course of business in the event that our products
actually or allegedly fail to perform as expected, or the use of
our products results or is alleged to result in bodily injury
and/or
property damage. For example, we have been sued by firefighters
seeking damages claiming
8
that exposure to our sirens has impaired their hearing and that
the sirens are therefore defective. In addition, we are subject
to other claims and litigation from time to time as further
described in the notes to our consolidated financial statements.
In addition, we could experience material liability or
contractual damage costs due to software or service interruption
in our FSTech business. We could experience material warranty or
product liability costs in the future and incur significant
costs to defend against these claims. We carry insurance and
maintain reserves for product liability claims. However, we
cannot assure that our insurance coverage will be adequate if
such claims do arise, and any liability not covered by insurance
could have a material adverse impact on our results of
operations and financial position. A future claim could involve
the imposition of punitive damages, the award of which, pursuant
to state laws, may not be covered by insurance. In addition,
warranty or other claims are not typically covered by insurance.
Any product liability or warranty issues may adversely impact
our reputation as a manufacturer of high quality, safe products
and may have a material adverse effect on our business.
We
may be unsuccessful in our future acquisitions, if any, which
may have an adverse effect on our business.
Our long-term strategy includes expanding into adjacent markets
through selective acquisitions of companies, complementary
technologies and organic growth in order to enhance our global
market position and broaden our product offerings. This strategy
may involve the acquisition of companies that, among other
things, enable us to build on our existing strength in a market
or that give us access to proprietary 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. We also may be unable to identify
suitable targets for acquisition or make acquisitions at
favorable prices. If we identify a suitable acquisition
candidate, our ability to successfully implement the acquisition
would depend on a variety of factors, including our ability to
obtain financing on acceptable terms. In addition, our
acquisition activities could be disrupted by overtures from
competitors for the targeted companies, governmental regulation
and rapid developments in our industry that decrease the value
of a targets products or services.
Acquisitions involve risks, including those associated with the
following:
|
|
|
|
|
integrating the operations, financial reporting, disparate
technologies and personnel of acquired companies;
|
|
|
|
managing geographically dispersed operations;
|
|
|
|
diverting managements attention from other business
concerns;
|
|
|
|
entering markets or lines of business in which we have either
limited or no direct experience; and
|
|
|
|
potentially losing key employees, customers and strategic
partners of acquired companies.
|
We also may not achieve anticipated revenue and cost benefits.
Acquisitions may not be accretive to our earnings and may
negatively impact our results of operations as a result of,
among other things, the incurrence of debt, one time write-offs
of goodwill, and amortization expenses of other intangible
assets. In addition, future acquisitions could result in
dilutive issuances of equity securities.
We
have substantially increased our leverage in order to finance
acquisitions, and we are subject to restrictive covenants that
will affect our ability to engage in business
transactions.
We have incurred significant indebtedness for the financing of
acquisitions. Increased indebtedness may reduce our flexibility
to respond to changing business and economic conditions or fund
capital expenditures or working capital needs because we will
require additional funds to service our indebtedness. In
addition, financial and other covenants we have with our lenders
will limit our ability to incur additional indebtedness, make
investments, pay dividends and engage in other transactions, and
the leverage may cause potential lenders to be less willing to
loan funds to us in the future.
9
Businesses
acquired by us may have liabilities which are not known to
us.
We may assume liabilities in connection with the acquisition of
businesses. There may be liabilities that we fail or are unable
to discover in the course of performing due diligence
investigations on the acquired businesses. In these
circumstances, we cannot assure that our rights to
indemnification from sellers of the acquired businesses to us
will be sufficient in amount, scope or duration to fully offset
the possible liabilities associated with the businesses or
property acquired. Any such liabilities, individually or in the
aggregate, could have a material adverse effect on our business.
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 violation of, or
liabilities under, environmental laws and safety regulations.
The
inability to obtain raw materials, component parts, and/or
finished goods in a timely and cost-effective manner from
suppliers would adversely affect our ability to manufacture and
market our products.
We purchase raw materials and component parts from suppliers to
be used in the manufacturing of our products. In addition, we
purchase certain finished goods from suppliers. Changes in our
relationships with suppliers, shortages, production delays or
work stoppages by the employees of such suppliers could have a
material adverse effect on our ability to timely manufacture and
market products. In addition, increases in the costs of
purchased raw materials, component parts or finished goods could
result in manufacturing interruptions, 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.
Disruptions
within our dealer network could adversely affect our
business.
We rely on a national and global dealer network to market
certain of our products and services. A disruption in our dealer
network within a specific local market could temporarily have an
adverse impact on our business within the affected market. In
addition, the loss or termination of a significant number of
dealers could cause difficulties in marketing and distributing
our products and have an adverse effect on our business,
operating results or financial condition.
Our
business may be adversely impacted by work stoppages and other
labor relations matters.
We are subject to risk of work stoppages and other labor
relations matters because a significant portion of our workforce
is unionized. As of December 31, 2010, approximately 28% of
our hourly workers are represented by labor unions and are
covered by collective bargaining agreements. Many of these
agreements include provisions that limit our ability to realize
cost savings. Any strikes, threats of strikes, or other
resistance in connection with the negotiation of new labor
agreements or otherwise could materially adversely affect our
business as well as impair our ability to implement further
measures to reduce structural costs and improve production
efficiencies. On February 23, 2011, the Companys
subsidiary, Vactor Manufacturing Inc., located in Streator,
Illinois, received notice that the International Brotherhood of
the Boilermakers filed a petition under the National Labor
Relations Act, seeking certification to represent approximately
300 hourly employees for the purpose of collective
bargaining. The election to determine whether a majority of the
employees identified wish to be represented by the union for the
purpose of collective bargaining normally occurs within
42 days of the filing of the petition, subject to
adjustment in certain events.
10
We
could incur restructuring and impairment charges as we continue
to evaluate opportunities to restructure our business and
rationalize our manufacturing operations in an effort to
optimize the cost structure.
We continue to evaluate opportunities to restructure our
business and rationalize our manufacturing operations in an
effort to optimize the cost structure which could include, among
other actions, additional rationalization of our manufacturing
operations. These actions could result in significant charges
which could adversely affect our financial condition and results
of operations. Future actions could result in restructuring and
related charges, including but not limited to impairments,
employee termination costs and charges for pension and other
post retirement contractual benefits and pension curtailments
that could be significant. We have substantial amounts of
long-lived assets, including goodwill and intangible assets,
which are subject to periodic impairment analysis and review.
Identifying and assessing whether impairment indicators exist,
or if events or changes in circumstances have occurred,
including market conditions, operating results, competition and
general economic conditions, requires significant judgment. Any
of the above future actions could result in charges that could
have an adverse effect on our financial condition and results of
operations.
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Item 1B.
|
Unresolved
Staff Comments.
|
On December 27, 2010, the Company received a letter from
the SEC whereby the SEC requested additional disclosure in
future filings regarding (i) the determination of estimated
useful lives associated with customer relationship intangible
assets and (ii) the nature and terms of the deferred
retention payments required in 2010 as a result of the
acquisition of Diamond Consulting Services Limited and the
related accounting. The Company responded to the SEC with the
requested information in a comment response letter dated
February 14, 2011 filed as correspondence with the SEC. The
Company has not received a response from the SEC to the
Companys response letter. The Company has addressed the
items raised by the SEC in this Form 10-K.
As of December 31, 2010, the Company utilized 10 principal
manufacturing plants located throughout North America, as well
as 9 in Europe, and 1 in South Africa.
In total, the Company devoted approximately 1.0 million
square feet to manufacturing and 0.7 million square feet to
service, warehousing and office space as of December 31,
2010. Of the total square footage, approximately 40% is devoted
to the Safety and Security Systems Group, 9% to the Fire Rescue
Group, 40% to the Environmental Solutions Group, and 11% to the
Federal Signal Technologies Group. Approximately 19% of the
total square footage is owned by the Company with the remaining
81% 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.
In connection with the Companys execution of the Third
Amendment and Waiver and the Second Global Amendment on March
15, 2011, the Companys facility located in Streator,
Illinois will be mortgaged to support its obligation thereunder.
A complete list of amended terms and conditions can be found in
the Third Amendment and Waiver and the Second Global Amendment,
which are included as Exhibits to this Form
10-K.
|
|
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.
|
[Removed
and Reserved]
|
11
PART II
|
|
Item 5.
|
Market
for Registrants 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, 2010, 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 February 28, 2011, there were 2,431 holders of record
of the Companys common stock.
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.
Effective March 15, 2011, the Companys ability to pay
dividends is restricted under the Companys amended
revolving credit facility and debt instruments. Under the terms
of the Third Amendment and Waiver, dividends shall be permitted
only if the following conditions are met:
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No default or event of default shall exist or shall result from
such payment;
|
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|
Minimum availability under the Credit Agreement after giving
effect to such restricted payment and any credit extensions in
connection therewith of $18.0 million; and
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|
Dividends may not exceed the lesser of (a) $625,000 (i.e.,
$0.01 per share) during any fiscal quarter and (b) Free
Cash Flow for such quarter. Free Cash Flow means
Excess Cash Flow before giving effect to dividends. The $625,000
limit will be increased to allow for the payment of dividends of
$0.01 per share during any fiscal quarter for such share of
stock sold for cash in a public or private offering after the
effective date of the Third Amendment and Waiver.
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|
The Company has met or exceeded its projected EBITDA at such
time.
|
A complete list of amended terms and conditions can be found in
the Third Amendment and Waiver and the Second Global Amendment,
which are included as Exhibits to this Form 10-K.
|
|
(d)
|
Securities
Authorized for Issuance under Equity Compensation
|
Information concerning the Companys equity compensation
plans is included under Item 12 of Part III of this
Form 10-K.
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 Midcap 400, and
the S&P Industrials Index. The graph tracks the performance
of a $100 investment in our common stock and in each index (with
the reinvestment of all dividends) from December 31, 2005
to December 31, 2010.
12
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 12/31/05 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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|
12/05
|
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|
12/06
|
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12/07
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12/08
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|
|
12/09
|
|
|
12/10
|
|
|
|
Federal Signal Corporation
|
|
|
100.00
|
|
|
|
108.48
|
|
|
|
77.20
|
|
|
|
57.69
|
|
|
|
44.08
|
|
|
|
52.03
|
|
Russell 2000
|
|
|
100.00
|
|
|
|
118.37
|
|
|
|
116.51
|
|
|
|
77.15
|
|
|
|
98.11
|
|
|
|
124.46
|
|
S&P Midcap 400
|
|
|
100.00
|
|
|
|
110.32
|
|
|
|
119.12
|
|
|
|
75.96
|
|
|
|
104.36
|
|
|
|
132.16
|
|
S&P Industrials
|
|
|
100.00
|
|
|
|
113.29
|
|
|
|
126.92
|
|
|
|
76.25
|
|
|
|
92.21
|
|
|
|
116.86
|
|
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.
13
|
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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:
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2010
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2009
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2008
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2007
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2006
|
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|
Operating Results ($ in millions):
|
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|
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|
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|
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Net sales (a)
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$
|
726.5
|
|
|
$
|
750.4
|
|
|
$
|
878.0
|
|
|
$
|
854.5
|
|
|
$
|
720.8
|
|
(Loss) income before income taxes (a)
|
|
|
(88.4
|
)
|
|
|
25.1
|
|
|
|
22.6
|
|
|
|
47.5
|
|
|
|
34.9
|
|
(Loss) income from continuing operations(a)
|
|
|
(160.7
|
)
|
|
|
19.8
|
|
|
|
28.7
|
|
|
|
35.3
|
|
|
|
26.8
|
|
Operating margin (a)
|
|
|
(10.6
|
)%
|
|
|
4.8
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%
|
|
|
5.9
|
%
|
|
|
8.1
|
%
|
|
|
6.8
|
%
|
Return on average common shareholders equity
|
|
|
(33.8
|
)%
|
|
|
7.5
|
%
|
|
|
(25.9
|
)%
|
|
|
13.1
|
%
|
|
|
5.7
|
%
|
Common Stock Data (per share):
|
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|
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|
|
|
|
|
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|
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|
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(Loss) income from continuing operations diluted
|
|
$
|
(2.79
|
)
|
|
$
|
0.41
|
|
|
$
|
0.61
|
|
|
$
|
0.74
|
|
|
$
|
0.56
|
|
Cash dividends per share
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
Market price range:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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High
|
|
$
|
10.30
|
|
|
$
|
9.30
|
|
|
$
|
17.50
|
|
|
$
|
17.00
|
|
|
$
|
19.75
|
|
Low
|
|
|
4.91
|
|
|
|
3.73
|
|
|
|
5.10
|
|
|
|
10.82
|
|
|
|
12.69
|
|
Average common shares outstanding (in millions)
|
|
|
57.6
|
|
|
|
48.6
|
|
|
|
47.7
|
|
|
|
47.9
|
|
|
|
48.0
|
|
Financial Position at Year-End ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (a)(b)
|
|
$
|
85.4
|
|
|
$
|
113.2
|
|
|
$
|
147.7
|
|
|
$
|
83.3
|
|
|
$
|
42.9
|
|
Current ratio (a)(b)
|
|
|
1.4
|
|
|
|
1.7
|
|
|
|
1.8
|
|
|
|
1.4
|
|
|
|
1.2
|
|
Total assets
|
|
|
764.5
|
|
|
|
744.5
|
|
|
|
839.0
|
|
|
|
1,172.9
|
|
|
|
1,054.3
|
|
Long-term debt, net of current portion
|
|
|
184.4
|
|
|
|
159.7
|
|
|
|
241.2
|
|
|
|
240.7
|
|
|
|
160.3
|
|
Shareholders equity
|
|
|
220.9
|
|
|
|
328.7
|
|
|
|
287.1
|
|
|
|
447.3
|
|
|
|
388.6
|
|
Debt-to-capitalization
ratio (c)
|
|
|
54.3
|
%
|
|
|
38.0
|
%
|
|
|
49.3
|
%
|
|
|
39.2
|
%
|
|
|
36.7
|
%
|
Net
debt-to-capitalization
ratio (d)
|
|
|
47.6
|
%
|
|
|
35.4
|
%
|
|
|
46.1
|
%
|
|
|
38.2
|
%
|
|
|
35.0
|
%
|
Other ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orders(a)
|
|
$
|
742.6
|
|
|
$
|
638.7
|
|
|
$
|
859.5
|
|
|
$
|
919.2
|
|
|
$
|
782.5
|
|
Backlog (a)
|
|
|
216.8
|
|
|
|
171.2
|
|
|
|
287.3
|
|
|
|
319.3
|
|
|
|
237.2
|
|
Net cash provided by operating activities
|
|
|
31.2
|
|
|
|
62.4
|
|
|
|
123.7
|
|
|
|
65.4
|
|
|
|
29.7
|
|
Net cash (used for) provided by investing activities
|
|
|
(108.0
|
)
|
|
|
31.0
|
|
|
|
54.6
|
|
|
|
(106.6
|
)
|
|
|
(19.3
|
)
|
Net cash provided by (used for) financing activities
|
|
|
117.6
|
|
|
|
(96.5
|
)
|
|
|
(166.7
|
)
|
|
|
36.8
|
|
|
|
(83.0
|
)
|
Capital expenditures (a)
|
|
|
12.8
|
|
|
|
14.4
|
|
|
|
27.9
|
|
|
|
19.5
|
|
|
|
11.7
|
|
Depreciation and amortization (a)
|
|
|
19.2
|
|
|
|
14.7
|
|
|
|
14.3
|
|
|
|
13.0
|
|
|
|
8.8
|
|
Employees (a)
|
|
|
2,812
|
|
|
|
2,605
|
|
|
|
3,024
|
|
|
|
3,192
|
|
|
|
2,915
|
|
|
|
|
(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) |
|
Debt less cash and cash equivalents divided by equity plus debt
less cash and cash equivalents and short-term investments |
(Loss) income before income taxes includes restructuring costs
of $5.0 million, $1.5 million, and $2.7 million
for the years ended December 31, 2010, 2009, and 2008,
respectively. The 2010 loss before income taxes was
14
impacted by $78.9 million of goodwill and intangible asset
impairment charges recorded in the FSTech Group,
$3.9 million in acquisition and integration related costs
associated with Sirit and VESystems, and a $3.8 million
settlement charge related to the ongoing firefighter hearing
loss litigation. In the fourth quarter of 2010, the Company
recorded $85.0 million of valuation allowance to reflect
the amount of domestic deferred tax assets that may not be
realized. The 2010 operating loss was also impacted by higher
research and development costs and amortization expenses due to
the newly acquired businesses, Sirit, VESystems and Diamond, and
the recognition of deferred retention expenses associated with
Diamond. The 2008 income before income taxes was impacted by a
$6.9 million loss incurred to settle a dispute and write
off assets associated with a large parking systems contract, and
a $13.0 million loss associated with the Companys
decision to terminate funding of a joint venture in China
(China Joint Venture). The 2006 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.
|
Managements Discussion and Analysis of Financial Condition
of Operations (MD&A) is designed to provide
information that is supplemental to and shall be read together
with the consolidated financial statements and the accompanying
notes contained in this Annual Report on
Form 10-K
for the year ended December 31, 2010. Information in
MD&A is intended to assist the reader in obtaining an
understanding of the consolidated financial statements,
information about the Companys business segments and how
the results of those segments impact the Companys results
of operations and financial condition as a whole, and how
certain accounting principles affect the Companys
consolidated financial statements.
Executive
Summary
The Company is a leading global manufacturer and supplier of
(i) safety, security and communication equipment,
(ii) street sweepers and other environmental vehicles and
equipment, and (iii) vehicle-mounted, aerial platforms for
fire fighting, rescue, electric utility and industrial uses. We
also are a designer and supplier of technology-based products
and services for the public safety and intelligent
transportation systems markets. In addition, the Company is
increasingly engaged in the sale of parts and tooling, service
and repair, equipment rentals and training as part of a
comprehensive offering to our customer base. We operate 20
manufacturing facilities in 6 countries and provide our products
and integrated solutions to municipal, governmental, industrial
and commercial customers throughout the world.
Effective June 6, 2010, the Company reorganized its
segments to better align the Companys intelligent
transportation and public safety businesses for growth. As a
result of this reorganization, the Company created a new
operating segment called Federal Signal Technologies
(FSTech) that includes the vehicle classification
software, automated license plate recognition and parking
systems businesses from our Safety and Security Systems
operating segment and the newly acquired businesses, Sirit and
VESystems. The Safety and Security Systems operating segment
retained the businesses that offer systems for campus and
community alerting, emergency vehicles, first responder
interoperable communications, industrial communications and
command and municipal security.
As a result of this reorganization, our four operating segments
are as follows:
Federal
Signal Technologies Group
Our Federal Signal Technologies Group is a provider of
technologies and solutions to the intelligent transportation
systems and public safety markets and other applications. These
products and solutions provide end users with the tools needed
to automate data collection and analysis, transaction processing
and asset tracking.
15
FSTech provides technology platforms and services to customers
in the areas of radio frequency identification systems,
transaction processing vehicle classification, electronic toll
collection, automated license plate recognition, electronic
vehicle registration, parking and access control, cashless
payment solutions, congestion charging, traffic management, site
security solutions and supply chain systems. Products are sold
under
PIPStm,
Idris®,
Sirittm
and
VESystemstm
brand names. The Group operates manufacturing facilities in
North America and Europe.
Safety
and Security Systems Group
Our Safety and Security Systems Group is a leading manufacturer
and supplier of comprehensive systems and products that law
enforcement, fire rescue, emergency medical services, campuses,
military facilities and industrial sites use to protect people
and property. Offerings include systems for campus and community
alerting, emergency vehicles, public safety interoperable
communications, industrial communications and command and
municipal networked security. Specific products include
lightbars and sirens, public warning sirens and public safety
software. Products are sold under the Federal
Signaltm,
Federal Signal
VAMAtm,
Target
Tech®
and
Victortm
brand names. The Group operates manufacturing facilities in
North America, Europe, and South Africa.
Environmental
Solutions Group
Our Environmental Solutions Group is a leading manufacturer and
supplier of a full range of street sweeper and vacuum trucks and
high-performance waterblasting equipment for municipal and
industrial customers. We also manufacture products for the newer
markets of hydro-excavation, glycol recovery and surface
cleaning for utility and industrial customers. Products are sold
under the
Elgin®,
Vactor®,
Guzzler®
and
Jetstreamtm
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 waterblast
equipment and accessories for commercial and industrial cleaning
and maintenance operations. In addition to equipment sales, the
Group is increasingly engaged in the sale of parts and tooling,
service and repair, equipment rentals and training as part of a
complete offering to its customer base.
Fire
Rescue Group
Our Fire Rescue Group is a leading manufacturer and supplier of
sophisticated, vehicle-mounted, aerial platforms for fire
fighting, rescue, electric utility and industrial uses. End
customers include fire departments, industrial fire services,
electric utilities, maintenance rental companies for
applications such as fire fighting and rescue, transmission line
maintenance, and installation and maintenance of wind turbines.
The Groups telescopic/articulated aerial platforms are
designed in accordance with various regulatory codes and
standards, such as European Norms (EN), National
Fire Protection Association (NFPA) and American
National Standards Institute (ANSI). In addition to
equipment sales, the Group sells parts, service and training as
part of a complete offering to its customer base. The Group
manufactures in Finland and sells globally under the Bronto
Skylift®
brand name.
Results
of Operations
Operating results have been restated to exclude the following
operations discontinued during 2010: the China WOFE business
formerly reported within the Environmental Solutions Group
segment, and the China WOFE and the Riverchase 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.
16
Orders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Analysis of orders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total orders ($ in millions):
|
|
$
|
742.6
|
|
|
$
|
638.7
|
|
|
$
|
859.5
|
|
Change in orders year over year
|
|
|
16.3
|
%
|
|
|
(25.7
|
)%
|
|
|
(6.5
|
)%
|
Change in U.S. municipal and government orders year over year
|
|
|
2.1
|
%
|
|
|
(13.4
|
)%
|
|
|
(12.4
|
)%
|
Change in U.S. industrial and commercial orders year over year
|
|
|
66.8
|
%
|
|
|
(37.9
|
)%
|
|
|
(8.0
|
)%
|
Change in
non-U.S.
orders year over year
|
|
|
3.9
|
%
|
|
|
(27.6
|
)%
|
|
|
(0.7
|
)%
|
Orders in 2010 increased 16% compared to 2009 as a result of
strong industrial market demands for vacuum trucks and the
orders associated with the newly acquired businesses Sirit and
VESystems. U.S. municipal and government orders increased
2.1% in 2010 driven by a $13.5 million increase in orders
for sewer cleaners and a $2.1 million increase in ALPR
cameras, offset by a decrease of $8.5 million in first
responder products, and a $2.1 million decline in outdoor
warning systems. U.S. industrial and commercial orders
increased 67% driven by a $41.5 million increase in orders
for vacuum trucks, a $22.5 million increase associated with
the newly acquired businesses, a $8.5 million increase in
parking system products, a $7.6 million increase in Safety
and Security Systems products, and a $6.1 million increase
in waterblasters.
Non-U.S. orders
increased 4% as compared to prior year primarily due to an
increase in orders related to the newly acquired businesses of
$7.1 million, an increase of $3.3 million in Bronto
units, and a $2.8 million increase in Safety and Security
Systems products.
Non-U.S. orders
increased 3.9% although such increase would have been 6% when
excluding the effect of unfavorable foreign currency translation.
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
13% in 2009, primarily as a result of decreased orders of sewer
cleaners of $16.8 million, public safety 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 $21.0 million decline in Safety
and Security Systems products.
Non-U.S. orders
declined 28%, although such difference is 26% when excluding the
effect of unfavorable foreign currency translation.
17
Consolidated
results of operations
The following table summarizes the Companys results of
operations and selected operating metrics for each of the three
years in the period ended December 31 ($ in millions, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
$
|
726.5
|
|
|
$
|
750.4
|
|
|
$
|
878.0
|
|
Cost of sales
|
|
|
542.3
|
|
|
|
557.3
|
|
|
|
643.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
184.2
|
|
|
|
193.1
|
|
|
|
235.0
|
|
Selling, engineering, general and administrative
|
|
|
173.3
|
|
|
|
155.8
|
|
|
|
180.6
|
|
Acquisition and integration related costs
|
|
|
3.9
|
|
|
|
-
|
|
|
|
-
|
|
Goodwill and intangible assets impairment
|
|
|
78.9
|
|
|
|
-
|
|
|
|
-
|
|
Restructuring charges
|
|
|
5.0
|
|
|
|
1.5
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(76.9
|
)
|
|
|
35.8
|
|
|
|
51.7
|
|
Interest expense
|
|
|
10.3
|
|
|
|
11.4
|
|
|
|
15.3
|
|
(Gain) loss on investment in joint venture
|
|
|
(0.1
|
)
|
|
|
(1.2
|
)
|
|
|
13.0
|
|
Other expense
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
0.8
|
|
Income tax (provision) benefit
|
|
|
(72.3
|
)
|
|
|
(5.3
|
)
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(160.7
|
)
|
|
|
19.8
|
|
|
|
28.7
|
|
(Loss) gain from discontinued operations and disposal, net of tax
|
|
|
(15.0
|
)
|
|
|
3.3
|
|
|
|
(123.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(175.7
|
)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
(10.6
|
)%
|
|
|
4.8
|
%
|
|
|
5.9
|
%
|
(Loss) earnings per share continuing operations
|
|
$
|
(2.79
|
)
|
|
$
|
0.41
|
|
|
$
|
0.61
|
|
Orders
|
|
|
742.6
|
|
|
|
638.7
|
|
|
|
859.5
|
|
Depreciation and amortization
|
|
|
19.2
|
|
|
|
14.7
|
|
|
|
14.3
|
|
Year
Ended December 31, 2010 vs. December 31,
2009
Net sales decreased 3% or $23.9 million compared to 2009 as
a result of lower volume caused by soft municipal spending in
most western market segments, partially offset by a stronger
demand from the industrial market and increases resulting from
FSTech acquisitions. Unfavorable foreign currency movement, most
notably a stronger U.S. dollar versus European currencies
in the comparable prior year periods, reduced sales by 1%. Gross
profit margin of 25.4% in 2010 was consistent with 2009.
Operating loss was $76.9 million in 2010 compared to
operating income of $35.8 million in 2009, primarily due to
goodwill and indefinite lived intangible asset impairment of
$78.9 million in the FSTech Group, higher selling,
engineering, general, and administrative expense
(SEG&A) of $17.5 million, acquisition and
integration related costs of $3.9 million, and higher
restructuring costs of $3.5 million. SEG&A expenses
increased due to a $3.8 million settlement charge in
connection with the Companys ongoing hearing loss
litigation. In addition, the Company incurred higher research
and development costs, amortization expenses, and additional
costs due to higher headcounts related to the newly acquired
businesses, Sirit, VESystem and Diamond, and recognition of
deferred retention expenses associated with Diamond. See
Note 2 for further discussion of the deferred retention
expenses.
Interest expense decreased 10% from 2009, primarily due to lower
average borrowing cost of debt.
Other expense of $1.3 million includes realized losses from
foreign currency transactions, offset by realized gains from
derivatives contracts.
The 2010 effective tax rate on (loss) income from continuing
operations increased to (81.7%) from 21.1% in the prior year.
The Companys 2010 effective rate of (81.7%) includes
aggregate tax expense of $85.0 million related to a domestic
valuation allowance and non-deductible goodwill impairments of
$19.5 million. The 2009 rate benefitted from a reduction in
benefits for an R&D tax credit and foreign tax effects.
18
Loss from continuing operations was $160.7 million in 2010,
compared to income from continuing operations of
$19.8 million in 2009. The decrease of $180.5 million
was primarily due to a valuation allowance of $85.0 million
recorded in the fourth quarter of 2010 to reflect the amount of
domestic deferred tax assets that may not be realized, goodwill
and trade name impairment charges of $67.1 million and
$11.8 million, respectively, due to a reduction in the
estimated sales and cash flow of the FSTech segment and from
other charges in operating loss as described above.
Loss from discontinued operations and disposal was
$15.0 million in 2010 compared to a gain from discontinued
operations and disposal of $3.3 million in 2009. Of the
$15.0 million loss from discontinued operations,
$5.0 million relates to product liability and settlement
costs associated with the Companys discontinued
E-ONE
business, $7.2 million relates to the discontinuation of
the Riverchase and China WOFE businesses, and $2.2 million
related to the environmental remediation liability at the
Companys Pearland, Texas site. Net gain from discontinued
operations totaled $3.3 million in 2009. The gain primarily
related to the sale of the Companys RAVO and Pauluhn
businesses, partially offset by a tax benefit adjustment related
to the sale of the Pauluhn business. For further discussion of
the discontinued operations, see Note 13 of the
Consolidated Financial Statements contained under Item 8 of
Part II of this
Form 10-K.
Year
Ended December 31, 2009 vs. December 31,
2008
Net sales decreased 14.5% or $127.6 million compared to
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 26.8%. Operating income decreased by 30.8% in 2009 due to
lower sales volumes offset in part by lower spending in both
fixed manufacturing and SEG&A of $31.2 million.
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 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 21.1% from (27.0%) 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 21.1% benefitted from
an R&D tax credit and foreign tax effects.
Income from continuing operations decreased 31% 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.
19
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 $3.3 million mainly from
the sale of the Companys RAVO and Pauluhn businesses,
offset by the loss from the Riverchase and China WOFE businesses
that were discontinued in 2010. Net losses from discontinued
operations totaled $123.7 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 $0.3 million. For
further discussion of the discontinued operations, see
Note 13 of the Consolidated Financial Statements contained
under Item 8 of Part II of this
Form 10-K.
Safety
and Security Systems
The following table presents the Safety and Security Systems
Groups results of operations for each of the three years
in the period ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Total orders
|
|
$
|
215.6
|
|
|
$
|
216.3
|
|
|
$
|
276.3
|
|
Net sales
|
|
|
214.5
|
|
|
|
225.8
|
|
|
|
276.7
|
|
Operating income
|
|
|
23.7
|
|
|
|
24.1
|
|
|
|
40.1
|
|
Operating margin
|
|
|
11.0
|
%
|
|
|
10.7
|
%
|
|
|
14.5
|
%
|
Depreciation and amortization
|
|
|
3.7
|
|
|
|
3.1
|
|
|
|
3.5
|
|
Orders were flat compared to the prior year period.
U.S. orders decreased 3% or $3.5 million due to lower
municipal spending of $11 million in the police, fire and
outdoor warning markets, offset by stronger industrial demand of
$7.6 million.
Non-U.S. orders
increased 3% or $2.8 million due to stronger demand in
police and industrial products.
Net sales decreased 5% or $11.3 million compared to 2009
caused by lower municipal spending, and unfavorable currency
impact of $1.8 million, partially offset by strong
industrial demand. Although the sale volumes were down, the
operating income in 2010 kept flat compared to 2009 due to the
lower operating expenses. Operating expenses were lower than the
prior year by $5.0 million driven by cost reduction
initiatives throughout the Company. As a result, the operating
margin improved 0.3% compare to the prior year.
Orders declined 22% in 2009 as compared to 2008 with declines in
most market segments, primarily as a result of the global
economic recession. U.S. orders decreased 18% due to
softness in oil and gas markets and a decline in municipal
spending due to the global economic recession. U.S. orders
in 2009 decreased $10.5 million for warning systems,
$8.6 million for police products, and $8.3 million for
industrial signaling and communication systems.
Non-U.S. orders
decreased 25% compared to 2008 primarily due to a decline in
vehicular lighting and siren sales of $21.0 million.
Net sales decreased 18% as compared to 2008 with decreases
across all businesses except warning systems, which increased
$1.6 million driven by international and military segments.
Operating income in 2009 declined 40% as a result of lower sales
volumes. Operating expenses were lower than the prior year by
$6.2 million driven by cost management initiatives
implemented in 2009. Operating margins declined 3.8% compared to
2008 as a result of the lower sales volumes.
20
Fire
Rescue
The following table presents the Fire Rescue Groups
results of operations for each of the three years in the period
ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Total orders
|
|
$
|
101.3
|
|
|
$
|
96.6
|
|
|
$
|
162.3
|
|
Net sales
|
|
|
108.8
|
|
|
|
160.0
|
|
|
|
145.5
|
|
Operating income
|
|
|
9.4
|
|
|
|
19.2
|
|
|
|
10.4
|
|
Operating margin
|
|
|
8.6
|
%
|
|
|
12.0
|
%
|
|
|
7.1
|
%
|
Depreciation and amortization
|
|
|
2.2
|
|
|
|
1.9
|
|
|
|
1.4
|
|
Orders in 2010 increased 5% or $4.7 million compared to the
prior year, net of an unfavorable currency impact of
$5.4 million. The increase in orders was mainly due to the
increased demand in the Asia market, as the demands for both
fire-lift and industrial products remained slow in most western
markets.
Net sales in 2010 decreased 32% and 29% excluding currency
translation, compared to the prior year due to the weak demands
in most regions except the Asia market. Operating income
decreased 51% and operating margin decreased by 3.4% due to the
lower sales volumes and lower gross profit margin, partially
offset by the margin improvements related to cost reductions and
process improvements.
Orders in 2009 decreased 40% from the prior year as the global
economic recession reduced demand for the Companys
products in both fire-lift and industrial, and markets were weak
in all regions.
Net sales in 2009 increased 10% and 14% excluding currency
translation, compared to 2008. Unusually high backlog at the end
of 2008 and the recent plant expansion enabled strong shipment
levels especially during the fourth quarter despite the
reduction in orders. Operating income and margin increased 85%
and 70%, respectively, due to the increase in sales volumes as
well as margin improvements related to the plant expansion and
process improvements.
Environmental
Solutions
The following table presents the Environmental Solutions
Groups results of operations for each of the three years
in the period ended December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Total orders
|
|
$
|
328.2
|
|
|
$
|
265.1
|
|
|
$
|
357.3
|
|
Net sales
|
|
|
309.8
|
|
|
|
299.6
|
|
|
|
387.6
|
|
Operating income
|
|
|
17.9
|
|
|
|
15.1
|
|
|
|
34.9
|
|
Operating margin
|
|
|
5.8
|
%
|
|
|
5.0
|
%
|
|
|
9.0
|
%
|
Depreciation and amortization
|
|
|
4.7
|
|
|
|
4.5
|
|
|
|
3.9
|
|
Orders in 2010 increased 24% or $63.1 compared to the prior year
due to an increase in demand of sewer cleaning and industrial
vacuum trucks. U.S. orders increased 30% in 2010 from the
prior year driven by a $55.0 million increase in sewer
cleaning and industrial vacuum trucks, a $6.1 million
increase in waterblasters, a $0.8 increase in parts sales and a
$0.7 million increase in sweepers.
Non-U.S. orders
increased slightly by 1% or $0.5 million compared to the
prior year.
Net sales increased 3% or $10.2 million compared to the
prior year period driven by higher sales volume in waterblaster
and parts sales of $8.2 million, and better price mix in
street sweepers, sewer cleaning and industrial vacuum trucks of
$1.4 million. Operating income increased 19% and operating
margin improved by 1%, respectively, due to the increase in
sales volumes compared to the prior year.
Orders in 2009 decreased 26% or $92.2 million compared to
2008 due to the global economic recession and reduced municipal
and industrial spending. U.S. orders decreased 30% in 2009
from 2008 driven by a $71.3 million reduction in sewer
cleaning and industrial vacuum trucks, a $9.0 million
reduction in waterblasters and an
21
$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 2008 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 $19.8 million
reduction in operating income and a lower operating margin.
Federal
Signal Technologies
The following table presents the Federal Signal Technologies
Groups results of operations for each of the three years
in the period ended December 31($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Total orders
|
|
$
|
97.5
|
|
|
$
|
60.7
|
|
|
$
|
63.6
|
|
Net sales
|
|
|
93.4
|
|
|
|
65.0
|
|
|
|
68.2
|
|
Operating (loss) income
|
|
|
(89.3
|
)
|
|
|
6.0
|
|
|
|
(3.0
|
)
|
Operating margin
|
|
|
(95.6
|
)%
|
|
|
9.2
|
%
|
|
|
(4.4
|
)%
|
Depreciation and amortization
|
|
|
7.8
|
|
|
|
4.4
|
|
|
|
4.9
|
|
Orders increased 61% or $36.8 million compared to the prior
year as results of orders attributed to the newly acquired
businesses, Sirit, VESystems, and Diamond, and stronger demands
in industrial parking system products and the ALPR cameras in
U.S. markets. U.S. orders in 2010 increased 92% or
$32.9 million driven by increases of $22.5 million
attributed to the newly acquired businesses, $8.5 million
from the parking system products, and $2.1 million from
ALPR cameras in U.S. markets. Non-US orders increased 16%
or $3.9 million, primarily driven by an increase of
$7.1 million from the newly acquired businesses, offset by
decreases of $2.1 million in ALPR cameras in European
markets and $1.1 million in parking system products.
Net sales increased 44% or $28.4 million compared to the
prior year due to sales from the newly acquired businesses of
Sirit, VESystems, and Diamond, of $31.5 million, offset by
a decrease of $3.1 million in parking systems. Operating
loss was $89.3 million in 2010, compared to operating
income of $6.0 million in 2009. Included in the 2010
operating loss was $78.9 million of goodwill and indefinite
lived intangible asset impairment charges that are discussed
further in Note 5. The operating loss was also impacted by
increased operating expenses of $23.5 million as result of
higher research and development costs, higher amortization
expense due to the newly acquired businesses, Sirit, VESystems,
and Diamond, and recognition of deferred retention expenses
associated with Diamond.
The deferred retention expense is calculated in accordance with
the sale and purchase agreement of Diamond dated
December 9, 2009. A sum of £1,000,000 (one million
pounds sterling) was payable to the former owners of Diamond on
or before January 31, 2011 in the event that the former
owners of Diamond were employed by the Company on
December 31, 2010 and were at that time actively engaged in
the business. An additional amount of £1,000,000 (one
million pounds sterling) is payable to the former owners of
Diamond on or before January 31, 2012 in the event that
former owners of Diamond are employed by the Company on
December 31, 2011 and are at that time actively engaged in
the business. The former owners of Diamond did maintain
employment through December 31, 2010 and have been paid the
first contingent payment of £1,000,000 (one million pounds
sterling).
In accordance with
ASC 805-10-55-25,
the deferred retention payments are being treated as
compensation expense for post combination services as the
contingent payments are automatically forfeited if employment is
terminated. The total contingency of £2,000,000 (two
million pounds sterling) is being expensed ratably over the two
year period that the employees are required to stay in order to
earn the retention payment.
Orders in 2009 declined 5% or $2.9 million as compared to
2008 with declines in most market segments, with the exception
of automated license plate recognition (ALPR)
cameras in U.S. market. U.S. orders in 2009 increased
$5.4 million in ALPR cameras offset by a decrease of
$4.5 million for parking systems.
Non-U.S. orders
decreased 14% or $4.0 million due to the global economic
recession.
Net sales in 2009 decreased 5% or $3.2 million compared to
2008 due to the weaker European markets as a result of the
global economic recession. Sales of ALPR cameras decreased
$6.5 million in European markets, offset
22
by an increase of $5.9 million in U.S. markets, and
the sale of parking systems decreased $2.7 million.
Operating income increased $9.0 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.
Corporate
Expense
Corporate expenses totaled $38.6 million in 2010,
$28.6 million in 2009, and $30.7 million in 2008. The
35% increase in 2010 is primarily due to $3.9 million in
acquisition and integration related costs associated with Sirit
and VESystems, a $3.8 million settlement charge related to
the ongoing firefighter hearing loss litigation,
$1.2 million of restructuring costs, and a
$1.0 million expense related to the departure of the
Companys former President and Chief Executive Officer. See
Note 15 for further discussion of the hearing loss
litigation charge of $3.8 million.
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 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, which provides
that segment reporting should follow the management of the item
and that some expenses can be corporate expenses, these legal
expenses (which are unusual and not part of the normal operating
activities of any of our operating segments), are reported and
managed as corporate expenses. Only the Company and no current
or divested subsidiary is a named party to these lawsuits.
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. The Company has negotiated
settlements with certain firefighter claimants. 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, 2010, 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.
23
The Companys cash and cash equivalents totaled
$62.1 million, $21.1 million, and $23.4 million
as of December 31, 2010, 2009 and 2008, respectively. The
following table summarizes the Companys cash flows for
each of the three years in the period ended December 31 ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by operating activities
|
|
$
|
31.2
|
|
|
$
|
62.4
|
|
|
$
|
123.7
|
|
Proceeds from sales of properties, plant and equipment
|
|
|
1.9
|
|
|
|
4.0
|
|
|
|
38.0
|
|
Purchases of properties and equipment
|
|
|
(12.8
|
)
|
|
|
(14.4
|
)
|
|
|
(27.9
|
)
|
Payments for acquisitions, net of cash acquired
|
|
|
(97.3
|
)
|
|
|
(13.5
|
)
|
|
|
-
|
|
Gross proceeds from sale of discontinued businesses
|
|
|
0.2
|
|
|
|
47.1
|
|
|
|
65.9
|
|
Proceeds from Equity offering, net of fees
|
|
|
71.2
|
|
|
|
-
|
|
|
|
-
|
|
Borrowing activity, net
|
|
|
60.1
|
|
|
|
(77.7
|
)
|
|
|
(20.1
|
)
|
Cash dividends paid to shareholder
|
|
|
(13.3
|
)
|
|
|
(11.7
|
)
|
|
|
(11.5
|
)
|
Purchases of treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(6.0
|
)
|
Payments for discontinued financing activities
|
|
|
(1.0
|
)
|
|
|
(7.3
|
)
|
|
|
(129.3
|
)
|
All other, net
|
|
|
0.8
|
|
|
|
8.8
|
|
|
|
(21.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
41.0
|
|
|
$
|
(2.3
|
)
|
|
$
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities totaled
$31.2 million and $62.4 million in 2010 and 2009,
respectively. The decrease was primarily driven by a reduction
in the underlying results of operations, an increase in
inventories, and a decrease in cash flow from discontinued
operating activities. In the fourth quarter of 2010, the Company
recorded an $85.0 million valuation allowance against its
U.S. deferred tax assets as a non-cash charge to income tax
expense. Recording the valuation allowance does not restrict the
Companys ability to utilize the future deductions and net
operating losses associated with the deferred tax assets
assuming taxable income is recognized in future periods. During
the fourth quarter of 2010, the Company performed its annual
goodwill and indefinite-lived intangible asset impairment
assessment, and determined that the goodwill and trade names
associated with FSTech Group reporting unit were impaired and
recorded impairment charges of $67.1 million and
$11.8 million, respectively. As of December 31, 2010,
the goodwill impairment charge is an estimate and may be
adjusted during the first quarter of 2011 upon completion of a
detailed second step impairment analysis.
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 in 2010 by $1.6 million
compared to 2009 due primarily due to decreased spending on
maintenance of equipment. Capital expenditures decreased
$13.5 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.
The Company acquired two businesses in 2010 that are key
components to the development of the Companys intelligent
transportation systems strategy. VESystems was acquired for
$34.8 million, of which $24.6 million was a cash
payment. Sirit was acquired for CDN $77.1 million (USD
$74.9 million), all of which was paid in cash. The
acquisitions were funded with the Companys existing cash
balances and debt drawn against the Companys
$250 million revolving credit facility. In addition to the
use of cash and debt, the Company issued 1.2 million shares
of Federal Signal Corporation common stock to fund a portion of
the cost of purchasing VESystems. The issuances increased the
total number of Company common stock shares outstanding. See
Note 2 of the notes to the Consolidated Financial
Statements for additional information on the acquisitions.
In 2009, the Company acquired Diamond Consulting Services Ltd.
for $13.5 million in cash. See Note 2 of the notes to
the Consolidated Financial Statements for additional information
on the acquisition. The Company funded the acquisition through
cash provided by operations, and from proceeds received from the
sale of the RAVO and Pauluhn businesses, included in
discontinued operations in 2009, and sold for net proceeds of
$45.1 million in cash. See Note 13 of the notes to the
Consolidated Financial Statements for additional information on
the sale of the RAVO and Pauluhn businesses.
24
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 May 2010, the Company issued 12.1 million common shares
at a price of $6.25 per share for total gross proceeds of
$75.6 million. After deducting direct fees, net proceeds
totaled $71.2 million. Proceeds from the equity offering
were used to pay down debt.
In 2010, net borrowings increased $60.1 million, largely
due to the acquisitions of the Sirit and VESystems businesses.
In 2009, net borrowings decreased $77.7 million, largely
upon pay downs upon the receipt of cash from the sales of 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 sale of its municipal
leasing portfolio which was included in discontinued operations
in 2008 and the 2008 sale leaseback transactions.
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.
The Company was in violation of its Interest Coverage Ratio
covenant minimum requirement as defined in the Second Amended
and restated Credit Agreement (the Credit Agreement)
and the Note Purchase Agreements for the fiscal quarter ended
December 31, 2010. The Company was in compliance with the
financial covenants throughout 2009.
On March 15, 2011, the Company executed the Third Amendment and
Waiver to Second Amended and Restated Credit Agreement dated as
of April 25, 2007, among the Company, the lenders party
thereto, and Bank of Montreal, as Agent (the Third
Amendment and Waiver). On the same date, the Company also
executed the Second Global Amendment and Waiver to the Note
Purchase Agreements (Second Global Amendment) with
the holders of its private placement notes (the
Notes). Both the Third Amendment and Waiver and the
Second Global Amendment include a permanent waiver of compliance
with the Interest Coverage Ratio covenant for the Companys
fiscal quarter ended December 31, 2010. Included in the
terms of the Third Amendment and Waiver and the Second Global
Amendment are the replacement of the Interest Coverage Ratio
covenant with a minimum EBITDA covenant effective
January 1, 2011 with the first required reporting period on
April 2, 2011, an increase in pricing to the Companys
revolving Credit Facility pricing grid, an increase in pricing
for the outstanding Notes, mandatory prepayments from proceeds
of asset sales, restrictions on use of excess cash flow,
restrictions on dividend payments, share repurchases and other
restricted payments and a 50 basis points fee paid to the
bank lenders and holders of the Notes upon execution of the
Third Amendment and Waiver and the Second Global Amendment.
The Third Amendment and Waiver permanently reduced the available
commitments to the Companys Credit Agreement from $250.0
million to $240.0 million. The Companys ability to obtain
new advances is now limited to $18.0 million as of the execution
date of the Third Amendment and Waiver. Borrowings up to the
first $18.0 million of new advances under the Credit Agreement
are senior in right of payment to the existing borrowings under
the Credit Agreement and outstanding debt under the Notes. The
Company may repay and reborrow amounts up to $18.0 million of
new advances. The Company may also repay amounts greater than
$18.0 million under the Credit Agreement, and subject to certain
other provisions, the bank lenders will make available those
commitments dollar for dollar under the Credit Agreement to
$240.0 million.
The outstanding debt under the Companys Revolving Credit
Facility and Notes will be prepaid on a pro rata basis in
accordance with their pro rata percentages on a quarterly basis
by an amount equal to the Excess Cash Flow for that quarter.
Excess Cash Flow is defined as EBITDA for the applicable quarter
minus the sum of interest, scheduled principal payments, cash
taxes, cash dividends and capital expenditures paid in
accordance with the revolving credit agreement for that quarter
plus after the second fiscal quarter of 2011, the aggregate
amount that the Companys working capital has decreased in
the ordinary course during such period. The Excess Cash Flow pro
rata payment against the Credit Agreement outstanding debt will
concurrently and permanently reduce the same amount of Credit
Agreement commitments. The commitments may be reinstated with
approval from all bank lenders within the Credit Agreement.
25
A complete list of amended terms and conditions can be found in
the Third Amendment and Waiver and the Second Global Amendment,
which are included as Exhibits to this Form 10-K. See
Note 6 of the notes to the Consolidated Financial
Statements for additional information.
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 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 increased by an additional 100 basis
points. On April 1, 2010, the outstanding Notes
coupon interest rates increased an additional 200 basis
points.
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
$78.0 million in 2011, $178.9 million in 2012 and
$6.8 million in 2013 and $0.2 million in 2014
thereafter. The fair values of these borrowings aggregated
$261.7 million and $205.0 million at December 31,
2010 and 2009, respectively. Included in 2011 maturities are
$1.8 million of other
non-U.S. lines
of credit, $1.3 million of other debt, $6.5 million of
private placement debt, $68.0 million of revolving credit
facility, and $0.4 million of capital lease obligations.
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.
Cash dividends paid to shareholders in 2010, 2009 and 2008 were
$13.3 million, $11.7 million and $11.5 million,
respectively. The Company declared dividends of $0.24 per share
in 2010, 2009 and 2008.
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. No such purchases were made
in 2010 or 2009.
Total debt net of cash and short-term investments included in
continuing operations was $200.3 million representing 48%
of total capitalization at December 31, 2010 versus
$180.5 million or 35% of total capitalization at
December 31, 2009. The increase in the percentage of debt
to total capitalization in 2010 was due to a reduction in equity
of $107.8 million and an increase in net debt of
$19.8 million.
The Company anticipates that capital expenditures for 2011 will
approximate $15 million and will be restricted to no more
than $15 million per the terms of the Third Amendment and
Waiver and the Second Global Amendment. The Company believes
that its financial resources and major sources of liquidity,
including cash flow from operations and borrowing capacity, will
be adequate to meet its operating and capital needs in addition
to its financial commitments.
26
Contractual
Obligations and Commercial Commitments
The following table presents a summary of the Companys
contractual obligations and payments due by period as of
December 31, 2010 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Short-term obligations
|
|
$
|
1.8
|
|
|
$
|
1.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Long-term debt*
|
|
|
261.1
|
|
|
|
75.8
|
|
|
|
185.3
|
|
|
|
-
|
|
|
|
-
|
|
Operating lease obligations
|
|
|
66.5
|
|
|
|
9.6
|
|
|
|
13.2
|
|
|
|
11.4
|
|
|
|
32.3
|
|
Capital lease obligations
|
|
|
1.0
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
-
|
|
Interest payments on long term debt
|
|
|
8.6
|
|
|
|
4.1
|
|
|
|
4.2
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
339.0
|
|
|
$
|
91.7
|
|
|
$
|
203.1
|
|
|
$
|
11.9
|
|
|
$
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Long term debt includes financial service borrowings which are
reported in discontinued operations and current portion of long
term debt. |
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, 2010, there is
$0.1 million of unrealized losses on the Companys
foreign exchange contracts. Volatility in the future exchange
rates between the U.S. dollar and the Euro, Canadian
dollar, and British pound will impact the final settlement of
any of these contracts.
The following table presents a summary of the Companys
commercial commitments and the notional amount by expiration
period as of December 31, 2010 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount by Expiration Period
|
|
|
|
|
|
|
Less than
|
|
|
2-3
|
|
|
4-5
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Financial standby letters of credit
|
|
$
|
27.5
|
|
|
$
|
27.3
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Performance standby letters of credit
|
|
|
2.1
|
|
|
|
2.1
|
|
|
|
-
|
|
|
|
-
|
|
Purchase obligations
|
|
|
18.1
|
|
|
|
18.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
47.7
|
|
|
$
|
47.5
|
|
|
$
|
0.1
|
|
|
$
|
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, 2010, the Company has a liability of
approximately $4.1 million for unrecognized tax benefits
(refer to Note 7). Due to the uncertainties related to
these tax matters, the Company cannot make a reasonably reliable
estimate of the period of cash settlement for this liability.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates. The Company considers the following
policies to be the most critical in understanding the judgments
that are involved in the preparation of the Companys
Consolidated Financial Statements and the uncertainties that
could impact the Companys financial condition, results of
operations and cash flows.
Revenue
Recognition
Net sales consist primarily of revenue from the sale of
equipment, environmental vehicles, vehicle mounted aerial
platforms, parts, software, service and maintenance contracts.
27
The Company recognizes revenue for products when persuasive
evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collection is
probable. Product is considered delivered to the customer once
it has been shipped and title and risk of loss have been
transferred. For most of the Companys product sales, these
criteria are met at the time the product is shipped; however,
occasionally title passes later or earlier than shipment due to
customer contracts or letter of credit terms. If at the outset
of an arrangement the Company determines the arrangement fee is
not or is presumed not to be fixed or determinable, revenue is
deferred and subsequently recognized as amounts become due and
payable and all other criteria for revenue recognition have been
met.
For any product within these groups that either is software or
is considered software-related, the Company accounts for such
products in accordance with the specific industry accounting
guidance for software and software-related transactions.
The Company accounts for multiple element arrangements that
consist only of software or software-related products in
accordance with industry specific accounting guidance for
software and software-related transactions. If a
multiple-element arrangement includes software and other
deliverables that are neither software nor software-related, the
Company applies various revenue-related Generally Accepted
Accounting Principles GAAP to determine if those
deliverables constitute separate units of accounting from the
software or software-related deliverables. If the Company can
separate the deliverables, the Company applies the industry
specific accounting guidance to the software and
software-related deliverables and applies other appropriate
guidance to the non-software related deliverables. Revenue on
arrangements that include multiple elements such as hardware,
software, and services is allocated to each element based on the
relative fair value of each element. Each elements
allocated revenue is recognized when the revenue recognition
criteria for that element have been met. Fair value is generally
determined by vendor specific objective evidence
(VSOE), which is based on the price charged when
each element is sold separately. If the Company cannot
objectively determine the fair value of any undelivered element
included in a multiple-element arrangement, the Company defers
revenue until all elements are delivered and services have been
performed, or until fair value can objectively be determined for
any remaining undelivered elements. When the fair value of a
delivered element has not been established, but fair value
exists for the undelivered elements, the Company uses the
residual method to recognize revenue if the fair value of all
undelivered elements is determinable. Under the residual method,
the fair value of the undelivered elements is deferred and the
remaining portion of the arrangement fee is allocated to the
delivered elements and is recognized as revenue.
Implementation services include the design, development,
testing, and installation of systems. These services are
recognized pursuant to
SOP 81-1,
Accounting for Performance of Construction-Type Contracts and
Certain Production-Type Contracts. In such cases, the Company is
required to make reasonably dependable estimates relative to the
extent of progress toward completion by comparing the total
hours incurred to the estimated total hours for the arrangement
and, accordingly, would apply the
percentage-of-completion
method. If the Company were unable to make reasonably dependable
estimates of progress towards completion, then it would use the
completed-contract method, under which revenue is recognized
only upon completion of the services. If total cost estimates
exceed the anticipated revenue, then the estimated loss on the
arrangement is recorded at the inception of the arrangement or
at the time the loss becomes apparent.
Revenue from maintenance contracts is deferred and recognized
ratably over the coverage period. These contracts typically
extend phone support, software updates and upgrades, technical
support and equipment repairs.
Certain products which include software elements that are
considered to be more than incidental are sold with
post-contract support, which may include certain upgrade rights
that are offered to customers in connection with software sales
or the sale of extended warranty and maintenance contracts. The
Company defers revenue for the fair value of the upgrade rights
until the future obligation is fulfilled or the right to the
upgrade expires. When the Companys software products are
available with maintenance agreements that grant customers
rights to unspecified future upgrades over the maintenance term
on a
when-and-if-available
basis, revenue associated with such maintenance is recognized
ratably over the maintenance term.
Allowances
for Doubtful Accounts
The Company performs ongoing credit evaluations of its
customers. The 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
28
present portfolio, collateral value, and general economic
conditions. If the historical loss trend increased or decreased
10% in 2010, 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.
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 one to ten 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 1.0% in 2010, 1.3% in 2009, and 1.0% in 2008. The
decrease in the rate in 2010 is primarily due to decreased costs
in the Environmental Solutions Group. Management believes the
reserve recorded at December 31, 2010 is appropriate. A 10%
increase or decrease in the estimated warranty costs in 2010
would have decreased or increased operating income by
$0.8 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, 2010 appropriately reflects the
Companys risk exposure. The Company has not established a
reserve for potential losses resulting from the firefighter
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 its net assets. Goodwill
is not amortized but is tested for impairment at a reporting
unit level on an annual basis or when an event
29
occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying
amount. The Company performed its annual goodwill impairment
test as of October 31, 2010.
Goodwill is tested for impairment based on a two-step test. The
first step, used to identify potential impairment, compares the
fair value of a reporting unit with its carrying amount,
including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
not impaired and the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds
its fair value, the second step of the goodwill impairment test
is performed to measure the amount of impairment loss, if any.
The second step compares the implied fair value of reporting
unit goodwill with the carrying amount of that goodwill. If the
carrying amount of reporting unit goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized in
an amount equal to that excess. The Company generally determines
the fair value of its reporting units using two valuation
methods: the Income Approach Discounted Cash
Flow Analysis method, and the Market
Approach Guideline Public Company Method.
Under the Income Approach Discounted Cash Flow
Analysis method the key assumptions consider projected
sales, cost of sales, and operating expenses. These assumptions
were determined by management utilizing our internal operating
plan, growth rates for revenues and operating expenses, and
margin assumptions. An additional key assumption under this
approach is the discount rate, which is determined by looking at
current risk-free rates of capital, current market interest
rates, and the evaluation of risk premium relevant to the
business segment. If our assumptions relative to growth rates
were to change or were incorrect, our fair value calculation may
change, which could result in impairment. The Companys
risk factors are discussed under Item 1A of this
Form 10-K.
Under the Market Approach Guideline Public
Company Method the Company identified several publicly
traded companies, including Federal Signal, which we believe
have sufficiently relevant similarities. For these companies the
Company calculated the mean ratio of invested capital to
revenues and invested capital to EBITDA. Similar to the income
approach discussed above, sales, cost of sales, operating
expenses, and their respective growth rates are key assumptions
utilized. The market prices of Federal Signal and other
guideline companies are additional key assumptions. If these
market prices increase, the estimated market value would
increase. If the market prices decrease, the estimated market
value would decrease.
The results of these two methods are weighted based upon
managements evaluation of the relevance of the two
approaches. In the current year evaluation management determined
that the income approach provided a more relevant measure of
each reporting units fair value and used it to determine
reporting unit fair value. Management used the market approach
to corroborate the results of the income approach. Management
used the income approach to determine fair value of the
reporting units because it considers anticipated future
financial performance. The market approach is based upon
historical and current economic conditions which might not
reflect the long term prospects or opportunities for the
business segment being evaluated.
During the fourth quarter of 2010, the Company performed the
annual assessment, determined that the goodwill associated with
the FSTech Group reporting unit was impaired, and recorded
impairment charges of $67.1 million. The impairment charge
resulted from decreased sales and cash flow estimated in our
FSTech Group. As of December 31, 2010, the goodwill impairment
charge is an estimate and may be adjusted during the first
quarter of 2011 upon completion of a detailed second step
impairment analysis. We have not completed the second step
because we are awaiting additional information needed to value
certain assets of the reporting unit. We will complete the
second step in the first quarter of 2011 and changes to the
estimated impairment we have recorded could be material. The
fair values of the other reporting units exceeded their
respective carrying amounts by 10% or more. The Company had no
goodwill impairments in 2009 or 2008. 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 5 of the Consolidated Financial
Statements for further information.
Indefinite
lived Intangible Assets
An intangible asset determined to have an indefinite useful life
is not amortized. Indefinite lived intangible assets are
evaluated each reporting period to determine whether events and
circumstances continue to support an
30
indefinite useful life. These assets are tested for impairment
annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
The impairment test consists of a comparison of the fair value
of the indefinite lived intangible asset with its carrying
amount. If the carrying amount of an intangible asset exceeds
its fair value, an impairment loss is recognized in an amount
equal to that excess.
Significant judgment is applied when evaluating if an intangible
asset has an indefinite useful life. In addition, for indefinite
lived intangible assets, significant judgment is applied in
testing for impairment. This judgment includes developing cash
flow projections, selecting appropriate discount rates,
identifying relevant market comparables, and incorporating
general economic and market conditions. During the fourth
quarter of 2010, as a result of the annual assessment, the
Company concluded that the fair value determined by the income
approach, of certain trade names in the FSTech Group was lower
than the carrying value. As a result, the Company recognized a
$11.8 million impairment charge to trade names within the
FSTech segment in the fourth quarter of 2010. The Company had no
impairments in 2009 and 2008. Adverse changes to the
Companys business environment and future cash flows could
cause us to record impairment charges in future periods, which
could be material. See Note 5 of the Consolidated Financial
Statements for further information.
Postretirement
Benefits
The Company sponsors domestic and foreign defined benefit
pension and other postretirement plans. Major assumptions used
in the accounting for these employee benefit plans include the
discount rate, expected return on plan assets and rate of
increase in employee compensation levels. A change in any of
these assumptions would have an effect on net periodic pension
and postretirement benefit costs.
The following table summarizes the impact that a change in these
assumptions would have on the Companys operating income ($
in millions):
|
|
|
|
|
|
|
|
|
|
|
Assumption change:
|
|
|
25 Basis Point Increase
|
|
25 Basis Point Decrease
|
|
Discount rate
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
Return on assets
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
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 precisely match
the projected benefit payment stream of the plan. For this
reason, we also consider the individual characteristics of the
plan, such as projected cash flow patterns and payment
durations, when setting the discount rate. The weighted-average
discount rate used to measure U.S. pension liabilities
decreased from 6.0% in 2009 to 5.75% in 2010. See Note 8 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 which requires all share-based payments to
employees, including grants of employee stock options and
restricted stock, to be recognized in the financial statements
based on their respective grant date fair values. We use the
Black-Scholes option pricing model to estimate the fair value of
the stock option awards. The Black-Scholes model requires the
use of highly subjective and complex assumptions, including the
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 also requires the
recording of an expense that is net of an anticipated
31
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 expenses related to future
stock-based payments may differ significantly from estimates
recorded in prior periods.
Income
Taxes
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying values of existing
assets and liabilities and their respective tax bases. Deferred
tax assets are also recorded with respect to net operating
losses and other tax attribute carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates in
effect for the years in which temporary differences are expected
to be recovered or settled. Valuation allowances are established
when it is more likely than not that deferred tax assets will
not be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the income
of the period that includes the enactment date.
The ultimate recovery of deferred tax assets is dependent upon
the amount and timing of future taxable income, and other
factors such as the taxing jurisdiction in which the asset is to
be recovered. A high degree of judgment is required to determine
if, and the extent that, valuation allowances should be recorded
against deferred tax assets. We have provided a valuation
allowance at December 31, 2010 of $85.0 million
against our net domestic deferred tax assets based on our
assessment of past operating results, estimates of future
taxable income, and the feasibility of tax planning strategies.
Specifically, beginning in the fourth quarter of 2010 we had
three years of cumulative losses from continuing operations. We
believe having three years of cumulative losses from continuing
operations limits our ability to look to future taxable income
as a source for recovering our deferred tax assets. We will
continue to evaluate our ability to utilize our deferred tax
assets and, as a result, we may increase or decrease our
valuation allowance in future periods. Although we believe that
our approach to estimates and judgments as described herein is
reasonable, actual results could differ and we may be exposed to
increases or decreases in income taxes that could be material.
There were no similar charges recognized in 2009.
Accounting for uncertainty in income taxes addresses the
determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial
statements. We recognize the tax benefit from an uncertain tax
position if it is more likely than not that the tax position
will be sustained on examination by taxing authorities, based on
the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are
measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate
settlement.
The guidance on accounting for uncertainty in income taxes also
provides guidance on de-recognition and classification, and
requires companies to elect and disclose their method of
reporting interest and penalties on income taxes. We recognize
interest and penalties related to uncertain tax positions as
part of Income tax expense.
Financial
Market Risk Management
The Company is subject to market risk associated with changes in
interest rates and foreign exchange rates. To mitigate this
risk, the Company utilizes interest rate swaps and foreign
currency forward contracts. The Company does not hold or issue
derivative financial instruments for trading or speculative
purposes and is not party to leveraged derivatives contracts.
Interest
Rate Risk
The Company manages its exposure to interest rate movements by
targeting a proportionate relationship between fixed-rate debt
to total debt generally within percentages between 40% and 60%.
The Company uses funded fixed-rate borrowings as well as
interest rate swap agreements to balance its overall
fixed/floating interest rate mix. During the month of June 2010,
floating to fixed interest rate swaps with a total notional
amount of $70 million matured and that portion of the
Companys debt was left floating rate. Since the floating
rate of interest
32
the Company receives on its revolving credit facility has
favorable pricing further enhanced by historically low LIBOR
rates, the Company decided to maintain a percentage of floating
rate debt outside of the 40% to 60% targets.
The following table presents the principal cash flows and
weighted average interest rates by year of maturity for the
Companys total debt obligations held at December 31,
2010 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
Fair
|
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
|
Value
|
|
Fixed rate
|
|
$
|
5.8
|
|
|
$
|
28.0
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
33.8
|
|
|
$
|
31.7
|
|
Average interest rate
|
|
|
12.5
|
%
|
|
|
12.6
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12.5
|
%
|
|
|
-
|
|
Variable rate
|
|
$
|
72.2
|
|
|
$
|
150.8
|
|
|
$
|
6.8
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
230.0
|
|
|
$
|
230.0
|
|
Average interest rate
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
9.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
4.9
|
%
|
|
|
-
|
|
See Note 9 to the Consolidated Financial Statements in this
Form 10-K
for a description of these agreements. A 100 basis point
increase or decrease in variable interest rates in 2010 would
have increased or decreased interest expense by
$1.9 million, respectively.
Foreign
Exchange Rate Risk
Although the majority of sales, expenses and cash flows are
transacted in U.S. dollars, the Company has exposure to
changes in foreign exchange rates, primarily the Euro and the
British pound. If average annual foreign exchange rates had
collectively weakened against the U.S. dollar by 10%,
pre-tax earnings in 2010 would have decreased by
$3.8 million from foreign currency translation.
The Company has foreign currency exposures related to buying and
selling in currencies other than the local currency in which it
operates. The Company utilizes foreign currency options and
forward contracts to manage these risks.
The following table summarizes the Companys foreign
currency derivative instruments as of December 31, 2010.
All are expected to settle in 2011 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
|
|
|
|
Settlement Date
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Notional
|
|
|
Contract
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Value
|
|
|
Forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy U.S dollars, sell Euros
|
|
$
|
16.8
|
|
|
|
1.3
|
|
|
$
|
(0.3
|
)
|
Buy British Pounds, sell Euros
|
|
|
5.2
|
|
|
|
|
|
|
|
(0.1
|
)
|
Buy British Pounds, sell Euros
|
|
|
2.3
|
|
|
|
|
|
|
|
-
|
|
Other currencies
|
|
|
4.1
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign currency derivatives
|
|
$
|
28.4
|
|
|
|
|
|
|
$
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 9 to the Consolidated Financial Statements in this
Form 10-K
for a description of these agreements.
Forward exchange contracts are recorded as a natural hedge when
the hedged item is a recorded asset or liability that is
revalued each accounting period, in accordance with ASC Topic
830, Foreign Currency Matters. For derivatives
designated as natural hedges, changes in fair values are
reported in the Other income (expense) line of the
Consolidated Statements of Operations.
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, 2010.
33
|
|
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.
|
34
FEDERAL
SIGNAL CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
35
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Federal Signal
Corporation
We have audited the accompanying consolidated balance sheets of
Federal Signal Corporation as of December 31, 2010 and
2009, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2010. 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, 2010 and 2009, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2010, 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.
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, 2010, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 16,
2011, expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, Illinois
March 16, 2011
36
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, 2010,
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.
As indicated in Managements Annual Report on Internal
Control over Financial Reporting included in Item 9(b),
managements assessment of and conclusion on the
effectiveness of internal control over financial reporting did
not include the internal controls of Sirit, Inc. and
Subsidiaries and VESystems, LLC and Subsidiaries, which are
included in the 2010 consolidated financial statements of
Federal Signal Corporation and constituted $97.6 million
and $90.6 million of total and net assets, respectively, as
of December 31, 2010, and $30.2 million and
$(40.7) million of revenues and net loss, respectively, for
the year then ended. Our audit of internal control over
financial reporting of Federal Signal Corporation also did not
include an evaluation of the internal control over financial
reporting of Sirit, Inc. and Subsidiaries and VESystems, LLC.
In our opinion, Federal Signal Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of December 31, 2010 and
2009, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2010 of Federal
Signal Corporation and our report dated March 16, 2011
expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, Illinois
March 16, 2011
37
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
($ in millions)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
62.1
|
|
|
$
|
21.1
|
|
Accounts receivable, net of allowances for doubtful accounts of
$2.8 million and $2.4 million, respectively
|
|
|
100.4
|
|
|
|
119.7
|
|
Inventories Note 3
|
|
|
119.6
|
|
|
|
110.7
|
|
Other current assets
|
|
|
17.9
|
|
|
|
25.9
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
300.0
|
|
|
|
277.4
|
|
Properties and equipment Note 4
|
|
|
63.2
|
|
|
|
64.2
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill Note 5
|
|
|
310.4
|
|
|
|
319.6
|
|
Intangible assets, net Note 5
|
|
|
84.4
|
|
|
|
50.5
|
|
Deferred tax assets Note 7
|
|
|
-
|
|
|
|
17.2
|
|
Deferred charges and other assets
|
|
|
3.4
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
Total assets of continuing operations
|
|
|
761.4
|
|
|
|
730.6
|
|
Assets of discontinued operations, net Note 13
|
|
|
3.1
|
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
764.5
|
|
|
$
|
744.5
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings Note 6
|
|
$
|
1.8
|
|
|
$
|
-
|
|
Current portion of long-term borrowings and capital lease
obligations Note 6
|
|
|
76.2
|
|
|
|
41.9
|
|
Accounts payable
|
|
|
53.5
|
|
|
|
44.8
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Compensation and withholding taxes
|
|
|
21.2
|
|
|
|
20.8
|
|
Customer deposits
|
|
|
10.2
|
|
|
|
10.4
|
|
Deferred revenue
|
|
|
10.6
|
|
|
|
4.3
|
|
Other
|
|
|
41.1
|
|
|
|
42.0
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
214.6
|
|
|
|
164.2
|
|
Long-term borrowings and capital lease obligations
Note 6
|
|
|
184.4
|
|
|
|
159.7
|
|
Long-term pension and other postretirement benefit liabilities
|
|
|
41.3
|
|
|
|
39.6
|
|
Deferred gain Note 4
|
|
|
23.5
|
|
|
|
24.2
|
|
Deferred tax liabilities Note 7
|
|
|
45.8
|
|
|
|
-
|
|
Other long-term liabilities
|
|
|
15.8
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of continuing operations
|
|
|
525.4
|
|
|
|
399.9
|
|
Liabilities of discontinued operations Note 13
|
|
|
18.2
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
543.6
|
|
|
|
415.8
|
|
Shareholders equity Notes 10 and 11
|
|
|
|
|
|
|
|
|
Common stock, $1 par value per share, 90.0 million
shares authorized, 63.0 million and 49.6 million
shares issued, respectively
|
|
|
63.0
|
|
|
|
49.6
|
|
Capital in excess of par value
|
|
|
164.7
|
|
|
|
93.8
|
|
Retained earnings
|
|
|
50.6
|
|
|
|
240.4
|
|
Treasury stock, 0.9 million and 0.8 million shares,
respectively, at cost
|
|
|
(15.8
|
)
|
|
|
(15.8
|
)
|
Accumulated other comprehensive loss
|
|
|
(41.6
|
)
|
|
|
(39.3
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
220.9
|
|
|
|
328.7
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
764.5
|
|
|
$
|
744.5
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions, except per share data)
|
|
|
Net sales
|
|
$
|
726.5
|
|
|
$
|
750.4
|
|
|
$
|
878.0
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
542.3
|
|
|
|
557.3
|
|
|
|
643.0
|
|
Selling, engineering, general and administrative
|
|
|
173.3
|
|
|
|
155.8
|
|
|
|
180.6
|
|
Acquisition and integration related costs
|
|
|
3.9
|
|
|
|
-
|
|
|
|
-
|
|
Goodwill and intangible assets impairment Note 5
|
|
|
78.9
|
|
|
|
-
|
|
|
|
-
|
|
Restructuring charges Note 14
|
|
|
5.0
|
|
|
|
1.5
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(76.9
|
)
|
|
|
35.8
|
|
|
|
51.7
|
|
Interest expense
|
|
|
10.3
|
|
|
|
11.4
|
|
|
|
15.3
|
|
(Gain) loss on investment in joint venture
|
|
|
(0.1
|
)
|
|
|
(1.2
|
)
|
|
|
13.0
|
|
Other expense
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(88.4
|
)
|
|
|
25.1
|
|
|
|
22.6
|
|
Income tax (provision) benefit Note 7
|
|
|
(72.3
|
)
|
|
|
(5.3
|
)
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(160.7
|
)
|
|
|
19.8
|
|
|
|
28.7
|
|
Discontinued operations Note 13
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain from discontinued operations and disposal, net of
tax (expense) benefit of $0.0 million, ($1.0) million,
and $16.6 million, respectively
|
|
|
(15.0
|
)
|
|
|
3.3
|
|
|
|
(123.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(175.7
|
)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations
|
|
$
|
(2.79
|
)
|
|
$
|
0.41
|
|
|
$
|
0.61
|
|
(Loss) earnings from discontinued operations and disposal, net
of taxes
|
|
|
(0.26
|
)
|
|
|
0.06
|
|
|
|
(2.60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share
|
|
$
|
(3.05
|
)
|
|
$
|
0.47
|
|
|
$
|
(1.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Stock Par
|
|
|
Excess of
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Value
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Stock
|
|
|
Loss
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
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
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(175.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(175.7
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.5
|
)
|
|
|
(4.5
|
)
|
Unrealized gains on derivatives, net of $0.0 million tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
0.8
|
|
Change in unrecognized gains related to pension benefit plans,
net of $0.0 million tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(178.0
|
)
|
Shares issued for acquisition
|
|
|
1.2
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Equity offering, net of fees
|
|
|
12.1
|
|
|
|
59.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71.2
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(14.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(14.1
|
)
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock and options
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
Stock awards
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Common stock cancelled
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
63.0
|
|
|
$
|
164.7
|
|
|
$
|
50.6
|
|
|
$
|
(15.8
|
)
|
|
$
|
(41.6
|
)
|
|
$
|
220.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(175.7
|
)
|
|
$
|
23.1
|
|
|
$
|
(95.0
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on discontinued operations and disposal
|
|
|
15.0
|
|
|
|
(3.3
|
)
|
|
|
123.7
|
|
(Gain) loss on joint venture
|
|
|
(0.1
|
)
|
|
|
(1.2
|
)
|
|
|
13.0
|
|
Goodwill and intangible assets impairment
|
|
|
78.9
|
|
|
|
-
|
|
|
|
-
|
|
Valuation allowance
|
|
|
85.0
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation and amortization
|
|
|
19.2
|
|
|
|
14.7
|
|
|
|
14.3
|
|
Stock option and award compensation expense
|
|
|
2.3
|
|
|
|
3.1
|
|
|
|
2.9
|
|
Provision for doubtful accounts
|
|
|
1.2
|
|
|
|
0.9
|
|
|
|
7.1
|
|
Deferred income taxes
|
|
|
(13.7
|
)
|
|
|
3.7
|
|
|
|
(14.4
|
)
|
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions of companies
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
19.6
|
|
|
|
17.8
|
|
|
|
(14.3
|
)
|
Inventories
|
|
|
(7.9
|
)
|
|
|
21.8
|
|
|
|
(18.5
|
)
|
Other current assets
|
|
|
2.6
|
|
|
|
(0.7
|
)
|
|
|
1.9
|
|
Accounts payable
|
|
|
4.0
|
|
|
|
(3.3
|
)
|
|
|
(10.5
|
)
|
Customer deposits
|
|
|
-
|
|
|
|
(7.4
|
)
|
|
|
-
|
|
Accrued liabilities
|
|
|
(3.4
|
)
|
|
|
(5.8
|
)
|
|
|
(1.9
|
)
|
Income taxes
|
|
|
(1.2
|
)
|
|
|
1.9
|
|
|
|
(7.9
|
)
|
Pension contributions
|
|
|
(1.1
|
)
|
|
|
(1.0
|
)
|
|
|
(11.5
|
)
|
Deferred revenue
|
|
|
6.3
|
|
|
|
0.2
|
|
|
|
2.0
|
|
Other
|
|
|
6.8
|
|
|
|
(3.5
|
)
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) continuing operating activities
|
|
|
37.8
|
|
|
|
61.0
|
|
|
|
(6.6
|
)
|
Net cash (used for) provided by discontinued operating activities
|
|
|
(6.6
|
)
|
|
|
1.4
|
|
|
|
130.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
31.2
|
|
|
|
62.4
|
|
|
|
123.7
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of properties and equipment
|
|
|
(12.8
|
)
|
|
|
(14.4
|
)
|
|
|
(27.9
|
)
|
Proceeds from sales of properties and equipment
|
|
|
1.9
|
|
|
|
4.0
|
|
|
|
38.0
|
|
Payments for acquisitions, net of cash acquired
|
|
|
(97.3
|
)
|
|
|
(13.5
|
)
|
|
|
-
|
|
Other, net
|
|
|
-
|
|
|
|
10.0
|
|
|
|
(10.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for continuing investing activities
|
|
|
(108.2
|
)
|
|
|
(13.9
|
)
|
|
|
(0.0
|
)
|
Net cash provided by discontinued investing activities
|
|
|
0.2
|
|
|
|
44.9
|
|
|
|
54.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities
|
|
|
(108.0
|
)
|
|
|
31.0
|
|
|
|
54.6
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (reduction) in short-term borrowings, net
|
|
|
130.9
|
|
|
|
(12.6
|
)
|
|
|
0.6
|
|
Proceeds from issuance of long-term borrowings
|
|
|
-
|
|
|
|
12.5
|
|
|
|
148.8
|
|
Repayment of long-term borrowings
|
|
|
(70.8
|
)
|
|
|
(77.6
|
)
|
|
|
(169.5
|
)
|
Purchases of treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(6.0
|
)
|
Cash dividends paid to shareholders
|
|
|
(13.3
|
)
|
|
|
(11.7
|
)
|
|
|
(11.5
|
)
|
Proceeds from Equity offering, net
|
|
|
71.2
|
|
|
|
-
|
|
|
|
-
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) continuing financing activities
|
|
|
118.6
|
|
|
|
(89.2
|
)
|
|
|
(37.4
|
)
|
Net cash used for discontinued financing activities
|
|
|
(1.0
|
)
|
|
|
(7.3
|
)
|
|
|
(129.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
117.6
|
|
|
|
(96.5
|
)
|
|
|
(166.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of foreign exchange rate changes on cash
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
(0.7
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
41.0
|
|
|
|
(2.3
|
)
|
|
|
10.9
|
|
Cash and cash equivalents at beginning of year
|
|
|
21.1
|
|
|
|
23.4
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
62.1
|
|
|
$
|
21.1
|
|
|
$
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
41
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
($ in
millions, except per share data)
|
|
NOTE 1
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Basis of presentation: The accompanying
consolidated financial statements include the accounts of
Federal Signal Corporation and all of its significant
subsidiaries (Federal Signal or the
Company) and have been prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP). All significant intercompany
balances and transactions have been eliminated in consolidation.
These consolidated financial statements include estimates and
assumptions by management that effect the amounts reported in
the consolidated financial statements. Actual results could
differ from these estimates. The operating results of businesses
divested during 2010, 2009, and 2008 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 year
presentation.
Effective June 6, 2010, the Company reorganized its
segments to better align the Companys intelligent
transportation and public safety businesses for growth. As a
result of this reorganization, the Company created a new
operating segment called Federal Signal Technologies Group
(FSTech) that includes the vehicle classification
software, automated license plate recognition and parking
systems businesses from our Safety and Security Systems
operating segment and the newly acquired businesses, Sirit and
VESystems. The Safety and Security Systems operating segment
retained the businesses that offer systems for campus and
community alerting, emergency vehicles, first responder
interoperable communications, industrial communications and
command and municipal security.
As a result of this reorganization, products manufactured and
services rendered by the Company are divided into four major
operating segments: Federal Signal Technologies, Safety and
Security Systems, Fire Rescue and Environmental Solutions. The
individual operating businesses are organized as such because
they share certain characteristics, including technology,
marketing, distribution and product application, which create
long-term synergies.
The Company identified certain adjustments related to the timing
of recording revenue on certain arrangements primarily in the
FSTech Group. The revenue related adjustments resulted in a
decrease in previously reported revenue during the quarters
ended April 3, July 3, and October 2, 2010 of
$1.6 million, $2.5 million, and $2.1 million,
respectively. The revenue related adjustments resulted in a
decrease in previously reported income (loss) from continuing
operations during the quarters ended April 3, July 3,
and October 2, 2010 of $1.4 million,
$2.2 million, and $1.3 million, respectively. These
prior interim period adjustments individually and in the
aggregate are not material to the financial results for
previously issued interim financial data in 2010. We have not
filed an amendment to our previously issued quarters. The
significant corrections included:
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The Company offers
when-and-if-available
upgrade rights to its customers in connection with the sale of
software and firmware. The Company did not defer the revenue for
the fair value of the upgrade rights until the future obligation
was fulfilled or the right to the specified upgrade expired.
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The Company entered into certain transactions that contained
extended payment terms and other conditions that would have
required a deferral of revenue. The Company recognized revenue
before the risk and rewards of ownership transferred.
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The Company entered into certain arrangements to provide
customized systems which required the Company to make estimates
relative to the extent of progress toward completion. The
Company was unable to make reasonably dependable estimates,
resulting in recording profits prematurely.
|
Non-U.S. Operations: Assets and liabilities of
Non-U.S. subsidiaries, other than those whose functional
currency is the U.S. dollar, are translated at current
exchange rates with the related translation adjustments reported
in shareholders equity as a component of accumulated other
comprehensive loss. Statements of Operations accounts are
translated at the average exchange rate during the period. Where
the U.S. dollar is considered the functional currency,
monetary assets and liabilities are translated at current
exchange rates with the related adjustment included in net
income. Non-monetary assets and liabilities are translated at
historical exchange rates.
42
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 2010, 2009 and
2008, the Company incurred foreign currency translation losses,
included in other expense in the Consolidated Statements of
Operations, of $1.3 million, $0.3 million, and
$0.7 million, respectively.
Cash equivalents: The Company considers all
highly liquid investments with a maturity of three-months or
less, when purchased, to be cash equivalents.
Accounts receivable, lease financing and other receivables
and allowances for doubtful accounts: A receivable is
considered past due if payments have not been received within
agreed upon invoice terms. The 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 collectability. These factors include historical
trends of write-offs, recoveries and credit losses; portfolio
credit quality; and current and projected economic and market
conditions. If the financial condition of the 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 equipment and related
depreciation: Properties and equipment are stated
at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Useful lives
range from 8 to 40 years for buildings and 3 to
15 years for machinery and equipment. Leasehold
improvements are depreciated over the shorter of the remaining
life of the lease or the useful life of the improvement.
Property and equipment and other long-term assets are reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the
sum of the expected undiscounted cash flows is less than the
carrying value of the related asset or group of assets, a loss
is recognized for the difference between the fair value and
carrying value of the asset or group of assets. Such analyses
necessarily involve significant judgment.
Goodwill and Other Intangible assets: Goodwill
represents the excess of the cost of an acquired business over
the amounts assigned to its net assets. Goodwill is not
amortized but is tested for impairment at a reporting unit level
on an annual basis or when an event occurs or circumstances
change that would more likely than not reduce the fair value of
a reporting unit below its carrying amount. The Company
performed its annual goodwill impairment test as of October 31,
2010.
Goodwill is tested for impairment based on a two-step test. The
first step, used to identify potential impairment, compares the
fair value of a reporting unit with its carrying amount,
including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
not impaired and the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds
its fair value, the second step of the goodwill impairment test
is performed to measure the amount of impairment loss, if any.
The second step compares the implied fair value of reporting
unit goodwill with the carrying amount of that goodwill. If the
carrying amount of reporting unit goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized in
an amount equal to that excess. The Company generally determines
the fair value of its reporting units using two valuation
methods: the Income Approach Discounted Cash
Flow Analysis method, and the Market
Approach Guideline Public Company Method.
Under the Income Approach Discounted Cash Flow
Analysis method the key assumptions consider projected
sales, cost of sales, and operating expenses. These assumptions
were determined by management utilizing our internal operating
plan, growth rates for revenues and operating expenses, and
margin assumptions. An additional key assumption under this
approach is the discount rate, which is determined by looking at
current risk-free rates of capital, current market interest
rates, and the evaluation of risk premium relevant to the
business segment. If our
43
assumptions relative to growth rates were to change or were
incorrect, our fair value calculation may change, which could
result in impairment.
Under the Market Approach Guideline Public
Company Method the Company identified several publicly
traded companies, including Federal Signal, which we believe
have sufficiently relevant similarities. For these companies the
Company calculated the mean ratio of invested capital to
revenues and invested capital to EBITDA. Similar to the income
approach discussed above, sales, cost of sales, operating
expenses, and their respective growth rates are key assumptions
utilized. The market prices of Federal Signal and other
guideline companies are additional key assumptions. If these
market prices increase, the estimated market value would
increase. If the market prices decrease, the estimated market
value would decrease.
The results of these two methods are weighted based upon
managements evaluation of the relevance of the two
approaches. In the current year evaluation management determined
that the income approach provided a more relevant measure of
each reporting units fair value and used it to determine
reporting unit fair value. Management used the market approach
to corroborate the results of the income approach. Management
used the income approach to determine fair value of the
reporting units because it considers anticipated future
financial performance. The market approach is based upon
historical and current economic conditions which might not
reflect the long term prospects or opportunities for the
business segment being evaluated.
During the fourth quarter of 2010, the Company performed the
annual assessment, determined that the goodwill associated with
the FSTech Group reporting unit was impaired, and recorded
impairment charges of $67.1 million. The impairment charge
resulted from decreased sales and cash flow estimated in our
FSTech Group. As of December 31, 2010, the goodwill impairment
charge is an estimate and may be adjusted during the first
quarter of 2011 upon completion of a detailed second step
impairment analysis. We have not completed the second step
because we are awaiting additional information needed to value
certain assets of the reporting unit. We will complete the
second step in the first quarter of 2011 and changes to the
estimated impairment we have recorded could be material. The
fair values of the other reporting units exceeded their
respective carrying amounts by 10% or more. The Company had no
goodwill impairments in 2009 or 2008. 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 5 of the Consolidated Financial
Statements for further information.
An intangible asset determined to have an indefinite useful life
is not amortized. Indefinite lived intangible assets are
evaluated each reporting period to determine whether events and
circumstances continue to support an indefinite useful life.
These assets are tested for impairment annually, or more
frequently if events or changes in circumstances indicate that
the asset might be impaired.
The impairment test consists of a comparison of the fair value
of the indefinite lived intangible asset with its carrying
amount. If the carrying amount of an intangible asset exceeds
its fair value, an impairment loss is recognized in an amount
equal to that excess.
Significant judgment is applied when evaluating if an intangible
asset has an indefinite useful life. In addition, for indefinite
lived intangible assets, significant judgment is applied in
testing for impairment. This judgment includes developing cash
flow projections, selecting appropriate discount rates,
identifying relevant market comparables, and incorporating
general economic and market conditions. During the fourth
quarter of 2010, as a result of the annual assessment, the
Company concluded that the fair value determined by the income
approach, of certain trade names in the FSTech Group was lower
than the carrying value. As a result, the Company recognized a
$11.8 million impairment charge to trade names within the
FSTech segment in the fourth quarter of 2010. The Company had no
impairments in 2009 and 2008. 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 5 of the Consolidated Financial
Statements for further information.
Definite lived intangible assets are amortized using the
straight-line method over the estimated useful lives and are
tested for impairment if indicators exist.
Stock-based compensation plans: The Company
has various stock-based compensation plans, described more fully
in Note 10.
44
The Company accounts for stock-based compensation in accordance
with the provisions of ASC Topic 718,
Compensation Stock Compensation. The
fair value of stock options is 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.
Concentration Risk: Our financial condition,
results of operations, and cash flows are subject to a
concentration risk of union employees. As of December 31,
2010, approximately 28% of the Companys domestic hourly
works were represented by unions. On February 23, 2011, the
Companys subsidiary, Vactor Manufacturing Inc., located in
Streator, Illinois, received notice that the International
Brotherhood of the Boilermakers filed a petition under the
National Labor Relations Act, seeking certification to represent
approximately 300 hourly employees for the purpose of
collective bargaining. The election to determine whether a
majority of the employees identified wish to be represented by
the union for the purpose of collective bargaining normally
occurs within 42 days of the filing of the petition,
subject to adjustment in certain events.
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
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 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
45
other accrued liabilities. This process includes linking
derivatives that are designated as hedges of specific forecast
transactions. The Company also formally assesses, both at
inception and at least quarterly thereafter, whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in either the fair value or cash
flows of the hedged item. If it is determined that a derivative
ceases to be a highly effective hedge, or if the anticipated
transaction is no longer likely to occur, the Company
discontinues hedge accounting, and any deferred gains or losses
are recorded in Other Expense. 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, which defines fair value, establishes a
framework for measuring fair value in GAAP, and expands
disclosure about fair value measurements. The Company adopted
the provisions of ASC Topic 820 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 with respect to its
non-financial assets and non-financial liabilities as of
January 1, 2009. The adoption of ASC Topic 820 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 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, 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
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.
Split-dollar life insurance arrangements: In
accordance with ASC Topic
715-60,
Defined benefit plans other
postretirement which concludes that an employer should
recognize a liability for post-employment benefits promised to
an employee. The Company has one arrangement that meets these
criteria and has recorded a liability of approximately
$0.4 million and $0.4 million at December 31,
2010 and 2009, respectively.
Revenue recognition: Net sales consist
primarily of revenue from the sale of equipment, environmental
vehicles, vehicle mounted aerial platforms, parts, software,
service, and maintenance contracts.
The Company recognizes revenue for products when persuasive
evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collection is
probable. Product is considered delivered to the customer once
it has been shipped and title and risk of loss have been
transferred. For most of the Companys product sales, these
criteria are met at the time the product is shipped; however,
occasionally title passes later or earlier than shipment due to
customer contracts or letter of credit terms. If at the outset
of an arrangement the Company determines the arrangement fee is
not, or is presumed not to be, fixed or determinable, revenue is
deferred and subsequently recognized as amounts become due and
payable and all other criteria for revenue recognition have been
met.
46
For any product within these groups that either is software or
is considered software-related, the Company accounts for such
products in accordance with the specific industry accounting
guidance for software and software-related transactions.
The Company accounts for multiple element arrangements that
consist only of software or software-related products in
accordance with industry specific accounting guidance for
software and software-related transactions. If a
multiple-element arrangement includes software and other
deliverables that are neither software nor software-related, the
Company applies various revenue-related GAAP to determine if
those deliverables constitute separate units of accounting from
the software or software-related deliverables. If the Company
can separate the deliverables, the Company applies the industry
specific accounting guidance to the software and
software-related deliverables and applies other appropriate
guidance to the non-software-related deliverables. Revenue on
arrangements that include multiple elements such as hardware,
software, and services is allocated to each element based on the
relative fair value of each element. Each elements
allocated revenue is recognized when the revenue recognition
criteria for that element have been met. Fair value is generally
determined by vendor specific objective evidence
(VSOE), which is based on the price charged when
each element is sold separately. If the Company cannot
objectively determine the fair value of any undelivered element
included in a multiple-element arrangement, the Company defers
revenue until all elements are delivered and services have been
performed, or until fair value can objectively be determined for
any remaining undelivered elements. When the fair value of a
delivered element has not been established, but fair value
exists for the undelivered elements, the Company uses the
residual method to recognize revenue if the fair value of all
undelivered elements is determinable. Under the residual method,
the fair value of the undelivered elements is deferred and the
remaining portion of the arrangement fee is allocated to the
delivered elements and is recognized as revenue.
Implementation services include the design, development,
testing, and installation of systems. These services are
recognized pursuant to
SOP 81-1,
Accounting for Performance of Construction-Type Contracts and
Certain Production-Type Contracts. In such cases, the Company is
required to make reasonably dependable estimates relative to the
extent of progress toward completion by comparing the total
hours incurred to the estimated total hours for the arrangement
and, accordingly, would apply the
percentage-of-completion
method. If the Company were unable to make reasonably dependable
estimates of progress towards completion, then it would use the
completed-contract method, under which revenue is recognized
only upon completion of the services. If total cost estimates
exceed the anticipated revenue, then the estimated loss on the
arrangement is recorded at the inception of the arrangement or
at the time the loss becomes apparent.
Revenue from maintenance contracts is deferred and recognized
ratably over the coverage period. These contracts typically
extend phone support, software updates and upgrades, technical
support, and equipment repairs.
Certain products which include software elements that are
considered to be more than incidental are sold with
post-contract support, which may include certain upgrade rights
that are offered to customers in connection with software sales
or the sale of extended warranty and maintenance contracts. The
Company defers revenue for the fair value of the upgrade rights
until the future obligation is fulfilled or the right to the
upgrade expires. When the Companys software products are
available with maintenance agreements that grant customers
rights to unspecified future upgrades over the maintenance term
on a when and if available basis, revenue associated with such
maintenance is recognized ratably over the maintenance term.
Net sales: Net sales are net of returns and
allowances. Returns and allowances are calculated and recorded
as a percentage of revenue based upon historical returns. Gross
sales includes sales of products and billed freight related to
product sales. Freight has not historically comprised a material
component of gross sales.
Product shipping costs: Product shipping costs
are expensed as incurred and are included in cost of sales.
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
47
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 $0.1 million and $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 in
2010 and 2009, respectively. The Companys share of
operating losses was $2.6 million in the year ended
December 31, 2008.
Income Taxes: We file a consolidated
U.S. federal income tax return for Federal Signal
Corporation and its eligible domestic subsidiaries. Our
non-U.S. subsidiaries
file income tax returns in their respective local jurisdictions.
We account for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and tax benefit carry forwards. Deferred tax assets and
liabilities at the end of each period are determined using
enacted tax rates. A valuation allowance is established or
maintained when, based on currently available information and
other factors, it is more likely than not that all or a portion
of a deferred tax asset will not be realized.
Accounting standards on accounting for uncertainty in income
taxes address the determination of whether tax benefits claimed
or expected to be claimed on a tax return should be recorded in
the financial statements. Under the guidance on accounting for
uncertainty in income taxes, we may recognize the tax benefit
from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by
taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial
statements from such a position are measured based on the
largest benefit that has a greater than fifty percent likelihood
of being realized upon ultimate settlement. The guidance on
accounting for uncertainty in income taxes also provides
guidance on de-recognition, classification, interest and
penalties on income taxes, and accounting in interim periods.
NOTE 2
ACQUISITIONS
Sirit Inc. and Subsidiaries
On March 5, 2010, the Company acquired all of the issued
and outstanding common shares of Sirit Inc. and Subsidiaries
(Sirit) for total cash consideration of CDN
$77.1 million (USD $74.9 million). Sirit designs,
develops and manufactures radio frequency identification device
technology for applications such as tolling, electronic vehicle
registration, parking and access control, cashless payments,
supply chain management and asset tracking solutions. The
acquisition of Sirit supports the Companys long-term
strategy by creating growth opportunities and revenue synergies.
The results of Sirit are included within the FSTech operating
segment.
48
The following table summarizes the fair values of the assets
acquired and liabilities assumed from the acquisition of Sirit.
Since the acquisition and the initial preliminary purchase price
allocation included in the Companys
Form 10-Q
for the first quarter ended March 31, 2010, net adjustments
of $0.2 million were made to the fair values of the assets
acquired and liabilities assumed with a corresponding adjustment
to goodwill. These adjustments are summarized in the table
presented below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
Initial
|
|
|
to Fair
|
|
|
December 31,
|
|
($ in millions)
|
|
Valuation
|
|
|
Value
|
|
|
2010
|
|
|
Purchase Price
|
|
$
|
74.9
|
|
|
$
|
-
|
|
|
$
|
74.9
|
|
Fair Value of Assets Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
7.0
|
|
|
|
-
|
|
|
|
7.0
|
|
Fixed assets
|
|
|
1.6
|
|
|
|
-
|
|
|
|
1.6
|
|
Intangible assets
|
|
|
37.1
|
|
|
|
-
|
|
|
|
37.1
|
|
Other assets
|
|
|
0.4
|
|
|
|
-
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Acquired
|
|
|
46.1
|
|
|
|
-
|
|
|
|
46.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Liabilities Assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
13.2
|
|
|
|
(0.1
|
)
|
|
|
13.1
|
|
Deferred tax liabilities, net
|
|
|
2.4
|
|
|
|
0.3
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities Assumed
|
|
|
15.6
|
|
|
|
0.2
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (1)
|
|
|
44.4
|
|
|
|
0.2
|
|
|
|
44.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The goodwill of $44.6 million is non-deductible for tax
purposes. |
VESystems, LLC and Subsidiaries
On March 2, 2010, the Company acquired all of the equity
interests in VESystems, LLC and Subsidiaries
(VESystems) for an aggregate purchase price of
$34.8 million. The consideration transferred consisted of
cash in the amount of approximately $24.6 million and
1,220,311 shares of Federal Signal common stock with an
acquisition date fair value of $10.2 million. VESystems
designs, develops and deploys advanced software applications and
customer management systems and services for the electronic toll
collection and port industries. The acquisition of VESystems
supports the Companys long-term strategy by creating
growth opportunities and revenue synergies. The results of
VESystems are included within the FSTech operating segment.
49
The following table summarizes the fair values of the assets
acquired and liabilities assumed from the acquisition of
VESystems. Since the acquisition and the initial preliminary
purchase price allocation included in the Companys
Form 10-Q
for the first quarter ended March 31, 2010, net adjustments
of $0.3 million were made to the fair values of the assets
acquired and liabilities assumed with a corresponding adjustment
to goodwill. These adjustments are summarized in the table
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
Initial
|
|
|
to Fair
|
|
|
December 31,
|
|
($ in millions)
|
|
Valuation
|
|
|
Value
|
|
|
2010
|
|
|
Purchase Price
|
|
$
|
34.8
|
|
|
$
|
-
|
|
|
$
|
34.8
|
|
Fair Value of Assets Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
2.2
|
|
|
|
-
|
|
|
|
2.2
|
|
Fixed assets
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.1
|
|
Intangible assets
|
|
|
16.1
|
|
|
|
-
|
|
|
|
16.1
|
|
Other assets
|
|
|
0.5
|
|
|
|
-
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Acquired
|
|
|
18.9
|
|
|
|
-
|
|
|
|
18.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Liabilities Assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
1.9
|
|
|
|
0.3
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities Assumed
|
|
|
1.9
|
|
|
|
0.3
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (2)
|
|
|
17.8
|
|
|
|
0.3
|
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
The goodwill of $18.1 million is deductible for tax
purposes over 15 years, starting in 2010. |
Diamond Consulting Services Ltd.
On December 9, 2009, the Company acquired all equity
interests of Diamond Consulting Services Ltd.
(Diamond) for total consideration of
$13.9 million. In addition to the consideration paid, the
Company may be required to pay up to $3.2 million of
retention payments in future years. The deferred retention
expense is calculated in accordance with the sale and purchase
agreement of Diamond dated December 9, 2009. A sum of
£1,000,000 (one million pounds sterling) was payable to the
former owners of Diamond on or before January 31, 2011 in
the event that the former owners of Diamond were employed by the
Company on December 31, 2010 and were at that time actively
engaged in the business. An additional amount of £1,000,000
(one million pounds sterling) is payable to the former owners of
Diamond on or before January 31, 2012 in the event that
former owners of Diamond are employed by the Company on
December 31, 2011 and are at that time actively engaged in
the business. The former owners of Diamond did maintain
employment through December 31, 2010 and were paid the
first contingent payment of £1,000,000 (one million pounds
sterling) in January 2011.
In accordance with
ASC 805-10-55-25,
the deferred retention payments are being treated as
compensation expense for post combination services as the
contingent payments are automatically forfeited if employment is
terminated. The total contingency of £2,000,000 (two
million pounds sterling) is being expensed ratably over the two
year period that the employees are required to stay in order to
earn the retention payment.
Diamond specializes in vehicle classification systems for
tolling and other intelligent transportation systems. The
acquisition supports the Companys long-term strategy by
creating growth opportunities and revenue synergies. The results
of Diamond are included in the FSTech operating segment.
50
The following table summarizes the fair values of the assets
acquired and liabilities assumed from the acquisition of
Diamond. Since the acquisition and the initial preliminary
purchase price allocation included in the Companys
Form 10-K
for the year ended December 31, 2009, net adjustments of
($0.5) million were made to the fair values of the assets
acquired and liabilities assumed with a corresponding adjustment
to goodwill. These adjustments are summarized in the table
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
Initial
|
|
|
to Fair
|
|
|
December 31,
|
|
($ in millions)
|
|
Valuation
|
|
|
Value
|
|
|
2010
|
|
|
Purchase Price
|
|
$
|
13.5
|
|
|
$
|
0.4
|
|
|
$
|
13.9
|
|
Fair Value of Assets Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
0.7
|
|
|
|
-
|
|
|
|
0.7
|
|
Intangible assets
|
|
|
6.9
|
|
|
|
(0.1
|
)
|
|
|
6.8
|
|
Other assets
|
|
|
0.2
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Acquired
|
|
|
7.8
|
|
|
|
(0.1
|
)
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Liabilities Assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
1.0
|
|
|
|
(0.1
|
)
|
|
|
0.9
|
|
Deferred tax liabilities, net
|
|
|
2.8
|
|
|
|
(0.9
|
)
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities Assumed
|
|
|
3.8
|
|
|
|
(1.0
|
)
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (3)
|
|
|
9.5
|
|
|
|
(0.5
|
)
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
The goodwill of $9.0 million is non-deductible for tax
purposes. |
The following table summarizes the preliminary fair value of
amortizable and indefinite-lived intangible assets as of their
respective acquisition dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sirit
|
|
|
VESystems
|
|
|
Diamond
|
|
|
|
|
|
|
Estimated useful
|
|
|
|
|
|
Estimated useful
|
|
|
|
|
|
Estimated useful
|
|
($ in millions)
|
|
Fair Value
|
|
|
life (in years)
|
|
|
Fair Value
|
|
|
life (in years)
|
|
|
Fair Value
|
|
|
life (in years)
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
1.7
|
|
|
|
10
|
|
Customer relationships
|
|
|
18.0
|
|
|
|
18
|
|
|
|
9.5
|
|
|
|
17
|
|
|
$
|
1.5
|
|
|
|
10
|
|
Technology
|
|
|
12.1
|
|
|
|
9
|
|
|
|
4.9
|
|
|
|
16
|
|
|
|
2.0
|
|
|
|
15
|
|
Non-compete
|
|
|
2.9
|
|
|
|
5
|
|
|
|
0.4
|
|
|
|
5
|
|
|
|
0.6
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
$
|
33.0
|
|
|
|
|
|
|
$
|
14.8
|
|
|
|
|
|
|
$
|
5.8
|
|
|
|
|
|
Indefinite-lived intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
$
|
4.1
|
|
|
|
|
|
|
$
|
1.3
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
37.1
|
|
|
|
|
|
|
$
|
16.1
|
|
|
|
|
|
|
$
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company determined the useful life of its customer
relationship intangible assets in accordance with ASC 350,
Goodwill and Other. In accordance with
ASC 350-30-35-2,
the useful lives are based on the period during which 95% of the
undiscounted cash flows of the assets will be realized. In
addition to analyzing the pattern of benefit demonstrated by the
assets cash flow stream, the Company also considered
factors discussed in
ASC 350-30-35-3
and determined that the useful lives are appropriate.
51
Subsequent to the completion of the aforementioned acquisitions
and in association with the Companys annual impairment
assessment, the Company recorded charges of $67.1 million and
$11.8 million to impair goodwill and certain trade names
within the FSTech Group, respectively. See Note 5 for
additional information.
Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial
information presents the results of operations of the Company as
they may have appeared if the closing of Sirit and VESystems,
presented in the aggregate, had been completed on
January 1, 2010 and January 1, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
($ in millions, except per share data)
|
|
2010
|
|
|
2009
|
|
|
Net sales
|
|
$
|
734.8
|
|
|
$
|
797.0
|
|
(Loss) income from continuing operations
|
|
|
(160.3
|
)
|
|
|
14.0
|
|
(Loss) earnings from continuing operations per basic
and diluted share
|
|
$
|
(2.78
|
)
|
|
$
|
0.28
|
|
The unaudited pro forma condensed combined financial information
is presented for illustrative purposes only and does not
indicate the actual financial results of the Company had the
closing of Sirit and VESystems been completed on January 1,
2010 and January 1, 2009, respectively, nor is it
indicative of the results of operations in future periods.
Included in the unaudited pro forma combined financial
information for the years ended December 31, 2010 and 2009
were pro forma adjustments to reflect the results of operations
of Sirit and VESystems as well as the impact of amortizing
certain acquisition accounting adjustments such as amortizable
intangible assets. The pro forma condensed financial information
does not indicate the impact of possible business model changes,
nor does it consider any potential impacts of current market
conditions, expense efficiencies or other factors. The combined
net sales and net loss for the year ended December 31, 2010
was $30.2 million and $(40.7) million, respectively.
Acquisition and Integration Related Expenses
For the year ended December 31, 2010, pretax charges
totaling $3.9 million were recorded for acquisition and
integration related costs. For the year ended December 31,
2009, there were no charges recorded for acquisitions and
integration related costs. These charges, which were expensed in
accordance with the accounting guidance for business
combinations, were recorded in Acquisition and integration
related costs and are included as a component of Corporate
expenses.
Inventories at December 31 are summarized as follows ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
55.0
|
|
|
$
|
52.9
|
|
Work in process
|
|
|
29.0
|
|
|
|
27.8
|
|
Finished goods
|
|
|
35.6
|
|
|
|
30.0
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
119.6
|
|
|
$
|
110.7
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4
|
PROPERTIES
AND EQUIPMENT
|
Properties and equipment at December 31 are summarized as
follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
Buildings and improvements
|
|
|
23.1
|
|
|
|
22.6
|
|
Machinery and equipment
|
|
|
141.1
|
|
|
|
137.8
|
|
Accumulated depreciation
|
|
|
(101.3
|
)
|
|
|
(96.5
|
)
|
|
|
|
|
|
|
|
|
|
Total properties and equipment
|
|
$
|
63.2
|
|
|
$
|
64.2
|
|
|
|
|
|
|
|
|
|
|
52
In July 2008, the Company entered into sale-leaseback
transactions for its Elgin and University Park, Illinois plant
locations. Net proceeds received were $35.8 million,
resulting in a deferred gain of $29.0 million. The deferred
gain is being amortized over the
15-year life
of the respective leases. The balance was $23.5 million and
$24.2 million at December 31, 2010 and 2009,
respectively.
The Company leases certain facilities and equipment under
operating leases, some of which contain options to renew. Total
rental expense on all operating leases was $11.4 million in
2010, $10.3 million in 2009, and $9.3 million in 2008.
Sublease income and contingent rentals relating to operating
leases were insignificant. At December 31, 2010, minimum
future rental commitments under operating leases having
non-cancelable lease terms in excess of one year aggregated
$66.5 million payable as follows: $9.6 million in
2011, $7.0 million in 2012, $6.2 million in 2013,
$6.1 million in 2014, $5.3 million in 2015, and
$32.3 million thereafter.
|
|
NOTE 5
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
Changes in the carrying amount of goodwill and trade names for
the years ended December 31, 2010 and 2009, by operating
segment, were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
Fire
|
|
|
Safety
|
|
|
Federal Signal
|
|
|
|
|
($ in millions)
|
|
Solutions
|
|
|
Rescue
|
|
|
& Security
|
|
|
Technologies
|
|
|
Total
|
|
|
December 31, 2008
|
|
$
|
120.3
|
|
|
$
|
33.0
|
|
|
$
|
118.4
|
|
|
$
|
31.9
|
|
|
$
|
303.6
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9.5
|
|
|
|
9.5
|
|
Translation/Adjustments
|
|
|
0.1
|
|
|
|
1.7
|
|
|
|
2.5
|
|
|
|
2.2
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
120.4
|
|
|
|
34.7
|
|
|
|
120.9
|
|
|
|
43.6
|
|
|
|
319.6
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62.2
|
|
|
|
62.2
|
|
Translation/Adjustments
|
|
|
-
|
|
|
|
(0.8
|
)
|
|
|
(2.7
|
)
|
|
|
(0.8
|
)
|
|
|
(4.3
|
)
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(67.1
|
)
|
|
|
(67.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
120.4
|
|
|
$
|
33.9
|
|
|
$
|
118.2
|
|
|
$
|
37.9
|
|
|
$
|
310.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
Fire
|
|
|
Safety
|
|
|
Federal Signal
|
|
|
|
|
($ in millions)
|
|
Solutions
|
|
|
Rescue
|
|
|
& Security
|
|
|
Technologies
|
|
|
Total
|
|
|
December 31, 2008
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19.4
|
|
|
$
|
19.4
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.4
|
|
|
|
3.4
|
|
Translation/Adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24.4
|
|
|
|
24.4
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5.4
|
|
|
|
5.4
|
|
Translation/Adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2.7
|
)
|
|
|
(2.7
|
)
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11.8
|
)
|
|
|
(11.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15.3
|
|
|
$
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Goodwill by operating segment at December 31, 2008 and
December 31, 2009 has been restated to reflect the changes
in operating segments described in Note 16. |
53
The following table provides the gross carrying value and
accumulated amortization for each major class of intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Useful
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Life
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
($ in millions)
|
|
(Years)
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Amortizable Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed software
|
|
|
6
|
|
|
$
|
23.0
|
|
|
$
|
(17.5
|
)
|
|
$
|
5.5
|
|
|
$
|
21.6
|
|
|
$
|
(15.6
|
)
|
|
$
|
6.0
|
|
Patents
|
|
|
10
|
|
|
|
2.3
|
|
|
|
(0.6
|
)
|
|
|
1.7
|
|
|
|
0.7
|
|
|
|
(0.5
|
)
|
|
|
0.2
|
|
Customer relationships
|
|
|
15
|
|
|
|
45.0
|
|
|
|
(7.3
|
)
|
|
|
37.7
|
|
|
|
19.0
|
|
|
|
(4.2
|
)
|
|
|
14.8
|
|
Technology
|
|
|
11
|
|
|
|
23.7
|
|
|
|
(3.1
|
)
|
|
|
20.6
|
|
|
|
5.6
|
|
|
|
(1.2
|
)
|
|
|
4.4
|
|
Other
|
|
|
5
|
|
|
|
5.7
|
|
|
|
(2.1
|
)
|
|
|
3.6
|
|
|
|
1.8
|
|
|
|
(1.1
|
)
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12
|
|
|
|
99.7
|
|
|
|
(30.6
|
)
|
|
|
69.1
|
|
|
|
48.7
|
|
|
|
(22.6
|
)
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
|
|
|
|
15.3
|
|
|
|
-
|
|
|
|
15.3
|
|
|
|
24.4
|
|
|
|
-
|
|
|
|
24.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
115.0
|
|
|
$
|
(30.6
|
)
|
|
$
|
84.4
|
|
|
$
|
73.1
|
|
|
$
|
(22.6
|
)
|
|
$
|
50.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2010,
2009, and 2008 totaled $8.2 million, $5.2 million, and
$4.6 million, respectively. The Company estimates that the
aggregate amortization expenses will be $9.2 million in
2011, $8.2 million in 2012, $6.9 million in 2013,
$6.8 million in 2014, $6.2 million in 2015, and
$31.8 million thereafter. Actual amounts of amortization
may differ from estimated amounts due to additional intangible
asset acquisitions, changes in foreign currency rates,
impairment of intangible assets, and other events.
The Company accounts for goodwill and indefinite-lived
intangible assets in accordance with ASC 360
Intangibles Goodwill and Other, as
indicated in Note 1.
During the fourth quarter of 2010, the Company performed its
annual assessment and determined that the goodwill and certain
trade names within the FSTech Group reporting unit were
impaired, and recorded impairment charges of $67.1 million
and $11.8 million, respectively. The impairment charges
resulted from decreased sales and cash flow estimated in our
FSTech Group. As of December 31, 2010, the goodwill
impairment charge is an estimate and may be adjusted during the
first quarter of 2011 upon completion of a detailed second step
impairment analysis.
Short-term borrowings at December 31 consisted of the following
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Non-U.S.
lines of credit
|
|
$
|
1.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$
|
1.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
54
Long-term borrowings at December 31 consisted of the following
($ in millions):
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
Revolving Credit Facility
|
|
$
|
214.6
|
|
|
$
|
85.0
|
|
Alternative Currency Facility (within Revolving Credit Facility)
|
|
|
4.0
|
|
|
|
16.2
|
|
10.79% Unsecured Private Placement note with annual installments
of $10.0 million due
2010-2011
|
|
|
1.3
|
|
|
|
11.4
|
|
10.60% Unsecured Private Placement note with annual installments
of $7.1 million due
2010-2011
|
|
|
0.6
|
|
|
|
8.1
|
|
8.93% Unsecured Private Placement note with annual installments
of $8.0 million due
2010-2012
|
|
|
-
|
|
|
|
14.8
|
|
9.24% Unsecured Private Placement note due 2012
|
|
|
31.9
|
|
|
|
42.7
|
|
Unsecured Private Placement note, floating rate (5.63% and 2.35%
at September 30, 2010 and December 31, 2009,
respectively) due
2010-2013
|
|
|
7.1
|
|
|
|
21.3
|
|
Subsidiary Loan Agreement
|
|
|
1.0
|
|
|
|
3.2
|
|
Capital Lease Obligations
|
|
|
1.0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261.5
|
|
|
|
202.7
|
|
Unamortized balance of terminated fair value interest rate swaps
|
|
|
0.6
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262.1
|
|
|
|
204.1
|
|
Less current maturities, excluding financial services activities
|
|
|
(75.8
|
)
|
|
|
(41.9
|
)
|
Less current capital lease obligations
|
|
|
(0.4
|
)
|
|
|
-
|
|
Less financial services activities borrowings
(included in discontinued operations)
|
|
|
(1.5
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term borrowings and capital lease obligations, net
|
|
$
|
184.4
|
|
|
$
|
159.7
|
|
|
|
|
|
|
|
|
|
|
The Company was in violation of its Interest Coverage Ratio
covenant minimum requirement as defined in the Second Amended
and restated Credit Agreement (the Credit Agreement)
and the Note Purchase Agreements for the fiscal quarter ended
December 31, 2010. The Company was in compliance with the
financial covenants throughout 2009.
On March 15, 2011, the Company executed the Third Amendment and
Waiver to Second Amended and Restated Credit Agreement dated as
of April 25, 2007, among the Company, the lenders party
thereto, and Bank of Montreal, as Agent (the Third
Amendment and Waiver). On the same date, the Company also
executed the Second Global Amendment and Waiver to the Note
Purchase Agreements (Second Global Amendment) with
the holders of its private placement notes (the
Notes). Both the Third Amendment and Waiver and the
Second Global Amendment include a permanent waiver of compliance
with the Interest Coverage Ratio covenant for the Companys
fiscal quarter ended December 31, 2010. Included in the
terms of the Third Amendment and Waiver and the Second Global
Amendment are the replacement of the Interest Coverage Ratio
covenant with a minimum EBITDA covenant effective
January 1, 2011 with the first required reporting period on
April 2, 2011, an increase in pricing to the Companys
revolving Credit Facility pricing grid, an increase in pricing
for the outstanding Notes, mandatory prepayments from proceeds
of asset sales, restrictions on use of excess cash flow,
restrictions on dividend payments, share repurchases and other
restricted payments and a 50 basis points fee paid to the
bank lenders and holders of the Notes upon execution of the
Third Amendment and Waiver and the Second Global Amendment.
The new minimum EBITDA covenant will be tested quarterly as of
the last day of the fiscal quarters ending April 2, 2011
and July 2, 2011, and monthly thereafter (commencing on
August 6, 2011), in each case on a trailing
12-month
basis, except that EBITDA for the fiscal quarters ending
April 2, 2011 and July 2, 2011, and the fiscal months
of July through November, both inclusive, of 2011 will be
calculated using the Companys
year-to-date
EBITDA through the test date.
55
As required in the Third Amendment and Waiver and the Second
Global Amendment, on March 15, 2011, the Company repaid
$30.0 million that was applied to the amounts outstandings
under the Credit Agreement and the Notes on a pro rata basis
(i.e. 85.8% for the bank lenders under the Revolving Credit
Facility and 14.2% for the Notes.) The $30.0 million has been
included within the current portion of long-term borrowings and
capital lease obligations on the Consolidated Balance Sheet as
of December 31, 2010.
The Third Amendment and Waiver permanently reduced the available
commitments to the Companys Credit Agreement from $250.0
million to $240.0 million. The Companys ability to obtain
new advances is now limited to $18.0 million as of the execution
date of the Third Amendment and Waiver. Borrowings up to the
first $18.0 million of new advances under the Credit Agreement
are senior in right of payment to the existing borrowings under
the Credit Agreement and outstanding debt under the Notes. The
Company may repay and reborrow amounts up to $18.0 million of
new advances. The Company may also repay amounts greater than
$18.0 million under the Credit Agreement, and subject to certain
other provisions, the bank lenders will make available those
commitments dollar for dollar under the Credit Agreement to
$240.0 million.
Borrowings under the facility per the Third Amendment and Waiver
bear interest, at the Companys option, at the Base Rate or
LIBOR, plus an applicable margin. The applicable margin is 2.00%
for Base Rate borrowings and 3.00% for LIBOR borrowings for the
period January 1, 2011 through June 30, 2011, 2.50%
for Base Rate borrowings and 3.50% for LIBOR borrowings from
July 1, 2011 through September 30, 2011, 2.75% for
Base Rate borrowings and 3.75% for LIBOR borrowings from
October 1, 2011 through December 31, 2011, 3.00% for
Base Rate borrowings and 4.00% for LIBOR borrowings from
January 1, 2012 through March 31, 2012 and 3.25% for
Base Rate borrowings and 4.25% for LIBOR borrowings thereafter.
The Third Amendment and Waiver requires a LIBOR floor of 1.50%
beginning January 1, 2011. The six-month LIBOR borrowing
option will be removed. Interest on all loans will be payable
monthly. The default rate increase in interest rates will be 300
basis points. At December 31, 2010 and 2009, the
Companys applicable margin over LIBOR and Base Rate
borrowings was 1.50% and 0.25%, respectively.
The Second Global Amendment required an increase in interest
rates applicable to the Notes by the same amounts as the
interest rate increases under the Companys Revolving
Credit Facility. Also, under the Second Global Amendment, the
default rate increase in interest rates will be 300 basis
points. The Company also agreed to pay to each consenting
Noteholder a consent fee equal to 0.50% of the outstanding
principal amounts of the Notes.
The outstanding debt under the Companys Revolving Credit
Facility and Notes will be prepaid on a pro rata basis in
accordance with their pro rata percentages on a quarterly basis
by an amount equal to the Excess Cash Flow for that quarter.
Excess Cash Flow is defined as EBITDA for the applicable quarter
minus the sum of interest, scheduled principal payments, cash
taxes, cash dividends and capital expenditures paid in
accordance with the revolving credit agreement for that quarter
plus after the second fiscal quarter of 2011, the aggregate
amount that the Companys working capital has decreased in
the ordinary course during such period. The Excess Cash Flow pro
rata payment against the Credit Agreement outstanding debt will
concurrently and permanently reduce the same amount of Credit
Agreement commitments. The commitments may be reinstated with
approval from all bank lenders within the Credit Agreement.
The Company has recorded $42.6 million of amounts which are
expected to be paid in 2011 in connection with the excess cash
flow requirement as a component of current portion of long-term
borrowings and capital lease obligations on the Consolidated
Balance Sheet as of December 31, 2010.
56
After the effective date of the Third Amendment and Waiver, the
Credit Agreement will be secured by a
first-priority
perfected security interest in substantially all of the tangible
and intangible assets of the Company and the domestic
subsidiaries as the guarantors.
Under the term of the Third Amendment and Waiver, no share
repurchases and other restricted payments will be permitted
going forward except with the consent of the Required Lenders
and the Noteholders. Dividends shall be permitted only if the
following conditions are met:
|
|
|
|
|
No default or event of default shall exist or shall result from
such payment;
|
|
|
|
Minimum availability under the Credit Agreement after giving
effect to such restricted payment and any credit extensions in
connection therewith of $18.0 million;
|
|
|
|
Dividends may not exceed the lesser of (a) $625,000 (i.e.,
$0.01 per share) during any fiscal quarter and (b) Free
Cash Flow for such quarter. Free Cash Flow means
Excess Cash Flow before giving effect to dividends. The $625,000
limit will be increased to allow for the payment of dividends of
$0.01 per share during any fiscal quarter for such share of
stock sold for cash in a public or private offering after the
effective date of the Third Amendment and Waivers; and
|
|
|
|
The Company has met or exceeded its projected EBITDA at such
time.
|
The amendments also contain certain covenants that restrict the
Companys ability make voluntarily debt payments,
acquisitions, or dispositions without the lenders consent.
In addition certain limitations are placed on the Companys
capital expenditure levels in future years.
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.
57
As of December 31, 2010, 3.0 million (or
$4.0 million) was drawn on the Alternative Currency
Facility and $214.6 million was drawn on the Second Credit
Amendment for a total of $218.6 million drawn under the
Second Amended and Restated Credit Agreement leaving available
borrowings of $31.4 million, not including
$29.0 million of capacity used for existing letters of
credit.
On April 27, 2009, the Company executed the Global
Amendment to Note Purchase Agreements (the Global
Amendment) with the holders of its private placement debt
notes (the Notes). The Global Amendment included a
provision allowing the Company to prepay $50.0 million of
principal of the $173.4 million Notes outstanding at par
with no prepayment penalty. The prepayment was executed on
April 28, 2009, and included principal, related accrued
interest and a fee of $0.2 million totaling
$51.1 million. 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 increased by an additional 100 basis
points. On April 1, 2010, the outstanding Notes
coupon interest rates increased an additional 200 basis
points.
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.
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, 2010 the balance outstanding was
$1.0 million.
The outstanding unsecured Private Placement Notes coupon
interest rates increased by a total of 3% from December 31,
2009. The coupon interest rates increased by 1% on
January 1, 2010 as required per the April 2009 Global
Amendment to the Note Purchase Agreements. The coupon rates also
increased by an additional 2% on April 1, 2010 as a result
of the Companys private placement debt rating not
improving by one rating level on or before April 1, 2010.
On September 1, 2010, the Company prepaid
$20.0 million of its outstanding principal balance of its
private placement debt at par with no prepayment penalty and
related accrued interest of $0.4 million. The prepayment
was funded by the Companys available capacity under its
revolving credit facility.
As of December 31, 2010, $1.8 million was drawn
against the Companys
non-U.S. lines
of credit which provide for borrowings up to $17.5 million.
Aggregate maturities of total borrowings amount to approximately
$78.0 million in 2011, $178.9 million in 2012 and
$6.8 million in 2013 and $0.2 million in 2014
thereafter. The fair values of these borrowings aggregated
$261.7 million and $205.0 million at December 31,
2010 and 2009, respectively. Included in 2011 maturities are
$1.8 million of other
non-U.S. lines
of credit, $1.3 million of other debt, $6.5 million of
private placement debt, $68.0 million of revolving credit
facility, and $0.4 million of capital lease obligations.
At December 31, 2010 and 2009, deferred financing fees,
which are amortized over the remaining life of the debt, totaled
$0.5 million and $0.9 million, respectively, and are
included in deferred charges and other assets on the balance
sheet.
The Company paid interest of $9.7 million in 2010,
$11.3 million in 2009 and $21.4 million in 2008. See
Note 9 regarding the Companys utilization of
derivative financial instruments relating to outstanding debt.
Weighted average interest rates on short-term borrowings was
2.36% at December 31, 2010.
58
The provision/(benefit) for income taxes for each of the three
years in the period ended December 31 consisted of the following
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3.0
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
2.0
|
|
Foreign
|
|
|
5.2
|
|
|
|
5.7
|
|
|
|
5.8
|
|
State and local
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5
|
|
|
|
1.6
|
|
|
|
8.3
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
71.4
|
|
|
|
2.7
|
|
|
|
(14.7
|
)
|
Foreign
|
|
|
(4.1
|
)
|
|
|
0.5
|
|
|
|
0.4
|
|
State and local
|
|
|
2.5
|
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69.8
|
|
|
|
3.7
|
|
|
|
(14.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) provision
|
|
$
|
72.3
|
|
|
$
|
5.3
|
|
|
$
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
(0.2
|
)
|
|
|
0.8
|
|
|
|
2.1
|
|
Domestic Valuation Allowance
|
|
|
(96.2
|
)
|
|
|
-
|
|
|
|
-
|
|
Non-deductible goodwill impairments
|
|
|
(22.0
|
)
|
|
|
-
|
|
|
|
-
|
|
Losses on China Joint Venture and legal entity restructuring
|
|
|
-
|
|
|
|
-
|
|
|
|
(13.1
|
)
|
Non-deductible acquisition costs
|
|
|
(0.5
|
)
|
|
|
1.2
|
|
|
|
-
|
|
Capital loss utilization via sale leaseback
|
|
|
-
|
|
|
|
-
|
|
|
|
(36.7
|
)
|
Tax reserves
|
|
|
1.1
|
|
|
|
(2.5
|
)
|
|
|
1.3
|
|
R&D tax credits
|
|
|
0.6
|
|
|
|
(1.9
|
)
|
|
|
(2.5
|
)
|
Foreign tax rate effects
|
|
|
0.8
|
|
|
|
(11.3
|
)
|
|
|
(11.3
|
)
|
Other, net
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(81.7
|
)%
|
|
|
21.1
|
%
|
|
|
(27.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys 2010 effective rate of (81.7)% includes tax
expense related to a domestic valuation allowance and
non-deductible goodwill impairments.
The Companys 2009 effective rate of 21.1% reflects a
benefit for the reduction in 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 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 (27.0)% reflects a
benefit of $8.2 million for the utilization of capital loss
carryforwards resulting from the sale lease back transaction for
two U.S. based manufacturing facilities and a benefit of
$3.1 million for losses in the China Joint Venture
previously not recognized.
59
Deferred income tax assets and liabilities at December 31 are
summarized as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Depreciation and amortization sale leaseback
|
|
$
|
9.5
|
|
|
$
|
12.7
|
|
Accrued expenses
|
|
|
30.8
|
|
|
|
25.7
|
|
Net operating loss, capital loss, alternative minimum tax,
research and development, and foreign tax credit carryforwards
|
|
|
70.0
|
|
|
|
56.0
|
|
Definite lived intangibles
|
|
|
5.8
|
|
|
|
1.0
|
|
Pension benefits
|
|
|
17.8
|
|
|
|
15.8
|
|
Other
|
|
|
0.1
|
|
|
|
0.4
|
|
Deferred revenue
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
135.9
|
|
|
|
111.6
|
|
Valuation allowance
|
|
|
(109.1
|
)
|
|
|
(25.2
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
26.8
|
|
|
|
86.4
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(12.0
|
)
|
|
|
(16.7
|
)
|
Expenses capitalized for tax
|
|
|
(4.1
|
)
|
|
|
(5.6
|
)
|
Indefinite lived intangibles
|
|
|
(43.2
|
)
|
|
|
(41.9
|
)
|
Definite lived intangibles
|
|
|
(11.3
|
)
|
|
|
|
|
Other
|
|
|
(1.8
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(72.4
|
)
|
|
|
(66.1
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset / (liability)
|
|
$
|
(45.6
|
)
|
|
$
|
20.3
|
|
|
|
|
|
|
|
|
|
|
Federal and state income taxes have not been provided on
accumulated undistributed earnings of certain foreign
subsidiaries aggregating approximately $85.2 million and
$97.2 million at December 31, 2010 and 2009,
respectively; as such earnings have been reinvested in the
business. The determination of the amount of the unrecognized
deferred tax liability related to the undistributed earnings is
not practicable.
In the fourth quarter of 2010, the Company determined that
$15 million of previously undistributed earnings at one of
the Companys foreign subsidiaries would be repatriated in
2011. As a result of this change, the Company increased its
deferred tax liabilities related to the $15 million by
$0.2 million. The remainder of the foreign subsidiaries
undistributed earnings is indefinitely reinvested.
The deferred tax asset for tax loss carryforwards at
December 31, 2010, includes Federal net operating loss
carryforwards of $2.7 million, which begin to expire in
2026, state net operating loss carryforwards of
$1.3 million, which begin to expire in 2019; foreign net
operating loss carryforwards of $2.2 million of which
$0.1 million has an indefinite life; $22.2 million for
capital loss carryforwards that will expire in 2012 and 2013.
The deferred tax asset for tax credit carryforwards includes
U.S. research tax credit carryforwards of
$5.6 million, which will begin to expire in 2022,
U.S. foreign tax credits of $15.5 million, which will
begin to expire in 2015 and U.S. alternative minimum tax
credit carryforwards of $3.4 million with no expiration.
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 $109.1 million have been
established at December 31, 2010 and include
$1.3 million related to state net operating loss
carryforwards, $2.2 million related to the foreign net
operating loss
60
carryforwards, $22.2 million related to capital loss
carryforwards, and $83.4 million related to domestic
deferred tax assets
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):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Current net deferred tax assets
|
|
$
|
15.9
|
|
|
$
|
3.1
|
|
Current valuation allowance
|
|
|
(15.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset (included in Other current assets in
the Consolidated Balance Sheets)
|
|
$
|
0.2
|
|
|
$
|
3.1
|
|
|
|
|
|
|
|
|
|
|
Long-term net deferred tax asset
|
|
$
|
47.6
|
|
|
$
|
42.4
|
|
Long-term valuation allowance
|
|
|
(93.4
|
)
|
|
|
(25.2
|
)
|
|
|
|
|
|
|
|
|
|
Long-term net deferred tax asset/ (liability)
|
|
$
|
(45.8
|
)
|
|
$
|
17.2
|
|
|
|
|
|
|
|
|
|
|
ASC Topic 740, Income Taxes, requires that the
future realization of deferred tax assets depends on the
existence of sufficient taxable income in future periods.
Possible sources of taxable income include taxable income in
carryback periods, the future reversal of existing taxable
temporary differences recorded as a deferred tax liability,
tax-planning strategies that generate future income or gains in
excess of anticipated losses in the carryforward period and
projected future taxable income. If, based upon all available
evidence, both positive and negative, it is more likely than not
such deferred tax assets will not be realized, a valuation
allowance is recorded. Significant weight is given to positive
and negative evidence that is objectively verifiable. A
companys three-year cumulative loss position is
significant negative evidence in considering whether deferred
tax assets are realizable and the accounting guidance restricts
the amount of reliance the Company can place on projected
taxable income to support the recovery of the deferred tax
assets.
As of December 31, 2009, the Company was in a net
U.S. deferred tax asset position of $34.4 million.
Additionally, the Company had incurred cumulative domestic
losses in each of the three years in the period ended
December 31, 2009. Under the provisions of ASC Topic 740,
Income Taxes, the Company considered if it was
required to establish a valuation allowance for its
U.S. deferred tax assets. However, ASC Topic 740, 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. As of
December 31, 2009, the Company had considered that the
cumulative three year domestic loss was primarily due to losses
recorded on discontinued operations and disposals during the
three year period then ended and accordingly, no valuation
allowance was established for the net U.S. deferred tax
asset position as of December 31, 2009.
In the fourth quarter of 2010, the company recorded an
$85.0 million valuation allowance against our
U.S. Federal deferred tax assets as a non-cash charge to
income tax expense after the Company fell into a cumulative
three year domestic loss position after excluding the results of
discontinued operations and disposals. In reaching this
conclusion, the Company considered the weak municipal markets in
the United States and significant impairment charges, which have
led to a three-year cumulative U.S. loss position from
continuing operations in the fourth quarter of 2010. Recording
the valuation allowance does not restrict our ability to utilize
the future deductions and net operating losses associated with
the deferred tax assets assuming taxable income is recognized in
future periods.
The $26.8 million of deferred tax assets at
December 31, 2010, for which no valuation allowance is
recorded, is anticipated to be realized through the future
reversal of existing taxable temporary differences recorded as
deferred tax liabilities at December 31, 2010. Should the
company determine that it would not be able to realize our
remaining deferred tax assets in the future, an adjustment to
the valuation allowance would be recorded in the period such
determination is made. The need to maintain a valuation
allowance against deferred tax assets may cause greater
volatility in our effective tax rate.
61
The Company paid income taxes of $6.8 million in 2010,
$5.1 million in 2009, and $6.1 million in 2008.
Income from continuing operations before taxes for each of the
three years in the period ended December 31 consisted of the
following ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
(74.5
|
)
|
|
$
|
4.4
|
|
|
$
|
(1.6
|
)
|
Non-U.S.
|
|
|
(13.9
|
)
|
|
|
20.7
|
|
|
|
24.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(88.4
|
)
|
|
$
|
25.1
|
|
|
$
|
22.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the activity related to the
Companys unrecognized tax benefits
($ in millions):
|
|
|
|
|
Balance at January 1, 2009
|
|
$
|
5.0
|
|
Increases related to current year tax positions
|
|
|
1.4
|
|
Decreases due to lapse of statute of limitation
|
|
|
(0.5
|
)
|
Decreases due to settlements with tax authorities
|
|
|
(1.0
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
4.9
|
|
Increases related to current year tax
|
|
|
0.6
|
|
Decreases due to settlements with tax authorities
|
|
|
(1.5
|
)
|
Decreases due to lapse of statute of limitations
|
|
|
(0.2
|
)
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
3.8
|
|
|
|
|
|
|
Included in the unrecognized tax benefits of $3.8 million
at December 31, 2010 was $4.1 million of tax benefits
that if recognized, would impact our annual effective tax rate.
The Companys continuing practice is to recognize interest
and penalties related to income tax matters in income tax
expense. Interest and penalties amounting to $0.8 million
and $0.1 million, respectively, are included in the
consolidated balance sheet but are not included in the table
above. We expect our unrecognized tax benefits to decrease by
$1.3 million over the next 12 months due to potential
expiration of statute of limitations.
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 $0.1 million, respectively, are included in the
consolidated balance sheet but are not included in the table
above.
We file U.S., state and foreign income tax returns in
jurisdictions with varying statutes of limitations. The 2007
through 2010 tax years generally remain subject to examination
by federal and most state tax authorities. In significant
foreign jurisdictions, the 2005 through 2010 tax years generally
remain subject to examination by their respective tax
authorities.
|
|
NOTE 8
|
POSTRETIREMENT
BENEFITS
|
The Company and its subsidiaries sponsor a number of defined
benefit retirement plans covering certain of its salaried and
hourly employees. Benefits under these plans are primarily based
on final average compensation and years of service as defined
within the provisions of the individual plans. The Company also
participates in a retirement plan that provides defined benefits
to employees under certain collective bargaining agreements.
The Company uses a December 31 measurement date for its
U.S. and
non-U.S. benefit
plans in accordance with ASC Topic 715,
Compensation Retirement Benefits.
62
The components of net periodic pension expense for each of the
three years in the period ended December 31, are summarized
as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Company-sponsored plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0.9
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Interest cost
|
|
|
7.9
|
|
|
|
8.0
|
|
|
|
8.7
|
|
|
|
2.7
|
|
|
|
2.6
|
|
|
|
3.3
|
|
Expected return on plan assets
|
|
|
(8.7
|
)
|
|
|
(9.5
|
)
|
|
|
(10.8
|
)
|
|
|
(3.1
|
)
|
|
|
(2.7
|
)
|
|
|
(4.0
|
)
|
Amortization of actuarial loss
|
|
|
3.6
|
|
|
|
2.0
|
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
1.1
|
|
|
|
0.5
|
|
Curtailment charge
|
|
|
-
|
|
|
|
-
|
|
|
|
0.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Settlement charge
|
|
|
-
|
|
|
|
-
|
|
|
|
5.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
|
|
0.5
|
|
|
|
5.7
|
|
|
|
0.6
|
|
|
|
1.2
|
|
|
|
-
|
|
Multi-employer plans
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense
|
|
$
|
3.0
|
|
|
$
|
0.7
|
|
|
$
|
5.9
|
|
|
$
|
0.6
|
|
|
$
|
1.2
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Pension expense relating to the Tool segment employees,
excluding the previously mentioned charges, was
$0.3 million for the year ended December 31, 2008.
On December 31, 2008, an amendment to the Companys
U.S. defined benefit plans for University Park, Illinois
IBEW employees within the Safety and Security Systems Group was
approved. The amendment froze benefit accruals for these
employees as of December 31, 2008.
The following table summarizes the weighted-average assumptions
used in determining pension costs in each of the three years for
the period ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Discount rate
|
|
|
6.0
|
%
|
|
|
6.5
|
%
|
|
|
6.8
|
%
|
|
|
5.7
|
%
|
|
|
5.7
|
%
|
|
|
5.9
|
%
|
Rate of increase in compensation levels
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
N/A*
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected long term rate of return on plan assets
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
6.5
|
%
|
|
|
6.8
|
%
|
|
|
6.6
|
%
|
|
|
|
* |
|
Non-U.S.
plan benefits are not adjusted for compensation level changes |
The following summarizes the changes in the projected benefit
obligation and plan assets, the funded status of the
Company-sponsored plans, and the major assumptions used to
determine these amounts at December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
133.5
|
|
|
$
|
129.7
|
|
|
$
|
50.0
|
|
|
$
|
42.6
|
|
Service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Interest cost
|
|
|
7.9
|
|
|
|
8.0
|
|
|
|
2.7
|
|
|
|
2.6
|
|
Actuarial (gain)/loss
|
|
|
6.1
|
|
|
|
3.1
|
|
|
|
3.0
|
|
|
|
3.2
|
|
Benefits paid
|
|
|
(9.1
|
)
|
|
|
(7.3
|
)
|
|
|
(2.4
|
)
|
|
|
(2.8
|
)
|
Translation and other
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.9
|
)
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
138.4
|
|
|
$
|
133.5
|
|
|
$
|
52.6
|
|
|
$
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation, end of year
|
|
$
|
136.5
|
|
|
$
|
132.0
|
|
|
$
|
52.6
|
|
|
$
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
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
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
6.0
|
%
|
|
|
5.4
|
%
|
|
|
5.7
|
%
|
Rate of increase in compensation levels
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Change in Plan Assets ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
101.0
|
|
|
$
|
79.1
|
|
|
$
|
48.2
|
|
|
$
|
38.9
|
|
Actual return on plan assets
|
|
|
12.9
|
|
|
|
24.8
|
|
|
|
4.6
|
|
|
|
7.2
|
|
Company contribution
|
|
|
-
|
|
|
|
4.4
|
|
|
|
1.1
|
|
|
|
1.0
|
|
Benefits and expenses paid
|
|
|
(9.1
|
)
|
|
|
(7.3
|
)
|
|
|
(2.4
|
)
|
|
|
(2.8
|
)
|
Translation and other
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.9
|
)
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
104.8
|
|
|
$
|
101.0
|
|
|
$
|
50.6
|
|
|
$
|
48.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
Cash and Cash Equivalents Valued at net asset value
as provided by the administrator of the fund.
U.S. Government and agency securities Valued at
the closing price reported on the active market on which the
security is traded or valued by the trustee at year-end using
various pricing services of financial institutions.
Common stock Valued at the closing price reported on
the active market on which the security is traded.
Collective/Common trust Valued at the net asset
value, based on quoted market value of the underlying assets, of
shares held by the Plan at year end.
Mutual funds Valued at the net asset value, based on
quoted market prices in active markets, of shares held by the
Plan at year end.
Unallocated insurance contract A guaranteed
investment contract valued at fair value by discounting the
related cash flows based on current yields of similar
instruments with comparable durations considering the
creditworthiness of the issuer.
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.
64
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
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Cash and Cash Equivalents
|
|
$
|
-
|
|
|
$
|
1.5
|
|
|
$
|
-
|
|
|
$
|
1.5
|
|
|
$
|
0.8
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0.8
|
|
Equities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Large Cap
|
|
|
27.0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27.0
|
|
|
|
-
|
|
|
|
18.0
|
|
|
|
-
|
|
|
|
18.0
|
|
U.S. Small and Mid Cap
|
|
|
11.8
|
|
|
|
0.4
|
|
|
|
-
|
|
|
|
12.2
|
|
|
|
5.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5.6
|
|
Developed International
|
|
|
5.1
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
5.2
|
|
|
|
-
|
|
|
|
13.8
|
|
|
|
-
|
|
|
|
13.8
|
|
Emerging Markets
|
|
|
3.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Bonds
|
|
|
6.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Asset-backed Securities
|
|
|
-
|
|
|
|
4.8
|
|
|
|
-
|
|
|
|
4.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Federal Signal Common Stock
|
|
|
6.4
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
6.6
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
5.7
|
|
Collective/Common Trust and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds
|
|
|
36.2
|
|
|
|
1.0
|
|
|
|
-
|
|
|
|
37.2
|
|
|
|
45.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45.9
|
|
Unallocated Insurance policy
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.9
|
|
|
|
-
|
|
|
|
0.9
|
|
Partnership
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10.3
|
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
96.8
|
|
|
$
|
8.0
|
|
|
$
|
-
|
|
|
$
|
104.8
|
|
|
$
|
58.0
|
|
|
$
|
32.7
|
|
|
$
|
10.3
|
|
|
$
|
101.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U. S. Benefit Plan
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Equity Securities
|
|
$
|
31.0
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31.0
|
|
|
$
|
28.7
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
28.7
|
|
Government Securities
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
7.1
|
|
Company Securities
|
|
|
5.4
|
|
|
|