e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-6003
Federal Signal Corporation
(Exact name of Company as specified in its charter)
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| Delaware
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36-1063330 |
| (State or other jurisdiction of
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(I.R.S. Employer |
| incorporation or organization)
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Identification No.) |
1415 West 22nd Street
Oak Brook, IL 60523
(Address of principal executive offices) (Zip code)
(630) 954-2000
(Company’s telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed since last report)
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 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
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Accelerated filer
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the Company is a shell Company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the Company’s classes of common stock, as
of the latest practicable date.
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Title |
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Common Stock, $1.00 par value
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47,503,025 shares outstanding at July 13, 2008 |
FEDERAL SIGNAL CORPORATION
INDEX TO FORM 10-Q
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2
Part I. Financial Information
Item 1. Financial Statements
FORWARD-LOOKING STATEMENTS
This Form 10-Q, reports filed by Federal Signal Corporation and Subsidiaries (“the Company”) with
the Securities and Exchange Commission (“SEC”) and comments made by management may contain words
such as “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “project,” “estimate”
and “objective” or the negative thereof or similar terminology concerning the Company’s future
financial performance, business strategy, plans, goals and objectives. These expressions are
intended to identify forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include information concerning the
Company’s possible or assumed future performance or results of operations and are not guarantees.
While these statements are based on assumptions and judgments that management has made in light of
industry experience as well as perceptions of historical trends, current conditions, expected
future developments and other factors believed to be appropriate under the circumstances, they are
subject to risks, uncertainties and other factors that may cause the Company’s actual results,
performance or achievements to be materially different.
These risks and uncertainties, some of which are beyond the Company’s control, include the cyclical
nature of the Company’s industrial and municipal markets, technological advances by competitors,
risks associated with dealers and distributors, risks associated with system conversions, increased
warranty and product liability expenses, risks associated with supplier and other partner
alliances, changes in cost competitiveness including those resulting from foreign currency
movements, disruptions in the supply of parts or components from sole source suppliers and
subcontractors, commodity price escalation, availability of credit, retention of key employees and
general changes in the competitive environment in which the Company operates.
ADDITIONAL INFORMATION
The Company makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, other reports and information filed with the SEC and amendments to those reports
available, free of charge, through its Internet website (http://www.federalsignal.com) as soon as
reasonably practical after it electronically files or furnishes such materials to the SEC. All of
the Company’s filings may be read or copied at the SEC’s Public Reference Room at 100 F Street,
N.E., Room 1580, Washington, DC 20549. Information on the operation of the Public Reference Room
can be obtained by calling the SEC at 1-202-551-8090. 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.
3
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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Three months ended June 30, |
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Six months ended June 30, |
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| ($ in millions, except per share data) |
|
2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
254.3 |
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$ |
243.2 |
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$ |
482.4 |
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$ |
456.2 |
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Costs and expenses: |
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Cost of sales |
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(186.4 |
) |
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(176.2 |
) |
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(354.6 |
) |
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(333.6 |
) |
Selling, general and administrative |
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(49.2 |
) |
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(44.4 |
) |
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(96.4 |
) |
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(83.2 |
) |
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Operating income |
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18.7 |
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22.6 |
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31.4 |
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39.4 |
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Interest expense |
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(5.5 |
) |
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(5.7 |
) |
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(12.3 |
) |
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(11.8 |
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Other expense, net |
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(1.4 |
) |
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(0.4 |
) |
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(1.9 |
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(0.7 |
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Income before income taxes |
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11.8 |
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16.5 |
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17.2 |
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26.9 |
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Income tax expense |
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(3.8 |
) |
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(4.3 |
) |
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(4.9 |
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(7.5 |
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Income from continuing operations |
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8.0 |
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12.2 |
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12.3 |
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19.4 |
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(Loss) gain from discontinued operations and
disposal, net of income tax benefit (expense),
of $3.3, $0.8, $16.8 and $(5.1), respectively |
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(21.4 |
) |
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(1.1 |
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(110.6 |
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22.3 |
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Net (loss) income |
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$ |
(13.4 |
) |
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$ |
11.1 |
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$ |
(98.3 |
) |
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$ |
41.7 |
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COMMON STOCK DATA: |
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Basic and diluted earnings per share: |
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Earnings from continuing operations |
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$ |
0.17 |
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$ |
0.25 |
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$ |
0.26 |
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$ |
0.40 |
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(Loss) earnings from discontinued operations
and disposal |
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(0.45 |
) |
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(0.02 |
) |
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(2.31 |
) |
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0.47 |
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(Loss) earnings per share |
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$ |
(0.28 |
) |
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$ |
0.23 |
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$ |
(2.05 |
) |
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$ |
0.87 |
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Weighted average common shares outstanding: |
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Basic |
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47.6 |
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47.8 |
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47.8 |
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47.9 |
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Diluted |
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47.6 |
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47.8 |
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47.8 |
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47.9 |
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Cash dividends per share of common stock |
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$ |
0.06 |
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$ |
0.06 |
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$ |
0.12 |
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$ |
0.12 |
|
See notes to condensed consolidated financial statements.
4
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
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Three months ended June 30, |
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Six months ended June 30, |
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| ($ in millions) |
|
2008 |
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2007 |
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2008 |
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2007 |
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Net (loss) income |
|
$ |
(13.4 |
) |
|
$ |
11.1 |
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|
$ |
(98.3 |
) |
|
$ |
41.7 |
|
Other comprehensive (loss) income, net of tax -
Foreign currency translation |
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(5.6 |
) |
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5.9 |
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3.7 |
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6.4 |
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Net derivative gain (loss), cash flow hedges |
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— |
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(1.1 |
) |
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0.9 |
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(1.4 |
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Amortization of actuarial pension loss, net |
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0.5 |
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— |
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0.6 |
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— |
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Comprehensive (loss) income |
|
$ |
(18.5 |
) |
|
$ |
15.9 |
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$ |
(93.1 |
) |
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$ |
46.7 |
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See notes to condensed consolidated financial statements.
5
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
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June 30, |
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December 31, |
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| ($ in millions) |
|
2008 |
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2007 (a) |
|
ASSETS |
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Manufacturing activities: |
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Current assets |
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Cash and cash equivalents |
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$ |
16.6 |
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$ |
12.5 |
|
Accounts receivable, net of allowances for doubtful accounts of
$6.2 million and $3.8 million, respectively |
|
|
155.8 |
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147.8 |
|
Inventories |
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134.7 |
|
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121.8 |
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Other current assets |
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46.7 |
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42.7 |
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Total current assets |
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353.8 |
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324.8 |
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Properties and equipment, net |
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70.9 |
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59.6 |
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Other assets |
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Goodwill |
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349.0 |
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344.7 |
|
Intangible assets, net of accumulated amortization |
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62.0 |
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65.2 |
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Deferred charges and other assets |
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9.1 |
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7.2 |
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Total manufacturing assets |
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844.8 |
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801.5 |
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Assets of discontinued operations |
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44.5 |
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|
231.8 |
|
Financial services activities — Lease financing and other receivables, net of
allowances for doubtful accounts of $3.6 million and $3.6 million, respectively |
|
|
71.3 |
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|
146.8 |
|
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Total assets |
|
$ |
960.6 |
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$ |
1,180.1 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Manufacturing activities: |
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Current liabilities |
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Short-term borrowings |
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$ |
3.5 |
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$ |
2.6 |
|
Current portion of long-term borrowings |
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32.7 |
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45.4 |
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Accounts payable |
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|
66.8 |
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66.2 |
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Accrued liabilities |
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Compensation and withholding taxes |
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23.7 |
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26.8 |
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Customer deposits |
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24.8 |
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|
17.7 |
|
Other |
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47.8 |
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53.6 |
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Total current liabilities |
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199.3 |
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|
212.3 |
|
Long-term borrowings |
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218.5 |
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240.7 |
|
Long-term pension and other liabilities |
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|
27.7 |
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32.3 |
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Deferred income taxes |
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43.2 |
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39.3 |
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Total manufacturing liabilities |
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488.7 |
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524.6 |
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Liabilities of discontinued operations |
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63.4 |
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72.8 |
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Financial services activities — Borrowings |
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66.5 |
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137.4 |
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Total liabilities |
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618.6 |
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|
734.8 |
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Shareholders’ equity |
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Common stock, $1 par value per share, 90.0 million shares authorized,
49.4 million and 49.4 million shares issued, respectively |
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49.4 |
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49.4 |
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Capital in excess of par value |
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105.1 |
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103.2 |
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Retained earnings |
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229.4 |
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333.8 |
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Treasury stock, 1.9 million and 1.5 million shares at cost, respectively |
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(36.1 |
) |
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(30.1 |
) |
Accumulated other comprehensive (loss) income: |
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Foreign currency translation, net |
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|
19.6 |
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|
15.9 |
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Net derivative loss, cash flow hedges |
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(1.1 |
) |
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(2.0 |
) |
Unrecognized pension and postretirement losses, net |
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|
(24.3 |
) |
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(24.9 |
) |
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Total |
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(5.8 |
) |
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(11.0 |
) |
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Total shareholders’ equity |
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342.0 |
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445.3 |
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Total liabilities and shareholders’ equity |
|
$ |
960.6 |
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$ |
1,180.1 |
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| See notes to condensed consolidated financial statements. |
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| (a) |
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The balance sheet at December 31, 2007 has been derived from the audited financial
statements at that date and has been revised for discontinued operations. |
6
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Six months ended June 30, |
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| ($ in millions) |
|
2008 |
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|
2007 |
|
Operating activities: |
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Net (loss) income |
|
$ |
(98.3 |
) |
|
$ |
41.7 |
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities: |
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Loss (gain) on discontinued operations and disposal |
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110.6 |
|
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(22.3 |
) |
Depreciation and amortization |
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8.4 |
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|
5.4 |
|
Stock based compensation expense |
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1.9 |
|
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|
2.6 |
|
Lease financing and other receivables |
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|
75.5 |
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|
15.7 |
|
Pension contributions |
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(5.8 |
) |
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|
(6.2 |
) |
Working capital (1) |
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|
(9.8 |
) |
|
|
(13.2 |
) |
Other |
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|
4.0 |
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4.0 |
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Net cash provided by continuing operating activities |
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|
86.5 |
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|
27.7 |
|
Net cash used for discontinued operating activities |
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(0.6 |
) |
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|
(9.7 |
) |
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Net cash provided by operating activities |
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|
85.9 |
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|
18.0 |
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Investing activities: |
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Purchases of properties and equipment |
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(15.6 |
) |
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|
(9.6 |
) |
Payment for acquisitions, net of cash acquired |
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— |
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|
(16.6 |
) |
Other, net |
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|
(0.1 |
) |
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|
(1.7 |
) |
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Net cash used for continuing investing activities |
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(15.7 |
) |
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|
(27.9 |
) |
Net cash provided by discontinued investing activities |
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|
52.8 |
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|
66.0 |
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Net cash provided by investing activities |
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|
37.1 |
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38.1 |
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Financing activities: |
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Decrease in short-term borrowings, net |
|
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(0.9 |
) |
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|
(29.0 |
) |
Payments on long-term borrowings, net |
|
|
(106.8 |
) |
|
|
(21.1 |
) |
Purchases of treasury stock |
|
|
(6.0 |
) |
|
|
— |
|
Cash dividends paid to shareholders |
|
|
(5.8 |
) |
|
|
(5.7 |
) |
Other, net |
|
|
— |
|
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|
0.4 |
|
|
|
|
|
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|
Net cash used for continuing financing activities |
|
|
(119.5 |
) |
|
|
(55.4 |
) |
|
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|
|
|
|
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Net cash used for financing activities |
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|
(119.5 |
) |
|
|
(55.4 |
) |
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|
|
|
|
Effects of foreign exchange rate changes on cash |
|
|
0.6 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
4.1 |
|
|
|
0.9 |
|
Cash and cash equivalents at beginning of period |
|
|
12.5 |
|
|
|
15.7 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
16.6 |
|
|
$ |
16.6 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Working capital is composed of net accounts receivable, inventories, accounts payable
and customer deposits. |
See notes to condensed consolidated financial statements.
7
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Federal Signal Corporation and
subsidiaries (the “Company”) included herein have been prepared by the Company, without an
audit, pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to ensure the information presented is not misleading.
These condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2007.
In the opinion of the management of the Company, the information contained herein reflects
all adjustments necessary to present fairly the Company’s financial position, results of
operations and cash flows for the interim periods. Such adjustments are of a normal
recurring nature. The operating results for the three and six month periods ended June 30,
2008 are not necessarily indicative of the results to be expected for the full year of
2008.
The Company reports its interim quarterly periods on a 13-week basis ending on a Saturday
with the fiscal year ending on December 31. For convenience purposes, the Company uses
“June 30, 2008” to refer to its financial position as of June 28, 2008 and its results of
operations for the 13-week and 26-week periods ended June 28, 2008.
2. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications: Certain balances in 2007 have been reclassified to conform to the 2008
presentation. Included with the reclassifications are restatements for discontinued
operations. The discontinued operations arise out of the Fire Rescue Group and Tool
segments.
Earnings per share: Basic earnings per share (EPS) is computed by dividing net income by
the weighted average common shares outstanding, which totaled 47.6 million and 47.8 million
for the quarters ended June 30, 2008 and 2007, respectively, and 47.8 million and 47.9
million for the six month periods ended June 30, 2008 and 2007, respectively. Diluted
earnings per share is calculated by dividing net income by the weighted average common shares outstanding plus additional common shares that would have been outstanding assuming
the exercise of stock options and performance share units that are dilutive. The Company
uses the treasury stock method to calculate dilutive shares. For the quarter ended June
30, 2008 and 2007, 1,015 and 6,941 employee stock options, respectively; and 0 and 7,425
employee stock options for the six month periods ended June 30, 2008 and 2007,
respectively, were considered potential dilutive common shares. However, the 1,015 shares
for the quarter ended June 30, 2008 are antidilutive due to the net loss during that
period. As a result, they are excluded from the denominator for the diluted earnings per
share calculation. The weighted average number of shares outstanding, for diluted earnings
per share was 47.6 million and 47.8 million for the quarters ended June 30, 2008 and 2007,
respectively; and 47.8 million and 47.9 million for the six months ended June 30, 2008 and
2007, respectively. Options to purchase 2.6 million and 2.4 million shares of common stock
were excluded from the calculation of the number of shares outstanding for diluted EPS for
the three months ended June 30, 2008 and 2007, respectively because their effects were
antidilutive. For the six months ended June 30, 2008 and 2007, options to purchase 2.6
million and 2.3 million shares of common stock, respectively, were excluded from the
calculation of the number of shares outstanding as their effects were antidilutive. In
2008, 41,200 performance share units were also excluded from the calculation of the number
of shares outstanding for diluted earnings per share because their effects were
antidilutive.
Fair value of financial instruments: In September 2006, the Financial Accounting Standards
Board (FASB) issued FAS 157, “Fair Value Measurements,” which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting
principles (“GAAP”) and expands disclosure about fair value measurements. In February 2008,
the FASB issued FASB Staff Position No. 157-b, “Effective Date of FASB Statement No. 157”
(“FSP 157-b”), which provides a one year deferral of the effective date of FAS 157 for
non-financial assets and non-financial liabilities, except those that are recognized or
disclosed in the financial statements at fair value at least annually. In accordance with
this interpretation, the Company has only adopted the provisions of FAS 157 with respect to
its financial assets and liabilities that are measured at fair value within the financial
statements as of January 1, 2008. The adoption of FAS 157 did not have a material impact
on the Company’s fair value measurements. The provisions of FAS 157 have not been applied
to non-financial assets and non-financial liabilities.
8
In February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and
Financial Liabilities—including an amendment to FASB Statement No. 115,” 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.
Split-dollar life insurance arrangements: In September 2006, the EITF issued EITF 06-04,
“Accounting for Deferred Compensation and Postretirement Benefit Aspects of Split-Dollar Life
Insurance Arrangements”. EITF 06-04 concludes that an employer should recognize a liability
for post-employment benefits promised to an employee. This guidance is effective for fiscal
years beginning after December 15, 2007. The Company has one arrangement that meets these
criteria and has recorded a liability of approximately $0.3 million in 2008.
3. INVENTORIES
Inventories are summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Raw materials |
|
$ |
69.4 |
|
|
$ |
62.3 |
|
Work in progress |
|
|
34.3 |
|
|
|
26.4 |
|
Finished goods |
|
|
31.0 |
|
|
|
33.1 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
134.7 |
|
|
$ |
121.8 |
|
|
|
|
|
|
|
|
4. INCOME TAXES
The Company’s effective tax rate was 32.3% and 26.0% for the three month periods ended June
30, 2008 and 2007, respectively.
The higher tax rate for the three month period ending June 30, 2008, reflects a decreased
benefit from foreign tax rate effects of approximately 2.7% and a decreased benefit in
tax-exempt interest of approximately 1.6%
The three month period ending June 30, 2007, reflects R & D tax credit benefits of about 1.0%
that is not reflected in the three month period ended June 30, 2008, as Congress has not yet
extended the credit.
The Company’s unrecognized tax benefits were $8.3 million at January 1, 2008 of which there
are $5.8 million of tax benefits that if recognized, would reduce our annual effective tax
rate. The Company’s continuing practice is to recognize interest and penalties related to
income tax matters in income tax expense. Interest and penalties amounting to $1.5 million
and $0.2 million respectively are included in the consolidated balance sheet. We do not
expect our unrecognized tax benefits to change significantly over the next 12 months.
5. POSTRETIREMENT BENEFITS
The components of the Company’s net periodic pension expense for its defined benefit pension
plans are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
US Benefit Plans |
|
|
Non-US Benefit Plan |
|
| |
|
Three months |
|
|
Six months |
|
|
Three months |
|
|
Six months |
|
| |
|
ended June 30, |
|
|
ended June 30, |
|
|
ended June 30, |
|
|
ended June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
0.2 |
|
|
$ |
0.5 |
|
|
$ |
0.6 |
|
|
$ |
1.0 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.2 |
|
Interest cost |
|
|
2.2 |
|
|
|
2.2 |
|
|
|
4.5 |
|
|
|
4.4 |
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
1.7 |
|
|
|
1.6 |
|
Expected return on plan assets |
|
|
(2.8 |
) |
|
|
(2.7 |
) |
|
|
(5.6 |
) |
|
|
(5.4 |
) |
|
|
(1.1 |
) |
|
|
(1.0 |
) |
|
|
(2.1 |
) |
|
|
(2.0 |
) |
Amortization of actuarial loss |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.2 |
|
Curtailment charge |
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement charge |
|
|
2.4 |
|
|
|
|
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense |
|
$ |
2.6 |
|
|
$ |
0.3 |
|
|
$ |
2.7 |
|
|
$ |
0.6 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
On April 28, 2008, an amendment to the Company’s U.S. defined benefit plans for University
Park, Illinois IBEW employees within the Safety and Security Systems Group was approved. The
amendment will freeze service accruals for these employees as of December 31, 2008. A similar
amendment for all of the Company’s remaining US employees was approved in July 2006.
On April 21, 2008, the Company sold its Die & Mold Operations. The operations were included in
discontinued operations for all periods presented through the sale date. As a result of the
amendment related to the sale of the Tool business, the Company was required to recognize a
curtailment adjustment and a settlement charge under SFAS No. 88, “Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Plans and for
Termination Benefits”. Pension
expense relating to the Tool segment employees was $2.7 million and $3.0 million for the three
and six months ended June 30, 2008, respectively, primarily as a result of the curtailment and settlement
charges of $0.4 million and $2.4 million, respectively, as well as continued service costs
through the sale date.
The remeasurement of these defined benefit plans as a result of the amendment also included a
change in the weighted average discount rate from 6.45% used at year-end 2007 to 6.60% at the
May 1, 2008 remeasurement date, the impact of which was to decrease pension expense in
continuing operations by $0.3 million in the three and six months ended June 30, 2008. The
projected benefit obligation was reduced by $17.3 million and the accumulated benefit
obligation by $8.7 million as a result of these changes.
The Company contributed $5.0 million during the six months ended June 30, 2008 and 2007 to its
U.S. defined benefit plans and $0.8 million and $1.2 million to its non-U.S. defined benefit
plan during the six months ended June 30, 2008 and 2007, respectively.
6. FINANCIAL ASSETS AND LIABILITIES
On June 27, 2008 the Company sold approximately 50% of its municipal leasing portfolio to Banc
of America Public Capital Corp. for proceeds of $53.5 million, which approximated book value.
On the same day, the Company paid down its borrowings under the loan agreement with Banc of
America Leasing & Capital, LLC in the amount of $46.7 million.
7. DISCONTINUED OPERATIONS
The following table presents the operating results of the Company’s discontinued operations for
the three and six month periods ended June 30, 2008 and 2007:
E-ONE (Fire Rescue Segment)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Six months ended |
|
| |
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net sales |
|
$ |
77.7 |
|
|
$ |
43.5 |
|
|
$ |
130.9 |
|
|
$ |
91.3 |
|
Costs and expenses |
|
|
(80.5 |
) |
|
|
(47.2 |
) |
|
|
(139.8 |
) |
|
|
(98.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(2.8 |
) |
|
|
(3.7 |
) |
|
|
(8.9 |
) |
|
|
(7.5 |
) |
Income tax benefit |
|
|
3.4 |
|
|
|
1.5 |
|
|
|
5.8 |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations |
|
$ |
0.6 |
|
|
$ |
(2.2 |
) |
|
$ |
(3.1 |
) |
|
$ |
(4.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Die & Mold Operations (Tool Segment)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Six months ended |
|
| |
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net sales |
|
$ |
8.3 |
|
|
$ |
29.4 |
|
|
$ |
39.6 |
|
|
$ |
59.6 |
|
Costs and expenses |
|
|
(8.4 |
) |
|
|
(27.8 |
) |
|
|
(38.3 |
) |
|
|
(55.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(0.1 |
) |
|
|
1.6 |
|
|
|
1.3 |
|
|
|
3.8 |
|
Income tax expense |
|
|
(0.1 |
) |
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income on discontinued operations |
|
$ |
(0.2 |
) |
|
$ |
0.9 |
|
|
$ |
0.6 |
|
|
$ |
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refuse and Cutting Tool Operations (ESG and Tool Segments)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Six months ended |
|
| |
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3.0 |
|
Costs and expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income on discontinued operations |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
On April 21, 2008, the Company completed the sale of Dayton Progress Corporation (excluding
Dayton Hong Kong) and its subsidiary, PCS Company, referred to collectively as “Die and Mold
Operations” for $64.3 million. For the three month period ended June 30, 2008, the after-tax
loss on disposal was $2.4 million, primarily due to curtailment/settlement charges in relation
to the defined benefit pension plan as discussed in Note 5. The after-tax loss on disposal for
the six month period ended June 30, 2008 was $29.5 million primarily due to asset impairments;
included in the loss on disposal is the remaining goodwill of the Tool Group of $55.8 million.
The Company has also decided to close the Dayton Hong Kong operation
incurring a $0.4 million and $5.0
million impairment charge related to this business for the three and six month periods ended
June 30, 2008, respectively. The Die and Mold operations produced special precision
perforating components for metal stamping applications and tooling components for the plastic
injection mold and the die cast industries. Sale proceeds have been used to repay debt.
On July 16, 2008 the Company announced that it has signed a definitive agreement to sell E-ONE,
located in Ocala, Florida for approximately $20.0 million subject to a working capital
adjustment. The sale is expected to be completed in the third quarter of 2008. The after-tax loss on the sale for the six
month period ended June 30, 2008 of $77.1 million, related primarily to after-tax impairment
charges that reflect the estimate of fair value of the net assets and the impairment of $6.2
million of goodwill attributable to the E-ONE business.
On January 31, 2007, the Company completed the sale of Manchester Tool Company, On Time
Machining Company and Clapp Dico, referred to collectively as the “Cutting Tool Operations” for
$65.4 million resulting in a $24.5 million net gain on disposal of discontinued operations for
the six months ended June 30, 2007.
In December 2005, the Company determined that its investment in the Refuse business operating
under the Leach brand name, was no longer strategic. The majority of the assets of the
business have been sold since that time and the operation has been shut down. In the period
ended June 30, 2008 the Company recorded an after-tax gain of $3.5 million primarily related to
a revision in the estimate of product liability reserves.
The following table shows an analysis of assets and liabilities of discontinued operations as
of June 30, 2008 and December 31, 2007:
| |
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
December 31, |
|
| ($ in millions) |
|
2008 |
|
|
2007 |
|
Current assets |
|
$ |
33.3 |
|
|
$ |
129.4 |
|
Properties and equipment |
|
|
11.2 |
|
|
|
38.0 |
|
Long-term assets |
|
|
— |
|
|
|
64.4 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
44.5 |
|
|
$ |
231.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
52.9 |
|
|
$ |
49.8 |
|
Long-term liabilities |
|
|
10.5 |
|
|
|
23.0 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
63.4 |
|
|
$ |
72.8 |
|
|
|
|
|
|
|
|
The reduction in asset values is primarily related to the asset impairment charges discussed in
the previous paragraphs of this Note 7.
8. LEGAL PROCEEDINGS
The Company is subject to various claims, other pending and possible legal actions for product
liability and other damages and other matters arising out of the conduct of the Company’s
business. The Company believes, based on current knowledge and after consultation with counsel,
that the outcome of such claims and actions will not have a material adverse effect on the
Company’s consolidated financial position or the results of operations. However, in the event
of unexpected future developments, it is possible that the ultimate resolution of such matters,
if unfavorable, could have a material adverse effect on the Company’s results of operations.
The Company has been sued in Chicago, Illinois by firefighters seeking damages claiming that
exposure to the Company’s sirens has impaired their hearing and that the sirens are therefore
defective. There are presently 33 cases filed during the period 1999-2004, involving a total of
2,443 plaintiffs pending in the Circuit Court of Cook County, Illinois. The trial of the first
27 of these
plaintiffs’ claims began on March 18, 2008 and ended on April 25, 2008, when a Cook County jury
returned a unanimous verdict in favor of the Company and absolved the Company of any liability
for all 27 of these claims, which had been consolidated for trial.
Since the first trial concluded, the court has dismissed another 40
cases which had been selected for trial in September 2008. The next
trial of another sub-group of 40 Chicago firefighter plaintiffs is
scheduled for January 5, 2009. Additional trial dates of Chicago
plaintiff firefighters are scheduled during 2009 and 2010.
11
Federal Signal has been sued outside of the Cook County venue. To date, 17 plaintiffs have
filed 13 lawsuits in 8 jurisdictions in three states. With the exception of the four
plaintiffs who have filed suit in New Jersey, all plaintiffs have stipulated to or claimed less
than $75,000 in damages. Four cases in the Supreme Court of Kings County, New York were
dismissed on January 25, 2008 after the court granted Federal Signal’s motion to dismiss which
eliminated all claims pending in New York. Plaintiffs have filed a notice of appeal regarding
this ruling. During May, 2008 all seven plaintiffs who had filed claims against the Company in
Missouri voluntarily dismissed their claims. The three states in which plaintiffs currently
have filings include the following: Maryland (Circuit Courts for Baltimore City, Montgomery
County and Prince George’s County); New Jersey (Bergen, Essex, Hudson and Passaic Counties);
and Pennsylvania (Court of Common Pleas of Philadelphia County). The Company intends to
vigorously defend all of these lawsuits. The Company successfully defended approximately 41
similar cases in Philadelphia, Pennsylvania in 1999 resulting in a series of unanimous jury
verdicts in favor of the Company.
Federal Signal’s ongoing negotiations with CNA over insurance coverage resulted in an agreement
under which CNA reimbursed $3.7 million to the Company during the year ended December 31, 2007
for past defense costs. CNA has agreed to cover a percentage of current defense costs
amounting to $0.5 million for the quarter ended June 30, 2008 and $1.4 million for the six
months ended June 30, 2008.
9. SEGMENT INFORMATION
The following table summarizes the Company’s operations by segment for the three and six month
periods ended June 30, 2008 and 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety and Security Systems |
|
$ |
94.8 |
|
|
$ |
95.9 |
|
|
$ |
185.6 |
|
|
$ |
174.5 |
|
Fire Rescue |
|
|
42.5 |
|
|
|
30.7 |
|
|
|
66.8 |
|
|
|
51.3 |
|
Environmental Solutions |
|
|
117.0 |
|
|
|
116.6 |
|
|
|
230.0 |
|
|
|
230.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
254.3 |
|
|
$ |
243.2 |
|
|
$ |
482.4 |
|
|
$ |
456.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety and Security Systems |
|
$ |
10.9 |
|
|
$ |
14.3 |
|
|
$ |
19.2 |
|
|
$ |
23.8 |
|
Fire Rescue |
|
|
4.3 |
|
|
|
3.6 |
|
|
|
6.3 |
|
|
|
5.3 |
|
Environmental Solutions |
|
|
11.2 |
|
|
|
11.1 |
|
|
|
21.0 |
|
|
|
21.2 |
|
Corporate expense |
|
|
(7.7 |
) |
|
|
(6.4 |
) |
|
|
(15.1 |
) |
|
|
(10.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
18.7 |
|
|
$ |
22.6 |
|
|
$ |
31.4 |
|
|
$ |
39.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
June 30, 2008 |
|
|
December 31, 2007 |
|
Identifiable assets |
|
|
|
|
|
|
|
|
Manufacturing activities |
|
|
|
|
|
|
|
|
Safety and Security Systems |
|
$ |
422.2 |
|
|
$ |
419.1 |
|
Fire Rescue |
|
|
135.1 |
|
|
|
120.7 |
|
Environmental Solutions |
|
|
226.1 |
|
|
|
212.5 |
|
Corporate |
|
|
61.4 |
|
|
|
49.2 |
|
|
|
|
|
|
|
|
Total manufacturing activities |
|
|
844.8 |
|
|
|
801.5 |
|
Assets of discontinued operations |
|
|
44.5 |
|
|
|
231.8 |
|
Financial services activities |
|
|
|
|
|
|
|
|
Fire Rescue |
|
|
43.7 |
|
|
|
98.8 |
|
Environmental Solutions |
|
|
9.3 |
|
|
|
14.1 |
|
Corporate |
|
|
18.3 |
|
|
|
33.9 |
|
|
|
|
|
|
|
|
Total financial services activities |
|
|
71.3 |
|
|
|
146.8 |
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
960.6 |
|
|
$ |
1,180.1 |
|
|
|
|
|
|
|
|
10. COMMITMENTS AND GUARANTEES
The Company issues product performance warranties to customers with the sale of its products.
The specific terms and conditions of these warranties vary depending upon the product sold and
country in which the Company conducts business, with warranty periods generally ranging from 6
months to 5 years. The Company estimates the costs that may be incurred under its basic
limited warranty and records a liability in the amount of such costs at the time the sale of
the related product is recognized.
12
Factors that affect the Company’s warranty liability include
the number of units under warranty from time to time, historical and anticipated rates of
warranty claims and costs per claim. The Company periodically assesses the adequacy of its
recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company’s warranty liabilities for the six month period ended June 30, 2008 and
2007 were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Six months ended June 30, |
|
| |
|
2008 |
|
|
2007 |
|
Balance at January 1 |
|
$ |
5.9 |
|
|
$ |
5.1 |
|
Provisions to expense |
|
|
3.8 |
|
|
|
3.8 |
|
Actual costs incurred |
|
|
(3.5 |
) |
|
|
(3.3 |
) |
|
|
|
|
|
|
|
Balance at June 30 |
|
$ |
6.2 |
|
|
$ |
5.6 |
|
|
|
|
|
|
|
|
The Company guarantees the debt of a joint venture in China up to a maximum of $12.5 million.
The outstanding amount of the guaranteed debt as of June 30, 2008 was $8.9 million. No
losses have been incurred as of June 30, 2008.
The Company also provides residual value guarantees on vehicles sold to certain customers.
Proceeds received in excess of the fair value of the guarantee are deferred and amortized
into income ratably over the life of the guarantee. The Company recorded these transactions
as operating leases and recognized liabilities equal to the fair value of the guarantees.
The notional amounts of the residual value guarantees totaled $2.3 million as of June 30,
2008. No losses have been incurred as of June 30, 2008. The guarantees expire between 2008
and 2010.
The Dallas Fort Worth (“DFW”) airport has given Federal APD notices of non-performance and
default, most recently in March 2008, regarding the $18.0 million contract for installation
of a new parking and revenue control system at the airport, and DFW has demanded that Federal
APD cure its alleged non-performance. DFW also provided a copy of the non-performance and
default letters to the Company’s surety carrier. The most recent non-performance and default
claim relates principally to certain disagreements as to the timeliness of certain work under
the contract and whether certain of Federal APD’s work has complied with contract
specifications. DFW has threatened to pursue all available legal remedies if Federal APD
does not cure the alleged default, including termination of the contract. The 30 day cure
period stated in the March 2008 notice has passed, but the airport has not yet provided a
formal notice of termination. Federal APD disputes that there was any basis under the
contract for the non-performance or default as alleged by DFW and also disputes that DFW is
entitled to terminate the contract for cause and asserts that it is entitled to damages as a
result of DFW’s conduct. The Company has provided appropriate
reserves in relation to this contract.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
For assets and liabilities measured at fair value on a recurring basis during the period under
the provisions of FAS 157, the Company uses an income approach to value the assets and
liabilities for outstanding derivative contracts which include interest rate swap and foreign
currency forward contracts. These contracts are valued using an income approach which consists
of a discounted cash flow model that takes into account the present value of future cash flows
under the terms of the contracts using current market information as of the reporting date such
as prevailing interest rates and foreign currency spot and forward rates. As noted in Note 2,
the Company has adopted the provisions of FAS 157 with respect to its financial assets and
liabilities that are measured at fair value within the condensed consolidated financial
statements. The Company has deferred the application of the provisions of this statement to its
non-financial assets and liabilities in accordance with FSP 157-b. The following table provides
a summary of the fair values of assets and liabilities under FAS 157:
13
Assets
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Fair Value Measurements at June 30, 2008 |
|
| |
|
|
|
|
|
Quoted Prices in Active |
|
|
Significant Other |
|
|
Significant |
|
| |
|
|
|
|
|
Markets for Identical |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
| |
|
Total |
|
|
Assets (Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Derivatives |
|
$ |
0.3 |
|
|
$ |
— |
|
|
$ |
0.3 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Fair Value Measurements at June 30, 2008 |
|
| |
|
|
|
|
|
Quoted prices in Active |
|
|
Significant Other |
|
|
Significant |
|
| |
|
|
|
|
|
Markets for Identical |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
| |
|
Total |
|
|
Assets (Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Derivatives |
|
$ |
(6.0 |
) |
|
$ |
— |
|
|
$ |
(6.0 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued FAS No. 141 (revised 2007), “Business Combinations”
(“FAS 141(R)”), which expands the definition of a business and a business combination, requires
the fair value of the purchase price of an acquisition including the issuance of equity
securities to be determined on the acquisition date, requires that all assets, liabilities,
contingent consideration, contingencies and in-process research and development costs of an
acquired business be recorded at fair value at the acquisition date, requires that acquisition
costs generally be expensed as incurred, requires that restructuring costs generally be
expensed in periods subsequent to the acquisition date, and requires changes in accounting for
deferred tax asset valuation allowances and acquired income tax uncertainties after the
measurement period to impact income tax expense. The Company will be required to adopt
FAS 141(R) on January 1, 2009. The Company is currently evaluating what impact, if any, FAS
141(R) will have on its consolidated financial statements.
In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51” (“FAS 160”), which changes the accounting
and reporting for minority interests such that minority interests will be recharacterized as
noncontrolling interests and will be required to be reported as a component of equity, and
requires that purchases or sales of equity interests that do not result in a change in
control be accounted for as equity transactions and, upon a loss of control, requires the
interest sold, as well as any interest retained, to be recorded at fair value with any gain
or loss recognized in earnings. The Company will be required to adopt FAS 160 on January 1,
2009. The Company does not expect FAS 160 to have a material impact to its results of
operations or financial position.
In March 2008, the FASB issued Statement of FAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FAS 133” (“FAS 161”). This new standard
requires enhanced disclosures for derivative instruments, including those used in hedging
activities. It is effective for fiscal years and interim periods beginning after November 15,
2008, and will be applicable to the Company in the first quarter of fiscal 2009. The Company is
currently evaluating what impact, if any, FAS 161 will have on its consolidated financial
statements.
13. SUBSEQUENT EVENTS
In July 2008, the Company entered into sale-leaseback transactions for its Elgin and University
Park plant locations. Proceeds received were $37.2 million resulting in an estimated deferred
gain of $29.0 million. The deferred gain will be amortized over the 15-year life of the
respective leases. The proceeds have been used to pay down debt.
There have been no material changes in total assets from the amount disclosed in the Company’s last
annual report.
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Federal Signal Corporation (the “Company”) manufactures safety, signaling and communication
equipment and systems; articulated aerial devices and a broad range of municipal and industrial
cleaning vehicles. To achieve technology, marketing, distribution and product application
synergies, the Company’s business units are organized and managed in three operating segments:
Safety and Security Systems, Fire Rescue and Environmental Solutions. The Company also provides
customer and dealer financing to support the sale of vehicles and products.
Consolidated Results of Operations
The following table presents the Company’s results of operations for the three and six month
periods ended June 30, 2008 and 2007, respectively (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Six months ended |
|
| |
|
June 30, |
|
|
June 30, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net sales |
|
$ |
254.3 |
|
|
$ |
243.2 |
|
|
$ |
482.4 |
|
|
$ |
456.2 |
|
Cost of sales |
|
|
(186.4 |
) |
|
|
(176.2 |
) |
|
|
(354.6 |
) |
|
|
(333.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
67.9 |
|
|
|
67.0 |
|
|
|
127.8 |
|
|
|
122.6 |
|
Operating expenses |
|
|
(49.2 |
) |
|
|
(44.4 |
) |
|
|
(96.4 |
) |
|
|
(83.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
18.7 |
|
|
|
22.6 |
|
|
|
31.4 |
|
|
|
39.4 |
|
Interest expense |
|
|
(5.5 |
) |
|
|
(5.7 |
) |
|
|
(12.3 |
) |
|
|
(11.8 |
) |
Other expense, net |
|
|
(1.4 |
) |
|
|
(0.4 |
) |
|
|
(1.9 |
) |
|
|
(0.7 |
) |
Income tax expense |
|
|
(3.8 |
) |
|
|
(4.3 |
) |
|
|
(4.9 |
) |
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
8.0 |
|
|
|
12.2 |
|
|
|
12.3 |
|
|
|
19.4 |
|
(Loss) gain from discontinued operations
and disposal, net of tax |
|
|
(21.4 |
) |
|
|
(1.1 |
) |
|
|
(110.6 |
) |
|
|
22.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(13.4 |
) |
|
$ |
11.1 |
|
|
$ |
(98.3 |
) |
|
$ |
41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
7.4 |
% |
|
|
9.3 |
% |
|
|
6.5 |
% |
|
|
8.6 |
% |
Earnings per share – continuing operations |
|
$ |
0.17 |
|
|
$ |
0.25 |
|
|
$ |
0.26 |
|
|
$ |
0.40 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
Six months ended |
| |
|
June 30, |
|
June 30, |
| |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Analysis of orders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total orders |
|
$ |
261.4 |
|
|
$ |
239.3 |
|
|
$ |
513.8 |
|
|
$ |
509.2 |
|
Change in orders year over year |
|
|
9 |
% |
|
|
|
|
|
|
1 |
% |
|
|
|
|
Change in US municipal and government orders year over year |
|
|
6 |
% |
|
|
|
|
|
|
(3 |
)% |
|
|
|
|
Change in US industrial and commercial orders year over year |
|
|
(6 |
)% |
|
|
|
|
|
|
(5 |
)% |
|
|
|
|
Change in non-US orders year over year |
|
|
20 |
% |
|
|
|
|
|
|
7 |
% |
|
|
|
|
The sales increase of 5% in the second quarter of 2008 compared to the same quarter of 2007 is
attributable to shipments of higher value Fire Rescue products and favorable foreign currency
movement across all segments. Net sales were relatively flat in the quarter across the Safety and
Security Systems and Environmental Solutions segments. In the six months ended June 30, 2008 as
compared to 2007, net sales increased 6% due to increases in Fire Rescue and Safety and Security
Systems products.
The operating income decline of $3.9 million in the second quarter of 2008 compared to the second
quarter of 2007 was driven by increased operating expenses primarily due to increased expenses
associated with the ongoing firefighters hearing loss litigation and trial of $3.7 million. Year to
date operating income decreased $8.0 million due to increases in the hearing loss litigation of
$6.8 million, provisions relating to a disputed contract, and $0.4 million of severance costs
related to cost reduction efforts.
15
Interest expense decreased in the second quarter of 2008 to $5.5 million compared to $5.7 million
in the same quarter last year due to lower average borrowings. For the six months ended June 30,
2008 interest expense was $12.3 million compared to $11.8 million in the same period in 2007, due
to higher borrowings primarily to fund the acquisition of PIPS Technologies in the third quarter of
2007.
The Company’s effective tax rate on earnings from continuing operations was 32.3% and 26.0% for the
three months ended June 30, 2008 and 2007, respectively. The higher tax rate reflects a decreased
benefit from foreign tax rate effects and a decrease in the benefit of tax-exempt interest.
Income from continuing operations was $8.0 million for the quarter ended June 30, 2008 versus $12.2
million for the comparable period in 2007 reflecting increased operating expenses and a higher tax
rate. For the six month period ended June 30, 2008, income from continuing operations decreased
$7.1 million from the prior year period.
For the quarter ended June 30, 2008 a loss on discontinued operations and disposals of $21.4
million was recorded, primarily as a result of an additional adjustment to recognize the impairment
of assets of $18.7 million at E-ONE. For the six month period ended June 30, 2008, there was a net
loss $110.6 million on discontinued operations relating primarily to the impairment of assets of
the Die & Mold and E-ONE operations.
For the six month period ended June 30, 2007, after completion of the sale of the cutting tool
operations in the first quarter of 2007, and substantial completion of the wind-down of the refuse
business, the Company realized a net after-tax gain on the sale of previously discontinued
operations of $24.6 million.
Diluted earnings per share from continuing operations decreased 32% to $0.17 for the quarter ended
June 30, 2008. For the six months ended June 30, 2008, earnings per share from continuing
operations decreased 35%.
Orders and Backlog
Orders increased 9% over the second quarter of 2007 due to the acquisition in the third quarter of
2007 of PIPS Technologies, a manufacturer of automated license plate recognition (“ALPR”) cameras,
strong US export orders and an increase in municipal and government orders and currency effects
from the weaker US dollar. These increases more than offset a decline in US industrial and
commercial orders for sweepers. Year to date orders are up 1% over 2007 with US exports, currency,
sales of ALPR cameras and international sales demand more than offsetting decreases in the US
markets.
The second quarter increase in US municipal and government orders from the year ago comparable
period came primarily as a result of increased sales of sweepers, and warning systems offset by a
$5.3 million decline in police products. The decline in US industrial and commercial orders
compared to the prior year quarter was caused by declines in environmental products of $1.5
million, safety and security solutions products of $1.1 million and in aerial apparatus of $0.7
million. Year to date industrial and commercial orders decreased 5% over 2007 driven by sweepers
and vacuum trucks which were down $10.0 million, partially offset by aerial devices which were up
$3.3 million.
The 20% increase in orders from non-US markets in the second quarter of 2008 was due to increased
international demand across all product segments, particularly for aerial apparatus, $7.6 million,
sewer cleaners, $3.7 million and ALPR cameras, $3.2 million.
Backlog at $375 million increased 22% over the same period in 2007, as the continued strong demand
for Bronto aerial devices and orders for ALPR cameras and sewer cleaners more than offset a
decrease in police product orders.
Safety and Security Systems
The following table summarizes the Safety and Security Systems Group’s operating results for the
three and six month periods ended June 30, 2008 and 2007, respectively (dollars in millions):
16
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
Six months ended |
| |
|
June 30, |
|
June 30, |
| |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Total orders |
|
$ |
98.7 |
|
|
$ |
93.0 |
|
|
$ |
194.6 |
|
|
$ |
190.9 |
|
US orders |
|
|
54.5 |
|
|
|
54.9 |
|
|
|
109.5 |
|
|
|
112.4 |
|
Non-US orders |
|
|
44.2 |
|
|
|
38.1 |
|
|
|
85.1 |
|
|
|
78.5 |
|
Net sales |
|
|
94.8 |
|
|
|
95.9 |
|
|
|
185.6 |
|
|
|
174.5 |
|
Operating income |
|
|
10.9 |
|
|
|
14.3 |
|
|
|
19.2 |
|
|
|
23.8 |
|
Operating margin |
|
|
11.5 |
% |
|
|
14.9 |
% |
|
|
10.3 |
% |
|
|
13.6 |
% |
A 6% increase in orders over the second quarter of 2007 was mostly related to orders for warning
systems, electrical products and ALPR cameras relating to the PIPS business acquired in the third
quarter of 2007. US orders remained relatively flat from the prior year as the increase in
municipal and government orders offset the decrease in US industrial orders. Non-US orders
increased 16% over the prior year, most significantly in police products and ALPR cameras. Year to
date, orders increased slightly over 2007.
Net sales were relatively flat compared to the second quarter of 2007 due to absence of large
police product export orders, which occur irregularly, and lower US sales of police products due to
municipal budget pressures and an interruption in police car conversions triggered by an automotive
supplier strike. Offsetting these factors were the addition of sales of ALPR cameras due to the
PIPS acquisition in 2007. Net sales increased 6% in the six month period ended June 30, 2008 with
improvements in parking systems, warning sirens and the addition of ALPR cameras, offset by a
decrease in police products.
Operating income and margins decreased in the second quarter of 2008 from the comparable period in
2007 primarily due to the decline in sales of high margin domestic and international police
products, a $0.7 million inventory write off in a satellite location and expenses incurred to build
out the sales and engineering organization for the newly created Public Safety Systems division.
Year to date, the operating margin and income declined mainly due to costs associated with the
start up of the safety systems sales business and the decline in police product sales.
Fire Rescue
The following table summarizes the Fire Rescue Group’s operating results for the three and six
month periods ended June 30, 2008 and 2007, respectively (dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended June 30, |
|
Six months ended June 30, |
| |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Total orders |
|
$ |
44.8 |
|
|
$ |
38.2 |
|
|
$ |
103.8 |
|
|
$ |
99.7 |
|
US orders |
|
|
1.2 |
|
|
|
2.2 |
|
|
|
6.5 |
|
|
|
3.7 |
|
Non-US orders |
|
|
43.6 |
|
|
|
36.0 |
|
|
|
97.3 |
|
|
|
96.0 |
|
Net sales |
|
|
42.5 |
|
|
|
30.7 |
|
|
|
66.8 |
|
|
|
51.3 |
|
Operating income |
|
|
4.3 |
|
|
|
3.6 |
|
|
|
6.3 |
|
|
|
5.3 |
|
Operating margin |
|
|
10.1 |
% |
|
|
11.7 |
% |
|
|
9.4 |
% |
|
|
10.3 |
% |
Segment results have been restated to exclude the results of E-ONE Operations, which have been
presented as discontinued operations.
Orders were 17% above the prior year second quarter assisted by the strong euro currency. Demand
for Bronto articulated aerial devices continues to be relatively high in international markets and
significantly above the current production rate. The operation is in the process of a 40% capacity
expansion which will come on line in the third quarter and help meet the increased demand.
Net sales in the second quarter increased 38% from the comparable quarter in 2007 as a result of
improved shipments against the strong backlog and a favorable foreign currency impact. Year to
date net sales increased 30% over the same period in 2007.
Operating income increased 19% as compared to the second quarter of 2007 and for the six months
ended June 30, 2007, largely as a result of the higher sales and favorable currency movements.
Operating margin declined over the comparable periods as the benefits of increased sales volumes
and better pricing was offset by increased component and sub-contractor
17
costs and a lower margin
sales mix.
Environmental Solutions
The following table summarizes the Environmental Solutions Group’s operating results for the three
and six month periods ended June 30, 2008 and 2007, respectively (dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended June 30, |
|
Six months ended June 30, |
| |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Total orders |
|
$ |
117.9 |
|
|
$ |
108.1 |
|
|
$ |
215.4 |
|
|
$ |
218.6 |
|
US orders |
|
|
78.4 |
|
|
|
76.0 |
|
|
|
150.4 |
|
|
|
161.6 |
|
Non-US orders |
|
|
39.5 |
|
|
|
32.1 |
|
|
|
65.0 |
|
|
|
57.0 |
|
Net sales |
|
|
117.0 |
|
|
|
116.6 |
|
|
|
230.0 |
|
|
|
230.4 |
|
Operating income |
|
|
11.2 |
|
|
|
11.1 |
|
|
|
21.0 |
|
|
|
21.2 |
|
Operating margin |
|
|
9.6 |
% |
|
|
9.5 |
% |
|
|
9.1 |
% |
|
|
9.2 |
% |
Orders of $117.9 million in the second quarter of 2008 were 9% above the prior year quarter. In US
municipal and government markets, orders increased 8% from the same period last year, with
increases in sweepers and parts orders which had been very weak in the first quarter. In US
industrial markets, orders declined 6% due to the timing of large orders compared to the second
quarter of 2007. Non-US orders increased 23% due to a large sewer cleaner order for Mexico. Year
to date orders remained relatively flat as compared to the prior year with the decrease in US
orders of 7% being offset by an increase in non-US orders of 14%. `
Net sales remained flat compared to the second quarter in 2007 as the decrease in sweeper sales
offset the increases in sewer cleaners and industrial vacuums as well as higher pricing on products
sold and a favorable foreign currency impact. Year to date net sales were also flat versus the
prior year.
In the second quarter and year-to-date periods, operating income and operating margin remained
relatively flat compared to the same prior year periods.
Corporate Expenses
Corporate expenses increased to $7.7 million for the second quarter of 2008 compared to $6.4
million in the second quarter of 2007. The increase is due to $3.7 million of higher legal and
trial costs associated with the Company’s ongoing firefighter hearing loss litigation partially
offset by a decrease of $1.1 million in workers compensation and casualty expenses and the impact
of cost reductions. Corporate expenses for the six months ended June 30, 2008 were $15.1 million
and $10.9 million for the comparable period in 2007 with the increase being due to $6.8 million of
increased hearing loss expense partially offset by other cost reductions.
Discontinued Operations
On April 21, 2008, Dayton Progress Corporation (excluding Dayton Hong Kong) and PCS Corporation,
referred to collectively as the “Die and Mold Operations” were sold. The Company has also decided
to close Dayton Hong Kong. The closure will be completed in 2008. These operations are included
as discontinued operations for all periods presented. Previously, the Die and Mold Operations were
included in the Company’s Tool Segment.
On July 16, 2008 the Company announced that it had signed a definitive agreement to sell E-ONE,
located in Ocala, Florida for approximately $20.0 million subject to a working capital adjustment.
E-ONE manufactures a broad range of fire apparatus and mission critical vehicles. These operations
are included as discontinued operations for all periods presented. Previously E-ONE Operations
were included in the Company’s Fire Rescue Segment.
Also included as discontinued operations, is the Company’s investment in the Refuse business,
operating under the Leach brand name. The majority of the assets of this business have been sold,
and the operation was closed in 2006.
For the quarter ended June 30, 2008 a loss on discontinued operations and disposals of $21.4
million was recorded,
18
primarily as a result of an additional adjustment to recognize the impairment
of assets of $18.7 million at E-ONE. For the six month period ended June 30, 2008, there was a net
loss $110.6 million on discontinued operations relating primarily to the impairment of assets of
the Die & Mold and E-ONE operations.
There was a net gain of $22.3 million on discontinued operations for the six month period ended
June 30, 2007 primarily relating to the sale of the Cutting Tool operations.
Seasonality of Company’s Business
Certain of the Company’s businesses are susceptible to the influences of seasonal buying or
delivery patterns. The Company’s businesses which tend to have lower sales in the first calendar
quarter compared to other quarters as a result of these influences are street sweeping, aerial
equipment, outdoor warning, emergency signaling products and parking systems.
Financial Position, Liquidity and Capital Resources
The Company utilizes its operating cash flow and available borrowings under its revolving credit
facility for working capital needs of its operations, capital expenditures, strategic acquisitions
of companies operating in markets related to those already served, pension contributions, debt
repayments, share repurchases and dividends. The Company anticipates that its financial resources
and major sources of liquidity, including cash flow from operations and borrowing capacity, will
continue to be adequate to meet its operating and capital needs in addition to its financial
commitments.
The following table summarizes the Company’s cash flows for the six month periods ended June 30,
2008 and 2007, respectively (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
Six months ended June 30, |
|
| |
|
2008 |
|
|
2007 |
|
Operating cash flow |
|
$ |
85.9 |
|
|
$ |
18.0 |
|
Investing, net |
|
|
37.1 |
|
|
|
38.1 |
|
Debt repayments, net |
|
|
(107.7 |
) |
|
|
(50.1 |
) |
Dividends |
|
|
(5.8 |
) |
|
|
(5.7 |
) |
Purchases of treasury stock |
|
|
(6.0 |
) |
|
|
— |
|
Other, net |
|
|
0.6 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
$ |
4.1 |
|
|
$ |
0.9 |
|
|
|
|
|
|
|
|
Cash provided by operations totaled $74.6 million in the second quarter of 2008 and $85.9 million
year to date. The increase was primarily attributable to the sale of 50% of the Company’s
municipal leasing portfolio for $53.5 million. Discontinued operations used $0.6 million in cash
versus $9.7 million primarily related to a build of inventory in the comparable prior year quarter.
During the second quarter of 2008, the Company completed the sale of the “Die and Mold Operations”,
previously included in the Company’s Tool segment discontinued operations, for $64.3 million in
gross cash proceeds. The proceeds from the sale were used to reduce debt. In the prior year, cash
flow from investing activities included the receipt of $65.4 million following the completion of
the sale of the “Cutting Tool Operations”, previously included in the Company’s discontinued
operations. Proceeds from the sale were used in part to acquire a Michigan-based software company,
“Codespear” for $16.6 million, and to reduce debt.
Cash balances at June 30, 2008 totaled $16.6 million, up from $12.5 million at year-end 2007.
Manufacturing debt net of cash as a percentage of capitalization was 41.4% at June 30, 2008, versus
38.8% at the end of the 2007.
At June 30, 2008, $80.8 million was drawn against the Company’s $250.0 million revolving credit
line, and the Company was in compliance with all debt covenants.
19
Contractual Obligations and Commercial Commitments
Short-term borrowings increased $0.9 million to $3.5 million at June 30, 2008 from $2.6 million at
December 31, 2007. Total long-term borrowings decreased to $317.7 million from
$423.5 million at December 31, 2007. See the Financial Condition, Liquidity and Cash Flow section
of this report for more information. There have been no
other significant changes in the first six months of 2008 to the Company’s contractual obligations
and commercial commitments as summarized in the Management’s Discussion and Analysis of Financial
Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and subsequent Form 10-Q for the quarter ended March 31, 2008.
Changes to the Company’s accrual for product warranty claims in the first six months of 2008 is
discussed in Note 10.
20
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 and option contracts. The Company does not hold or issue derivative financial
instruments for trading or speculative purposes and is not party to leveraged derivatives.
The Company manages its exposure to interest rate movements by maintaining a proportionate
relationship between fixed-rate debt to total debt within established percentages. The Company uses
funded fixed and floating-rate borrowings as well as interest rate swap agreements to balance its
overall fixed-to-floating interest rate mix.
Of the Company’s debt at June 30, 2008, $66.9 million was used to support financial services
assets.
The Company also has foreign exchange exposures related to buying and selling in currencies other
than the local currency in which it operates. The Company utilizes foreign currency forward
contracts to manage risks associated with sales and purchase commitments as well as forecasted
transactions denominated in foreign currencies.
The information contained in Note 10, “Commitments and Guarantees” to the Condensed Consolidated
Financial Statements of this Form 10-Q discusses the changes in the Company’s exposure to market
risk during the six month period ended June 30, 2008. For additional information, refer to the
discussion contained under the caption “Market Risk Management” included in Item 7 of the Company’s
Form 10-K for the year ended December 31, 2007.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, the Company’s management,
with the participation of the Company’s interim Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure
controls and procedures as of June 30, 2008. Based on that evaluation, the Company’s interim Chief
Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective as of June 30, 2008. As a matter of practice, the Company’s management
continues to review and document disclosure controls and procedures, including internal controls
and procedures for financial reporting. From time to time, the Company may make changes aimed at
enhancing the effectiveness of the controls and to ensure that the systems evolve with the
business. During the quarter ended June 30, 2008, there were no changes in the Company’s internal
control over financial reporting that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
The information is set forth in Footnote 8 and Footnote 10 of the financial statements included in
Part I of this Form 10-Q are incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes in the risk factors described in Item 1A (“Risk Factors”) of
the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
On April 22, 2008, the Company’s Board of Directors approved a program to repurchase up to 450,000
shares before June 30, 2008. The repurchase plan was completed during the quarter ended June 30,
2008.
21
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Purchased as Part of |
|
|
Maximum Number of |
|
| |
|
Total Number of |
|
|
Average Price |
|
|
Publicly Announced |
|
|
Shares That May Yet |
|
| Period |
|
Shares Purchased (a) |
|
|
Paid per Share |
|
|
Plans |
|
|
Be Purchased |
|
| |
May, 2008 |
|
|
450,000 |
|
|
|
— |
|
|
|
450,000 |
|
|
|
|
|
| |
|
|
Total |
|
|
450,000 |
|
|
$ |
13.42 |
|
|
|
450,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 4. Submission of Matters to a Vote of Security Holders
On April 22, 2008, the Company held its annual meeting of stockholders at which the following
matters were presented to, and voted upon by the stockholders:
Election of Directors
Charles R. Campbell, Paul W. Jones, Brenda L. Reichelderfer, and Dennis J. Martin, each in
incumbent director of the Company, were each reelected to a new term to expire at the annual
meeting of stockholders in 2011. The vote with respect to each of the nominees was as follows:
| |
|
|
|
|
|
|
|
|
| Name of Director |
|
For |
|
Withhold Authority |
Charles R. Campbell |
|
|
34,268,130 |
|
|
|
4,008,700 |
|
Paul W. Jones |
|
|
33,976,470 |
|
|
|
4,300,360 |
|
Brenda L. Reichelderfer |
|
|
34,497,594 |
|
|
|
3,784,236 |
|
Dennis J. Martin |
|
|
37,148,415 |
|
|
|
1,128,415 |
|
James E. Goodwin, James C. Janning, John F. McCartney, Robert M. Gerrity and Robert S. Hamada also
serve as directors of the Company and each of their terms continued after the annual meeting of
stockholders.
Joseph R. Wright, Jr. was appointed to the Board of Directors on April 23, 2008.
Ratification of Independent Registered Public Accounting Firm for 2008
A proposal to ratify Ernst & Young LLP as the Company’s independent registered public accounting
firm for 2008 was presented to the stockholders at the annual meeting. The vote for and against and
the number of votes subject to abstention is disclosed below:
| |
|
|
|
|
|
|
|
|
| For |
|
Against |
|
Abstentions |
| |
37,786,463 |
|
|
435,989 |
|
|
|
54,466 |
|
Shareholder Proposal Relating to the Shareholder Approval of Future Severance Agreements
A shareholder proposal relating the shareholder approval of future severance agreements was
presented to the stockholders at the annual meeting. The vote for and against and the number of
votes subject to abstention is disclosed below:
| |
|
|
|
|
|
|
|
|
| For |
|
Against |
|
Abstentions |
| |
26,184,342 |
|
|
7,315,166 |
|
|
|
242,461 |
|
Item 5. Other Information.
On July 25, 2008, the Company issued a press release announcing its financial results for the three
and six months ended June 30, 2008. The full text of the press release is included as Exhibit 99.1
to this Form 10-Q.
On July 22, 2008, the Board of Directors approved amendments to the Company’s by-laws. Set forth
below is a summary
22
of the material amendments made to the existing by-laws of the Company. This summary is not
intended to be complete and is qualified in its entirety by the full text of the Amended and
Restated By-Laws, a copy of which is filed as Exhibit 3.b. to this Form 10-Q.
Section 2.2 Annual Meetings. This section has been revised to set the annual meeting of
stockholders on the fourth Friday in May of each year in the absence of a prior determination of a
different date by the Board of Directors.
Section 2.5 Business of Stockholder Meetings. This section replaces the prior advance notice
provision regarding stockholder proposals. For business to be properly brought before the annual
meeting, it must be (i) specified in the meeting notice given by the Board, (ii) otherwise properly
brought before the meeting by the Board, or (iii) otherwise properly brought before the meeting by
a stockholder of the Company who is a stockholder of record at the time of giving the required
notice, who is entitled to vote at the meeting, and who has complied with the applicable by-law
notice provisions. Generally, to be timely under the Company’s by-laws, a stockholder must give
proper notice not less than 90 days nor more than 120 days prior to the first anniversary of the
prior year’s annual meeting. Additionally, this section requires the provision of specific
information by the stockholder in its notice to the Company and the making of certain
representations to the Company in connection with each stockholder proposal including the
disclosure of all forms of ownership and all relationships and other agreements that attribute
equity or control votes to such stockholder including derivative positions. The notice provision
is applicable to all business to be brought before the meeting by a stockholder whether to be
included in the Company’s proxy statement, subject to independent proxy solicitation or presented
directly at the meeting.
Section 2.6 Notice of Stockholder Nominations. Board of director nominations may be made by the
Board of Directors or by any stockholder of the Company who is a stockholder of record at the time
of giving proper notice to the Company and who is entitled to vote in the election of directors.
Generally, timely notice by such a stockholder under the Company’s by-laws must be delivered not
less than 90 days nor more than 120 days prior to the first anniversary of the prior year’s annual
meeting or, with respect to an election to be held at a special meeting of stockholders, not
earlier than the 120th day prior to such special meeting and not later than the close of
business on the later of the 90th day prior to such special meeting or the
10th day following the day of public announcement of the date of the special meeting and
of the nominees to be elected. This section also requires the provision of specific information by
the stockholder in its notice to the Company and the making of certain representations to the
Company in connection with each director nomination including the disclosure of all forms of
ownership and all relationships and other agreements that attribute equity or control votes to such
stockholder including derivative positions. Stockholders seeking to nominate individuals as
directors may be required to supply a written questionnaire or agreement concerning the director
nominee. The notice provision is applicable to all stockholder nominations for director whether to
be included in the Company’s proxy statement, subject to independent proxy solicitation or
presented directly at the meeting.
Section 2.14 Meetings by Remote Communication. This provision has been added to allow the Board to
permit a meeting by remote communication consistent with applicable law.
Section 3.2 Number, Qualifications and Term of Office. This section has been revised to provide
that a decrease in the number of directors shall not shorten the term of any director serving at
the time of the reduction.
Section 4.1 Committees of the Board. This section was revised to provide that each committee of
the Board shall consist of at least three members of the Board.
Section 4.6 Audit Committee; Section 4.7 Compensation and Benefits Committee, and Section 4.8
Nominating and Governance Committee. These sections have been revised to clarify that committee
members must satisfy any Company requirements and those of applicable law including any
applicable listing requirements of any securities exchange upon which the Company’s securities are
listed.
Section 6.2 Exception to Right of Indemnification. This section has been added to clarify that
the Company shall not indemnify any director or officer for claims brought voluntarily by such
person except as is approved by the Board or to assert rights for indemnification under the
by-laws.
Section 6.4 Advance of Expenses. This section has been revised to provide for mandatory
reimbursement of defense expenses to directors and officers of the Company and to provide for
optional reimbursement of defense expenses to
23
employees and agents of the Company at the discretion of the Board.
Section 8.5 Record Date. This section has been revised to clarify the fixing of the record date by
the Board of Directors and to provide for a default record date when no record date has been set.
Section 9.3 Notices. This section has been updated to clarify the proper manner for the provision
of notice to directors and stockholders under the by-laws and to provide for electronic notice
consistent with applicable law.
Under applicable securities laws, in order to be considered for inclusion in the Company’s proxy
statement for the 2009 Annual Meeting of Stockholders, the Company must receive any stockholder
proposals on or before November 19, 2008.
Additionally, under the Company’s amended and restated by-laws, in order for any business to be
considered at the 2009 Annual Meeting, including any stockholder proposals that have been submitted
for inclusion in the Company’s proxy statement as set forth in the immediately preceding paragraph
or director nominations, we must receive information relating to such proposal or nomination by
January 22, 2009, but not before December 23, 2008, which is not less than 90 days nor more than
120 days prior to the anniversary date of the 2008 Annual Meeting. Any proposals which are not
received in accordance with the above standards will not be considered or voted on at the 2009
Annual Meeting.
24
Item 6. Exhibits
Exhibit 10.1 — Purchase Agreement (Elgin Sweeper)
Exhibit 10.2 — Guaranty Agreement (Elgin Sweeper)
Exhibit 10.3 — Purchase Agreement (E-ONE, NY)
Exhibit 10.4 — Guaranty Agreement (E-ONE, NY)
Exhibit 10.5 — Purchase Agreement (E-ONE)
Exhibit 10.6 — Guaranty Agreement (E-ONE)
Exhibit 10.7 — Purchase Agreement (Federal Signal)
Exhibit 10.8 — Purchase Agreement (FS Depot)
Exhibit 10.9 — Guaranty Agreement (FS Depot)
Exhibit 10.10 — Purchase Agreement (Vactor Manufacturing)
Exhibit 10.11 — Guaranty Agreement (Vactor Manufacturing)
Exhibit 10.12 — Federal Signal Purchase and Sale Agreement
Exhibit 10.13 — Federal Signal Lease (Elgin)
Exhibit 10.14 — Federal Signal Lease (University Park)
Exhibit 10.15 — Amended and Restated By-Laws of Federal Signal Corporation
Exhibit 31.1 — CEO Certification under Section 302 of the Sarbanes-Oxley Act
Exhibit 31.2 — CFO Certification under Section 302 of the Sarbanes-Oxley Act
Exhibit 32.1 — CEO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act
Exhibit 32.2 — CFO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act
Exhibit 99.1 — Press Release dated July 25, 2008
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
|
|
|
| |
Federal Signal Corporation
|
|
| Date: July 28, 2008 |
By: |
/s/ Stephanie K. Kushner
|
|
| |
|
Stephanie K. Kushner, Senior Vice President and Chief Financial Officer |
|
| |
|
|
|
26
EXHIBIT INDEX
Exhibit 10.1 — Purchase Agreement (Elgin Sweeper)
Exhibit 10.2 — Guaranty Agreement (Elgin Sweeper)
Exhibit 10.3 — Purchase Agreement (E-ONE, NY)
Exhibit 10.4 — Guaranty Agreement (E-ONE, NY)
Exhibit 10.5 — Purchase Agreement (E-ONE)
Exhibit 10.6 — Guaranty Agreement (E-ONE)
Exhibit 10.7 — Purchase Agreement (Federal Signal)
Exhibit 10.8 — Purchase Agreement (FS Depot)
Exhibit 10.9 — Guaranty Agreement (FS Depot)
Exhibit 10.10 — Purchase Agreement (Vactor Manufacturing)
Exhibit 10.11 — Guaranty Agreement (Vactor Manufacturing)
Exhibit 10.12 — Federal Signal Purchase and Sale Agreement
Exhibit 10.13 — Federal Signal Lease (Elgin)
Exhibit 10.14 — Federal Signal Lease (University Park)
Exhibit 10.15 — Amended and Restated By-Laws of Federal Signal Corporation
Exhibit 31.1 — CEO Certification under Section 302 of the Sarbanes-Oxley Act
Exhibit 31.2 — CFO Certification under Section 302 of the Sarbanes-Oxley Act
Exhibit 32.1 — CEO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act
Exhibit 32.2 — CFO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act
Exhibit 99.1 — Press Release dated July 25, 2008
27